Talks between the Government and the social partners on how to cut €2 billion in public spending moved into a decisive phase this evening after unions backed a proposed framework for negotiations.
In a statement this evening, Taoiseach Brian Cowen said the framework, agreed today, was unprecedented and committed the Government and the social partners to delivering “the fiscal stabilisation required to steer Ireland out of our current economic difficulties”.
He said the agreement "will help our position in relation to international markets and investors as well as
boost confidence at home."
Earlier the Irish Congress of Trade Unions (Ictu) approved the framework at a meeting of its executive council, clearing the way for talks on details of the cuts.
The Framework for Stabilisation, Social Solidarity and Economic Renewalwill form the basis for talks with the social partners over the coming days.
The document says the level of unemployment could reach more than 10 per cent of the workforce with in excess of 120,000 people losing their jobs this year and in 2010.
In the document, the Government, unions and employers agree that the €2 billion cuts in exchequer spending must be put in place in 2009.
Mr Cowen said intensive negotiations over the next few days would address steps to be taken to achieve the cuts.
“Stable public finances are essential for the future of our economy. Every action that we take in the period ahead must be motivated by that objective. Without stable finances, there will be no economic recovery,” he added.
The framework document maintains that national income could fall by up to 10 per cent over the 2008 to 2010 two-year period.
It says that tax revenue last year came in at more than €8 billion below expectations and that a further fall was projected for this year, “creating an unsustainable exchequer deficit”. The document warns that “without further adjustments, a general govt deficit in the range of 11 to 12 per cent of GDO for each year up to 2013”.
It states that “failure to implement radical decision has the potential to erode national and international confidence in the Irish economy with profound risks for all sectors of Irish society”.
In the document the social partners agree on the need to progressively reduce the level of exchequer borrowing over the coming five years to reduce the general govt deficit to below 3 per cent by 2013. It says this should come about through a mix of spending cuts and tax rises. The document says that all sectors of society should contribute to the recovery programme according their ability to do so. However, it says that the most vulnerable – the low paid, unemployed and social welfare recipients – should be insulated against the worst effects of the recession.
The document says that the Government is also to introduce measures to assist those with mortgage arrears.
The framework document signals significant changes in taxation. The Government is to change the terms of reference of the Commission on Taxation “to identify appropriate options to raise tax revenue and complete its report by September 2009”.
Union leaders have said that the commission had a mandate to retain a low-tax environment. The framework document says that taxation changes should be introduced on a fair and equitable basis “with the higher proportion falling on higher incomes while minimising distortionary effects between forms of tax”. Unions had argued that capital taxes should not be levied at lower rates than income taxes.
As a means of showing that the recovery burden is to be shared equitably the Government is to introduce controls on top-level executive pay. The document states that in a bid to maximise economic activity and employment, the Government is to introduce a fiscal stimulus in 2009 and 2010 by maintaining capital investment of a high level. Capital expenditure is to be reprioritised to support labour intensive activities where necessary.
The Government is also to introduce new measures to support business and to act quickly to improve competitiveness and competition across the economy. There are to be reforms in price regulation in areas such as energy.
As part of efforts to stabilise the financial and banking sector, the Government is to introduce early in 2009 a new statutory code of practice in relation to mortgage arrears and home repossessions. The mortgage interest scheme is also to be reviewed.
It is also to seek to maximise the flow of credit to the enterprise sector and “ensure early introduction of a code of practice in business lending”. There are also to be new controls on pay levels for executives in the banking sector, while the Government will also address serious and urgent difficulties facing private sector pension schemes.
The Government is also to convene a “jobs and skills summit” in March “to devise innovative approaches to maintenance of employment, creation of new employment and assistance for those losing their jobs.