Extra €2bn in tax measures and spending cuts of €1bn
THE HARSHEST Budget in a generation was unveiled yesterday by the Minister for Finance, Brian Lenihan. The measures will impact on the living standards of all taxpayers, with a 1 per cent levy on income up to €100,100 rising to 2 per cent on salaries over that amount.
Mr Lenihan told the Dáil that he needed to raise an extra € 2 billion in taxation and to make savings of €1 billion in public spending to deal with the crisis in the public finances.
Last night, the Minister defended the income levy as “fair and reasonable”, saying those on higher incomes, particularly those earning over € 100,000, would pay the bulk of the money raised. The income levy will bring almost € 1.2 billion into the exchequer.
On the savings side, the Minister announced a range of controversial measures, including the abolition of the automatic entitlement of people over 70 to a medical card.
Those who lose the card will become eligible for a € 400 annual cash grant. There was a lot of opposition to the measure expressed by backbench TDs at a Fianna Fáil parliamentary party meeting last night.
The uncosted measure was announced in the 2001 budget and was widely perceived to have played a significant part in Fianna Fáil’s election victory the following year.
Other controversial cuts in the Budget include restrictions on tax relief for medical expenses, the raising of hospital accident and emergency charges to €100, an increase in Dirt tax on savings, adjustments in child benefit and an increase of 8 cent in the tax on a litre of petrol. Tax on cigarettes will go up by 50 cent, with the same increase in the price of a bottle of wine.
Outlining his Budget to the Dáil, the Minister said gross national product (GNP) would decline by 1.5 per cent this year and would decline by another 1 per cent next year. To deal with this situation he had to reduce public expenditure as much as possible and to increase borrowing substantially.
‘‘The time for corrective action is now. By moving to restore stability we will ensure that the Irish economy stands to benefit from the next global upturn. We are a small nation facing a major challenge in these uncertain times. We must all pull together if we are to return to more prosperous times,” he said.
Mr Lenihan announced that Ministers and Ministers of State would take a pay cut of 10 per cent to set an example. Top civil servants at secretary general level had also volunteered to take a 10 per cent cut and Mr Lenihan expressed the hope that other public servants in leadership positions would volunteer to follow their example.
Fine Gael deputy leader and finance spokesman, Richard Bruton, accused Mr Lenihan of hitting the most vulnerable people in the country with the range of measures he had adopted.
“I have carried out a simple calculation of how this Budget affects families on €60,000 per annum. God knows, that is not a great deal of money, and those families will be eligible for affordable housing if the Minister’s plan goes ahead. These are very ordinary families struggling to get by, but today’s Budget amounts to €2,300 in extra taxes, charges and levies on those families,’’ he said.
Labour Party spokeswoman on finance, Joan Burton, accused the Government of making ordinary people suffer for its mistakes. “Middle-class and working families have not just taken a hit, they have been mugged by the Minister.
“Whether we are referring to the income levy or the restriction in terms of health costs, we should make no mistake about the fact that the coping classes, the PAYE sector, are the Minister’s main targets today.
While this Budget will eat into the income of the average PAYE family, the ultra-wealthy, the tax exiles and those who made a killing from the Celtic Tiger will suffer relatively little pain,” she said.
Among other controversial measures announced by Mr Lenihan were an increase in third level registration fees to € 1,500, the introduction of an air travel tax of €10 and a new €200-a-year tax on holiday homes and investment property which local authorities will be entitled to levy.
One of the major revenue-raising devices adopted by the Minister was to bring forward payment of corporation tax and capital gains tax next year. This will yield a once-off payment of €550 million.
Significant changes in the eligibility criteria for a number of social welfare payments were also announced. Those signing on for jobseeker’s benefit, illness benefit and health and safety benefits will now have to have 104 paid contributions rather than 52, as at present.
The jobseeker’s benefit will in future be paid for a maximum of 12 rather than 15 months, while new claimants for illness benefit will only be entitled to payments for two years.
An expected redundancy package for the public service was not announced. Instead, the Minister said the Government would consider an action plan on the issue next month.
He added that a decision had been made to implement a targeted redundancy scheme in the HSE. The Minister announced significant savings through the ending of the decentralisation programme.
While the road building programme will continue, there was no mention in his speech about the fate of the metro but the Minister for Transport inidicated it would proceed. Mr Lenihan said he was budgeting for a deficit of 6.5 per cent of Gross Domestic Product (GDP) next year, well above the EU limit of 3 per cent. The deficit for this year is estimated at 5.5 per cent of GDP.
