Tax rises and pay freezes can’t be ruled out, says fiscal watchdog

Spending billions is required to support economic recovery, but any new government will face tough choices over cuts and tax hikes if it is to meet Sláintecare and housing pledges.
Tax rises and pay freezes can’t be ruled out, says fiscal watchdog
In its first major report on the Covid-19, the Ifac says the next government should not rule out tax increases or freezing public sector pay, if the country’s ability to fight a further crisis is not undermined, as debt levels reach 'near record levels'. Pictured: Finance Minister Paschal Donohoe

With additonal reporting from Conall Ó Fátharta, Juno McEnroe and Aoife Moore

Spending billions is required to support economic recovery, but any new government will face tough choices over cuts and tax hikes if it is to meet Sláintecare and housing pledges.

That's according to the acting chair of the Irish Fiscal Advisory Advisory Council (Ifac) Sebastian Barnes.

In its first major report on the Covid-19 economic fallout, the fiscal watchdog said the next government should not rule out tax increases or freezing public sector pay if the country’s ability to fight a further crisis is not undermined, as debt levels reach “near record levels”.

“Adjustments” to spending plans or fiscal measures amounting to €6bn, or €2bn a year over three years, will likely be needed -- and as much as €14bn in cuts, or €4.7bn a year under the worst scenario -- when the economy emerges from the crisis and recovery phases.

However, it stressed that the Government will be right to spend on “a sizeable” recovery package, possibly of €10bn. On the €2bn-a-year austerity, Mr Barnes said it would “hopefully” be done in ways that were the least harmful.

Ifac said that, by way of illustration, reaching an adjustment of €2bn a year could involve freezing public sector pay for an annual saving of €1.5bn, while a 1% cut in “non-welfare spending” would be worth €500m.

Not increasing public investment as planned would reduce spending by €2bn; doubling the carbon tax could raise about €500m a year; while not indexing income tax bands would be worth €500m, it said.

Increasing income tax bands by one percentage point would raise €1bn; and an increase tax rates would raise about €1bn, Ifac said.

“I am not saying that any of those things are the right solution but it does give a sense that these changes are much less dramatic than the kind of changes that were needed in 2008 to 2010,” Mr Barnes said.

The Irish Congress of Trade Unions said the crisis showed the need to build a new economy across both parts of the island.

It comes as the National Public Health Emergency Team (NPHET) confirmed that nine more people have died from Covid-19 bringing the total number of deaths from the virus in Ireland to 1,615.

A further 37 cases of the disease were also confirmed bringing the total number of confirmed cases to 24,735.

Meanwhile, there are increasing calls for a full inquiry into the huge numbers of nursing home Covid-19 deaths amid claims the sector was "let down" and left "isolated" by state authorities.

Nursing Homes Ireland chief executive Tadhg Daly criticised health authorities yesterday and suggested the virus spread had significantly increased with hospital patients being transferred into homes.

At the Oireachtas special committee on Covid-19, it was revealed that nursing homes were not discussed until the 12th meeting of NPHET dealing with the outbreak, despite Health Information and Quality Authority (Hiqa) "the voice of Irish nursing homes", according to Minister for Health Simon Harris, being present at every meeting.

It was noted by Hiqa CEO, Phelim Quinn, that the HSE "did not know this sector" and there are no formal governance links between the sector and the HSE, with no national clinical oversight of care. This was flagged on a number of occasions by Hiqa without response.

However, speaking at the daily NPHET briefing, Chief Medical Officer Dr Tony Holohan said the State's response to the spread of the virus in nursing homes was a "very early response in comparison to other countries".

"There is simply no way of protecting nursing homes or any other institutional setting if we don't control the spread of this infection in the community in general," he said.

Mr Holohan said a number of measures were implemented in nursing homes and were done so "more quickly and at earlier points" compared to other countries.

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