INCOME TAX rises should be concentrated on those earning over €100,000, while public spending should be cut by 20 per cent, Fine Gael has proposed.
In its pre-budget submission, the party also calls for VAT rates to fall for two years to boost economic activity.
Fifteen thousand “involuntary” redundancies and early retirements among civil and public servants would form a core part of a move to cut 20 per cent off the State’s running costs within four years.
But existing exemptions from PRSI and health levies for the low-paid, and those earning over €52,000, should be abolished, said Fine Gael.
Under the package, a targeted tax cuts package costing €645 million by 2010, would cut VAT, remove PRSI bills from employers hiring staff and scrap the airport tax. Overall, however, Fine Gael acknowledged that the tax take would have to rise: one-third of the €14 billion needed between now and 2012 would have to come from taxes, though the rest would come from spending cuts.
The 13.5 per cent VAT should fall to 10 per cent until the end of 2011 to encourage people to take holidays in Ireland and carry out home improvements, said Fine Gael finance spokesman Richard Bruton.
Local authorities should freeze all of their charges, while workers should be able to claim the dole if they are cut back to a four-day week, and not a three-day week as happens currently.
Existing rules that prevent the unemployed from qualifying for an allowance to start a business unless they have been out of work for two years should be scrapped, letting them qualify after just six months.
Red-tape costs business €6 billion a year and should be cut by a quarter within two years, though Fine Gael did not explain how this would happen.
If successful, the Fine Gael plan would eliminate the structural deficit in the exchequer’s finances by 2012 – the gap caused by the dependence upon, and subsequent collapse of property taxes, and the reduction in direct taxes over a decade – one year earlier than has been planned by the Government.
“It is absolutely vital that we repair the public finances quickly. Domestic confidence hinges on it. Investors have been waiting for this budget.
“There is no point in trying to chase the economy down with tax increases, chasing a declining tax take. That would not be a remedy for rebuilding the economy,” said Mr Bruton.
The strategy has to “be front-loaded, that we do the heavy lifting in the early years”, partly by cutting 20 per cent out of the cost of running the government by 2012.
Under the plan, €3.5 billion would be cut from spending this year; €8.9 billion next year, €12.5 billion the following year before reaching the €15 billion target in 2012.
The forced redundancy/early retirements would save €375 million next year and €750 million by the end of 2012, though Mr Bruton conceded the party had not worked out “how many weeks per year”.
Pay rates for those State staff earning over €100,000 would be cut by 5 per cent, and the pension levy would stay in force.
Major reforms in public administration should save €3 billion a year by 2012 – including €300 million from the usage of generic drugs by doctors treating medical card holders.
Main Proposals
Restore order to State's finances by 2012, and not 2013, as Government proposes.
Earnings above €100,000 and €250,000 to face a solidarity tax of 2 per cent and 4 per cent .
All exemptions for PRSI and health levies should be abolished. Cut VAT rates until end-2011 to boost spending.
Cut PRSI bill for employers hiring staff. Higher excise duties. Cap tax reliefs on pension contributions. Windfall tax on energy generators.
Cut welfare rent allowances. Freeze State pay. Make 15,000 civil and public servants redundant. Force State managers to operate to tougher targets or get fired.
Impose a 5 per cent pay cut on State employees earning more than €100,000. Save €15m from Oireachtas reforms.