A taste of what could be coming down the tracks

HINTS from Brussels that Ireland can no longer enjoy such a low corporation tax rate – previously a red line which the Irish Government vowed never to cross – gives a taste of just how different the budget approach could be once the EU takes charge.

There is now believed to be a 50-50 chance that Ireland may have to access an EU fund to rescue countries suffering severe crisis to prevent any eurozone member going into default.

The opposition believes the Government has already indicated to the EU, if not agreed the details with them, of a four-year budgetary framework.

All parties agree it’s best we do not seek a lifeline from ‘outside forces’. As the Government tries to prevent this happening, here is what could be on the table in the next four years.

INCOME TAXES:

Half of workers currently pay no income tax, while the top 5% of earners pay 45% of revenue.

With €2.2 billion in savings from the €5.3bn in the Bord Snip report implemented, the scope for cuts in the next few budget will reduce. So the balance may have to shift to tax.

Finance Minister Brian Lenihan yesterday gave the strongest indication yet that this would happen in a statement claiming he had “acknowledged that taxation will be part of the solution”.

Every €1bn the Government talks about in the budget would mean an extra €10 a week in tax for each worker. The question is how should this be shared?

“In the medium to long term we are going to have to raise tax as a proportion of our GDP to European level,” said Michael Taft from the Unite trade union. But imposing taxes on low earners will “cut disposable income and competitiveness will not resume”.

But Danny McCoy of business group, Ibec, said lower earners have to be brought into the tax net. High rates on top earners “are becoming a disincentive to bring talent in here, to bring chief executives, to bring that type of new foreign direct investment in.”

WATER CHARGES:

Charging all households for water would bring in €1bn and Environment Minister John Gormley indicated he wants this rolled out on a pay-per-use basis next year.

Author of the Bord Snip report Colm McCarthy said free water is a luxury Ireland can no longer afford: “This notion that water has to be free simply because it falls from the sky, we have to get over that,” said the UCD economist.

PROPERTY TAXES:

After a tax on second homes raised €50 million, a tax on all property might prove irresistible with the potential to bring in €1.5bn.

A tax ranging between €250 and €3,000 a year is being looked at but the Taoiseach told the Dáil in June that no decision has been made because of difficulties working out how to value property.

Fine Gael has indicated it is absolutely opposed to such a move.

“I don’t know a politician who won’t agree privately that scrapping rates back in 1978 wasn’t a mistake and did no good for local Government” said Mr McCarthy. “But no one is going to be up front and say: Vote for me, I’m going to bring back rates.”

PUBLIC SECTOR PAY CUTS:

The Croke Park Deal gave assurances to public service workers that there would be no more pay cuts and no involuntary redundancies.

With more severe budget cuts needed, pay and numbers in the public service may have to be looked at, meaning an unravelling of the deal.

Although this would be a highly risky move politically, leading to widespread industrial unrest, Junior Minister Conor Lenihan yesterday gave the strongest indication yet that the deal could be shredded.

“If progress is not made soon it will probably signal the end of the Croke Park agreement and the partnership process as we know it. Huge and difficult decisions still remain to be taken about downsizing the state.”

CORPORATION TAX:

The low corporation tax rate has always been a source of envy among our European neighbours, particularly the French, who see it as giving us an unfair competitive advantage.

It seems the EU will now be taking advantage of our financial vulnerability by calling for it to come more into line with our neighbours.

If the corporation tax rate of 12.5% is increased to 14.5% it will bring in €630 million but increases the risk of multinationals like Google and Hewlett Packard fleeing to cheaper countries, like those in Eastern Europe who have attempted to emulate the Irish model.

Finance Minister Brian Lenihan insisted yesterday this is not an option. But Taoiseach Brian Cowen failed to rule out the option when asked three times about EU Commissioner Olli Rehn’s remarks that higher tax has to be a “fact of life” in Ireland.

SOCIAL WELFARE CUTS:

After reductions of 4% across the board in social welfare payments last year, with the exception of pensioners, and the abolition of the Christmas bonus, further cuts could be a tipping point for public anger.

But social welfare takes up a third of all Government spending and higher unemployment led to an overrun this year, meaning it will be hard for the Government to leave this area untouched.