Government confident of securing budget support

 

Minister for Finance Brian Lenihan expressed confidence today that the Government would have sufficient support to pass the upcoming budget.

“I am quite satisfied from my discussions both with the parties in Government and the various public representatives in Dáil Éireann that there is a majority for the budget and that it will pass,” he told the American Chamber of Commerce Ireland.

His comments suggest the Government may have secured the support of Independent TDs Jackie Healy-Rae and Michael Lowry who had earlier signalled that they might not support the 2011 budget, the first in a series of four required to adjust the public finances by €15 billion.

However, Mr Lowry said today he had not agreed to anything yet. "I've said that I'm unlikely to support the budget and that position remains," he told Reuters. "But obviously I can't be definitive about it until I've actually seen the details of the budget."

With the backing of the two Independents the Government would have a potential 82 supporters while the Opposition will have a potential maximum of 80 if Sinn Féin Senator Pearse Doherty is elected as TD for Donegal South West. Ballots are being cast today and counting will begin tomorrow morning.

Taoiseach Brian Cowen told the Dáil today the Government’s four-year National Recovery Plan would help struggling members of the public to plan ahead for their economic futures.

The 140-page plan published yesterday outlines a package of measures designed to reduce public spending by €10 billion and raise an extra €5 billion in taxes by 2014.

Normal Dáil business was suspended for today to allow for statements from the Government and Opposition leaders on the plan.

Mr Cowen said publishing the level of adjustments over the next four years would bring certainty and stability. He said the plan would provide a pathway to economic recovery for the country.

“What has been set out here is a realistic appraisal of what it possible, what is necessary and what is do-able,” the Taoiseach said. “If people want to say that there are changes that they want to make, make sure they add up, and make sure that it doesn’t create more uncertainty at a time when this country critically needs some certainty.”

Fine Gael leader Enda Kenny said his party would not be bound by the terms of the four-year plan if elected to government, and would seek to renegotiate elements of it.

He also accused the Government of leading the country “to the edge of the economic abyss”. He said the Government had shown breathtaking arrogance and had failed to reform the bureaucracy that was strangling small business. “This document makes no reference of leadership by example. Only aspirations”.

Labour leader Eamon Gilmore described the plan as the bill for 13 years of Fianna Fail misrule. “It is the direct result of the politics of the Galway tent,” he said. “It is the direct result of the unbelievable political arrogance and folly of the worst Governments in the history of this State."

Mr Gilmore said the plan is "a plan for austerity, not for recovery" because it contained no coherent jobs strategy.

“There is plenty of waffle about the so-called ‘smart economy’. The same stuff we have been hearing about for almost two years. The reality is that the section on jobs is short on detail, particularly compared to the detail on cuts and tax increases.”

A sharp increase in taxation, deep cuts in social welfare payments, a reduction in the minimum wage and a modest property tax are among the elements in the plan. Tax relief on pensions will be reduced dramatically and recipients of public sector pensions will face cuts for the first time.

The plan will be front-loaded with a €6 billion adjustment coming in the 2011 budget, to be published on December 7th. That will involve extra tax of about €2 billion in a full year and cuts in social welfare of €760 million.

Mr Cowen said it was critical for the country that the House “rises to the challenge” and implements the budget.

In that way, “our people can know that we are going to go forward in 2011 with the sort of support that we need, the sort of facilities in place that are required and then that we have a plan in which we can go forward,” he said.

“After all of that in 2011 we can go to the people and ask them to decide who do they think should govern them on the basis of who has the most coherent policies that has the best prospect of success,” he added.

He argued the taxation system needed reform to bring in taxes of the level of 2006. “We have to reduce spends to what we had in 2007”, he said. But this did not mean that people “have to go back to a lifestyle of 25 to 30 years ago. Clearly the standing of living then was very different from this generation’s experience.

“It is important for our people to know is that not all of those gains are going to seep away,” he said.

Mr Kenny described Government TDs as a “sombre, demotivated, beaten crowd” riddled with guilty about their role in the country’s economic collapse and said a general election which would bring the certainty and clarity that the Taoiseach had spoken of. “The people will savage you when they get the opportunity,” he added.

EU economic and monetary affairs commissioner Olli Rehn has welcomed the plan – which maintains corporation tax at 12.5 per cent – saying it represented “an important contribution to the stabilisation of Irish public finances”.

He added that a €6 billion adjustment in the 2011 budget would be “appropriate”.

As part of the plan the minimum wage is to be reduced by €1 to €7.65 an hour in next month’s budget. Fine Gael have said that if returned to government they would seek to reverse this cut.

Social welfare cuts of almost €3 billion will take place over four years as part of a package of measures to encourage people to get involved in “employment enhancement” schemes.

Income tax changes to rates and credits combined with the reduction in relief on pensions and other measures will lead to a significant rise in the tax take from those already in the tax net. It will also bring more people into the tax net for the first time with a drop in the entry point from €18,300 to €15,300.

The plan states that the after-tax income of a single person earning €55,000 will fall by €1,860 a year, or about €36 a week, a drop of 4.8 per cent. The after-tax income of a married single-income family earning €55,000 will fall by €2,310 a year, or €44 a week; a fall of 5.4 per cent.

As a result of changes to pension reliefs, the after-tax income of a person earning €55,000 who contributes to a private sector pension will fall by a further 2.5 per cent by 2011.

The Croke Park deal which protects the pay of public service workers remains unaltered in the plan but new entrants to the service will start on 10 per cent less than existing salaries and their pension entitlements will be considerably less generous. Existing public service pensioners will be face cuts for the first time, with an average reduction of 4 per cent.

There will be a reduction of 24,750 in the numbers employed in the public service over the period by 2014 compared to 2008, with half of this having already been achieved, while work practices will be reformed to allow for flexibility and more efficient services.

A property tax of €200 a year and water charges of about the same amount will be phased in by 2014.

No change in the State pension is proposed but the plan reiterates a decision to increase the qualifying age to 66 in 2014. The capital budget will be cut by €1.8 billion for next year.

When asked last night about the reasons for the massive adjustment, Mr Cowen referred to the collapse in the construction industry. “People were expecting a soft landing and it didn’t happen. The analysis was wrong and the advice was wrong. I take responsibility for that and I have never ducked that.”