THE CABINET will meet this morning to formally approve one of the toughest budgets in the history of the State involving deep cuts in public service pay, social welfare entitlements and capital spending.
Minister for Finance Brian Lenihan is planning to make adjustments of €4 billion with the bulk of it coming from spending cuts rather than extra taxation.
Mr Lenihan conceded last night that the budget would be very difficult but he forecast that, “it is going to be the last of the very difficult budgets”.
The biggest item in the budget will be €1.3 billion in pay cuts for the public service, ranging from 5 per cent for those on average pay to 15 per cent for those at the most senior level in the public service. Ministers will also take a 15 per cent pay cut while the Taoiseach’s pay will be reduced by 20 per cent.
The cuts in social welfare rates will range from about 4 per cent for those claiming jobseekers’ allowance to 10 per cent in child benefit.
Cuts in disability benefit and carers’ allowances are expected to cause most political difficulty for the Government but all of the welfare cuts are expected to generate controversy.
One group who will be exempt from cuts are pensioners. Government sources have made it clear that the old-age pension will not be touched by the welfare cuts.
The pensions of retired public servants and politicians will be exempt from cuts in line with pay, although they were tied to pay increases on the way up. It means that public service pensioners on full entitlements will now have close to 70 per cent of the salaries paid in their former grades.
The capital budget will also suffer a cut of close to €1 billion although the Minister will point to declining tendering prices as an indication that the impact on planned projects will not be as severe as might be feared.
Other savings will be found through the implementation of some of the recommendations of the McCarthy report. The closure or amalgamation of more than 40 State agencies will be one of the decisions taken in light of the report.
On the taxations side, the introduction of a carbon tax will be designed to raise about €500 million.
This will involve an increase of about five cent in a litre of petrol, €54 in 1,000 litres of home heating oil, 48 cent on a bale of briquettes and €56 on a tonne of coal.
Income tax rates are not expected to change and there is also expected to be minimal change in tax bands or credits, although Mr Lenihan has been pointing to the fact that leaving bands and credits alone will mean that about 50 per cent of the workforce will be entirely out of the income tax net.
There has been a lot of discussion at Cabinet about introducing some form of extra tax on the higher-income earners and there has been a particular focus on tax exiles.
It is expected the Minister will do something in the budget on this issue as a symbolic gesture to show the Government’s commitment to fairness, even though the extra revenue that will be generated is expected to be minimal.
The Government expects that it will have a comfortable majority when the first vote is taken on the budget tonight as a number of Independent TDs have indicated they intend to vote in favour of the measures.
Taoiseach Brian Cowen said yesterday that the social welfare changes announced in the budget will be debated in the Dáil tomorrow and on Friday with all stages of the Social Welfare Bill through the House by the end of this week. He also said legislation to give effect to public service pay cuts will be debated next week.
Labour Party leader Eamon Gilmore strongly objected to the Social Welfare Bill being passed in two days as “an insult to the people, including the carers, the many people on disability, pensioners and people on social welfare payments.”
Fine Gael TD George Lee said the budget would be one of despair for workers, families and the poor who would be asked to pay the price for a crisis they didn’t cause.
Decks cleared for budget: Pat McArdle, Analysis, page 18