Bruton warns on interest payments

FINE GAEL has said within two years the majority of income tax will be needed to pay interest on the national debt if the Government does not change its budget strategy.

The party’s finance spokesman, Richard Bruton, said Finance Minister Brian Lenihan’s decision to borrow 10.75% of GDP this year and next delayed addressing structural problems in how the country raises money. Mr Bruton said this borrowing would happen at a time when it was most expensive and drawing attention to the potential costs was “critical”.

He cross-referenced the estimated borrowing, the rate of interest the Government can expect to be charged and the predicted income tax take.

Based on these figures the 12% of income tax needed to pay debt interest in 2008 will jump to 43% next year and hit 53% of the expected e12.5 billion income tax take in 2011.

Mr Lenihan estimated in 2012 the level of debt will be 79% of GDP and this does not include whatever money is sought for the bailed-out banks.

The trend means by 2013, Mr Bruton calculated, the Government of the day will have to spend 60% of all income tax it receives on paying interest.

“This has quiet frightening implications,” he said.

And he said the Government was not facing up to the challenges of cutting spending and, instead, is trying to raise taxes.

Mr Bruton said tax alone would not fill the structural deficit and, if this was not tackled straightaway, the debt would spiral out of control.

The party’s interest rate calculation was based on a figure of 4.75%.

This was linked to the current conditions and the lack of faith international markets have in the Irish economy.

It has been costing the Government roughly 2% more to borrow because of factors such as the bank guarantee scheme and the successive downgrading of financial institutions and the economy by credit ratings’ agencies.