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News : Irish Last Updated: Dec 10, 2009 - 8:10:19 AM

Irish Budget 2010: Lenihan confirms spending cuts of €4 billion; Details of Budget spending and tax changes
By Finfacts Team
Dec 9, 2009 - 3:33:42 PM

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An appropriately grim-looking Minister for Finance, Brain Lenihan, at Government Buildings, this morning, Dec 09 2010, with his Budget 2010 folder. In the halcyon days, when his brash but reckless predecessor, Charlie McCreevy, had the proceeds of the property bubble to offer to the grateful masses, he used to flaunt a CD, as a symbol of modernity. That of course was as fake as his economics and the conventional file folder is more accurately a representation of a system where change if at all, comes at glacial speed and where the level of transparency on spending has changed little from Victorian times.

Irish Budget 2010: The Minister for Finance, Brian Lenihan, confirmed today that the Budget will reduce spending by €4 billion. He was speaking this morning on his way into the Department of Finance at Government Buildings. Lenihan will begin his Budget 2010 speech to the Dáil at 3.45 pm Irish/UK time this afternoon.

The Budget is expected to be the harshest in decades but that is of course relative. For those who do not have to worry about getting jobs or fear unemployment, the announcements today will not be life-changing.

Cuts in public service pay, social welfare, children's allowance and capital spending are expected and a new carbon tax is expected on fossil fuels.

Today's confirmation by the UK Chancellor of the Exchequer, Alastair Darling, that the UK  VAT rate will revert to 17.5% from 15% in 2009, will assist in the effort to reduce cross-border shopping and the Minister is expected to reduce excise duty on alcohol.

Social welfare rates and children's allowance will also be reduced, but the state pension will be untouched.

Capital spending will also be reduced, likely by €1 billion, and the balance will be made up by cuts to spending programmes.

The Taoiseach has told the Dáil any further funding for re-capitalisation of banks will not be incorporated in today's Budget. He was responding to a question from Fine Gael leader Enda Kenny, who asked if a further €6 billion, which he has heard will be used to re-capitalise Anglo Irish Bank in 2010, will appear in the Budget.

Today's Budget is the first of at least four budgets, to restore balance to the public finances.

The Minister told reporters on Tuesday that “it is going to be the last of the very difficult budgets.”

Irish tax receipts are back to 2003 levels, while current spending has risen 70% from that period.

Despite the cuts today, borrowing will still be 12% of national output next year -  - four times the Euro Stability and Growth Pact limit.

The country is borrowing almost €500 million each week and interest on the national debt will amount to €4.6 billion in 2010 up €2 billion from 2009.

Finfacts Budget 2010 Page - - including live Flash video of speech from 3:45 pm.

Summary as delivered:

