IBEC warns against proposed tax increases

Monday 08 July 2013 20.02
IBEC economist Fergal O'Brien says making a smaller budget adjustment would signal the end of austerity
IBEC economist Fergal O'Brien says making a smaller budget adjustment would signal the end of austerity

Employers' group IBEC has said the Government should drop planned tax rises in the next Budget to support economic growth.

In its pre-Budget submission, it said that making a smaller Budget adjustment would signal the end of austerity, and would encourage consumer confidence and economic growth.

The next Budget is supposed to introduce €3.1 billion of tax rises and spending cuts to ensure the Government keeps reducing the amount of money it borrows to less than 3% of GDP by 2015.

But the employers' group argues that because the deficit reduction plan is already ahead of target, the Government has scope to ease back on austerity and still hit the target.

IBEC said the €500m in extra taxes planned for the Budget could be abandoned.

The resulting €2.6 billion adjustment - most of it in spending cuts - would result in a deficit of 4.5% next year. That is still ahead of the Troika target, IBEC said.

It said a decision not to raise tax in the Budget would be a powerful signal that austerity was ending, encouraging consumers and businesses to boost spending, leading to higher economic growth and more jobs.

In its pre-Budget document published today, IBEC argues that Ireland's tax burden is already high enough, and in some areas - such as high-skilled overseas employees - should be reduced.

It also wants to see changes to the implementation of last year's abolition of the €127 a week PRSI allowance, which it stated is costly for lower paid employees.

It also said that indirect taxes, such as VAT, excise and carbon tax, should not be increased.

IBEC said it believed the tax framework should be changed to make it more growth-oriented. Changes include retaining the lower 9% VAT rate for the hospitality industry, a tax break for home improvements and a series of changes to the R&D tax credit system.

It also argued for a change to the capital gains tax regime, allowing targeted relief for trading enterprises similar to those introduced in Britain and other EU states. The current regime is no longer supportive of productive investments by indigenous entrepreneurs, the group claimed.

IBEC also repeated its call for the creation of a State-backed enterprise or investment bank to ensure the flow of credit to businesses.

It said that as the recovery is taking hold, access to credit is becoming more problematic for firms. It pointed to IMF research that claims average growth in a creditless recovery is typically one third lower than under normal credit conditions.

The leader of the country's biggest trade union, SIPTU, has criticised IBEC's call.

Jack O'Connor described it as nothing more than a thinly camouflaged attempt to insulate the better-off from tax commitments while inflicting more misery on the less well-off.

Keywords: ibec, tax