A NEW State agency which will buy up billions of euro worth of properties and development land loans from banks at sharply reduced prices is to be announced in today’s supplementary budget.
The budget – expected to be one of the toughest in the history of the State – is central to restoring Ireland’s international financial credibility and is likely to contain €3.5 billion of new taxes and spending cuts.
The new asset management agency will be run by the National Treasury Management Agency and backed eventually by a fund worth between €60 and €80 billion. However, the finer details will not be unveiled by Minister for Finance Brian Lenihan until later this week.
Ministers have supported the special agency having been convinced that the State’s banks cannot be brought fully back to life until the €56 billion worth of badly hit property loans are moved off their books.
However, the banks will have to sell the majority of the loans to the agency at knock-down prices, which will be decided by local property prices and development prospects.
Bank shares climbed yesterday in anticipation of a Government announcement to remove problem loans from the banks.
AIB rose almost 15 per cent, while Bank of Ireland climbed 9 per cent.
Meanwhile, Mr Lenihan, who is expected to raise more than €2 billion in new taxes from today’s measures, last night gave the strongest evidence yet that he favours putting the emphasis for now on more taxes and not on spending cuts.
In a message to Fianna Fáil supporters, he said: “Our budget will strike the difficult balance between higher taxes for those who can afford it and necessary spending cuts.”
However, he said the exchequer would take in an “estimated” €33 billion in tax this year – a figure which is €1 billion lower than figures published by the Department of Finance just a week ago.
Today Mr Lenihan is to give greater certainty about the Government’s finances over the next three years.
Defending his strategy, he said: “Two-thirds of our spending is now welfare payments and payments to public servants. If you want an adjustment on the spending side you have to cut pay for public servants or cut rates for social welfare,” he told RTÉ News.
“I have not seen many people advising me to do that. Let’s get real where the balance has to be struck here. Anyone who suggests that this cannot be done without tax is deceiving themselves.”
The existing 1 per cent levy imposed on all workers from January will be doubled, while the 2 per cent and 3 per cent rates affecting those earning more than €100,00 and €250,000 are also to be increased.
The levies will be incorporated into the general PAYE tax rates from December, although Mr Lenihan is not to give any certainty about the rates that will then apply in his speech to the Dáil shortly before 4pm.
Several hundreds of millions will be cut from the non-national roads budget and a number of rail projects will be affected. However, work on the Dublin North Metro plan – due to cost €40 million this year in planning costs – is to go on.
Ireland’s overseas aid budget, which has already fallen by €155 million over the last 18 months from its height, is to be cut by a further €80 million, reflecting the fall in the country’s gross domestic product.
No cuts in the basic social welfare rates will be made, but the childcare allowance will be cut. Mr Lenihan is expected to give a clear indication in his speech that child benefit will be taxed from the next budget onwards.
The Cabinet has not decided to introduce a car scrappage scheme.
The budget will also not contain measures affecting tax exiles, although the Department of Finance is still examining measures that could be brought in when the Finance Bill goes to the Oireachtas.
Ministers signed off on the budget at a noon meeting in Government Buildings yesterday.
Tax on the “old reliables” – alcohol, tobacco, petrol and diesel – will occur but the increases are lower than some in Government wanted because of fears that excessive rises would spur cross-Border trade and smuggling.