VAT HIKES & BUDGET CUTS

Cliff Taylor, the editor of The Sunday Business Post, says the Vat hike will certainly hit retail sales and will affect the poor disproportionately – the question is will the measure have the desired effect of raising the bulk of tax revenues required under the terms of the so-called bailout? And now the cat is out of the bag regarding how the government intends to raise the tax component of the €3.6 billion our Troika masters are demanding.

“We now know how a lot of the tax money will be raised – traditionally, the main revelation on Budget Day itself. Some €600m will come from the full year impact of all the tax hikes made in this year’s budget. That leaves €1 billion in fresh revenue to be found,” Taylor writes.

“The Vat hike will raise €560m in the calendar year 2012 and €675m in a full year … When you add €160m from the new €100 household charge and an expected further swipe at carbon tax – which will push up fuel costs – most of the revenue raising will be done.

“The philosophy is simple – we might call it ABIT (Anything But Income Tax.)”

And as for the answer to the big question?

“There is a risk that the Vat increase will not deliver as much cash as expected as consumer spending falls further. Could it be the opposite of the famous, much-loved by Fianna Fáil, ‘self-financing tax cut’ – a self-defeating tax increase? Probably not entirely – after all, consumer spending has already taken a massive hit and forecasters believe it will stabilise,” Taylor says. “However, there is a risk that further weak consumer spending could mean the tax will yield less revenue than expected.”

As for spending cuts, we can expect a €10 a month reduction in child benefit, The Sunday Times reports. The cut in the current €140 allowance would be across the board, regardless of age, number of children or social circumstances.

A senior government source told the newspaper: “The cut in child benefit is needed to make sure that the basic social welfare rates are not touched. This is not a welfare payment; it is a universal payment to all parents regardless of their income. It is not a breach of the government commitment on preserving basic welfare rates.”

Anyone for the next dance on the head of a pin