POLITICAL REACTION:MINISTER FOR Finance Brian Lenihan yesterday said the dramatic deterioration in the public finances was the biggest challenge that government has faced in 21 years.
He was speaking to reporters after the Cabinet announced that it would take the unprecedented step of bringing Budget 2009 forward to mid-October.
Mr Lenihan also said Ireland's borrowing in 2008 and 2009 would result in the deficits being higher than the 3 per cent of GDP limit imposed by the EU's Stability and Growth Pact (SGP).
"The challenge facing the Government in financial and fiscal terms is the most challenging we have had to face since Ray MacSharry was minister for finance ," he said.
However, he drew a distinction between the difficulties faced then and by the Government now.
"Circumstances are not the same. Mr MacSharry had to face the situation then with high levels of debt, high taxes and high unemployment. We face it with a million more jobs, a healthy debt position and a tax situation that is one of the lowest in Europe."
Setting out why tax revenue had fallen dramatically below expectations, he pointed to the property market, but said there were other factors.
"The key point to note is the rapidity of the turnaround. The rapidity is not exclusively caused by the property sector. It has been accentuated by the non-availability of credit in financial institutions."
He would not be drawn on outlining any specific measures, saying they would form part of his considerations during the budgetary process.
However, in the context of Taoiseach Brian Cowen meeting the social partners this week, he said it cost €180 million to increase the public payroll by 1 per cent.
Asked about breaking the 3 per cent SGP limit, he said: "My primary responsibility is to Dáil Éireann to ensure that Ireland's economic fundamentals are sound."
Fine Gael's finance spokesman Richard Bruton was critical of what he said was the belated decision by the Government to take action. "The Government has finally woken up to the scale of the crisis facing the economy."
He dismissed the bringing forward of the budget as a "PR stunt" that would lead only to short-term tax increases for average earners and possible cuts in front-line services from the beginning of 2009.
"The fear remains that this announcement is about filling a publicity cycle and is not based on a clear strategy. Fianna Fáil is likely to foist emergency tax measures on the public come October."
Mr Bruton also said the July package designed to save €440 million in spending was inadequate.
Labour's finance spokeswoman Joan Burton said a national recovery programme was now needed to deal with the economic "disaster" facing the country.
"The Dáil must now be recalled to meet next week for an on-the-record debate on the nation's finances and what the Government must do to restore financial credibility.
"Families and business are hurting. People are losing their jobs, particularly from the construction industry. They are given little encouragement or support to upskill and find new jobs."
She said Labour had been calling for months for an economic strategy to address the downturn. "So far the Government's only response has been to introduce a poorly designed cuts package and then head off on holiday."
