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Dec, 2011

As Cliff Taylor, Editor of The Sunday Business Post, notes: who needs to raise income tax when you can introduce levy after levy with the same effect? Of course, this is an old refrain readers of the Noone Casey round-up will be very familiar with. Taylor argues the Government has no choice, given the hairshirt demanded by the bailout.

“It is clear that what will matter in terms of how this budget affects you is not how you earn your money, but how you spend it,” Taylor says. “The big tax increases will come via a higher Vat rate and new motor and carbon taxes. Savers will be hit with a higher Dirt rate and the new household charge will be the start of a wider property tax.

“The charge laid against the government will be that these are stealth taxes. Yet once it decided to stick to its budget commitment not to increase income tax, the die was cast.”

As Taylor points out, when the Government has no choice but to follow the EU/IMF programme, something has to give. If not income tax, then what?  When it comes to raising around €1 billion (the state has a €600m carryover from last year thankfully), the choices are very limited.

“You cannot raise this kind of money by tinkering around with a few cent on a litre of petrol or a pint. To raise big money, you have to look at some of the taxes that raise a lot of money. With income tax ruled out, and the government not daring to increase corporation tax, then Vat was the only one of the ‘big three’ left,” Taylor points out.

This is a risky strategy – particularly given the tax figures published on Friday, which showed what those of us who work at the coalface already know, this economy has stalled and gone into reverse. A further Vat hike will do nothing to encourage people to spend more, exacerbating the depressing downwards spiral.

Also, as Taylor rightly points out – what does it matter what we earn if we end up having to pay more for lesser-quality services as a result in government spending cutbacks?

“We will all have to pay more to access public services – in turn, this gives money to government departments which they can offset against their spending,” he says. “So there will be higher university registration fees and health costs, higher health insurance premiums also related to public spending cuts, with consideration also given to charging an annual fee to people with medical cards.”

And Budget 2012 has to be viewed against the backdrop of what is happening in the European economy. Growth is required to get Ireland Inc moving again and the omens are not good. Despite the hype and the hoopla that always surround the annual Budget; the EU summit at the end of the week will likely have far more impact on our pockets.

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