In a Budget designed to restore confidence to the economy the Tánaiste and Minister for Finance, Brian Cowen, unveiled a major revamp of the stamp duty regime yesterday to counter the recent slump in the housing market and a package of welfare and tax reforms aimed at helping those on low incomes.
The Minister also announced a range of "green" measures designed to meet Ireland's commitment to reduce the country's carbon emissions. From next July vehicle registration tax will be based on carbon dioxide emission ratings rather than engine size.
Mr Cowen plans a substantial increase in borrowing next year to almost €5 billion to fund his spending programmes in the face of a dramatic fall in projected tax revenue this year.
Last night Fine Gael accused Mr Cowen of presiding over the worst deterioration on record in exchequer finances, moving from a surplus of 1.5 per cent of GDP in 2006 to a 2.9 per cent deficit this year.
The party's finance spokesman and deputy leader, Richard Bruton, said Mr Cowen had to accept responsibility for turning a €2.3 billion surplus last year into a €4.9 billion deficit this year.
In his Budget speech Mr Cowen said prospects for 2008 were for more modest growth than we had become accustomed to. He said that against this background estimates were that GDP would increase by 3 per cent, inflation would average 2.4 per cent and 24,000 new jobs would be created.
The social welfare package was the most expensive part of the Budget, costing close to €1 billion in a full year. Pensioners did best but all those in receipt of welfare got increases higher than the inflation rate.
The changes in income tax involve a widening of the tax bands and an increase in tax credits to match inflation. The total cost of the tax and PRSI health levy measures comes to €585 million in a full year.
The surprise element in the Budget was the stamp duty reform, which will cost €190 million. Mr Cowen last night defended his decision to change the stamp duty system less than six months after setting his face against it, saying it was a reaction to the slowdown in the housing market.
The Minister said his Budget had been framed against the most challenging backdrop experienced in a long number of years but he maintained that it supported the incomes of the vulnerable, kept taxes low for working people, helped home buyers and the housing market, protected the environment and kept the National Development Plan on track.
Green Party leader John Gormley welcomed the first Budget in the State's history to contain a strong "green" dimension, saying it placed a strong emphasis on the fight against climate change. "Budget 2008 shows that the Green Party can deliver in Government in co-operation with our coalition partners. It is a very good start - and one we intend to build upon during the coming 4½ years," he said.
Mr Bruton described the Budget as dull, uninspiring and unimaginative: "Yet again Brian Cowen has bottled the challenge. Yet again he is all bark and no bite.
"The Minister is a great man to have around six months after a property crash. While reform of stamp duty is welcome, it is six months too late. The Government had three chances before, during and after the election in May to reform this tax and failed to do so. Now, after the property sector has crashed, the Minister acted," Mr Bruton said.
Labour finance spokeswoman Joan Burton said that while the Taoiseach was getting a pay increase of €38,000 a year and Ministers were getting €25,000, the voters got cutbacks and stealth taxes.
"This is a Government that no longer commands control of the economic agenda. It looks on helplessly as an economic storm looms over the horizon, with no idea at all on how to come to grips with the new reality," Ms Burton said.
The changes in stamp duty were a humiliation for the Minister for Finance who only last June brought in stamp duty reforms which he claimed would restore stability to the housing market, she added.