Scope for tax increases in budget, says economist

By Geoff Percival

Wednesday, November 25, 2009

SCOPE does exist for further tax increases in next month’s budget, according to economist Jim Power, but the Government must focus on slashing public spending in its plan for next year.

In a pre-budget economic outlook, Mr Power — chief economist at financial services firm, Friends First — yesterday backed the carbon tax introduction and increases in indirect taxes on items like motor fuel, alcohol and tobacco, which could, he said, raise a combined €450 million for the Exchequer.

"Most people would probably accept tax increases if they knew the revenue would be used effectively. Unfortunately, the Government has wasted the tax revenue over the last 10 years," he said.

However, Mr Power added that more tax hikes aren’t the real answer and more certainty is needed in regard to the recovery of the public finances.

"Simply taxing one’s way out of a recession doesn’t work.

"The reality is that the public sector pay and social welfare bills account for 71% of gross current expenditure, so it’s inevitable that if spending is to be cut, these two areas must be addressed.

"It’s just not possible to continue to add €495m per week to the national debt. It’s time the so-called social partners and Government got real about this fact," he added.

Arresting the deterioration in the public finances can only be achieved by a combination of "modest tax increases and significant cutbacks in public expenditure," Mr Power went on to say — although he did warn that increasing the personal tax burden further would be counter productive. He said a basic cut of 20% in child benefit would save around €500m per annum.

He added that Ireland’s economic growth will be based on increased exports and getting people back to work. In making the latter more of a reality, rather than just a hope, Mr Power said Finance Minister Brian Lenihan should impose a further increase in the employee PRSI ceiling and a cut in employers’ PRSI in the budget.

This would reduce the cost of employing people and, therefore, stimulate job growth, he said.

This story appeared in the printed version of the Irish Examiner Wednesday, November 25, 2009