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So... what would happen if the IMF stepped in?

Is the IMF really an all-consuming monster? Check out what an IMF bailout would really mean.

Would IMF measures cost us an arm and a leg?
Would IMF measures cost us an arm and a leg?
Image: via Creative Commons

AS BOND PRICES CONTINUE to rise today, and international financial coverage focuses on the likelihood of an IMF bailout for Ireland, brings you a Q&A on what would happen if the IMF took charge of our finances.

Basically, what would it mean for Ireland?

“The IMF is seen as the evil bogeyman of the world economy that nobody wants, but essentially its job is to make the decisions that are necessary,” says economist Ronan Lyons.

Lyons believes the IMF would basically keep going on the path of the government’s cost-cutting measures, albeit a little more ruthlessly because the IMF doesn’t need to curry favour for future elections.

So where would the IMF cost-cutting gaze fall in Ireland?

Although much of the economy would be untouched, the IMF would have to weigh up what public service costs, and what revenue it raises.

That means balancing the books, and it’s not good news: their main aim would be to get costs down, which could include cuts to healthcare and education spending.

It would also mean raising more revenue. This could mean introducing water charges and property tax, with an annual property tax replacing stamp duty, says Lyons.

Are we looking at losing a chunk of our wages to tax, then?

Yep. It wouldn’t happen on day one of the IMF’s arrival, but it would be likely to raise income tax to about 20% at increments over a few years, according to Lyons.

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“It’s not trying to destroy an economy, it’s trying to put an economy on a solid footing so it couldn’t necessarily put things in overnight, but it could signal where things are going in the course of the next few years,” he says.

And corporation tax?

That depends on how a bail0ut would happen. If it’s an EU and IMF partnership, then the EU would certainly push to raise our corporations rates and bring them more into line with rates for other EU members.

However, if the IMF is taking the lead in the bailout, it would be unlikely to raise the rate as our corporation tax generates a lot of money we wouldn’t get if it was jacked up to 40%. A rate rise could discourage foreign investment.

A bailout in itself would really affect how international investors see us, discouraging them from lending us money on the markets.

Read also: For more technical details of what an IMF bailout could involve, read What happens if we need an IMF bailout?

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