Freeze on public sector stealth taxes ‘would cut cost of living’

A FREEZE on all public sector “stealth” taxes would cut inflation in half, a leading economist and opposition parties insisted yesterday.

Government policies and the rising price of services are the two main drivers of domestic inflation, an independent economic report published yesterday has revealed.

These two factors account for almost half the annual inflation rate of 4.3%, according to Paul Sweeney and Associates who compiled the report.

The "stealth" taxes introduced in the last Budget added 1.5% to prices, while increases in gas, electricity and public transport prices also fuelled inflation, according to the Inflation Outlook May 2003 report.

All these services prices, which are subject to direct or indirect Government control, rose by 10.5% on average.

But the Government holds the solution to the inflation crisis in its own hands, IIB chief economist Austin Reid believes.

"If the Government froze all public sector taxes, like motor taxes and college registration fees, they could cut over two points off the inflation rate very quickly," Mr Reid said.

Both Labour and Fine Gael supported this view and called on the Government to impose an immediate freeze on a litany of "stealth" taxes and indirect taxes brought in since the last general election.

Labour's finance spokeswoman Joan Burton said consumers were punch- drunk from price rises, and the Government must now use its power to freeze these taxes.

"This report shows that the Government is responsible for half of our inflation rate through the series of stealth taxes the economy can no longer sustain this," Mr Bruton added.

Fine Gael's enterprise, trade and employment spokesman Phil Hogan also called on the Government to impose an immediate freeze on all indirect taxes. But a Government spokesperson said a special inflation group had been set up by the Taoiseach to tackle the problem comprising representatives of all departments and the social partners. It is expected that it will issue recommendations by mid-summer.

The increase in indirect taxes was necessary to generate money almost €535 million for public services and to keep direct taxes low, the Government spokesperson added.

The Inflation Outlook report also found that insurance and the cost of eating out have contributed to the higher rises in prices in Ireland than in the other eurozone countries.

Insurance costs rose by 11.5% between September and May 2002, more than three times the overall rise, though it fell to just 6.8% by April 2003. Wage inflation has also been a major factor in overall Irish inflation.

But the Government spokesperson said the anti-inflation group set up under the new partnership deal is also determined to tackle insurance and wage inflation.

The inflation report, which was commissioned by the Musgrave supermarket group, also found that food prices are now rising slower than most other items.