Congress Calls for Action to Ease Impact of Inflation
7 Jun 2007
"The rise in the consumer price index can no longer be passed off as a spike," said David Begg, Congress General Secretary. He was responding to figures released by the CSO showing inflation for May at 5.0 per cent, marginally down from 5.1 per cent in April.
"Notwithstanding a slight fall in the Consumer Price Index it is clear from the statement of Mr Trichet of the ECB that the upward trend in Interest Rates is set to continue into 2008. This means that Irish inflation will remain high contrary to earlier forecasts. Therefore the cost of living is likely to exceed the pay terms of the Social Partnership Agreement 'Towards 2016' and that is a very serious problem indeed," said Mr. Begg.
Mr. Begg noted that many people would find it strange that a policy of raising Interest Rates to curtail inflation in Europe would have the opposite effect in Ireland. This was because of the high level of private indebtedness driven by mortgages he said. While most of the CPI increase is related to Mortgage Interest the underlying rate of services inflation is also exceptionally high in Ireland. Hotel and Restaurant charges are the major culprits. Overall the cost of living in Ireland is twenty per cent higher then the European Average and there must be an element of profiteering involved in the Services Sector, he claimed.
"When the increasing trend in inflation first became evident we said we would wait until mid-year to see whether claims of a fall off would materialise. Those forecasts were clearly wrong and it is time to act. Workers cannot be passively expected to absorb these increased costs. The cost of the average mortgage has risen by €320 a month in less then two years and that is unsustainable for people on average incomes," said Mr. Begg.
He said Congress would be calling on the Government for urgent action. Options which Congress will table include:
- Increasing Tax Relief on Mortgages to a higher theshold and to the higher marginal tax rate ;
- Reducing the Rate of Vat from its current level of 21 per cent.
This latter approach could be justified because there has been a steady movement away from Direct Taxes and on to Indirect Taxes in recent years to the point where we now have the second highest Vat Rate in Europe. The UK Rate, for example, is 17.5 per cent. This movement has been regressive because it hits people on lower incomes hardest.
Mr. Begg said that if some way could not be found to ease the pressure of the increased cost of living then Congress would have to ask Employers and Government to advance the date for negotiating the next pay module of the Social Partnership Agreement. Congress welcomed the statement from the Taoiseach proposing an early meeting with IBEC and ICTU to discuss inflationary pressure.