Taoiseach Brian Cowen has announced major cuts in public spending that will save the State in excess of €2 billion.
In what has been seen as a crucial test of his leadership, Mr Cowen told the Dáil the Cabinet agreed this morning to press ahead with the proposals, including the introduction of a controversial new pension levy that was strongly opposed by unions.
Talks between the social partners broke up without success at 4am today when the unions could not agree to the proposals for substantial payments from public employees towards their pensions.
The pension-related payment will form the main part of the cost-cutting package. Mr Cowen said that it would save €1.4 billion on the public pay service bill. The levy will be graduated with those public employees on higher earnings paying a higher percentage of their income. He also said that the payment would apply to local authority employees.
Later in the Dáil he gave more details of the package. Those earning €40,000 per annum would pay €2,750 or 6.9 per cent; those on €50,000 would pay 3,750 or 7.5 per cent; and those on 100,000 would pay 8,750 or 8.8 per cent. At the highest scale of pay in the public service, those earning €300,000 will pay €28,780 or 9.6 per cent. However, the contributions will be calculated on gross income and not on taxable income.
The new payments system will be viewed as the most controversial and are expected to meet resistance from unions and from public service employees. Ictu general secretary David Begg said this morning that they would lead to a "revolution" from lower paid workers.
In all, cuts of just 2,090 million were announced for a full year with another €1 billion to be achieved in 2010 through the freezing of pay increases.
The remainder of the savings will be achieved through a €95 million reduction in overseas development aid; an eight per cent reduction in professional fees, for example in the legal and medical areas, that will yield €80 million; and a €75 million saving achieved by reducing the early childcare supplement from €1,100 to €1,000 and lowering the upper eligible age limit from 5 1/2 and a half to five years of age. This equates to a fall from €92 a month per child to €83.
A further €140 million will be save through what are described as general administrative efficiencies and savings, including the non-payment of the scheduled September pay increase arising under the Towards 2016.
Mr Cowen also announced that increased efficiencies in the capital programme due to more competitive tender costs would also lead to €300 million in savings without compromising any of the projects in the €8 billion programme.
The Taoiseach said that legislation to give effect to the pension payments will be brought forward as a matter of urgency.
Defending the cuts he said that the Government had been guided by the "principles of fairness and prudence in making these tough decisions".
He said the graduation of the pension payments to reflect income levels would ensure that all sectors of society "contribute on an equitable basis". He said the decision of the unions not to agree to the proposal was regrettable. However, he added that it did not mean the end to social partnership.
"It does not mean that the engagement with the social partners was a failure: the overall framework has been agreed, the need for an immediate adjustment of €2 billion on a credible basis was also agreed, the need for a significant contribution to be made by the public service pay bill in achieving that adjustment is also agreed," he argued.
He said the Government's engagement with the social partners would continue.
Outlining the background, he said the scale of the challenges facing the Government was immense. "We are experiencing the most profound economic crisis in 70 years. In addition, the Irish economy is suffering from the aftermath of a large housing and construction boom and a loss of cost competitiveness after a period of sustained growth.
"This is being exacerbated by the decline in the value of Sterling relative to the euro which is placing extreme pressure on Ireland's base of exporting companies."
He said that a total of €16.5 billion in savings would have to be achieved between now and the end of 2013: €4 billion in 2010; €4 billion in 2011; €3.5 billion in 2012; and €3 billion in 2013.
Fine Gael leader Enda Kenny sharply criticised Mr Cowen's political performance over the past month leading up to today's announcement, saying the Taoiseach's handling of the economic situation suggested that the "days of your Government may well be numbered."
He described the savings plan as a "€2 billion stickling plaster" for a gaping wound that had not been treated at its root.
"It is the first time that a plan as been put forward in front of the Dáil that has already been rejected by the social partners," he said.
He said the Government's approach a looming financial meltdown was one of denial, delay and obfuscation. "It in the end [it] amounted to secret negotiations when people of this country were left in the dark." He said that Fianna Fáil had spurned and rejected helpful proposals that had been put forward by Fine Gael.
Labour leader Eamon Gilmore similarly attacked the plan, saying that the Taoiseach had told the country nothing that people did not already know.
He said the net effect of the plan was that nurses and gardai on modest incomes of €45,000, who were already paying €5,000 would be asked to pay an additional €3,375. "They will want to know 'why are they paying this for?'" Mr Gilmore said.
He compared ordinary workers to senior bank executives and the very rich and asked shy those with very modest incomes were asked to bear the brunt of the plan.
He also criticised Mr Cowen for not spelling out his plans in detail. "What are you going to do in 2010, if you have to double the act in 2010 as your own figures suggest you have to do, how are you going to do it?"
He said if Mr Cowen's only way was to address the expenditure side, it would lead to serious consequences. He said the Government needed to come up with real measures to generate employment and get the economy moving again.
