Ireland Reevaluating Its Tax Policies

October 12, 2010 Taxation in Ireland

Irish government buildingsThe Irish Government is facing increasing pressure to revise its tax policies in order to decrease the ballooning budget deficit and stem the slashing of government spending.

Speaking in New York on October 10th Brian Lenihan, Finance Minister of Ireland, revealed that in the face of the December budget announcement the Government is inspecting all possible fiscal options and adjustments to reduce its budget deficit. Cuts to welfare payments and pensions were specifically mentioned, along with possible increases to some tax rates and broadening the sources of tax revenues. The Government has previously shied away from altering tax policies to reduce the budget deficit, opting instead to cut public service employee wages by 14 percent. However, the Minister admitted that Ireland has “real fiscal and banking problems to address” and that the country’s deficit balance was worrying. Although Brian Lenihan did say that with its willingness to inspect all possibilities for deficit reductions the Irish government will definitely not require fiscal assistance from the International Monetary Fund (IMF) or the EU in the near future.

To ease the worries of multinational companies based in Ireland, Brian Lenihan issued assurances that the country’s 12.5 percent corporate tax rate would not be altered. While the rate is still far below that seen across Europe, it is feared that even a slight upward adjustment will see a number of multinationals relocating out of Ireland. However, the Minister did say that taxes “will have to play some part” in narrowing the deficit, leading analysts to suspect that tax allowances granted on pension and welfare payments will definitely be altered. The country’s income tax base will also be expanded, to include a greater number of low-income workers, who currently enjoy no income tax liabilities.

Photo by rich_w