INCOME tax increases and more cuts in Government spending are needed immediately, the International Monetary Fund has warned in a stark report on the country’s economic state.
They say savings of about €4.5 billion must be made, in addition to the €5.3bn already identified. And it should all be achieved by 2014 to bring the deficit to 3%. The IMF — known for the harsh austerity measures it imposes when called in to rescue bankrupt economies — pours cold water on predictions of more than 3% growth next year. Instead it says it will be 2015 before the economy gradually recovers and achieves a growth of 3.5%.
Reacting to the report, Finance Minister Brian Lenihan said the Government was fully committed to reducing the budget deficit to below 3% by 2014.
He added that the IMF growth predictions were made before the latest national accounts showed a return to growth in the first three months of this year.
But Fine Gael’s economic planning spokesman, Richard Bruton, said the report “raised the grim prospect of even greater spending cuts and tax increases”, and should be a wake-up call to Government about the need for a new approach to growth and employment.
“The alternative is only more pain for Irish taxpayers,” he said.
The IMF experts, who visited here at the end of May, urge the Government to fast forward cuts in public services, particularly in the health and education sectors, and make further cuts in social welfare payments.
But cutting back government spending is not enough. More money must be collected by the state, something the IMF says the Irish authorities recognise.
They approve government plans to reform the income tax system by bringing more people into the tax net and getting rid of tax exemptions. The various levies should become permanent and a universal social charge should be introduced.
Despite reports that the Government was going to drop plans for a property tax, the IMF said it would prove more stable than the system of stamp duties.
The outlook for employment is equally bleak with older men and young people in for a long period of joblessness. They say while exports are increasing these are mainly from multinationals and not from smaller indigenous businesses where they would generate jobs.
New jobs will also depend on the cost of labour decreasing as the country has priced itself out of the market in many instances, it says.
© Irish Examiner Ltd. All rights reserved