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Two More Years Of Tax Hikes For Ireland

by Jason Gorringe,, London

03 August 2011

While the country is on track to meet and even exceed its bailout commitments for this year, Irish Finance Minister Michael Noonan has outlined the plans he intends to implement over the next two years to cut the deficit and satisfy Ireland's creditors.

Writing to members of the European Union (EU) and the International Monetary Fund (IMF), who provided a EUR85bn bailout package in December, 2010, Finance Minister Michael Noonan reaffirmed the government's commitment to making the programme a success, stressing that it already has a strong track record.

Noonan added that commitments have been met, and, in some cases exceeded, with Ireland's deficit and debt well below target. The recapitalisation of state-owned banks is on track, and their required mergers mostly complete. A new financial watchdog, the Fiscal Advisory Council, has been successfully launched, with credit unions inspected and plans for enhancing the Central Bank's regulatory powers in full swing.

Noonan then went on to set out the plans that will carry the government through the next two years of EU/IMF programme reviews, which include a series of key tax measures. In a Memorandum of Understanding (MOU) on Specific Economic Policy Conditionality, Noonan said that the government will take all necessary measures to ensure the successful implementation of Ireland's bailout commitments, while minimising taxpayer costs.

The MOU details the steps the government is to take in preparation for each quarterly review. Actions to be carried out by the end of Q3 2011 include further work on the reogranisation of credit unions and on the deleveraging of banks. Legislative changes will be introduced to remove restrictions to trade and competition in sheltered sectors and to strengthen competition law enforcement. By the end of the year, the government aims to have completed a comprehensive review of expenditure and reform public service pension entitlements and make amendments to the state retirement age.

The first important round of tax changes are to come in the 2012 Budget, which is to be delivered by the end of the year. It is to contain consolidation plans amounting to at least EUR3.6bn in revenue and savings. The government will have to introduce a number of conditions set out in the original bailout agreement, in order to generate EUR1.5bn in revenue over a full year.

These include the lowering of personal income tax bands and credits, a reduction in private pension reliefs, a cut in general tax expenditure, the introduction of a property tax, the reform of capital gains tax and acquisitions tax, and an increase in the carbon tax. Spending cuts of EUR2.1bn will make up the rest of the required money. In the first quarter of 2012, the government will make the necessary provisions to bring into effect planned VAT rate rises in 2013 and 2014.

The Budget for 2013, to be introduced in time for the ninth review in Q4 2012 will need to find additional fiscal consolidation of EUR3.1bn, of which GBP1.1bn will need to be generated through revenue and GB2bn through savings.

The Budget must bring in an additional lowering of income tax bands and credits, further reduction in private pension reliefs, additional reductions in general tax expenditure and a hike in the property tax. Financial sector reforms will continue through to the conclusion of the reviews in Q4 2013.

TAGS: individuals | tax | economics | business | value added tax (VAT) | Ireland | property tax | fiscal policy | public sector | law | banking | gross domestic product (GDP) | retirement | budget | International Monetary Fund (IMF) | tax thresholds | tax credits | agreements | legislation | tax rates | carbon tax | revenue statistics | tax reform | regulation | legislation amendments | individual income tax | European Union (EU) | Europe

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