Ireland’s bleak budget

Meadhbh Monahan unpacks the harshest budget in the Republic’s history.

Described by the opposition as “an attack on the poor”, the latest Irish Budget will cut €6 billion from the exchequer this year and is the first instalment of a €15 billion cut over the next four years.

Announcing the Budget on 7 December, the Republic’s Finance Minister Brian Lenihan said that the cuts had to be made to show the IMF and EU – which are to provide a financial assistance package of €85 billion to Ireland – that Ireland is serious about recovery. Ireland also had to appease the markets that were put off by the fact that Irish banks had become reliant on central bank funding to maintain their operations.

“Without this support there would have been serious doubts about the ability of the state to raise funds at reasonable cost to pay for key public services and to provide a functioning bank system to support economic activity. That’s the reality,” Lenihan told the Dáil.

There was some good news in the budget. There will be no reduction in state pension and a €40 payment will be made to households currently receiving the fuel allowance. An additional 15,000 places will be provided for the unemployed in three work placement and internship programmes at a cost of about €200 million. The car scrappage scheme has been extended until 30 June and vehicle registration tax relief reduced from €1,500 to €1,250 on cars older than 10 years. VAT remains at 21 per cent.

For business, the corporation tax rate remains at 12.5 per cent. The corporation tax exemption will be extended for three years for start-up companies, as will the capital allowance scheme for energy efficient equipment. It is hoped a reduction in the air travel tax from €10 to €3 from March 2011 will boost tourism.

However, the rest of the Budget is bleak with the minimum wage cut by €1 to €7.65, tax bands reduced in order to tax more incomes and all tax credits cut by approximately 10 per cent. In addition, a universal social charge will come out of wages instead of the separate income and health levies. The pay related social insurance (PSRI) ceiling has been removed and a number of tax reliefs – including share option schemes, rent relief, trade union subscriptions and subscriptions to professional bodies – have been abolished.

Retirement lump sums will be limited to €200,000 and there has been a reduction in the stamp duty rate to 1 per cent for transfers of residential property valued up to €1 million. Previously, stamp duty depended on the value of the property.

In terms of social welfare, child benefit is down €10 to €140 with an additional €10 reduction for a third child (to €167), job seekers allowance is cut by €6 to €144 and maternity and adoptive benefits are cut by €8 to €262. The cost of petrol is up by 4 cent per litre and diesel by 2 cent.

Each department will see cuts. For example, defence will see a reduction in overseas deployment, civilian employees and new equipment. Education and skills will see a rise in the cost of post primary school transport to €350. Funding for TG4 will be reduced with the shortfall made up from the RTÉ licence fee.

Labour leader Eamon Gilmore described the Budget as “the itemised bill for the utter failure of Fianna Fáil’s economic management”. Fine Gael’s Finance Spokesman Michael Noonan claimed: “This is the budget of a puppet government, which is doing what it has been told to do by the IMF, the EU Commission and the European Central Bank.”

In Westminster, the Loans to Ireland Act was passed on 21 December, allowing for £3.25 billion in assistance. While the Chancellor George Osborne suggested it was a neighbourly gesture to an important trading partner, Conservative MP Mark Reckless (whose grandfather was a Fianna Fáil TD for Donegal) said: “We gave the markets the impression that we are being sucked into a wider EU package and those markets worry that we will do the same for Portugal or Spain. I ask the Treasury frontbench team to make it as clear as they can that this is a one-off involving Ireland.”

Labour fully accepts the need to reduce public expenditure and close the budget deficit, but in this budget Fianna Faí l has once again, chosen to take the route of the conservative consensus, asking those on middle and low incomes to bear the brunt of the adjustment, while privileged elites such as the tax exiles did not even merit a mention.
Eamon Gilmore (Labour)

This is the budget of a puppet government, which is doing what it has been told to do by the IMF, the EU Commission and the European Central Bank.
Michael Noonan (Fine Gael)

This budget will be based on the IMF/EU sell-out deal and the fundamentally flawed four-year plan of Fianna Fáil and the Greens. We are totally opposed to the economic strategy of this government. It is punishing the least well off and depressing the economy. And all to bail out banks and bond-holders.
Gerry Adams (Sinn Féin)

The circumstances in which this Budget was drafted were far from ideal. But we believe that, by combining the making of necessary decisions and introducing a number of targeted initiatives, there is a cohesion to this Budget which can build upon our existing economic strengths and aid a faster and stronger recovery.
John Gormley (Green Party)