As flagged up by Mack yesterday, the Irish Times reports that the EU/ECB/IMF team is examining how to force bondholders to share the burden with Irish taxpayers of the 15 billion euro deficit reduction plan.
At present attention centres on two similar schemes. In the first, bank debt would be converted into equity shares. In the second, bond investors would be given the choice of injecting fresh capital into banks or face a cut in their investment.
This seems an awful lot to do before the announcement of the bank bailout expected over the weekend. And I had thought we’d been told that burden sharing had been ruled out until a new euro stability fund is set up in 2013. But hey, most of us are stumbling round in the dark on this.. Somehow I doubt if it will bring much short term relief.
In the Irish Times Conor Pope has ben counting the costs for real people and Dan O’Brien critiques the plan itself, in the best estimate of impact before the December 7 budget. Interestingly, the growth projections are deliberately low to reduce the chances of being forced into even tougher budgets from year2.
- For the next half decade at least, the rising costs of our debt will soak up projected savings
- Total spending will hover around €75 billion annually up to 2014, as measured by the widest-ranging and EU-standardised “General Government” figure
- By 2014, it expects the EU-standardised measure – General Government revenue – to have grown by more than 25 per cent from its anticipated floor this year
- The 2011 budget is predicated on a rate of GDP growth next year of 1.75 per cent.
- On the composition of the plan, the Government stresses the breakdown of its €15 billion adjustment over four years: with €10 billion accounted for by cuts in spending and €5 billion coming from new taxes.
- €22 billion was allocated to capital expenditure in the four years from 2011. The new four year figure is €16.4 billion.
- Despite the big reductions since July, capital spending in 2011 will amount to 3.7 per cent of GNP. This is still comparatively high. Watch for further big reductions in the MoU ( memorandum of understanding with the EU, ECB, IMF) or, more likely, in 2011 if the overall budget adjustment veers off target.
- The plan is also emphatic in its insistence that the 12.5 per cent corporation tax rate will never be changed
- If anyone now believes that those countries who are bailing this State out will allow it retain its sovereign wealth fund while they subsidise it has another think coming. The Government should long ago have amended the legislation governing the NPRF ( National Pension Reserve Fund). That will have to happen very soon.
Conor Pope writes on what it means for real people.
- A person earning €50,000 a year will have at least €3,000 less in their annual pay packet by the time all the elements of the plan are played out.
- With property and carbon taxes coming in the next two years, and water charges from 2014, as well as increases in VAT, excise duty and income tax on the way, there will be few people after budget 2011 feeling untouched
- Today a single PAYE worker needs to earn €18,300 before they have to pay income tax but this will start to drop from next year and by 2014 it will have fallen by €3,000.
- This means the take-home pay for a single person earning €55,000 will fall by €1,860 a year or €36 a week
- For a married, one-income family earning €55,000 annually yesterday’s news will be bleaker still. Under the proposals, their take-home pay will fall by €2,310 a year or €44 per week, a drop of 5.4 per cent.
- It gets worse. If this family have two children in university they will have to find a further €1,000 a year to cover the increase in student registration charges which are to go up next year by 33 per cent from €1,500 to €2,000. Already this notional family is worse off to the tune of €3,310 and 2011 will have barely started
- The minimum hourly wage will be reduced by €1 to €7.65 as the Government believes the current rate is a barrier to job creation.
- Another significant change concerns tax relief on pension contributions. This too will be implemented almost immediately. .
- In 2013 the full value-based property tax will come into being and it is expected it will cost the average household €200. In 2013 the tax relief on pension contributions will fall to 27 per cent. In just over two years our VAT rates will also start to rise with the standard rate increasing from 21 to 22 per cent.
- In 2014 water taxes will become a reality for consumers. People will be allowed 40 litres of water per day for free – a shower will use up about 20 litres – after which the metered charges kick in.
Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London