Irish Emergency, Mini Budget April, 2009, Ireland, Cowen, Lenihan, Tax, Taxes, Irish economy, 2008, spending cuts, borrowing, economic : Finfacts Ireland

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IRISH EMERGENCY/MINI BUDGET APRIL 2009

April 07, 2009

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The Budget 2009 presentation

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Irish Finance Bill 2009

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Government takes 3% of GDP from economy - - at its weakest in a century; Summary of tax, spending and economic forecasts

Tax hikes; Bank toxic loan plan to double national debt; Reforms pending - - awaiting reports as usual!

"For years we have been bled white - now it's payback time" on the road to perdition

MAIN POINTS OF BUDGET

With the benefit of hindsight it is clear more should have been done to curtail the housing market boom, says Lenihan

Ireland has faced adversity in the past and prevailed he tells Dáil

Lenihan says that we became over-reliant on the construction industry.

The Government now expects the economy to shrink by 8% this year, with consumer prices falling by 4%.

Six steps required to stabilise economy, says Lenihan

The minister announces there will be a 10% cut in political expenses, while long-term payments to TDs will be abolished.

Politicians' pay to be reviewed and benchmarked against similarly sized countries

Minister says €3.25bn adjustment required this year

Levies on personal incomes to increase

Government sets borrowing target of 10.75 per cent

Cost of servicing debt has risen to 11 per cent of revenues

Capital spending is to be cut by €1.3bn in 2010 and €2.4bn in 2011

Government expects tax revenues of €34bn this year

Government may introduce form of property tax and carbon tax

Public service staff aged over 50 to be allowed retire early from certain posts

Welfare rates will not be reduced in this Budget. However, there will be no increases in social welfare for the next couple of years, and rates may be reviewed later.

The Christmas welfare bonus will not be paid this year, while those under 20 will have their dole payments halved.

Child benefit will be means tested from next year

Early child care education supplement to be halved this year to €500, abolished in 2010

Capital allocation of €7.3bn for this year

Tax increases to generate extra €1.8bn this year

Government talking to industry about capital funding programme

Current and capital spending by total of €.8bn this year

Corporation tax rate of 12.5% to remain unchanged

Mortgage interest reliefs to be curbed ahead of abolition

Capital gains tax to increase to 25 per cent, thresholds to fall

New levy on life insurance policies to be introduced. The levy on non-life insurance premiums rise from 2% to 3%.

Income levy rates to double, entry rates to be lowered. The income levy thresholds have been lowered, with the 2% rate kicking in at €15,000, 4% at €75,000 and 6% at €175,000.

The ceiling for employee PRSI will rise from €52,000 to €75,000.

Deposit interest tax to be increased. DIRT will go up from 23% to 25%.

Tax changes to apply from May 1st

Central Bank to be headed by Commission

A national asset management agency to be set up under the NTMA

This agency will purchase distressed assets valued at approximately €80 to €90 billion

Agency will pay less than €90bn for the assets, any shortfall to be made by a levy

Excise duty on diesel to rise by 5 cent

Excise duty on cigarettes to rise 25 per cent

Lenihan said no scope to raise excise duty on petrol or alcohol

The Government to redirect National Development Plan to support jobs

Andrew Large to advise Government on setting up new financial regulatory structure

Back-to-work scheme to be amended

Bank plan will result in significant increase in debt levels

Tax reliefs for purchase of intellectual property to be introduced

Stamp duty trade in scheme to be introduced

Lenihan says economic success fostered a feeling of invincibility and led to rejection of Lisbon

An Enterprise Stabilisation Fund will be set up to help protect jobs in troubled businesses.

Irish Budget April 2009: Economist Pat McArdle says: "Government funks the big decisions"; Reactions of vested interests in politics, business and the professions

Ulster Bank Chief Economist Pat McArdle comments on the Budget: “Government funks the big decisions.

The size of the package was about right if a little on the high side at €3.3 bn in 2009 and €5bn in a full year.

