Thinktank urges increase in taxes

A new economic thinktank has urged the Government to stop cutting public spending and increase taxes in a bid to revive the economy.

In its second quarterly economic bulletin, the Nevin Economic Research Institute (Neri) said that current budget deficit targets were too heavily reliant on economic recovery and that continuous expenditure cuts would only result in a much reduced public service.

It is calling for a medium-term policy shift towards maintaining public spending and increasing tax revenues via a widening of the tax take. The institute suggests there is still ample scope to raise the tax take without extra hurt to average-income households.

It said that there was scope to increase the 42% rate applied to incomes of over €100,000 per year and to get more through capital gains and capital acquisition tax.

“A discontinuation of cuts in overall current and capital spending is justifiable in order to arrest the haemorrhaging of domestic demand and restore confidence among consumers and investors,” said Neri.

It added: “The Government has indicated a further total cut in discretionary expenditure of €5.5bn over the period 2013-2015.

“Allowing for further savings under the Croke Park Agreement, that form part of this total saving, it could be assumed that total planned expenditure savings, over 2013-2015, net of Croke Park will be in the region of €5bn.

“If, instead of cutting a further €5bn from programme expenditure, it were decided to retain this level of overall spending and stretch the adjustment period out by two years, while increasing revenue; it could still be possible to reach a Government deficit target of less than 3% based on the latest IMF projections of GDP.”

While NERI has not yet started producing formal growth forecasts for the economy, its director, Tom Healy, said that the general consensus for Irish GDP growth of between 0.5% and 1% for this year seems accurate.

The Department of Finance is currently the most bullish — in terms of forecasts — pencilling in 0.7% growth for 2012 and 2.2% for 2013.