The Irish government has begun talks to slash $5billion off next month’s budget – with cuts in child benefit and a hike in the VAT rate top of the agenda.
Prime Minister Enda Kenny is chairing the cabinet meeting in Dublin as coalition partners Fine Gael and Labor look to meet the terms of the IMF-EU bail-out.
Kenny has admitted his government must meet the target of $5billion in cuts set by the Troika in next month’s budget, the first presented by the government elected last February.
Already the talks have been described as ‘fraught’ by one Minister as tensions rise between Fine Gael and Labor over the areas to be cut.
Kenny is supportive of Finance Minister Michael Noonan’s plan to increase the top rate of VAT from 21 per cent to 23 per cent – a move which business claims will send shoppers across the border to Northern Ireland.
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Fine Gael are also proposing a $15 cut in the monthly child benefit scheme and a $12 cut in social welfare payments for the unemployed.
Speaking to reporters as he entered the meeting, Kenny said nothing has been decided as yet.
“All of the speculation I hear is speculation, the Cabinet has not decided on any of these details,” claimed the Irish PM.
“The preparation of any budget, particularly if you have to take €3.8 billion out of the economy is always sensitive, is always difficult and is always unpalatable.
“It would be lovely to stand here and say everything is rosy in the garden, everything is not rosy in the garden and Government have a set of very difficult choices to make here and get the balance between the focus on jobs and job creation and the protection of those who are vulnerable.”
The Labor Party are bitterly opposed to the plan to cut child benefit after promising not to touch it during their election campaign and insisting on no cut during coalition talks with Fine Gael.
Labor’s Minister for Social Protection Joan Burton has already examined ways to compensate those on low income if child benefit is cut.
Kenny has said that income tax rates will not rise in the budget but warned that cuts must be made in other areas.
He added: “If we are not to make the cuts that have been agreed in broad principle, that is to take out about €3.8 billion this year, then the only alternative is to increases taxes, and increases in taxes affects jobs directly.”
Finance Minister Michael Noonan refused to ‘indulge in speculation’. He said: “The only decision that has been made is to increase VAT by 2 per cent.”
Experts also predict increases in capital gains tax and capital acquisitions tax; a small increase in motor tax; possible increases to Dirt tax on interest earned and an extra carbon tax.
Child benefit costs the Irish state close to $2.8billion a year. Parents receive $190 per child for their first two children.