Finance Minister Brian Lenihan, as he promised, hit the wealthiest the hardest in his supplementary budget on Tuesday which was forced upon the government in a bid to combat the economic crisis.
Although the rich took the biggest hit, lower income groups and even children learned they must also make financial sacrifices.
Business chiefs, although critical of aspects of the budget, cautiously welcomed it as “a credible response” to the nation’s economic difficulties, while workers’ leaders dismissed it as “unfair,” “vicious” and “harsh.”
Lenihan opened his hour-long budget speech by reminding TDs (members of Parliament) that already, in his 10 months in the job, he had submitted one budget and two rounds of expenditure adjustments to the Dail (Parliament).
“Economic turmoil globally and in Ireland dictated these measures. The measures that I am bringing forward today will complete this process for 2009,” he said.
“I want to assure the Irish people that we have the capacity and your government has the will to bring us out of this period of severe economic distress. We can work our way through our problems. We have faced adversity in the past and we have prevailed.”
He counted out what he said were six “essential” steps that must be undertaken to bring about economic recovery.
First, the public finances must be stabilized to restore confidence among investors. Second, the “damaged” banking system had to be restored to ensure credit flowed to businesses and consumers.
Third, the competitiveness which was lost through over-reliance on domestic spending during the boom must be regained.
Fourth, jobs had to be protected and investment put into retraining those who had lost jobs. Lenihan gave a reminder that already this year, 80,000 additional people have joined the dole queue.
Fifth, economic confidence must be supported and stimulated as much as possible within the resources available.
Lenihan added, “Finally, we must restore our reputation abroad. We have been badly damaged by the actions of some in our financial sector. We have been damaged by our rejection of the Lisbon Treaty.
“We must show our EU partners that we, who have gained so much from the European Union, want to remain at its centre. We must show the world that our financial system is soundly based and governed by the highest standards of regulation.”
Lenihan told the Dail that the weakness of the Irish taxation system was its narrow base. He said that too many people did not pay tax at all, and there were too many ways in which those had wealth could shelter their income.
He said it was no longer sustainable to keep minimum wage earners outside the tax system. He said he wanted to spread the burden in a fair manner to a wider range of income earners while avoiding economic disincentive effects.
Business leaders issued a cautious welcome to the budget. Turlough O’Sullivan, director general of IBEC, the employers’ main lobby body, said, “This budget is a credible response to the current difficulties in the public finances. It sends a clear and positive signal that the Irish government is taking effective remedial action over the next five years. IBEC would have preferred a greater emphasis on cutting current expenditure immediately rather than on increasing taxation. “
O’Sullivan added, “It is regrettable that the supports for enterprise are so modest that they will do little to stabilize employment. This is a matter which must be urgently addressed. Whilst each one of us feels pain today, this budget is a critically important step towards restoring our financial stability and international reputation.”
Trade union leaders were not impressed. Richy Carrothers, assistant general secretary of IMPACT, the largest public services union with 55,000 members, said spending power of workers was going to be considerably reduced by “financial strangulation” for the country at large and for rural communities in particular.
Carrothers added, “The trade union movement called for fairness and the government promised it, but there’s very little fairness in this budget. Working people will be expected to pick up the tab for mismanagement of the country and the economy.”
In the Dail, the opposition condemned the budget for failing to recognize the government's mishandling of the economy and not containing steps to tackle the jobs crisis.
Fine Gael finance spokesman Richard Bruton dismissed Lenihan’s measures as a “bookkeeper’s budget.” Bruton said the budget failed to recognize the economy was on a “perilous edge” with the most vulnerable at greatest risk.
Bruton said many families would have an extra tax burden of ****2,500 due to the budget. That, he said, was a huge increase for those on modest salaries.
He accused the government of "spending like there was no tomorrow.”
Labor finance spokeswoman Joan Burton said Lenihan’s measures represented “the budget from hell,” especially for families in middle income bracket with two or three children who were now being heavily taxed.
She told Lenihan, “The PAYE sector did not cause the economic crisis but by God are you making them pay for it.”
Here’s what Lenihan delivered:
*Petrol and alcohol duties will not go up.
*The price of cigarettes will rise by 25 cent and diesel goes up five cent a liter.
*Income levy thresholds have been lowered, with a 2% rate kicking in at ****15,000, 4% at ****75,000 and 6% at ****175,000.
*The government will look at introducing a national infrastructure bond to raise money for capital projects.
*The early childcare supplement will be halved from May 1, and scrapped altogether next year.
*The Commission on Taxation will decide on how to raise further money from taxing or means-testing child benefit.
*There will be no increase in social welfare payments this year, and rates may be reviewed later.
*There is to be a new scheme to allow civil servants over the age of 50 to retire.
Lenihan also announced that there will be a 10% cut in political expenses, while long-service payments to TDs will be abolished.
He also said that the government now expects the economy to shrink by 8% this year, with consumer prices falling by 4%.