THEJOURNAL.IE HAS OBTAINED the financial documents distributed to German MPs – and can confirm details of the Irish government’s plans for next month’s Budget.

The documents formally outline the government’s plan to increase the higher rate of VAT from 21 per cent to 23 per cent – two years ahead of the conditions required by the original EU-IMF deal – and plans to increase a number of other taxes.

They also outline the areas in which the government proposes to cut spending by €2.2bn in the Budget – mostly through cutting expenditure in social welfare, cutting the numbers working in the public service, reforming public pensions and cutting capital expenditure.

The documents – which were controversially circulated to German MPs on Wednesday – contain a provision allowing the government to scrap some of the proposals and replace them with others.

The Department of Finance this afternoon insisted that the documents were draft versions, and that no decisions had been made on what tax increases would be made in the Budget – though Michael Noonan told RTÉ’s News at One that he would be proposing the 2 per cent VAT increase at cabinet level.

However, TheJournal.ie understands that the provisions included in the draft documents will form the basis of the 2012 Budget – as the documents will be used by EU finance ministers to approve the latest round of €4.2bn in bailout loans, just six days before the Budget is announced in the Dáil.

The package of documents also includes:

a firm commitment that domestic water charges will be introduced by the end of 2013
plans to broaden the income tax base in 2013, along with increases in excise duty and other indirect taxes
plans to cut social welfare spending and the public payroll even further in 2013
a government agreement to prepare a draft programme for selling state assets, to be discussed with the Troika by the end of this year
a request from Michael Noonan and Patrick Honohan to ‘frontload’ the bailout loans for 2012 – with deductions from the second, third and fourth instalments to make up for an extra-large first instalment
an update to the EU-IMF deal outlining that ”any unplanned revenues must be allocated to debt reduction“
a commitment to “initial resolution funding” of €250m for Ireland’s credit unions
further commitments to open up ‘sheltered sectors’ like pharmacies, GPs and legal services

Next month’s Budget proposes to make €670m through the VAT increase, €160m through the new €100-per-house ‘household charge’, and €100m through the reform of capital gains tax.

The government will cut capital spending by €750m, and current expenditure by €1.45 billion – with the latter cuts coming by reducing the number of public jobs, reforming social welfare entitlements and cutting Departmental programmes.

While the government is keen not to cut social welfare rates, it proposes to produce “a comprehensive programme of reforms that can help better target social support to those on lower incomes, and ensure that work pays for welfare recipients” – which may indicate that eligibility for social welfare could be reformed so that fewer people qualify for benefits.

Elssewhere, the government asserts that it is committed to tackling social welfare fraud, as opposed to across-the-board cuts in welfare payments.

In regard to the 2013 Budget, the draft documents propose:

Revenue measures to raise at least EUR 1.25 billion, including:

A broadening of personal income tax base

A restructuring of motor taxation

A reduction in general tax expenditures.

An increase in excise duty and other indirect taxes.

Expenditure reductions of no less than EUR 2.25 billion, including:

Social expenditure reductions.

Reduction of public service numbers and public service pension adjustments.

Other programme expenditure, and reductions in capital expenditure.

The €250m funding for credit unions will be recouped through a “levy”, details of which are not elaborated on – and further funding to back up the lenders is allowed for at a later date.

The documents also say legislation to reform wage agreements – in the sectors affected by the JLC court ruling earlier this year – will be compiled with Troika input by the end of 2011.

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