Income tax cuts pledge backed

THE Government can fulfil its pledge not to raise income tax rates in the coming budget, but it will have to fill the €250 million hole in some other way, EU sources said.

But plans to leave senior bondholders in Anglo Irish Bank minus a considerable amount of their €3.8 billion investment will be resisted by Brussels, the source confirmed.

Finance Minister Michael Noonan will discuss the issues with the ECB president and Economics Commissioner Olli Rehn next week. He needs their agreement and that of the IMF to make the changes.

Taoiseach Enda Kenny said he does not want to increase income tax in the coming budget, but pointed out that raising an extra €250m in income tax each year was part of the bailout agreement the previous government signed with the EU/ECB/IMF Troika.

He said he regarded hiking income tax as a disincentive to work.

Senior EU sources said they fully respected that Ireland did not want to become a high tax country, “but you have to adjust accordingly”.

They also said the Government should take into account the full effects of any alternative actions they would take instead.

“We have a fairly elaborate model to test fiscal measures against to judge their impact on growth, job stability, wage distribution and so on, so that there is a full understanding of all the possible measures,” he said.

This will be discussed with the Government and its experts in October when the pre-budget documents are available.

Brussels appears to support the Taoiseach’s plan not to cut headline social welfare rates, but to crack down on fraud.

The source said that whatever choices the Government makes will have to respect the principle that the most vulnerable in society are protected.

He added that they must make sure that social supports and transfers are as targeted as much as possible to ensure they get to those who are in need, and added that this targeting should be improved.

The sources confirmed that pressure will be maintained on the Government to cut labour costs and increase flexibility further to encourage employers to create jobs.

The European Commission will today release the report by its team on Ireland’s progress on meeting its targets and is expected to say that the country is on or ahead of target.