This gives a deficit of 10.75% but this will be overshot as the forecast 8% GNP fall looks too conservative in the light of this very tough Budget

As we feared, the balance struck between spending and revenue is all wrong with taxes up €1.8 bn and spending is cut €1.5bn.

Reason for this is that they ignored the two biggest spending items pay and social welfare.
The cost was that we got two levies doubled not one - health and income levies.
This is taxation with a vengeance.

Announcement of National Asset Management Agency is welcome but does not answer any of the big issues which are what will the price be and how will this affect bank capital, two issues which have bedevilled such schemes in other countries. There is still much to do.”

Department of Finance Budget April 2009 Documents (additional details on provisions and Minister's Speech

Extracts and summary also available here.

Economist Jim O'Leary says in the Irish Times: "The emerging budgetary position is probably worse than is commonly supposed. My calculations point to a budget deficit this year, before allowing for the effect of today’s measures, of about €24 billion. I’ve arrived at that figure by taking the Government’s €17 billion forecast of early January and adding to it a €5-6 billion tax shortfall and a spending overrun of €1-2 billion. I reckon the resultant deficit would be close to 15 per cent of GDP."

Irish GNP (Gross National Product) 1948 - 2010

Latest:

Irish Mini/Emergency Budget 2009: Minister needs to pull a rabbit out of the hat on Tuesday - - Pat McArdle

IMI’s National Leadership Forum urges immediate global roadshow to enhance "Brand Ireland"; A case of putting the cart before the horse?

Irish Economy 2009: Ireland experiencing unprecedented contraction in output following earlier unsustainable construction-driven surge in activity

Cowen says tax revenues may fall to €32 billion in 2009 compared with €47.8 billion in 2007 - - expected deficit rises to €26 billion

Restrictive budget would kill off Irish economy - - Pat McArdle, Ulster Bank

New approach needed to fix broken Irish political system

The October 2008 Irish Budget for 2009, forecast a budget deficit of 6.5% of GDP (Gross Domestic Product) this year, compared with the euro rules limit of 3%.

At the time, credible economists dismissed the forecast and within weeks, after the publication of October tax returns, Finance Minister Brian Lenihan signalled, that a mini-budget could be required to tackle the worsening public finances.

Ulster Bank economists Pat McArdle and Lynsey Clemenger said in a March report, that following an estimated contraction of 2.3% in 2008, GNP is forecast to fall by 7.9% in 2009. GNP is their preferred measure of growth because it excludes profits of multinationals which accrue to non-residents, and includes profits earned abroad by Irish residents. They expect GNP to fall by a further 3.4% in 2010, as non-residential investment weakens further and ongoing job losses keep spending subdued. Their forecast is a three-year recession, with GNP set to fall by a total of almost 14% over the period 2008-2010.

"This week politics will be on trial in Ireland in a manner that has not been seen since the civil war.

Now, as then, the verdict of the international markets and the people will have real implications for the existence of the State.

If they mess this one up -- and the barometer is very delicately poised -- the very legitimacy of FF, FG and Labour will also collapse, for if the politicians fail the people next week the streets will be on fire by the autumn and it will be hard to condemn the fire-starters.

Since they have not been in government, Fine Gael and Labour may believe it unfair putting them into the same dock as Fianna Fail.

However, the Olympian levels of stupidity and sloth which has seen FF, the social partners and our top mandarins wreck the country, mean we can no longer afford the luxury of ignoring parties who could be in power before the summer.

Of course, in a real sense the trial has actually started.

So far it has gone badly for the defence because the indictment is a simple one.

A corrupt plutocracy of bankers, builders and inept regulators which turned a prosperous exporting economy into the Wild West of Europe has left us at the very gates of a debtors' gaol for countries that go bad.

We are, as of now, going to take in €34bn (if we are lucky) of tax revenue, spending €21bn of that on social welfare alone and that's before we get to the civil service pay and the rest of the €60bn plus apparatus of government.

As the real economy seizes up like a car without oil, by the close of the year half a million of our best and brightest citizens are poised to experience the financial and psychological strain of being unemployed."

