A MASSIVE political furore erupted in November when it emerged measures from the budget had been discussed in the Bundestag, ahead of details being available to Irish politicians.
It is unlikely such a politically embarrassing leak will happen again. The reason is not increased vigilance about leaks, rather an acceptance of the realpolitik of Ireland being in a bailout programme. The arrival of the troika and the drafting of a four-year plan mean virtually all Government banking, structural, and fiscal policies have been pre-ordained for the next four years.
One can predict with a high degree of certainty where the scalpel will be applied over the next three budgets, and where the Government expects to raise €3 billion in taxes during that time.
However, all of it is predicated on ambitious growth targets being achieved. That would mean a bigger economy could see revenue to the exchequer increase by €9 billion by 2015, roughly half of which might come from increased economic activity. And that is the big But. Nobody could even begin to predict if Ireland is going to experience growth this year.
That said, a close reading of the Government’s own budgetary documents, as well as the two separate Quarter 3 reports published by the European Commission and the IMF discloses some very specific details about next December’s budget. And there are also some surprising criticisms – albeit deeply buried in the text – surrounding policy decisions that have been taken (or not taken) by the Government so far.
The overall adjustment target for the 2013 budget is €3.5 billion, to reach a deficit level of 7.5 per cent of Gross Domestic Product That is split between €2.25 billion of cuts and €1.25 billion of tax revenues. The Government has committed itself not to increase income tax rates, bands or credits. In an annex to the budget document it recommits itself to that but adds a new clause stating “conditions permitting”.
The optimism isn’t fully shared by the IMF. In its Quarter 3 analysis, it states: “Staff welcome the authorities’ focus on base-broadening, and consider that such further broadening will likely need to encompass income tax bands and credits.” But as such, with the programme still on track, the troika is comfortable allowing the Government pursue its policy of indirect taxes. They have been laid out in considerable detail, when all the documents are scrutinised.
The real target will be just over €1 billion as there will be some €200 million in full year-effect carryover from 2011.
Next year’s budget will see the rolling-out of a value-based property tax (with most householders paying far more than €100 per annum); a probable €5 increase in carbon tax; further increases in vehicle and motor taxes; further changes in Capital Gains Tax; Capital Acquisitions Tax and PRSI.
On the indirect side, water charges will also be introduced but it is likely to be in 2014 rather than 2013.
However, it is likely that there will be increases in taxes on alcohol and tobacco. The two linchpins for cuts specified will remain social protection and public sector wage cuts this year.
