Ireland unveils new taxes to trim 2012 deficit

December 6, 2011 - 2:55 PM

DUBLIN (AP) — Ireland's government announced Tuesday it will impose euro1 billion ($1.35 billion) in new taxes to help the bailed-out country reduce its deficits as international donors expect.

Finance Minister Michael Noonan said he would increase charges on Irish drivers, home owners, savers, smokers and many others in hopes of rolling back the 2012 deficit to below 8.6 percent of GDP, the next goal set by Ireland's European and International Monetary Fund financiers.

"Personal wealth has been destroyed, thousands of people are sinking into poverty, emigration has returned and unemployment is far too high," Noonan told a somber parliamentary chamber. "The task of this government is to regain control over Ireland's fiscal and economic policies, to grow the economy again and to get people back to work."

Noonan's biggest tax-raising measure will increase sales tax by 2 points to an Irish-record 23 percent. Opposition lawmakers and business chiefs decried the move as likely to stoke inflation and make Ireland less competitive.

But Noonan said Ireland's commitment to austerity was paying dividends, with this year's deficit expected to decline to 10.1 percent of GDP versus previous estimates of 10.6 percent, a target set in Ireland's November 2010 bailout deal with the EU and IMF.

Ireland's 2012 budget includes euro2.2 billion in spending cuts and euro600 million in additional taxes that were imposed in the current budget. Combined with Tuesday's tax hikes, the total impact on reducing the 2012 deficit should be euro3.8 billion.

The Irish still face at least three more years of austerity budgets to get their deficit back within the eurozone limit of 3 percent of GDP. Ireland this year is spending euro57 billion — including more than euro10 billion in aid to nationalized banks — but collecting barely euro34 billion in taxes.

Ireland last year recorded a modern European record deficit of 32 percent because of the exceptional cost of bailing out five Dublin banks on the brink of default. Those bailout efforts, begun in late 2008 as the country's long property boom collapsed, could end up costing more than euro70 billion.

Noonan said the key to Irish recovery rested with its approximately 1,000 foreign multinationals that account for barely 5 percent of jobs but 18 percent of GDP. He didn't touch Ireland's 12.5 percent tax rate on corporate profits, a major magnet for foreign investment that draws regular criticism from high-tax France and Germany.

He also took about 330,000 of Ireland's most poorly paid workers out of the net for income taxes, raising the entry point from euro4,000 to euro10,000 ($13,500). He didn't otherwise touch income-tax rates or bands following three years of salary hits on Ireland's dwindling work force.

But practically everything else faces higher charges in a country where unemployment sits near an 18-year high of 14.5 percent. Noonan estimated that the hike in sales tax taking effect Jan. 1 would raise euro670 million ($900 million) extra next year.

A few tax hikes took effect immediately. Tax on a packet of cigarettes rose euro0.25, while tax on motor fuel — which currently costs around euro1.50 per liter ($7.70 a gallon) — increased 1.5 cents (2 U.S. cents).

Car owners faced much tougher taxes in the new year, particularly those who operate relatively new, environmentally friendly cars.

Ireland's previous government, which included the environmentalist Green Party, introduced a new system of annual car taxes that imposed punitive charges on operators of older gas guzzlers and offered tax breaks to those who used new, low-emission cars.

Noonan announced hikes to all categories of cars in the hope of raising an extra euro47 million next year. Those in the cheapest band of "green" cars will see their annual tax rise 54 percent to euro160 ($215), while those operating the worst-polluting, big-engined vehicles would see the annual charge rise 7 percent to euro2,258 ($3,045).

Noonan announced measures designed to raise Ireland's housing market from the dead. New home purchasers were offered the chance to receive tax rebates on their mortgage-payment interest — but only if they buy in 2012.

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Online:

Budget 2012, http://budget.gov.ie/Budgets/2012/2012.aspx