Irish Finance Minister Michael Noonan said he is confident the country can return to the bond markets as he reins in the European Union’s biggest budget deficit by taxing wine drinkers and mansion owners.
The government laid out 3.5 billion euros ($4.6 billion) of measures to raise taxes and cut spending to stick with its pledge to the International Monetary Fund and European funders of its 2010 bailout to cut the shortfall to 7.5 percent of gross domestic product next year. From midnight tonight, a bottle of wine will go up by 1 euro, while a new property tax will come into effect in July 2013.
“We will not dither or procrastinate, but will drive forward to lead this country out of the despair and despondency and lack of self-worth,” Noonan told lawmakers in Dublin.
Ireland is about 75 percent through cuts amounting to 33.4 billion euros, or about a fifth of the size of the economy, stretched over eight years through 2015. While the deficit will still be the highest in the 27-member EU for the fourth year in a row in 2013, the austerity has been lauded by investors.
The country will introduce a property tax from July, levied at an annual 0.18 percent for homes valued below 1 million euros, rising to 0.25 percent above that threshold, Noonan said.
The price of cigarettes, vehicle registration and motor tax will also increase, he said. The government is cutting child benefit by 10 euros a month, capping tax relief on pension contributions and lowering telephone and electricity allowances for pensioners. Most other welfare payments remain unchanged.
The Finance Ministry forecast last week that this year’s deficit will be 8.2 percent of GDP compared with the 8.6 percent target it promised the IMF and EU.
“Ireland has been smart through the crisis so far by not promising too much too soon,” said Padhraic Garvey, head of developed markets debt strategy at ING Groep NV in Amsterdam, before the budget was announced. “Achievable targets are what is required to pave the way for wider market access for 2013.”
The National Treasury Management Agency plans to raise about 10 billion euros in the market next year as it returns to syndicated bond sales and regular monthly long-term debt auctions, its chief executive officer, John Corrigan, said on Nov. 22. Ireland sold Treasury bills and bonds in July for the first time in almost two years.
Yields on the country’s benchmark 2020 bond rose 3 basis points today to 4.46 percent, down from 7.4 percent at the start of June and from as high as 14 percent in July 2011.
Stabilizing public finances are “an essential prerequisite to long-term growth and job creation,” Noonan said. Ireland can only access markets if investors believe that “we have a credible fiscal strategy and agree that our debt is sustainable,” he said.
Noonan said he is introducing legislation on real-estate investment trusts, or REITs, to help boost the property market, whose collapse triggered Ireland’s economic demise.
Ireland is establishing the trusts to lure investors into the commercial property market, Noonan said. Their introduction will assist the National Asset Management Agency as it sells property. The agency was set up by the previous government to take on bad bank debt as it propped up the financial industry.
Home prices, down 50 percent from their 2007 peak, have risen in three of the past four months, according to the Central Statistics Office in Dublin.
At the same time, the government plans to tackle levels of household debt. The central bank is overseeing plans to deal with “unsustainable personal and commercial debt,” he said.
Allied Irish Banks Plc, the largest mortgage lender, has pledged to contact 1,500 customers a month to work on restructuring their home loans, he said.
“This is the level of ambition that the government expects from all banks,” he said. “The Irish financial crisis could be summarized in one word: debt. The government is committed to dealing with both.”