MINISTERS ARE to hold four Cabinet meetings over the next week to agree plans to cut nearly €3 billion from State expenditure and to raise a similar amount in new taxes by year’s end.
The Cabinet is to meet on Sunday in Government Buildings, while two further meetings are to be held on Tuesday, and another the following Sunday, Government sources said.
The Department of Finance is expected to put “an options paper” to Sunday’s meeting outlining the revenues that could be generated from particular tax moves and savings from cuts.
“However, there is an understanding that any tax decisions must be collectible immediately, absolutely immediately,” The Irish Times was told by a source with knowledge of the deliberations.
Ministers have not yet decided on the exact amounts that need to be cut from spending, or raised in new taxation. However, €5.5 billion is understood to be near the target and illustrates the Government’s belief that the deterioration in the exchequer’s finances will continue throughout the year.
However, it is understood a number of Ministers believe the pain must be shared equally between new taxes and spending cuts, otherwise a risk exists that the the country may be plunged into a deflationary spiral.
Department officials have been working alongside a team of external experts, led by economist Colm McCarthy – the so-called An Bord Snip group.
While the focus of Mr McCarthy’s group is principally on reducing expenditure in 2010, it already has had significant impact on the options being investigated by the Department of Finance and other departments. Ministers are expected to offer up a list of savings at Sunday’s meeting, including capital spending cutbacks and labour savings from a recruitment ban.
The need for immediate savings restricts the Government’s ground for manoeuvre significantly, and practically guarantees that the tax levy will be sharply increased, rather than rates.
At the moment those earning less than €100,000 pay a 1 per cent levy, excluding those earning below the minimum wage. Those earning between €100,101 and €250,120 annually pay 2 per cent and those on €250,120 or more pay 3 per cent. Significant rises in these rates are now expected.
In addition, draconian increases in excise duties on petrol and diesel, and to a lesser extent on cigarettes, are deemed inevitable, official sources believe.
However, the room here is also limited since sterling’s collapse in value has already made many prices in Northern Ireland cheaper than the Republic, and increases might simply spur smuggling. Each 1 per cent rise in the lower 13.5 per cent VAT rate would raise €300 million for the exchequer, or €390 million from a similar change in the top 21.5 per cent rate.
However, some Ministers see little benefit in such increases believing it will simply encourage more cross-Border shopping.
The Cabinet deliberations are also likely to be informed by the draft report of economist Dr Peter Bacon on the options facing the Government on how to handle toxic debts within the banks. His report recommends the creation of a toxic asset company to remove bad loans from the banks’ balance sheets.