Details of Government bailout contract unveiled

 

The Government has published the memorandum of understanding (MOU) on the conditions for the €85 billion aid package agreed with the EU and IMF.

The document sets out the key conditions for the EU element of the loan, which is being provided under the the European Financial Stability Facility.

The memorandum gives quarter-by-quarter targets that will have to be met by the Government in order for funds to be released.

Among the key elements of the document are that the the release of the first instalments of the package will be conditional on the upcoming budget being adopted and implemented.

The Government will also have to consider “appropriate adjustment” to the public sector wage bill if the Croke Park agreement is not delivering by the third quarter of next year.

It says Budget 2012 must achieve adjustments of €3.6 billion, with further cuts and savings of €3.1 billion in Budget 2013.

It says water charges will be introduced in 2012 or 2013, by which time metering is to have been installed across the State. This is a year earlier than expected. It also says the responsibility for water will be transferred from local authorities to a new water utility.

Labour finance spokeswoman Joan Burton said the deal “buys time for the rest of Europe to get its banks in order, but it makes Irish taxpayers the sacrificial lambs for European financial stability”.

The document says the Department of Finance, the Central Bank and the NTMA will provide weekly, monthly and quarterly updates to the ECB, EU and IMF. The Government will also consult them on any policies not consistent with the agreement.

The aid package, which was unveiled last weekend, includes €45 billion from the European Union, €22.5 billion from the IMF and bilateral loans from the UK, Sweden and Denmark. The estimated average interest rate of the loans is 5.83 per cent per year.

The Government will also contribute €17.5 billion, €12.5 billion from the National Pension Reserve Fund and €5 billion from cash reserves.

Minister for Finance Brian Lenihan said the document “closely reflects" the Government's four-year plan and does not alter his budgetary strategy.

The memorandum says the Government is committed to implementing policies by the end of the first quarter of next year aimed raising at least an extra €2 billion in taxes.

This target will largely be achieved by lowering income tax bands and credits to yield €945 million in 2011 and an extra €300 million in a full year. A reduction in pension tax reliefs will yield €155 million in 2011 and and extra €105 million in the full year.

A cut in current expenditure of at least €2 billion will be implemented next year, including reductions in social welfare payments, public sector staff numbers. The Government has also pledged to save a further €1 billion on "goods and services".

Some €1.8 billion will be cut from the original capital budget for planned for next year.

The memorandum says the Government will adopt measures in Budget 2012 to generate a further €1.45 billion in tax revenue. These will include lowered income tax bands and credits, a property tax, reform of capital gains and acquisition tax and increases in carbon tax.

Expenditure will be cut by €2 billion in 2012.

Measures not contained in the four-year plan include a reduction in "general tax expenditures" to yield €220m next year, the introduction of more excise and other taxes to raise €80 million. The document says the Government will outline methods to raise at least €700 million in one-off and other taxation measures next year.

In a statement to the Dáil this afternoon, Mr Lenihan said the aid package was vital for the Government. “Without this Programme, our ability to fund the payments to social welfare recipients, the salaries of our nurses, our doctors, our teachers, our gardaí would have been extraordinarily limited and highly uncertain,” he said.

“In those circumstances, the only responsible course of action for any government was to accept the EU-IMF financial assistance fund."

He said €50 billion of the €67.5 billion Ireland will receive from Europe and the IMF will go to fund public services over the next three years.

The memorandum also outlines strategies for restructuring Ireland's banking system and dealing with an extra €16 billion of development loans through the National Asset Management Agency.