Social welfare budget may be cut by almost €3bn

 

FOUR-YEAR PLAN:THE GOVERNMENT’S four-year plan to be published today will propose dramatic reductions amounting to almost €3 billion in the social welfare budget over the next four years.

If implemented, it will mean that overall spending on welfare will be cut by almost 15 per cent. However, the front-loading for the first year of the plan, 2011, will be more modest than in other sectors with an anticipated €800 million in cuts scheduled for announcement in this year’s budget.

However, a Government source said yesterday that the cuts will not apply to all payments, with State pensions, in particular, avoiding the axe.

In addition, in later years the State’s annual welfare bill is expected to drop from about €20 billion to €17 billion because of falls in the Live Register. There will be tougher measures to reduce social welfare fraud, as well as other sorts of structural reform.

However, there will also be further cuts. The source was not in a position to say if measures would incorporate the recommendation for Ireland contained in an IMF staff briefing note that dole payments be progressively reduced.

“Essentially, it means that rates will return to 2007 levels,” said the source.

The 160-page plan, setting out €15 billion of savings over the next four years, will be published this afternoon. The document was sent to the printers yesterday afternoon, as some late amendments – mainly to do with economic data – had to be included. The plan is broken into five sections: current spending; capital spending; taxes; potential areas for economic growth; as well as a chapter on reform.

When confirming Ireland’s application for an EU-IMF loan facility on Sunday, Taoiseach Brian Cowen said the income tax regime would return to the levels of 2006.

In addition to the marginal rate of tax returning to 42 per cent or higher, it will also result in tax credits being reduced and tax bands being widened. “More people will be brought into the tax net and everybody will pay more,” said the source.

Those changes are expected to yield more than €1 billion between 2011 and 2014, with the bulk of the income being achieved in year one. At later stages, the introduction of a property tax and a system of water charges will help achieve the Government’s target of an additional €5 billion in taxes during the course of the four-year plan.

Another immediate change, expected to bring in €750 million, is a radical curtailment in tax reliefs, most of them associated with remaining property tax breaks.

The plan will be submitted to the European Commission for approval, Taoiseach Brian Cowen said yesterday. Earlier this week Minister for Finance Brian Lenihan said the IMF and the European Commission were “broadly satisfied” with the four-year plan.

Yesterday, Minister for Transport Noel Dempsey said the international rescue deal for Ireland was predicated on the publication of the four-year plan and the passing of the budget.

Asserting the Government did not have the luxury of time, he said: “We asked for assistance, we were given that assistance on the basis that we were going to produce this four-year plan, that we were going to produce a budget, and that that budget would pass.”

Mr Lenihan also emphasised the need to publish the plan. “The plan has been finalised, the budget will be introduced and the necessary funding will be obtained. They’re the priorities for this country at present,” he said.