Income tax rise not ruled out for budget

THE Government is still refusing to rule out income tax increases in the budget after another marathon meeting on Saturday failed to finalise what is likely to be the toughest package of measures since the 1980s.

The Department of Finance stuck to the mantra that “nothing is being ruled out” following the meeting, which ran from 10am to after 4pm.

Speculation is also mounting that the Government will defer some projects under the National Development Plan (NDP) in order to save about €1 billion next year.

Fine Gael deputy leader and finance spokesman Richard Bruton urged the Government yesterday neither to raise taxes or cut spending on crucial infrastructure, saying either move would ultimately delay economic recovery.

But Taoiseach Brian Cowen has already warned that “unpalatable” decisions will have to be made because of the rapidly declining public finances.

Finance Minister Brian Lenihan has made clear he is seeking a €2bn reduction in day-to-day spending by government departments.

That figure originally started out at €1.3bn but was increased by another €700m in recent weeks, after the scale of the economic decline became apparent.

Now the focus is on other areas where the Government can either save money or increase Exchequer revenues.

Delaying the starting dates for some of the NDP projects would be one such option, with a department source yesterday admitting: “It’s a possibility.”

Raising income taxes would be more difficult politically, however, as such a move would directly affect the pockets of voters.

The cabinet is thought to have discussed alternatives to raising the tax rates, and one possibility would involve increasing the ceiling on pay-related social insurance [PRSI].

Under the existing system, PRSI is charged only on the first €50,700 of income.

Increasing the ceiling would effectively increase taxes on middle to high- earners, while avoiding an increase in income tax rates.

The cabinet will hold its weekly meeting tomorrow, with the budget expected to dominate, a Government spokesman said.

Another meeting on Wednesday or Thursday to finalise the budget is not being ruled out.

In a speech last week, Mr Cowen warned that “nobody will be immune from the pain” after Exchequer figures showed a €6.5bn shortfall in tax revenues.

“The Government and I will not be found wanting in making the necessary hard decisions, no matter how unpalatable,” he said. “Unfortunately, nobody will escape the consequences of managing our economy in a manner that will — as much as possible — reduce the impact of the most serious global economic circumstances for almost a century.”