Lenihan Rejects Higher Taxes As Irish Budget Approaches

by Jason Gorringe, Tax-News.com, London

26 October 2009

At the annual Leinster Society of Chartered Accountants' pre-budget lunch, Irish Finance Minister, Brian Lenihan spoke of the predicament facing the Irish government as it prepares for the December budget.

The government needs to save EUR2.5bn, but Lenihan has said that, whilst taxation needs to be increased, any hike other than the previously-announced carbon tax would be inappropriate.

Addressing attendees, Lenihan observed that with tax receipts already deteriorating, and tax evasion progressively a greater risk when increasing the tax burden, the government has been left with few options on the tax front. Inaction from the government however, he said, would mean that Ireland's current borrowing (12% of its annual income) would quickly increase to between 14-15% next year.

Examining the government’s tax options, he ruled out the introduction of higher taxes on top income earners, pointing out that 48% of all income tax receipts are paid by just 4% of taxpayers.

“There is no pot of gold that can be raided from the wealthy that can solve our difficulties,” he observed.

Expanding on the point, Lenihan said in order to raise an additional EUR1bn in revenue, the government would need to introduce a rate of 64% on earnings above EUR100,000, which he said would trigger "widespread tax evasion".

Turning to indirect taxation, Lenihan painted a similar picture. He said that indirect tax receipts were particularly weak but that topping up the balance with higher taxes would fuel criminal activity.

Lenihan noted that every third alcoholic beverage consumed in the Republic is brought across the border from Northern Ireland. Similarly, although to a lesser extent, a quarter of all cigarettes smoked in the Republic are thought to be contraband.

Finally, the Tax Commission’s lynchpin proposal, a property tax that would generate between EUR1-1.2bn, has been stripped from the government’s agenda by Lenihan, who explained that it would take too long to implement.

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