Taxing matters continue to simmer

Writing about the economic crisis in Ireland these days is like trying to catch a falling knife.  Just when you think you’ve grasped it, it slices through your hand and plunges even further downwards.  

In this column last week we discussed Taoiseach (Prime Minister) Brian Cowen’s speech to the annual convention of the Fianna Fail party on the previous Saturday night.  He talked about the 2 billion euros that has to be cut from government spending this year, which has caused ferocious opposition among the state workers who will take the pay hit. 

Cowen pointed out that private sector workers were being hit all the time, and said we all have to share the burden of the recession.  He warned that the government would continue to take whatever tough decisions might be necessary to prevent us going over a borrowing requirement of  just under 10% of GDP this year, a level he has agreed with Europe as an absolute maximum.  (Under European Union rules it’s supposed to be below 3%.)

That was the Saturday night position.  But just a few days later, on Tuesday of last week, the government was presented with the latest figures on tax revenues.  They were so bad that the Cabinet decided that an emergency budget would have to be introduced immediately. 

Tax revenue was so far down in the first couple of months of this year that as well as taking 2 billion euros out of state spending, the gap between state spending and tax revenue this year would have to be closed by an extra 4 billion.  So the cuts went from 2 billion to 6 billion euro in just a few days!

This 6 billion adjustment is to be achieved by a combination of spending cuts and increased taxes, the government said, and the details will be announced in an emergency budget in a few weeks.  A week may be a long time in politics.  The way the Irish economy is going these days, even a few days is an eternity in which everything can change.

Given the uproar even 2 billion in proposed cuts has caused, what a 6 billion adjustment is going to do to the public mood can be imagined.  It’s going to be rough, and some very senior people in the security services here have already been discussing how mass demonstrations and riots might be handled.

So if you are late catching up with the latest chapter in Ireland’s riches to rags story, let me put in context for you what is happening.  Just a few years back, while the Celtic Tiger was still healthy, we had budget surpluses every year. 

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Nster.com