Morning business news - December 5Wednesday 05 December 2012 10.57
BUDGET 2013 TO HIT CONSUMERS - The property tax will be the keynote element of Budget 2013 today. The sixth Budget since the financial collapse will seek savings of another €3.5 billion through the introduction of a property tax, and cuts to the Social Welfare and Health budgets. All of this is under the keen eyes of the EU, the International Monetary Fund and the European Commission. Since the loan programme in 2010 they have been calling many of the shots. In the last five budgets we have had new taxes like the income levy, which became the Universal Social Charge, the carbon tax, the tax on second homes, the pension levy, the insurance levy and the household charge. Those increased income tax and personal charges. And last year saw the first attack on spending, with VAT being increased by 2%. While it is expected that incomes will not be affected today, spending will, with property, and excise and motor taxes to increase.
It is expected that high earners, including those with a high pension income, will receive a €500m hit from various sources today. Low-paid workers too will face higher taxes of about €5 a week because of reductions in their PRSI tax-free allowance. The 'old reliables' like petrol, cigarettes and alcohol are also being targeted.
Economist Austin Hughes from KBC Ireland says that 2013 will be another difficult year for consumers and today's Budget measures are expected to take about 2% of average disposal incomes. He predicts a marginal decrease in consumer spending next year, which will be partially offset by a generally improved economy. The economist says that consumer spending is a key element in most economies, but it is not the main driver of growth in Ireland due to the strong performance of our export sector. But he says consumer spending is an indicator for the average person of how an economy is faring - whether employment is growing and whether people have enough money to spend in the shops. ''Consumer spending is a critical barometer of where the economy is going,'' he states.
Mr Hughes says that Budget Day is very important as it gives a signal to our euro zone neighbours and the Troika about how we are trying to get our economy back on track. He says it shows that we are taking the pain and now it is time Europe gave us some help.
Barrister Vincent P Martin of New Beginning, the group that provides legal representation to people facing repossession of their family homes, says that he is not opposed to a property tax. But describing it as ''fruitless, fantasy economics'', he says it is pointless trying to put extra taxes on people who are facing huge mortgage arrears. He says that deserving categories of people should be given exemptions from the new property tax, such as the long term unemployed and those who have long term mortgage arrears are who are trapped in a home sunk in negative equity. Calling the growing level of mortgage arrears ''the greatest scandal in modern Ireland'', Mr Martin says the Government has to face up to the reality and can not introduce more measures which will just push people over the edge. He says a social time bomb is looming over middle income people, who are working full time but facing growing arrears. He urges the Government to give them hope and a solution to their problems in today's Budget.
MORNING BRIEFS - Britain's Tesco today launched a strategic review of its loss-making US chain Fresh & Easy that could lead to a sale or closure of the business. Announcing the review alongside a third quarter trading update today Tesco said it would report the results of the review when it issues full-year results in April.
*** In Brussels, European finance ministers have failed to agree on key elements of a plan to set up a common banking regulator, seen as central to euro zone efforts to emerge from the debt crisis. The proposed banking union - agreed by EU heads of state at a summit in October - and the European Central Bank's commitment to buy bonds of troubled euro zone nations, have been welcomed by investors as bold steps to end the crisis. By giving the European Central Bank the power to supervise the region's 6,000 lenders, the EU hopes to begin building a firewall between weak banks and national governments.