Huge cuts revealed in four-year fiscal plan
The Government today unveiled a raft of budget measures to restore the State’s finances by 2014.
The plan confirms that 40%, or €6bn, of the required €15bn adjustment will be made in 2011, and that the adjustment will be made up of €10bn in spending reductions and €5bn in tax and revenue raising measures.
Measures include cutting social welfare by €3bn, reducing the public sector pay bill by €1.2bn and increasing VAT by 2%.
A new student contribution to third level education of €2,000 a year will replace current charges.
A household charge of €100 a year will be imposed in 2012, to be replaced by a site value tax of up to €200 in 2013.
The minimum wage is to be cut by €1 an hour.
The Government plans to increase revenue from income tax, by widening the tax bands and eliminating a range of tax reliefs. The effect of those measures will be that many of those currently paying no tax will be asked to pay tax on some income.
By 2014 anyone earning €15,300 will start paying tax, down from the current level of €18,300.
Public service pensions will be cut, while all new teachers, gardaí, nurses and public sector workers will start on salaries 10% less than current ones.
The four-year plan warned that the drastic cuts will negatively impact on the living standards of the people of Ireland.
Speaking at Government Buildings, Taoiseach Brian Cowen said the current crisis was “a challenge that can be surmounted.”
“We are a smart, resilient, proud people and we are going to come through this challenge,” Mr Cowen said.
Mr Cowen said no one can be sheltered from a plan for national recovery.
“It’s to bring certainty for our people,” the Taoiseach said.
“It’s to ensure that they have hope for the future. To let them know that while we have a challenging time ahead, we can and will pull through, as we have in the past.
Mr Cowen said the plan would see workers facing taxes they paid in 2006 while the Government would oversee spending levels similar to 2007.
The Government predicted that the economy will grow by 2.75% on average between next year and 2014.
It forecast 90,000 new jobs and unemployment easing back to below 10% over the period.
The budget roadmap includes the following savings and tax reforms:
- The minimum wage is cut by €1 to €7.65;
- VAT will increase 1% to 22% in 2013 and to 23% in 2014;
- Corporation tax will remain at 12.5%;
- Public sector workforce to be cut by almost 25,000 to 24,750, bringing staff numbers back to 2005 levels;
- A reformed pension scheme will apply for new entrants to the public service, while new staff will be hired at a salary of 10% less than currently;
- A new student contribution to third level education of €2,000 a year will replace current charges, while a new €200 registration fee will apply to PLC courses;
- Water metering will be brought in by 2014;
- Carbon tax charges will double to €30 a tonne, raising €330m;
- A site-value tax will be introduced next year, rising to just over €200 per household by the end of 2014.
The National Recovery Plan stated: "The Plan will help dispel uncertainty and reinforce the confidence of consumers, businesses and of the international community.
“The tax and expenditure measures contained in this Plan will negatively affect the living standards of citizens in the short term.
“But postponing these measures will lead to greater burdens in the future for those who can least bear them, and will jeopardise our prospects of returning to sustainable growth and full employment.”
The Taoiseach said the size of the economic crisis means no one can be sheltered from a contribution to national recovery.
However, he has pledged that those who have most will make the most contribution and those who have least will be protected to the greatest extent possible.
Mr Cowen says it is important to know that there is hope and confidence for the future, but also lessons to be learned.
"It's a time for us to pull together as a people. It's a time to confront these challenges and do so in a united way,'' the Taoiseach said.
Property will be taxed under a new site value levy designed to raise €530m and used to fund local services.
The public sector will be further hit through pension reform and 10% reductions in pay levels for new entrants, and those who have retired from State jobs will be hit with pension deductions to raise €100m.
Finance Minister Brian Lenihan said the four-year plan is "rational and sustainable".
Minister Lenihan said that more precise details on taxation and social welfare matters will be unveiled on Budget day, December 7.
But he insisted that this austerity plan will see future generations enjoying a good standard of living.
"It is a rational and sensible plan that will bring us all out of the steep downturn that we are already climbing out of, but it will ensure that as we climb out of it we do so on a sustainable basis."
Environment Minister John Gormley said his party focused on education and environmental measures, such as water rates, renewable energy and broadband.
“We are proud that education spending will be increased over the coming period,” he said. "This is vital to protect the needs of a rising generation. Increased spending on education is, above all, central to the efforts to rebuild national prosperity.”