- - John Drennan, Sunday Independent April 05, 2009

Unemployment is set to hit 14% by the end of 2009, up from 7.7% in 2008, and the highest rate since 1989.

The government deficit will rise to 11% of GDP this year, the largest in the Eurozone.
The upcoming emergency Budget will likely look for €4 billion in savings, via a combination of spending cuts and tax hikes. This will be difficult to achieve and the economists estimate that the eventual deficit will still overshoot the 9.5% target, by 1.5 percentage points.
The medium-term fiscal outlook is clearly dependent on the degree of success the Government has in reaching the 2009 target. The figures published in early January proposed a a target, that would bring the General Government Deficit below 3% by 2013. This envisaged further pain in the form of corrective measures of the order of 2% of GDP in both 2010 and 2011, declining towards 1.5% in 2013. This will be a major negative for growth in coming years.

Irish consumer spending accounts for about 60% of total GNP and retail sales volume fell 20% in the year to January.

Ulster Bank says between now and 2013 – with the Government taking about 2 percentage points out of the economy each year – adds to the negative influences and pushes out the timing and extent of the eventual recovery.

Finfacts Report: Emergency Irish Budget to target €4.5 billion in tax hikes and spending cuts

While the tax base is in need of expansion, too much emphasis on tax hikes, could trigger more bearish consumer spending, while support for business employment until the recovery gets underway in the US, is important.

Finfacts Report: Short-time work in Germany: A flexible instrument to fight the crisis according to Deutsche Bank Research

Ulster Bank's Lynsey Clemenger, said on publication of the February Live Register figures in March, that compared with a year ago, the total is up 165,000, or almost 90%. Given that Ulster Bank estimates, that each additional 10,000 workers on the Live Register costs the exchequer about €150 million in social welfare benefits and lost tax revenue, the cost so far has been on the region of €2.5 billion. It is anticipated, that the total claiming unemployment benefit will average 460,000 in 2009, which implies an overshoot in spending of €1.25 billion, and a tax loss of about half that again, compared with the January budget estimates.

Finfacts Report: Irish Live Register jumped by stunning 26,700 to 352, 800 in February - - annual rise of 165,000; Unemployment rate to spike to 14% by end 2009

The Economist magazine said in its edition of March 13th, that Ireland is having a deeper recession than any other eurozone country. The economy probably shrank by 2.5% in 2008 and may contract by another 6.5% this year. Unemployment has jumped from 5% to 10.4%, a faster rise even than in America.

To envious observers, Ireland’s fall from grace is an overdue payback for its previous swift rise. Between 1990 and 2007 the economy grew by an annual average of 6.5% . The Economist said, it is easy now to dismiss the rise in living standards in the “Celtic Tiger” years as illusory, particularly as Ireland enjoyed house-price and credit booms that were big even by British standards. But to focus on the bursting of the housing bubble would be to miss the lasting gains that were made.

Ireland’s expansion went through two phases. The first, led by exports and powered by foreign direct investment, ended roughly in 2002. Foreign companies, mainly American, provided bags of capital and know-how. Ireland offered in return a young, educated, English-speaking, low-cost workforce. State grants, a low corporate-tax rate and access to the EU’s single market made things sweeter.

That gave way to a period of growth on weaker foundations. Low interest rates, a consequence of euro membership, lit a fire under property prices and spurred a building and retailing boom. The boom got a fillip in 2004 as migrants from the EU’s new members flooded in. Continued growth gave the impression that all was well. But as one Irish economist notes, the Celtic Tiger had already vanished.

When the bubble burst, it left a legacy beyond the pile of unsold houses and bad debts. The housing boom had chipped away one pillar of Ireland’s appeal: its low costs. Inflation had picked up and unit labour costs (ie, pay adjusted for productivity) rose sharply relative to Ireland’s main trading partners. A recent study by the European Central Bank found that Irish unit labour costs had risen by a third between 1999 and 2007, the biggest jump in the euro area. A healthy current-account surplus in the mid-1990s had turned into a big deficit a decade later, a sign that Ireland had become too pricey.