TOMORROW’S BUDGET may include a plan for a new scheme whereby pension funds would invest in infrastructure projects in Ireland such as roads, schools and hospitals, with a guaranteed rate of return from the State.
“There’s a proposition on the table which looks quite attractive,” a senior political source told The Irish Times.
Legal technicalities still remained to be clarified last night but the idea is seen as one that could be of mutual benefit to investors looking for steady rates of return and a Government that has run short of funds.
The bond scheme would be expected to draw in €1 billion-€3 billion to substitute for capital spending from State funds.
The money would be a possible source of funding for Minister for Health and Children Mary Harney to set up the long-sought cystic fibrosis unit at St Vincent’s Hospital, Dublin.
Describing the plan as a larger-scale equivalent of the special savings investment account (SSIA) scheme of recent years, political sources said there would be a “very solid return” for investors.
However, senior sources also cautioned that the proposed bond was not the “silver bullet” which would solve all funding problems.
The proposal was initially put forward by the Construction Industry Council, which pointed out that more than 80 per cent of Irish pension funds are currently invested outside the State.
The budget will provide for increases in excise duty on the “old reliables” such as alcohol, tobacco and motor fuels but these will be modest in scale.
Part of the reason for this is that residents of the State can easily buy their drink and cigarettes in Northern Ireland.
A high proportion of cigarettes are also purchased on foreign holidays or on the black market.
In the case of petrol and diesel, there is a similar anxiety to avoid encouraging drivers to go north of the Border to fill their tanks.
High-level political sources also confirmed that Minister for Finance Brian Lenihan will opt for increases in income levies rather than an immediate rise in tax-rates. Current levies are likely to be doubled.
However, a wide range of tax reliefs currently in operation are likely to be curtailed or abolished.
The Minister will indicate that restructuring of the banking system is under consideration but a “bad bank” or “asset management agency” proposal will not be brought forward tomorrow because, as one Government contact put it, such a plan was “not ready” at this stage.
Child benefit will not be taxed on this occasion but there will be what is described as “an interim move to make savings”.
The current ceiling or upper income limit of €52,000 for pay-related social insurance (PRSI) is likely to be raised.
Despite speculation that the Government will announce a reduction in the number of Ministers of State from 20 to 15, this will not be announced this week.
This is a matter for the Taoiseach, rather than the Minister for Finance, in any case. If Ministers of State were to find themselves out of a job it could provoke them to vote against the Budget, thereby jeopardising the Government’s majority and precipitating an early general election.
However, it is expected that the annual stipend for chairs of Oireachtas committees will be reduced by 50 per cent from its current level of €20,000.
Overseas aid is likely to be reduced in line with the shrinkage of gross national product.
Some items which have been the subject of budget speculation are likely to be left to the commission on taxation which is to report in September at the latest.
