2023: THE YEAR OF COVID HANGOVER TAX HIKES?

■ COULD TAXES GO UP TO PAY FOR COVID BILL?

There is a growing expectation that tax hikes are on the cards in the coming years — when the Government starts to tackle the huge Covid hit to the country’s public finances. Many economists believe 2023 could be the year that such higher taxes kick in — and that these tax increases will be unveiled in October 2022 when Budget 2023 is likely to be delivered. “Assuming the pandemic is behind us, I believe taxes will go up in 2023 — as the Government can’t go on borrowing,” said economist Alan McQuaid.

The Irish Government spent €19bn more than it took in last year — largely as a result of its efforts to fight the pandemic. The country’s national debt stands at more than €219bn. “Property taxes will go up — as property tax hikes have less of an impact on the labour market than income tax increases,” said McQuaid. “Personal taxes will go up eventually though.” DCU’s Tony Foley believes tax increases are “unavoidable” in the coming years. “Part of the impact of the pandemic is that the role of the State in the economy has increased,” said Foley. “That will be permanent and will require continuing ongoing public expenditure which will either have to be paid for through cutbacks or higher taxes — and I think Ireland will do that through taxes.”

■ COULD A RECOVERY STAVE OFF TAX HIKES?

A quick economic recovery could stave off any tax hikes. “Our expectation is that the economy will bounce back quite strongly [after Covid] — so you may not need to increase taxes,” said Kieran McQuinn, a research professor with the Economic and Social Research Institute. “When it comes to tax rises, the two big questions are: How quickly will the economy recover as we exit the restrictions and put

Covid behind us, and will the recent growth in receipts of corporation tax (the tax on company profits) continue — or fall off? In recent years, there’s been a huge boost in corporation tax receipts — if those receipts fall off, that will put public finances under strain. That could see direct and indirect taxes go up.”

■ COULD WE RETURN TO THE AUSTERITY DAYS?

Any post-pandemic tax increases or cutbacks may not be as severe as those of the austerity years that followed the financial crisis. “Austerity cannot return and should not return,” said economist Jim Power. “The absolute priority over the next few years should be to rebuild the economy.”

Higher interest rates, if introduced by central banks, could however put huge strain on the country’s public finances and see steeper tax hikes than expected. “Ireland is currently servicing its [national] debt at very low interest rates,” said McQuinn. “As long as the ECB keeps that support in place, there won’t be huge pressure on the public finances.”