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Prepare For Austerity Budget, Kenny Tells Ireland

by Robert Lee, Tax-News.com, London

06 December 2011


Ireland's upcoming Budget will be necessarily tough, with the country's economy still in crisis, the Prime Minister has said. It will, however, build on the steps the government has already taken toward recovery and include over EUR1bn in tax hikes.

Delivering a televised 'state of the nation' address on December 4, Enda Kenny warned that Ireland faces an exceptional challenge. In the first such address made by an Irish Prime Minister in three decades, Kenny spoke of the forthcoming Budget, which will be delivered over two days, outlining many of the measures taxpayers can expect to see unveiled.

He said: "I would love to tell you tonight that our economic problems are solved and that the worst is over, but for far too many of you that is simply not the truth." He added that too much borrowing and the cost of rescuing the country's crippled banks has led to a "massive deficit", while spending is currently EUR16bn (USD21.5bn) higher than the government receives in revenue.

Kenny was clear that, with the public finances still in a perilous state, and, with the ongoing eurozone crisis in mind, steps must be taken to bridge this revenue gap. The Budget will therefore slash public spending by EUR2.2bn and raise EUR1.6bn in extra taxes.

Kenny referred to several initiatives made by the coalition government since it took office at the beginning of the year, arguing that a start has been made toward placing the public finances on a sound footing. The Budget will therefore build on these first steps toward recovery, aiming to reach a reduced deficit of 3% of GDP by 2015.

However, according to Kenny, these changes are merely a means to an end - the purpose of the Budget and the government's four-year strategy is job creation. It will therefore include targeted measures to help people back to work. It will contain an initiative to stimulate bank lending and a loan financing scheme to enable people to start businesses and take on new employees.

In addition, Kenny said that, to provide certainty, income tax will be 'left alone', with the EUR1.6bn in extra tax revenue to be raised primarily through indirect taxes. Finance Minister Michael Noonan has already confirmed that the Budget will set out a 2% hike in the standard rate of value-added tax, taking the levy to 23%.

Closing his statement, Kenny admitted that it will take several years to create enough jobs in Ireland, but stressed that the government had made "a start, in essence to getting the country moving again".

Public Expenditure Minister Brendan Howlin is to deliver the first part of the Budget on December 5, detailing the government's spending cuts. Noonan will outline the new tax measures on December 6, concluding the Budget presentation.

TAGS: tax | economics | business | value added tax (VAT) | Ireland | fiscal policy | gross domestic product (GDP) | employees | budget | unemployment | tax reform | individual income tax

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