  • Our plan is working, the Minister concluded
  • Minister says the innate advantages that brought the boom have survived the downturn
  • The economy has turned the corner and export figures are healthiest in Europe
  • The tourism budget to be increased to boost number of visitors to Ireland
  • €50m of carbon tax yield will be used to help those at risk of fuel poverty and €130 million allocated for energy efficiency measures
  • A VRT exemption for electric vehicles; reliefs for hybrid vehicles extended to 2012
  • Corporation tax rate of 12.5% is not to be changed and the Three-year corporate and capital tax break for startups to be extended
  • VAT to be cut by 0.5% from January
  • Excise duty on alcohol to be reduced, must be passed on to consumer; 12 cent per pint of beer and cider; 14 cent per half glass of spirits; and 60 cent per standard bottle of wine
  • Financial regulator to examine 6 month moratorium on proceedings arising from arrears to 12 months for all lenders
  • Mortgage interest relief to abolished entirely by 2017
  • Launch of a medium-term national savings product as an additional source of funding for capital investment; a product of this kind would enable ordinary citizens to provide money to the State to stimulate economic recovery and create employment. "I am announcing today the Government’s intention to introduce a National Solidarity Bond aimed at small investors. The National Treasury Management Agency and my Department are working on the details of the Bond and I expect it will be open for investment early in the new year."
  • Lenihan said the Government has accepted the recommendations of the Commission on Taxation on the need for a property tax
  • €9½ million is being made available as support measures for the food industry to enhance the competitiveness of this key indigenous industry; and €36 million will be allocated to an Employers Job Incentive Scheme giving PRSI exemption to encourage employers to take employees off the dole. Further details will be announced by the Minister for Social and Family Affairs
  • €14 million is being made available, in addition to €26 million from the EU, for supports to redundant workers in eligible companies under the European Globalisation Adjustment Fund
  • Fás to get €56 million for short term courses
  • €136 million to be allocated to provide 26,000 training places for the unemployed
  • Roads, housing and education among investment priorities
  • Public services spending to be reduced, mainly through efficiencies rather than cuts
  • Rates of payment will revert to 2006 levels in child benefit
  • Child benefit to be reduced by €16 per month
  • No cut in State pensions planned
  • Further cuts for younger claimants
  • Jobseekers and supplementary welfare allowance to be reduced to €150; for persons aged 20 and 21 years of age who have no dependent children is being reduced to €100 per week and for those aged between 22 and 24 to €150 per week; and for all other cases, the rate will be reduced to €150 per week where job offers or activation measures have been refused.
  • Social welfare to be cut 4.1%
  • A 50 cent charge is to be introduced for every medical card prescription item from next April
  • The Minister said the Government wants high earners availing of tax incentive schemes to contribute more in the current difficult times
  • The effective rate of income tax for those benefiting from reliefs will increase from 20% to 30% on top of which they will also pay PRSI levies
  • He said represents a significant tightening of the restriction which will yield approx €55m in a full year. The entry point to the restriction will now occur at adjusted income levels of €125,000 will the full restriction applying at €400,000.
  • The Government has provided for an adjustment of €1bn in capital spending, and has also pencilled in an adjustment of about €2bn in day-to-day spending for 2011.
  • Hospital consultants will see their pay cut by up to 15% under the Budget measures.
  • Review of the current arrangements and consideration linking pensions to increases in the cost of living; pending that review, "I do not intend to apply the pay cuts I have already outlined to existing public service pensioners"
  • Pensions for new public staff to be calculated on career average; the minimum pension age for new public servants will also be increased from 65 to 66 and then linked to increases in the state pension age.
  • The State's pension bill to grow to 13% of GDP by 2050
  • Public sector pay to be cut by 5% on first €30,000 salary; 7.5% on the following €40,000 of salary and 10% on next €55,000
  • No pay increase for judges during lifetime of current Government as it is not possible to impose a pay cut because of the Constitution
  • Taoiseach's pay to be cut by 20%; Ministers by 15%; 8% for Public staff  with salaries from €125,000 to €165,000; 12% for those earning between €165,000 to €200,000;
  • Permanent pay reduction of 12% for earners over €200,000
  • Savings of over €1bn on public sector pay bill is provided for; €760m on social welfare; €980m on day-to-day spending programmes and €960m on investment projects.
  • Vouched fuel allowance scheme to be introduced for low income families
  • Carbon tax to be introduced equivalent to €15 per tonne. Petrol and diesel costs will rise from tonight.
  • Irish domicile levy of €200,000 per year to be introduced for high net worth individuals with annual income of over €1m wherever it arises andwhose Irish-located capital is greater than €5m.
  • Water charges to be introduced. The charges, like the charge on second homes, will finance the provision of local services by local authorities.
  • Universal social contribution to be introduced which will replace employee PRSI, the Health Levy and the Income Levy.
  • The Minister warned that delaying action could lead to international lenders' losing faith in Ireland's ability to restore order to public finances.
  • Single currency has provided protection for Ireland in time of crisis
  • Wages have increased 70% in past decade and we have prices ourselves out of international markets
  • Minister forecasts return to positive growth in "6 to 9 months"
  • He said the economy would shrink by 7.5% this year and 1.25% next year.
  • The current cost of providing public services is not sustainable. Without any correction, day to day spending would be about €58 billion in 2010, an increase of about €2 billion over 2009
  • Deficit would have risen to 20% of GDP without Government action, Lenihan says

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