ANALYSIS:Brian Lenihan's bold claim that "the worst is over" will be sorely tested over the turbulent year to come, writes HARRY MCGEE, Political Correspondent
It may have been the most austere Budget in the history of the State. The arithmetic may have been brutally stark. The total of €4 billion in savings contained in the document may have been monumentally large by any measure. The measures may have resulted in devastatingly deep cuts in pay for public employees, in social welfare and in many government programmes.
And yet, in spite of the unprecedented and extraordinary nature of the Budget, there were few gasps of surprise or angry heckles during the 46 minutes when Brian Lenihan was on his feet, and a strangely muted round of applause, with no standing ovation, when he finished with a weakly-delivered allusion to John F Kennedy and his promise of hope. (Why did he not allude to a more recent US president who has made promises along similar lines?)
The principal reason for the lack of surprise in reaction was because it contained few surprises. For over three months now, the Government has mounted a campaign to brace taxpayers for a tough and uncompromisingly hairshirt Budget.
Most of the more than 100 new measures announced in the Budget had already been leaked or publicised in the weeks and days running up to today’s announcement.
A 4.1 per cent cut in social welfare. Check. Cuts in public sector pay. Check. Water metering. Check. A 50 cent charge on prescriptions. Check. The carbon tax. Check. An energy-efficiency programme for homes. Check. The car scrappage scheme. Check. Reductions in the price of a pint. Check.
Early in his speech, the Minister made the bold claim that “the worst is over”. He said that this Budget, with net cuts of €4 billion, would not be surpassed in austerity.
“My Department is now expecting a return to positive growth within the next six to nine months,” he said. “It is the last big push of the crisis. Further corrections will be needed in the coming years but none as big as today’s.”
Fine Gael’s Richard Bruton quickly spotted the potential hubris inherent in that claim. In the best line of his response, he said that Lenihan claiming the worst was over was like George W Bush declaring “mission accomplished” on the Iraq war in the early summer of 2003.
Despite the calculated campaign by the Government to condition the electorate and to temper expectations, it is impossible to look beyond the deep cuts in the public sector pay bill and in social welfare payments when picking out the main pillars of the Budget.
On the fact of it, the pay cuts do look progressive and incremental. But it raises serious questions of fairness and proportionately for those on lowest incomes. Anybody earning €30,000 or less will lose 5 per cent of their income, with higher percentages of cuts for those earning more.
The net effect is that those earning €30,000 will lose €1,500 from their annual salary, those on €40,000 will lose €2,250 and those earning €50,000 will lose €3,000. Those on salaries of €100,000 will lose €7,500.
On the face of it, the Taoiseach and his Ministers seem to be leading by example by taking cuts of 20 per cent and 15 per cent respectively. However, they all agreed to voluntary cuts of 10 per cent last year.
So the net drop for them on their current salary is substantially less. And for the second time, the country’s judges face no reductions in salary, a situation that will give rise to claims of unfairness, especially when low paid workers and those on social welfare face cuts.
The impact of those cuts in social welfare and in child benefit could not be euphemised. It affects all welfare payments with only those on pensions remaining unaffected. A sample of the cuts is telling.
Mothers receiving maternity benefit will face reductions of up to €10 per week; dole payments will fall by €8.40 per week; child benefit will drop by €16 per child per month. There are claw-back mechanisms for those on lower incomes but the effect will hurt families. There is a sting in the tail for young single jobseekers between the ages of 20 and 24 whose payments will be reduced to €100 or €150 per week.
On the revenue side, there were few surprises. The well-signalled carbon tax has been introduced but at €15 per tonne of CO2, not €20 as anticipated. It will mean an extra 4 cent on the price of a litre of petrol from midnight and 5 cent on the price of diesel.
There are a few measures targeting high earners which are included as a “demonstration effect” to show the rich are not being left untouched. It includes an increase of the State take on tax reliefs from 20 per cent to 30 per cent plus an eye-catching levy of €200,000 on rich tax exiles. The workability of this measure was being questioned within minutes of its announcement.
The Minister also signalled a foretaste of what is to come in 2011. Every home in the country will have water meters installed, signalling the introduction of water charges. State pensions will be changed in an effort to reduce a burgeoning bill that will rise from 5 per cent of GDP to 13 per cent of GDP by 2050 as the population ages. A new less costly scheme will be introduced next year and there are plans to end the link between pensions and salaries. The tax net is also likely to be widened and Lenihan said today that from 2011 all the levies will be grouped into one.
The reductions in excise duty, cutting the price of a pint by 12c, and the reversal of last year's half-point increase in VAT, were also well flagged. They are designed to stem the substantial loss of revenue on alcohol sales caused by people crossing the Border to buy cheaper alcohol.
The Government claims that its €120 million of funding to FÁS and to other sectors can stimulate jobs, as can its plans to retrofit every house in the country. However, the latter announcement, with a total of €130 million in funding, was less ambitious than was indicated.
There were a couple of smaller silver linings aimed at sectors that have been hardest hit. The car scrappage scheme will be welcomed, as will the €70 million in flooding and the admirable provision for mental health projects, a sector that was scandalously starved of funds in the past when budgets were tightened.
The Minister concluded with another big claim that the Government’s plan was working and that it had turned a corner. That claim will be sorely tested during what’s expected to another turbulent year for the Irish economy.