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Will the Government increase VAT in a bid to reduce deficit?


Speculation around Ireland’s forthcoming 2011 Budget continues to grow, with questions being asked across the board on where the money will come from to reduce the country’s deficit.

The Irish Government has already stated that it is committed to retaining a 12.5% Corporation tax rate, despite calls from the EU to increase this and make Ireland a “normal tax country in the European context”.

With the UK already set to increase VAT by 2.5%, it would seem that Ireland will follow suit, with a rate increase of around 2% being mentioned. With reported savings of €4.5bn to be made in December’s budget, the other likely sources of funding are thought to be:

  • Introduction of a property tax
  • Reductions in public sector pay & pensions
  • Widening of the tax net to include low-salary workers, with a specific mention of taxation of those on minimum pay
  • Cuts in social welfare rates
  • Budget cuts in the health & education sectors

The 2011 Budget is set to be  unveiled on Wednesday 9th December. Will Brian Lenihan come across as more of an Ebenezer Scrooge or a Santa Claus? It remains to be seen...