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Ireland unveils post-austerity budget, ends tax loophole

Since 2008, Ireland has adjusted its economy by 30 billion euros (US$38 billion) in spending cuts and tax hikes - roughly a fifth of GDP - PHOTO: BLOOMBERG

[Dublin] Ireland moved beyond a cycle of tax hikes and spending cuts on Tuesday in its first non-austerity budget since its economic crisis, which also tightened the country's corporate tax rules.

"Budget 2015 is about securing the recovery, building for the future and broadening it to families across the country," Finance Minister Michael Noonan told parliament.

"This government will not be returning to the boom and bust model of the past that has spectacularly and repeatedly failed the Irish people." Ireland entered a massive European Union/International Monetary Fund rescue programme in 2010 in the wake of expensive bank bailouts, a property market collapse and ravaged tax incomes.

Since 2008, Ireland has adjusted its economy by 30 billion euros (US$38 billion) in spending cuts and tax hikes - roughly a fifth of GDP.

But on Tuesday, the coalition government delivered its fourth budget and said it marked "the end of budget austerity." It comes as Portugal's parliament is set to debate on Wednesday that country's first budget since its exit from a bailout, and which is expected to be less stringent than past spending plans.

Mr Noonan said Ireland's department of finance is forecasting strong GDP growth this year of 4.7 per cent, 3.9 per cent in 2015 and 3.4 per cent in 2016-2018.

He also said the budget measures would reduce the deficit next year to 2.7 per cent of GDP next year, well within the EU's 3.0 per cent target.

A one percent cut to the top rate of tax was part of income tax cuts amounting to 458 million euros, offset by new charges for water that should raise 300 million euros next year.

The water charges were at the centre of the biggest protest against austerity seen in Ireland for years on Saturday, when tens of thousands rallied in Dublin to demand an end to tax hikes and spending cuts.

The budget includes a range of measures, from a hike in the price of a pack of 20 cigarettes to 10 euros (US$12.60) , to a five euros a month child benefit increase for all.

Minister for spending, Brendan Howlin announced a 2015 expenditure increase of 639-million-euros - 2.0 billion euros more than forecast last year - including 2.2 billion euros to tackle waiting lists for social housing over three years.

Analysts said warnings by the European Commission to stick to a careful budget had been ignored.

"Clearly, the electoral cycle and traditional political pressures for pro-cyclical fiscal policy have re-asserted themselves," said an analyst note by Davy Research.

Opposition finance spokesperson with Fianna Fail, Michael McGrath, said Mr Noonan had "made a mess of it."

Dublin also announced changes to its corporate tax rules in the wake of increased scrutiny caused by a European Commission probe into Apple's tax arrangements in Ireland.

Mr Noonan announced the end of a controversial tax loophole known as the Double Irish from next year, which allows multinationals to transfer profits to tax havens.

The scheme would be abolished next year for new companies, and 2020 for existing users.

"I am abolishing the ability of companies to use the Double Irish by changing our residency rules," Mr Noonan said.

"All companies in Ireland must be also tax resident in Ireland." A European Commission spokesperson welcomed the move.

"The European Commission has to look at the detail and how it will work in practice but the intention is very good," the spokesperson said.

Mr Noonan also said Dublin would work to enhance Ireland's attractiveness to multinationals, who employ over 160,000 people in over 1,000 companies.

"This proactive change will not bring an end to international tax planning; that requires co-ordinated action by all countries," he said.

"By taking action now and making this change as part of a broader reform of our corporate tax system, we are giving certainty to investors about corporate tax in Ireland for the next decade." Both Mr Howlin and Mr Noonan warned that the recovery was not certain, and urged caution.

Mr Noonan said: "We have travelled the long road and are now at a very important crossroads." AFP