Lenihan says 'worst is over' as €4bn in cuts unveiled


Public sector workers bore the brunt of a swingeing series of cutbacks announced in today’s Budget, which Minister for Finance Brian Lenihan said would produce €4 billion in savings to the Exchequer.

In his third budget in little over a year, Mr Lenihan announced €1 billion in pay cuts for public service workers, ranging from 5 per cent for those on average pay to 15 per cent for those at the most senior level.

Public sector pay will be cut by 5 per cent on the first €30,000, 7.5 per cent on next €40,000 and 10 per cent on the next €55,000, with a top rate of 15 per cent on those earning in excess of €200,000.

Ministers will also take a 15 per cent pay cut, while the Taoiseach’s pay will be reduced by 20 per cent.

The rest of the €4 billion adjustment will come from a €760 million reduction in the social welfare spending, a €980 million cut in day-to-day spending programmes and some €960 million in savings on capital investment projects.

The social welfare payments are to be cut by 4.1 per cent, with child benefit being reduced by €16 per month, bringing it back to 2006 levels.

Welfare-dependent families will be compensated for the cut in child benefit by an equivalent increase in qualified child allowance, the Government said.

Dole payments are to be cut by €8 a week, while jobseekers’ benefit and supplementary welfare allowance for those aged 20 and 21 will be reduced to €100 per week, with those aged 22 and over getting €150.

Commenting on the Budget this evening, the Taoiseach said the measures outlined today were necessary to stabilise the national deficit and to safeguard the most vulnerable.

He said the cuts in welfare were "the best that can be done" and added these were less than the fall in the cost of living. "In good times, we had increases well in excess of the cost of living, which was right at the time," Brian Cowen said.

Referring to cuts in public sector pay, Mr Cowen said it was the Government's view these had to be permanent. "We all have a contribution to make . . . the most important thing is confidence, to show people home and abroad that we can get the country out of this," he said.

One group who will be exempt from cuts are pensioners, as they had “experienced by far the smallest reduction in living costs,” Mr Lenihan said.

In delivering his Budget, Mr Lenihan declared the "worst was over" and insisted the economy was now well-placed to recover.

He said the international economy had exited recession, and recent indicators suggest that economic activity here was “turning the corner”.

“My department expects a return to positive growth within the next six to nine months," Mr Lenihan said.

Other measures announced in the Budget included a reduction in excise duty on alcohol of up to 20 per cent and a restoration of a 21 per cent VAT rate in an attempt to stem the flow of cross-Border shopping.

As widely anticipated, a carbon tax of €15 per tonne will be introduced, raising petrol prices by 4.2 cent a litre and diesel by 4.9 cent from midnight. The tax will also be imposed on home heating gas, oil, coal and peat from next year, with some €50 million of the yield from the tax going to help those at risk of fuel poverty.

A scrappage scheme for cars of ten years or older will see a €1,500 reduction of Vehicle Registration Tax (VRT) on the purchase of a new low-emissions car when an applicable used car is traded-in against it. The current VRT exemption for electric vehicles and reliefs for hybrid vehicles will also be extended to 2012.

A "rich tax" will see people with a certain level assets at home and abroad pay €200,000 annually to maintain their Irish passports.

The Minister also extended mortgage interest relief to those who purchased at the peak of the market until 2018.

Mr Lenihan said the corporation tax rate "is here to stay" and will not change from its current rate of 12.5 per cent.

In his speech, the Minister said the State’s income system has become “very imbalanced” and that next year half of all income earners would pay no income tax while 4 per cent of earners would pay almost half of the total yield.

“If we want to sustain high levels of Government services, this imbalance must change. The time has come to transform how we tax income, to simplify it, to make it fairer, and to make more broadly based.

He said he planned to refine the current system to just two charges on income in 2011. A new universal and social contribution - which will replace employee PRSI, health levy and the income levy - will be paid by everybody at a low rate as a contribution to public services.

But Opposition parties rounded on Mr Lenihan, claiming his measures had targeted "soft options" and "lacked vision".

Fine Gael's deputy leader and finance spokesman, Richard Bruton, said there was a “void” at the heart of the Government and that it lacked the vision, courage and policies to make the reforms that were needed.

It was “those in the front-line”, including social welfare recipients, who would pay “from the very first euro," Mr Bruton said. “You have hit people who are down. The hitting of child payments is very short-sighted."

Labour Party finance spokeswoman Joan Burton was “straight out of the Leona Helmsley school”, taking the view that the burden of tax was “just for the little people”.

The Irish Congress of Trade Unions (Ictu) described the cutbacks as “merciless”, and accused Mr Lenihan of failing to take on the wealthy.

Employers' group Ibec the Budget represented "a turning point" as it stopped the deficit rising and put the economy on a sustainable path.

Some €400 million of Budget savings in the Government’s day-to-day spending is to be made from several cuts in health spending, including a 50 cent charge for every medical card prescription from April. Hospital consultants will see their pay cut by up to 15 per cent.

Some €136 million will be allocated to provide 26,000 training places for the unemployed, and Fás will get a further €56 million for short-term courses.

Mr Lenihan said some €70 million had been set aside to assist victims of the recent floods and to help prevent future floods.