The think-tank noted the government’s pledge to cut the budget deficit to below 3 percent of GDP next year, adding should the economy fail to grow sufficiently then savings will have to come from expenditure.
Its report says the temporary windfall taxes and diversion of private pension payments are a shifting of liabilities rather than a solution to the budget’s structural problems. Should an insufficient number of private pension savers return to the state fund then surplus revenue needed to keep the budget in balance will be missing, it said.
In this case the government will have to take an axe to spending, and public sector pay will be the first causality. Whereas the 2011 budget does not cover pay rises, the introduction of the flat income tax will favour public-administration officials and public-sector employees, the report said. It is the low-paid that will not get any benefit from the new tax regime, and unions are likely to defend their interests aggressively, it added.
Employer-employee reconciliation normally receives a large amount of state financial support, but this is to be cut considerably, thereby deteriorating relations between the government and interest representation bodies, said Policy Agenda.
The report said the government’s plans largely hinge of achieving a higher rate of growth. Unless it does manage this feat the government will be forced to implement structural reforms in the spheres of local government and the health and education sectors in a year’s time.