ABOUT ONE-THIRD of a €3 billion package of cuts for next year being drawn up for a crucial Cabinet meeting next month are expected to come from social welfare.
All Government departments have been told in a letter from the Department of Finance to have a list of cuts prepared by September 11th as part of a €3 billion savings package.
With social welfare now accounting for more than a third of all current Government spending, the total cut expected from that department for next year is in the region of €1 billion.
The letter, sent by the Department of Finance to the secretary general of each department, specifies that the savings for next year should be based on the McCarthy report.
Each departmental chief was told that following a Government decision on July 22nd, they were now required to submit a comprehensive list of saving options for 2010.
“The Government has agreed that budgetary consolidation in 2010 and subsequent years should focus primarily on expenditure adjustments rather than additional tax increases, and that Ministers will prepare their own considered list of detailed expenditure saving options consistent with securing overall saving options of €3 billion in 2010 from current expenditure,” says the letter.
It said while no definitive allocation of the €3 billion target had been decided on at this stage, the Budget Strategy Memorandum 2010-2013, agreed last month, set out a number of scenarios to give an indication of the scale of the savings that would be required in each area.
“Accordingly, to enable the Government to reach the €3 billion target, you are requested to submit your comprehensive list of current expenditure savings options,” adds the letter, which gives each department a specific figure to aim at.
“In drawing up savings options for your area for approval of your Minister as appropriate, you should take full account of the proposals identified in the report of the special group , together with any other policy options that departments may wish to put forward for consideration.
“In the event that any of the options put forward by the special group are not included in your list of options, you should provide a rationale for the omission.”
The special group, chaired by economist Colm McCarthy, identified potential cuts of €1.84 billion in the social welfare budget.
The report pointed out that welfare spending had increased from €17.62 billion last year to a projected €21.27 billion this year, and would amount to 37 per cent of all current Government spending. It said social welfare rates had increased by between 90 per cent and 110 per cent since 2000, amounting to an increase of 67 per cent in real terms.
“In these circumstances the group considers that there is a clear case for social welfare rates to be adjusted downwards in line with pay and price adjustments that are being borne across the economy,” said the McCarthy report.
The group recommended that, in light of the fall of over 5 per cent in the consumer price index, welfare rates should be reduced by 5 per cent across the board, which would give a saving of €850 million in a full year.
Each department has been told to spell out savings options for next year in tabular form, and to identify how much can be saved in 2010 and in a full year.
“The detailed expenditure savings options will be considered in detail by the Government in the September/October period to reach an agreed position on which savings options should proceed in the December budget and which options might be scheduled for a later stage in the consolidation period.
“In this context, structural savings options, which while not necessarily generating substantial savings in 2010, would be likely to give rise to more significant savings in 2011 or later, are not excluded from consideration and should be put forward as appropriate,” says the letter.