Irish Central Bank Warns That Tax Hikes May Be Necessary

by Jason Gorringe, Tax-News.com, London

07 October 2002

In its Autumn Bulletin, published on Thursday, the Irish Central Bank warned that: 'the picture for 2003 is one of a high degree of uncertainty, particularly in regard to the international economic environment'.

Although the regulatory body did express (very) cautious optimism for the Republic's economic future, suggesting that 'the risks are on the downside', it warned that the government will need to cut services, or increase taxes or borrowing in order to be able to afford the benchmarking review of public service pay.

The forthcoming national wage negotiations are likely to increase pay for public servants by some 8.9%, according to estimates. However, chief of economic research at the Central Bank, Tom O'Connell warned that this money will have to come from somewhere, and urged caution, given that Irish wages have already increased by more than three times the European average.

This follows the Department of Finance's recent announcement that the government will need to borrow an additional 750 million euros in order to finance its expenditure plans, and will not be returning a surplus this year.

The Central Bank report urged the FF/PD coalition to cut spending next year to 8%, from 23% in 2002.

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