Lenihan says State deficit fall by 2.2%

THE GOVERNMENT deficit is expected to drop from a projected 11.6 per cent to 9.4 per cent by the end of this year based on the proposed €6 billion “consolidation package” or cuts for 2011, according to Minister for Finance Brian Lenihan.

He said there was still a gap of just under €19 billion between income and expenditure. Measures to reduce all aspects of Government spending, including public service pay and running costs across departments and State bodies, were combined with revenue-raising provisions including an income levy, carbon tax and capital tax rates.

Speaking as he introduced the Finance Bill in the Dáil, Mr Lenihan confirmed the proposed changes in the universal social charge, which would be reduced from 7 per cent to 4 per cent for medical card holders. The €80 million cost of this would be borne by those on incomes of more than €100,000 through a 10 per cent levy.

The Minister said he still adhered to his view that it was “simply not sustainable” that 45 per cent of earners should pay no tax but he acknowledged that those on medical cards had been “adversely affected by the charge”.

Under the provision in the Bill the charge will apply at 2 per cent on income up to € 10,036, at 4 per cent for income above that up to €16,016, and at 7 per cent above that level.

The Bill also addresses a disclosure loophole for tax defaulters where if a defaulter refused to agree liability or pay the settlement the Revenue could not publish details. “This is now being remedied,” said the Minister.

He also said there were a “small number of matters under consideration” which he might introduced at Committee Stage. He would give “consideration to any constructive suggestions”.

The Bill confirms the ending of benefit-in-kind for the payment of professional fees and subscriptions by employers and of the exemption for childcare facilities subsidised by employers. Tax relief on ex-gratia payments is reduced to a “lifetime limit” of €200,000. The Bill also proposes to change the €1,500 student services charge to a flat-rate €2,000 student contribution, one of the issues that rankles with Independent TDs Jackie Healy-Rae and Michael Lowry.

Mr Lenihan expressed particular concern about the “loss of tax revenue caused by false claims for tax credits or refunds” and the Finance Bill would impose a penalty for anyone making a false claim. It also provides recovery for benefits falsely received and imposes an interest charge.

Ending the property-based section 23 reliefs for those renting private accommodation “is now dependent on the carrying out and publication of an economic impact assessment into the impact of the proposed changes,” he said. The changes aimed to “reduce ongoing legacy costs to the Exchequer and ensure that tax will be paid on some income previously sheltered by the various reliefs”.

However, in the wake of concerns about the impact of ending the relief, Mr Lenihan said an impact assessment in advance “strikes the right balance between seeking to restrict unnecessary tax reliefs on the one hand and taking notice of real concerns that have been expressed about the proposed changes”.

The Bill also confirms the reform of stamp duty charges with the introduction of a flat rate of 1 per cent for all residential property transactions up to €1 million and 2 per cent for homes above that amount.