All groups take hit in Budget

 

Most workers face substantial tax increases, while social welfare recipients will have their benefits cut as part of the €6 billion adjustment announced in the Budget yesterday by Minister for Finance Brian Lenihan.

The wide-ranging tax changes in the Budget will bring some lower-paid workers into the tax net for the first time and will hit every income group up to the top earners.

Speaking on The Pat Kenny Show  on RTÉ radio this morning, Mr Lenihan outlined a number of initiatives in the Budget that he claimed would help stimulate economic growth and highlighted the changes in stamp duty and the investment in extra training placements as evidence of changes which would assist those affected by the recession.

Defending his decision not to increase tax on "old reliables" such as alcohol and cigarettes, Mr Lenihan said that to have done so would have stimulated cross-Border trade and thereby damage the retail sector.

Mr Lenihan also said the idea that a bank default would assist Ireland was "entirely wrong".

"People should not be surprised that there's a huge erosion of trust in the Irish banking system when we've an endless debate on whether we should be defaulting on the payment of our obligations," he said.

The Budget passed its first test in the Dáil last night, with the Government having a comfortable majority of 82 votes to 77 on the first vote on the measure.

Former Fianna Fáil TD Joe Behan joined Michael Lowry and Jackie Healy-Rae in voting with the Coalition.

The Budget hit taxpayers hard through a reduction of 10 per cent in the tax credits and bands, a new consolidated social charge of 7 per cent and the abolition of the PRSI ceiling. The combination of measures will lead to significant tax increases for almost all workers, with more people paying at both the standard and the higher rate.

Cuts in the childcare allowance and increases in third-level college registration fees will impact on a wide range of families.

A middle-income family stands to lose as much as €300 a month. A couple with three children and a household income of €75,000 who contribute €4,500 to their pension pot annually will see their net income fall by €1,815, or €151.25 a month.

They will lose a further €40 a month in reduced children’s allowance payments. If they have one child in university, one in secondary school and one in primary school, a combination of increased registration fees and transportation levies will see their net monthly income fall by an additional €75 a month.

Pensioners are one of the few groups to remain unscathed, with no change in the State pension, but those on public service pensions of over €12,000 will also be subject to cuts. The unemployed will have a cut of €8 a week in their benefits, while a similar cut will also apply to the carer’s and disability allowance.

Excise duty on petrol went up by 4 cent a litre and there was a 2 cent increase in diesel. There was no increase in alcohol and tobacco duty.

The Government’s controversial €10 travel tax was cut to €3 in an attempt to entice tourists.

As part of a package of cuts for top earners in the public service, the Taoiseach’s salary is being cut by €14,000, bringing his total pay cut over the past two years to €90,000. Ministers are taking a further cut of €10,000.

Salaries in the public service and semi-State sector are to be capped at €250,000 for new appointments.

President McAleese has informed the Government of her intention to voluntarily reduce her salary in 2011 to the maximum rate of pay of €250,000 per year.

Reform of the system of State cars will see the cost of the fleet reduced by a third over the next two years.

As already announced in the four-year National Recovery Plan, the minimum wage is to be reduced by €1 to €7.65, but those on the new rate will remain outside the tax net.

A surprise element of the Budget is a fundamental reform of the stamp duty regime, aimed at stimulating the moribund property market. 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.

Third-level registration fees will rise to €2,000, but families with more than one child in college will continue to pay the existing fee of €1,500 for the second and subsequent children.

Speaking on RTÉ radio this morning, Minister for Foreign Affairs Michéal Martin said that every section of society would be affected by the Budget.

The bottom line is we obviously have to find €6 billion and we've endeavoured to do that in the fairest way. But there's no way you can take €6 billion out of any budgetary or finance system without having an impact on social welfare, without having an impact on health and on education and general services," he said.

Speaking on the same programme, Fine Gael's enterprise spokesman Richard Bruton said the Budget lacked the kind of radical thinking required to kickstart the economy.

"The real issue with the Budget in my view is that it is very much the Budget of a Government leaving office. It lacks any real ambition to make changes for the future, there is no attempt to seriously reform the way we deliver public services, no strategy in respect of growth and they are still clinging to the same old banking strategy that has really been the source of our problems," he said.

The steps to pass the budget seemed to satisfy the International Monetary Fund, which scheduled a board meeting for Friday to consider a €22.5 billion loan for Ireland, part of the bigger €85 billion euro joint EU/IMF rescue package.

IMF managing director Dominique Strauss-Kahn is set to return to Washington from Europe to chair the meeting.

"We welcome approval of the 2011 budget by the Irish parliament," an IMF spokesman said. "This is a clear sign of Ireland's strong commitment to tackle its problems and harness the impressive growth potential of this open and dynamic economy."

Additional reporting: Reuters