Severe Budget cutbacks will see drop in living standards
Middle-income workers, families and social welfare recipients will bear the brunt of a €6 billion fiscal adjustment announced in the Budget today by Minister for Finance Brian Lenihan.
The first instalment of the Government’s four-year recovery plan will see a broadening of the income tax base, a 4 per cent reduction in most social welfare payments and an increase in petrol and diesel prices.
While the income tax rates will remain unchanged, the tax bands and credits will be reduced by 10 per cent, meaning more people will end up paying at the standard and higher rates.
Child benefit is to be cut by €10 a month for the first and second child and by €20 for subsequent children under a raft of measures to claw back €2.8 billion from the social welfare spend.
There will also be a reduction of €8 per week in jobseekers', carer's and disability allowances but there will be an additional once-off payment of €40 to households that receive the fuel allowance payment, due to the exceptionally cold weather this year.
There will be no change to the State pension but some of the tax advantages enjoyed by pensioners will be removed.
While taxes on alcohol and cigarettes remain untouched, the price of litre of petrol and diesel will rise by 4 cent and 2 cent respectively from midnight.
The controversial €10 air travel tax is to be reduced to €3 in an attempt to reverse the fall-off in tourist numbers.
Unveiling the draconian budget, Mr Lenihan acknowledged the current period had been a “traumatic and worrying time” for citizens.
“The budget cuts for the next four years are large, but if we postpone them then more wrenching adjustments will be needed at a later date," he said.
The Government's recovery plan to restore order to the public finances seeks to make €10 billion in spending cuts and another €5 billion by way of tax increases in four years, with €6 billion front-loaded next year.
The measures include substantial pay cuts for ministers, including a €14,000 reduction in the Taoiseach's salary and a cut of €10,000 for ministers. Salaries in the public service and in semi-State agencies are to be capped at €250,000.
As expected, the minimum wage is to be reduced by €1 to €7.65 but those on the new rate will remain outside the tax net. Income and health levies are to be replaced by single universal social charge. The current employee’s PRSI contribution ceiling is to be abolished while PRSI (Pay Related Social Insurance) for the self-employed and top earning public servants will be increased.
Public service pensions above €12,000 a year will be reduced by an average of 4 per cent while those under the watershed will be exempted. Mr Lenihan said the cuts will apply to former political office holders, retired members of the judiciary, and their survivors or dependents.
There is to be a fundamental reform of the stamp duty regime. A flat rate of 1 per cent will be applied to all transactions of residential property valued up to €1 million and 2 per cent on amounts above €1 million.
Reform of the system of Ministerial and State cars will see the cost of the fleet reduced by a third over the next two years. This will be achieved via a system of car pooling for former office holders, such as ex-taoisigh, presidents and others. Costs will also contained by reducing the engine size of the fleet to two litres or less. One of the two Government jets, which is at the end of its operational lifespan, will not be replaced.
University registration fees will rise from €1,500 to €2,000 annually as expected. However, families with more than one child in college will pay a reduced fee of €1,500 for second and subsequent children.
An extra 15,000 work placement and training places under existing unemployment schemes are to be introduced, at a cost of €200 million.
The Government's car scrappage scheme is to be extended for another six months to the end of June next year. VRT relief for hybrid and flexible fuel vehicles are also being extended.
Mr Lenihan said there would be no change to Ireland's 12.5 per cent corporation tax rate, and the three-year corporation tax exemption for start-up companies would be maintained.
"A fundamental principle of the Budget is that all taxpayers must contribute according to their means. Those who can pay most will pay most but no group can be sheltered," Mr Lenihan said in his speech.
But Fine Gael’s finance spokesman Michael Noonan said: "This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank”.
Labour’s Joan Burton said: “It is the disadvantaged who will carry the bulk of the cost and those whose reckless antics caused the disaster will survive best of all.”
Employers’ group Ibec expressed disappointment at the Budget, saying it could have done more to create jobs and restore competiveness. The organisation said that the €6 billion adjustment, while necessary, could have been done in a way that was “less damaging to economic growth and employment”.
The Irish Congress of Trade Unions said the measures lacked any sense of the “common good” and prioritised banks over the working poor.
According to Prof John FitzGerald of the ESRI, the measures will stymie economic growth next year to the tune of about 1.5 per cent, leaving the economy increasingly reliant on a resurgent export trade.
Later tonight the Government had a comfortable majority of five in the first vote on the Budget’s financial provisions.
The issues dealt primarily with excise matters including changes in vehicle registration tax and a provision to increase petrol by 4 cent a litre and auto diesel by 2 cent a litre.