The €2.7bn the government pays retired public sector workers will have to be taxed further and the Croke Park pay deal protecting public sector pay will be unstitched if Ireland is to stay out of the European bailout fund, one of the world's leading credit rating analysts has warned.
Chris Pryce, lead director at Fitch Ratings, whose key decisions will determine Ireland's future starkly warned the state will lose its "preferential" 12.5% corporate tax rate if it were to tap the European Financial Stability Facility. "It is as serious as that," he said.
Pryce said December's budget package of cuts and taxes will be €4bn, featuring sweeping rises in income taxes on the low and modestly paid.
The government, he said, already regretted signing the Croke Park agreement, while pensioners, who had benefited from falling prices, would need to be taxed.
"I personally expect there will be a marked increase in taxation ? not so much rates as coverage," Pryce added.
"A property tax would be very difficult to bring in next year. Income tax could be applied to more people. I think they already regret having given a pledge to not cut public pay under the Croke
Park deal. Pensions are the one thing that has not been touched already. People in receipt of pensions have not been affected and the value of pensions would have risen," he said.
Pryce predicted the Croke Park deal would be put under severe strain. "I think a different prime minister would not necessarily feel bound" to honour the deal, he said.
The public-sector pensions bill for almost 120,000 pensioners will rise by 7.5% to a gross €2.7bn this year even as the exchequer pay bill for current workers falls 7.7% to €16bn, according to last December's Public Service Estimates.
Capital spending will be cut by €1bn. "The government will be looking at current spending – welfare pay, services, reducing numbers employed by the public sector, squeezing local government, those sort of things," Pryce said.
The government, he said, was determined to preserve its sovereignty by shunning the bailout fund and had the commitment and cash, including unencumbered assets in the national pension fund, to avoid tapping markets through 2011, if so required.
Pryce said the markets had taken the news of Ireland's budget record deficit of 32% of GDP "amazingly well" in light of the bad time they gave Greece.