Ireland to Slash Benefits, Raise Taxes

Wednesday, 24 Nov 2010 09:15 AM

Ireland’s government said it will cut spending by about a fifth and raise taxes over the next four years as talks on a bailout of the country near conclusion.

Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros are among the steps planned to narrow the budget deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue.

“Those who can pay the most will pay most, but no group can be sheltered,” the government said in a report published in Dublin today. “Postponing these measures will lead to great burdens in the future for those who can bear them.”

Prime Minister Brian Cowen is racing to conclude talks with the European Union and the International Monetary Fund on an 85 billion-euro aid package as his governing coalition crumbles. Cowen said this week he will hold national elections in early 2011 after first trying to win backing for the budget.

The reduced spending on welfare and higher personal tax are part of an overall plan to generate an additional 15 billion euros in the budget by 2014. The government said today it expects the economy to grow by an average 2.7 percent annually over the next four years.

While the biggest opposition parties have committed to the plan to reduce the deficit by that year to 3 percent of GDP, the threshold for euro members, they haven’t yet published details on how they will achieve the target. Lawmakers are scheduled to vote on the 2011 budget on Dec. 7 in parliament.

Running Costs

The government plans to reduce national running costs by 7 billion euros and investment will drop by 3 billion euros. Pay for new entrants to the state workforce will be cut by 10 percent. The government also plans to whittle the minimum wage, currently 8.65 euros an hour, by 1 euro.

It will raise sales tax for consumers to 23 percent in 2014 from 21 percent and reduce tax breaks for pension payments. A property levy, called a site tax, will be introduced.

Finance Minister Brian Lenihan will maintain Ireland’s 12.5 percent corporate tax rate, criticized by some European governments such as Austria. Hewlett-Packard Co., the world’s largest computer maker, said this week it may reconsider its investment in Ireland should the country raise its company tax rate as part of an aid accord.

“This is a cornerstone of industrial policy,” the government said today.

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