The Cabinet is meeting this afternoon to put the final touches on tomorrow’s emergency budget, which is expected to be the toughest in decades.
Exchequer returns published last week show that the Government will only raise about €34 billion in taxes this year. The overall cost of its spending programmes for 2009 will be €65 billion.
The budget is expected to contain a €3.5 billion package of tax and savings measures, with much of the money coming from extra tax.
Minister for Finance Brian Lenihan is expected to announce an increase in the current income levies rather than an immediate rise in taxation rates when he addresses the Dail tomorrow. Current levies are likely to be doubled. They will translate into increases in the standard and higher rate of tax in 2010.
Mr Lenihan is also expected to announce his intention of broadening the tax base but new measures will not be implemented until next year after the report of the Commission on Taxation.
The biggest item of Government spending is the €21 billion on social welfare payments. While cuts in the basic rates are not expected to be announced tomorrow, the Minister may give a strong signal that they will come down next year if prices continue to fall.
Child benefit is not expected to be taxed but there will be what is described as “an interim move to make savings”, a Government source indicated. The early childcare supplement of €1,000 per child under 5½ years is likely to be curtailed or abolished completely this year.
The current ceiling or upper income limit of €52,000 for pay-related social insurance (PRSI) is likely to be raised.
While the budget will introduce increases in excise duty on the “old reliables” such as alcohol, tobacco and motor fuels, these will be modest in scale. Part of the thinking behind this is that residents of the State can easily buy their drink, cigarettes and fuel in Northern Ireland.
The budget will not include a specific proposal for an asset management agency or “bad bank” as a plan for this was “not ready” at this time, senior political sources said last night. However, Mr Lenihan will indicate that restructuring of the banking system is under consideration.
It is expected that the annual payments for chairs of Oireachtas committees will be cut by half from the current level of €20,000.
Overseas aid is likely to be reduced in line with the shrinkage of gross national product.
The budget may include a plan for a new bond scheme whereby pension funds would invest in infrastructure projects in Ireland such as roads, schools and hospitals, with a guaranteed rate of return from the State. The scheme would be expected to draw in €1 billion - €3 billion to substitute for capital spending from State funds.
Government sources said the scheme would take the form of an investment bond and could provide funding for projects such as the cystic fibrosis unit at St Vincent’s Hospital, Dublin.
Trade unions said last night said it was unlikely that a comprehensive agreement on a national recovery plan would be agreed by the social partners in advance of the budget. Union, employer, and Government representatives met over the weekend and will meet again today.
In a video posted on the Fianna Fáil website yesterday, Taoiseach Brian Cowen said the budget will show the Government has a plan to get the economy back on track over the next few years and is committed to tackling the problems in the banking sector.
The Government would seek to maintain as many jobs as possible, help those who've lost theirs and protect the most vulnerable to the best of its ability. Unfortunately, he said, this would mean imposing greater taxes on those who could afford to pay them.
Everyone will have to make sacrifices, the Taoiseach warned.
"A collective effort by us all is the one that best guarantees us success," he said. "We will come through this and, at the end of the day, we will look back and be proud of the collective effort we all made."
Tomorrow's supplementary budget will also include general economic forecasts for the next four years including projections for unemployment, GDP and inflation.
More detailed projections for revenue and expenditure levels will be published when the Dáil returns from its Easter break on April 22nd.