AUSTERITY PROGRAMME:THE GOVERNMENT'S four-year plan to dramatically reduce the State's borrowing requirement will include substantial reductions in public service numbers, a provisional property tax, deep cuts in the minimum wage and across-the-board reductions in the non-pension areas of social welfare.
The document, which is expected to be published tomorrow, will propose that public sector numbers be reduced by 28,000 between 2011 and 2014.
Although this includes 5,000 voluntary redundancies already sought by the HSE, it is also well in excess of the 14,000 identified in the Croke Park agreement.
The report was approved by Ministers at yesterday evening’s Cabinet meeting. It is believed the key elements of the four-year austerity programme have also been viewed by the European Commission and that IMF was also briefed on its contents.
Unlike the HSE redundancies, the Government wants the remainder of reductions in the public sector to be cost neutral. In effect, a source said, this would mean that employees retiring from or leaving the public sector would not be replaced.
Minister for Finance Brian Lenihan confirmed that the minimum wage, €8.65 an hour, would be examined on the basis that it had increased well ahead of the rate of inflation.
It is understood that the rate will be reduced by €1, or about 12 per cent, to €7.65.
Cuts in social welfare will not be announced until the budget on December 7th. However, the document will give overall targets for reducing the welfare budget over four years, with reductions of about €2.6 billion, or a little over 10 per cent of the overall social welfare spending over four years.
A number of sources have confirmed there will be reductions of 5 per cent or more across most non-pension welfare payments.
The old-age pension is expected to remain intact, although there may be changes in additional allowances. A new levy is expected to be introduced, however, for those on public sector pensions, of a similar percentage to the levy imposed on public sector employees in the emergency budget in April 2009.
Public-sector pensioners were not made subject to that levy, despite their pensions being index-linked to public service pay.
A new property tax will also be introduced, but the measures will be provisional and are designed as a stopgap tax until a full property tax, based on site valuations, is introduced at a later stage.
The overall yield of the temporary property tax is expected to be €570 million, which one source described as comparatively small, given that the tax of €200 on second homes has resulted in €66 million being generated.
The plan will also include a commitment to corporation tax remaining at 12.5 per cent. Mr Lenihan reaffirmed yesterday that the tax would remain unaffected by the rescue plan.
A provision for a stimulus programme also exists, utilising resources from the National Pension Reserve Fund. This will be directed at capital projects as well as sectors of the economy with potential for growth.
The bulk of the €6 billion savings target in the forthcoming budget are expected to be achieved through cuts, with about a quarter coming from taxes.
The new universal levy – replacing PRSI, the health levy, and the income levy – will produce most of the revenue, as the rate will be higher than those of the separate levies combined.
Other proposals, which will be introduced in the second and subsequent years of the plan, include the introduction of water charges.
The substance of the plan was agreed after an eight-hour Cabinet meeting on Thursday.
The Government has insisted that what is contained in the austerity plan has not been not influenced by either the European Commission or the IMF.