Philip Lane of the IIIS discussed the future of Irish fiscal policy. This included the nature of the revenue deficit, the constraints around fiscal policy in the current environment, the political realities of tax policy, and what he considers the optimal path of public sector pay cuts and tax hikes.
Firstly, we’ll discuss the consequences of the composition of the budgetary deficit. In recent years, tax revenue became heavily reliant on assets. These sources have now dried up, and won’t ever recover to the same levels. Thus, it becomes a question of what, not whether, tax hikes will be permanent.