The State is living beyond its means the Minister for Finance Brian Lenihan said today, before hinting the national pay deal may have to be re-examined.
While ruling out a mini-budget early in the New Year, saying there was no scope for further tax cuts, Mr Lenihan said further cuts in spending would be required to deal with the worsening Exchequer deficit.
Exchequer figures released yesterday showed a massive shortfall of close to €7.5 billion in the amount of tax revenue collected by the Government during the first 11 months of the year, far worse than predicted in the Budget.
Asked on RTÉ's Morning Ireland programme whether this would include the national pay deal, Mr Lenihan replied because the first payment is not due until next autumn the Government had an opportunity to engage with the social partners. He also hoped relevant parties would “reflect” on the difficult conditions facing the economy.
“The Government will give leadership on this early in the New Year. We can’t wait for ever on this. Nothing can be ruled out. We actually have to consider what our options are in terms of our day-to-day expenditure and how we can ensure it is sustainable for the future,” he told .
“I am saying to people that we are living beyond our means and we have to face up to that. We won’t be able to compete if we don’t."
He said to become competitive "you do sometimes have to take a reduction in the standard of your current standard of living".
Under the national pay deal public sector workers are scheduled to receive a 3.5 per cent increase next August as part of a 6 per cent phased over 21 months.
Siptu general president Jack O'Connor said this evening there was no need for public sector pay freeze as the latest national agreement already included an 11-month pay pause.
However, Mr O'Connor said his union would engage with the Government on developing a national strategy to deal with the current downturn "to which everyone can contribute".
"But there is no need to be panicking people about suspending the public service pay deal," he said.
The Irish Congress of Trade Unions (Ictu) said that “at no time” had there been any discussions with the Government on changing the pay deal.
“Congress wishes to confirm that at no time has it or any of its representatives had discussions with Government or the Taoiseach, Brian Cowen, TD, that in any way involved amending, deferring, altering, suspending or changing the Pay and Workplace Rights deal recently concluded between unions, government and employers and formally ratified by Congress, at Special Delegate Conference on November 17,” it said in a statement.
Mr Lenihan this morning ruled out a second budget early next year in as a response to the sharply declining tax take. He also defended the decision to bring forward Budget 2009 to October.
He said there was no “great scope for further tax hikes” despite the unforeseen fall in tax revenues announced yesterday.
Another budget would involve further taxes and there was “a limit to the amount of any taxation an economy can take when it is in the kind of crisis our economy is in”, he said.
“If we are to increase taxation it means that we have to increase income tax and that is a tax on work, and we want to keep people at work as much as we can. . . . I am saying there isn’t great scope for tax increases next year beyond what has already been done already in the Budget."
Instead of tax increases, Mr Lenihan indicated the Government would look at further spending cuts to compensate for falling revenues. After the December Exchequer figures were published the Government would know “what cost-containment we will have to introduce next year”.
He went on to suggest many people had not yet grasped the seriousness of the State’s economic position and this had been evident in the reaction to measures contained in the Budget.
“It was very important to bring home to the people how serious the position was," he said.
The Minister added there would be no stimulus package for the economy, similar to those introduced in the UK, the US and the €200 billion European Commission package designed to stave off a prolonged European recession.
Having already ruled out Ireland’s participating in the European scheme Mr Lenihan said today the €8 billion being invested in infrastructure next year and announced in the Budget was the “best stimulus an Irish economy can get”.
During his meetings over recent weeks with the six Irish banks covered by the Government guarantee scheme, Mr Lenihan said he had urged them to look at the amount of credit they were making available to the economy.
“The Government’s only concern with the banking sector is that the banking sector should be a motor to the economy and that motor shouldn’t be turned off”.
Mr Lenihan said he was working with the banks to ensure they were not subjected to a credit squeeze early next year, leading to more joblessness. “That is the immediate priority and I have asked for a crash plan from all of the banks on that front.”
The “wider and deeper question” was whether banks have sufficient capital to meet the storm that lies ahead for them, the Minister said, adding he had asked them to for private funding to ensure that they were well capitalised.
Asked if he had a preference for where the banks sourced this private funding, the Minister replied: “Whatever is best value for the banks and the public interest, that’s my only concern about investment.“
He said Government was assessing the bank’s response to calls to go out and secure their own investments from the private sector “on a week-by-week basis”.
“Initially, I have to say, the banks seemed very reluctant to go on this course, but I think it’s fair to say that they recognise that they do have to put themselves in a position to meet the challenges that lie ahead.”
Mr Lenihan also stopped short of ruling out a sale of the Government’s stake in Aer Lingus to Ryanair.
“Clearly, as a shareholder in Aer Lingus, the Government will have to be very, very careful in how they dispose of this very valuable national asset. We retained that 25 per cent to ensure the security and availability of our connections with the United Kingdom.
“Mr O’Leary has made an offer which we will have to carefully consider. You’ll appreciate a Government has to be in possession of all of the facts, and the full bid has not been submitted yet, before it can give a definitive view on it. They’re the rules that I’m constrained to observe as a shareholder.
Following the leaking of a Government memo suggesting a majority of Irish pension funds may be on the verge of collapse over the weekend, Mr Lenihan said he was aware employers’ group Ibec believed funding standard were too strict.
“I understand the point that Ibec are making but the reality is that stock prices are collapsing all over the world and our economic experience is reflecting that international experience,” he said.
“Whether you change the funding standard or not doesn’t change the value of the stocks which the pension funds have invested in," the Minister said. “One of the issues we will have to work upon in the next few months is our pensions policy for the future because clearly a lot of private pensions have lost their value dramatically in recent months.”