Tax increases 'postpone the evil day'

Pat McArdle, Chief Economist at Ulster Bank Group has said that the Minister for Finance's forecast for economic growth "looks optimistic", and warns that tax revenue will be lower than expected next year.

Mr MacArdle said: "Overall the Minister was less ambitious than we expected. His growth forecasts looks optimistic - tax revenue will likely disappoint in 2009 and in the remainder of 2008 - and the 6.5% Budget deficit means that he has €12bn to claw back in coming years. We have a long way to go.

"He made a reasonable start to cut state bodies but was short on detail regarding public sector spending initiatives. As a result, current spending is up by 3.6%, more than it should be and driven by social welfare and pay.

"He raised €2bn in taxes, as we expected, but €500m of this is one-off cash adjustments from bringing forward payment dates for Corporation Tax and CGT. Again, this postpones the evil day.

"There was a wide range of tax increases, as expected, and centred on an income tax levy. Indirect tax increases will boost inflation by about three-quarters of a percentage point but the dept's estimate for the 2009 CPI at 2.5% still looks too high and they do not seem to have allowed for the raft of interest rate reductions that are now likely.

"He stayed away from housing for the most part but did lower stamp duty on commercial property, offset by an increase in CGT to 22%, a retrograde move.

"Dirt was also increased to 23%," said Mr MacArdle, "but unlike income tax, this does not seem to be temporary.

"An innovation was BIK on car parking - it will be interesting to see the detail as public servants account for up to 60% of all free parking in Dublin.

Mr MacArdle said there was good emphasis on education and intellectual property with capital spending safeguarded as much as possible.

"But, despite all this, the projected Debt to GDP ratio is up to 43% from just 23% in 2007."