OPINION:The Government will pay today's prices for property which banks and developers bought at inflated costs – they will take the hit, not the taxpayer, writes BRIAN COWEN.
TUESDAY’S BUDGET was one of the most critical in the lifetime of the State. It is a Budget that sets this country on a five-year road to renewal.
It is a Budget that will restore confidence and hasten economic recovery in Ireland.
It is a first step in a process that will bring us through this unprecedented global economic and financial storm, and ensure a brighter future for ourselves and our children.
This Budget was tough. I regret that it will cause difficulties for some. But it had to be tough.
As a country we are providing 2009 public services on the basis of national income more akin to 2004. People know it is unsustainable for us to be spending so much more than we are earning in revenue. No household could afford to do it, neither can the State.
We must fix our spending and our tax system so that they are sustainable in good times and in bad.
That is what we started this year, and what we will continue to do over the next five years.
One example of achieving better value for our tax euro can be seen in the replacement of the early childcare supplement with a free pre-school year. This initiative, which will start next January, will significantly enhance the subsequent educational achievement of students and in turn increases the return for State investment in education.
This is an example of how a programme can be reshaped and made more effective at a lower cost to the taxpayer. We need to see more such initiatives in the public sector.
There is a fine line to be walked between, on one hand taking too much money out of the economy, and on the other hand not taking enough. I believe the Budget gets the balance right. The tax increases in this Budget are regrettable but necessary. Those who say securing the Irish economy can be done without raising taxes are either fooling themselves or trying to fool the Irish people.
After all of our readjustments, we still retain one of the most favourable tax regimes in the OECD. We are still investing in the future by spending 5 per cent of GNP on important infrastructure. That is twice the European average.
We have sought to introduce a fair Budget in difficult circumstances. All contribute, but contribute according to their means:
- A person on the minimum wage is being asked to pay 2 per cent of their net income;
- A person earning €50,000 a year is being asked to pay 4 per cent of their net income, and;
- A person earning €300,000 a year must pay 9 per cent of their net income.
About 30 per cent of income earners (670,000) remain exempt from the levy, as do medical card holders above the ceiling. More than one million income earners – those with incomes under €26,000, medical card holders and over-70s – remain exempt from the health levy. The top 1 per cent of income earners (those earning more than €175,000) will contribute nearly a quarter (24 per cent) of the total yield from the income levy.
To speed economic renewal, we need banks lending to businesses and getting them back to growth. This is the only way to secure existing jobs and support the creation of new jobs. Irish business is strong. We have strong companies with strong products and strong markets. Those businesses will be the backbone of our recovery; we must do everything we can to get them the cash they need to invest and to grow. While the banks continue to hold the very large overhang of underperforming loans to developers, they cannot perform this essential function.
This is why the Government is intervening to solve the problem through the National Asset Management Agency. This action will isolate this problem and stop it from contaminating the entire economy.
This approach is in the best interest of the economy and our financial system. It is necessary to protect jobs but in no way will it protect developers. The Government will pay an economic price for the loans which ensures that the developers and the banks take a significant loss where the land and property were originally purchased at very inflated prices. The assets will be realised over time in a way that protects the taxpayer. Should losses be incurred by the State, a levy should be applied to banks to recoup any shortfall.
Ireland has suffered a blow to her reputation abroad. This must be fixed and it will be fixed. With a solid plan for our public finances and a comprehensive plan to restore our banking system, we will be sending teams abroad, including to London, Frankfurt and New York, to demonstrate to international markets that we are taking the right measures. This will restore confidence and get investment and credit flowing again.
In this Budget we are also taking steps to maximise short-term economic activity and jobs. Our actions are also consistent with our Framework for Sustainable Economic Renewal based on building Ireland’s smart economy and developing it as a green economy. This will see the development of thousands of thriving Irish and global companies developing the products, services and jobs of tomorrow, and providing quality, well-paid jobs for this and future generations.
I want to assure people this economy will recover. The consensus among forecasters is that the world economy will begin to revive in 2010, bringing a return to growth in Ireland in 2011. That will only occur if we take the hard decisions now, work together over the next few years in particular, fix those things that we can fix, and get through this unprecedentedly difficult period.
I am determined to lead the country through this. This is a battle for Ireland’s economic future. But it is a battle we can win. It is a battle we will win.
Brian Cowen is Taoiseach and leader of Fianna Fáil.