'No group sheltered' as €15 billion savings plan unveiled

 

Swingeing cuts to social welfare payments, a broadening of the tax base and a new levy on property are among a raft of measures contained in the Government’s four-year fiscal adjustment plan.

The 140-page plan, published today, outlines in detail how Government proposes to make €15 billion of savings by 2014.

The package of measures will seek to claw back €10 billion through spending cuts and another €5 billion by way of tax increases, with €6 billion front-loaded in the 2011 budget, which will be unveiled next month.

The National Recovery Plan provides a “sound basis” for negotiations with the European Union and International Monetary Fund (IMF) on a financial aid package for the State, European commissioner for economic and monetary affairs Olli Rehn said.

Mr Rehn said the plan “strikes a good balance of durable expenditure and revenue measures” but also shows “due regard to protecting the least well off”.

One of the chief planks of the adjustment would see spending on social welfare cut by €2.8 billion primarily through cuts in unemployment benefits and child income supports.

Defending the measures, the Government insisted its intention was to reform the welfare system so as to “incentivise work and eliminate unemployment traps”.

While there is no proposal to change the existing State pension rate, the plan seeks to increase the age at which people qualify for the pension to 66 in 2014, 67 in 2021 and 68 in 2028. There will, however, be a reduction in pensions for retired public sector workers.

The capital spending budget will be cut by €1.8 billion in 2011, almost twice the amount set as recently as July.

The plan seeks to reduce the minimum wage by €1 to €7.65 as the current high rate posed a barrier to job creation, the Government said.

The plan proposes the introduction of a property site value tax in 2012 that it estimates will generate €180 million that year and a further €175 million in both 2013 and 2014.

The measures will see university registration fees rise from €1,500 to €2,000 and the introduction of water charges some time before 2014 once meters are installed in all homes and businesses.

The Government said it would raise €1.9 billion through unspecified income tax changes that will almost certainly see the marginal rate of tax returning to 42 per cent or higher. It is likely the changes will also see tax credits reduced and tax bands being widened.

The numbers of income earners that remain outside of the income tax net, estimated at 45 per cent, was “unsustainable,” it said. The Government proposes to reduce the entry point to the tax system for a single PAYE worker by €3,000 to €15,300.

The standard rate of VAT will be increased from 21 per cent to 22 per cent in 2013, and to 23 per cent in 2014, yielding the Exchequer €620 million. The State's prized 12.5 per cent rate of corporation tax is to remain unchanged.

The Government plans to cut public sector staff levels by 24,750, bringing it back to 2005 levels, and reduce pay for new entrants by 10 per cent. It also plans to reduce the public sector pay bill by €1.2 billion during the four-year period. Half of the reduction in public sector staff numbers has already been achieved, according to the Government. Compulsory redundancies of public sector workers have been ruled out.

Taoiseach Brian Cowen said the State would have to “take some steps back to go forward again” but stressed that many of the gains recorded in the boom years would be maintained.

"Those who can pay the most will pay most, but no group can be sheltered," he said at a press briefing in Government Buildings.

“Postponing these measures will lead to greater burdens in the future for those who can least bear them, and will jeopardise our prospects of returning to sustainable growth and full employment. It’s a time for us to pull together as a people,” he said.

Minister for Finance Brian Lenihan said the plan was a rational and sensible route out of “the steep downturn”.

Tax receipts in 2010 would be about 35 per cent lower than in 2007, the Government said in its plan, saying the steepness of the fall reflected “the over-dependence on property and construction-related revenue sources during the boom years”.

Denying the plan would see tax burdens return to 1980-levels, the Government said the changes would bring the income tax structure back to that which existed in 2006.

The European Commission said yesterday the Government’s economic plan was a “cornerstone” of the bailout package under discussion with Europe and the IMF.

The Government said its plan would see the deficit reduced to 9.1 per cent of GDP in 2011. It predicted the State’s debt to GDP ratio would at 102 per cent in 2013 and will fall to 100 per cent in 2014.

Carbon tax charges will double to €30 a tonne over the lifetime of the plan, raising €330 million.