Friday, 26 November 2010

The Irish medicine

It is not often you will find agreement with John Redwood on this blog, but when he writes, with respect to the Greek and Irish emergency financial measures: "these countries could get into a vicious circle of more cuts, less tax revenue, more cuts, less tax revenue. With interest rates as high as they are the country will find an increasing proportion  of its public spending absorbed on paying interest charges, leading to the need for further cuts in other spending to try to balance the books."

The Fianna Fáil government proposes (there is no guarantee that the budget will pass on December 7th) among other things to cut the minimum wage by 12% and increase VAT by stages to 23%. €7bn will be cut from government spending, including €865m from reducing public sector pensions. The income tax threshold would drop from €18,300 to €15,300 (about £13,500), but even so one would expect the tax take to fall as economic activity was inhibited.

By contrast, the raising of the tax threshold (first instalment on January 1st) and the guaranteed raising of the state pension here, both Liberal Democrat measures, should ensure a slight increase in activity.

There is one measure which will gladden the heart of many Liberal Democrat colleagues: to introduce a "site value tax" to Irish local government finance.

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