McCreevy May Need To Increase Taxes To Pay Public Sector Wage Bill

by Amanda Banks, Tax-News.com, London

01 July 2002

There was speculation in the Irish media last week that Finance Minister, Charlie McCreevy may have to increase taxes in order to pay for the public sector wage increases recommended in the Public Sector Benchmarking Report, published this week.

The Irish Independent predicted that pay increases for public servants such as teachers, nurses, gardai (policemen), and civil servants could add more than 1.2 billion euros to the State's wage bill. With little sign of economic growth, the newspaper argued, this increase will need to be met by higher taxes.

Speaking in the Dail last week, Mr McCreevy announced that he would be prepared to increase taxes now, or at some point in the future if 'the long-term sustainability of public services' depended on it.

According to the Irish Independent, although the Finance Minister did not specify exactly where within the tax system these increases would take place, officials from the Finance Department have hinted that an increase of 3% in the highest income tax band (from 42% to 45%), in parallel with a 2% increase in the standard rate to 22% are the most likely options, and would raise around 1.1 billion euros.

Irish taxpayers may not have to wait long to find out, however. Most of the unions which represent the Republic's 300,000 public servants are insisting on payment of the benchmarking increases in the next twelve months, according to the Independent. This could mean that the Finance Minister is obliged to increase taxes in his forthcoming budget, this December.

Recommended