BUDGET 2012 – AN OVERVIEW

Now the dust has settled on the presidential election jamboree, the media is beginning to turn its attention from the circus to the bread with increased coverage on what is likely to befall us in the upcoming Budget.

The Sunday Times says we can expect an increase of 1% in the top rate of Vat and personal taxation will rise by stealth because income thresholds will not be indexed.

“Senior government sources have revealed that Michael Noonan, the finance minister, will raise up to €1.6 billion in extra taxes and achieve €2.2 billion in government spending cuts to bring the budget deficit in 2012, down to 8.6% of GDP, in keeping with the strict terms of the EU/IMF bailout,” the newspaper writes in a front-page news article.

We should know more by the end of this week as the government is expected to publish a “medium-term budget plan” on Friday detailing tax and spending forecasts between 2011 and 2015.

Last week a senior government figure told the newspaper: “The €1.5 billion in increased taxes will be relatively straightforward to obtain, if you add in the €100 household charge, which will raise €160m next year, the non-indexation of tax bands and the full-year yield of the universal social charge.”

The newspaper cites yet more government sources predicting an increase in motor tax and further increases in the top rate of Vat, in addition to the 2% already agreed with our foreign paymasters.

“Fine Gael … proposed to bring forward the higher Vat increase to 2012 and 2013, to offset its plans for a cut in the lower Vat rate, and in order to fund a jobs initiative in its first 100 days in government.

“Government sources have now confirmed this Vat increase will proceed in budget 2012, hitting spending on cars, petrol, electrical supplies, furniture, carpets, adult footwear and clothing.”

An increase in Vat will inevitably further dampen growth in the domestic economy. The Sunday Business Post says the Government will concede as much when it publishes its forecasts on Friday. This will have the knock-on effect of cancelling out the benefits of the much-trumpeted interest rate reduction on our Troika loans.

“A previous forecast that gross domestic product will rise by 2.5% next year is likely to be cut to around 1.5%, meaning that estimates for tax revenue growth will also drop,” the newspaper’s main front-page article says. “This is expected to wipe out the gains next year from the lower interest rates negotiated on the EU/IMF loans.”