The most severe budget in the history of the Irish state was unveiled today in the Irish parliament.
The Irish budget is usually announced in December – but because the economy has deteriorated so sharply since then, the government needed a new budget to take into account the massive holes in Irish finances.
Because of the decline in the amount of revenue generated through taxes – unemployment reached 11 percent last week, the highest in years – Brian Lenihan, the Irish Minister for Finance needed to make major cuts in public spending.
He said that the Irish economy could be put on the road to recovery, as long as everyone pulled together.
The Minister said that drastic steps were necessary, because of the current global economic downturn. He told the Irish people that the government has “'the will to bring us out of this period of severe economic distress.”
He listed six steps necessary: stabilizing public finances, restoring the damaged banking system, boosting exports, protecting jobs, and restoring Ireland’s reputation abroad.
Today’s budget, the Minister said, should increase revenue by €1.8 billion ($2.4 billion), and should cut public spending by €1.5 billion ($2 billion).
Significantly for American firms with operations in Ireland, Ireland’s low rate of corporation tax – which John McCain referred to on a number of occasions in his presidential campaign, and which was one of the factors credited for Ireland’s economic boom – remains at 12.5 percent.
Other sectors of the economy weren’t so lucky.
Plans for means testing for child benefits – which were previously available to everyone with a minor – are to be introduced next year. Property taxes are also going to be phased in.
Although existing social welfare payments are not going to be reduced at present, they may be in the future, the Minister warned. The bonus paid to welfare recipients each December is to be canceled this year.
An allowance for pre-school children is to be halved in May, and totally abolished by the end of the year.
Pensions have been abolished for sitting Members of Parliament – and politicians' pay is to be reviewed and brought into line with politicians in similarly sized countries. Politicians are also to get a 10 per cent reduction in all their expenses, other than mileage rates.
An income levy on those earning between €15,028 ($19,961) and €75,036 ($99,670) will increase to 2 per cent; for those earning up to €174,980 ($232,391), this will double to 4 percent and 6 percent for those earning more still.
Tax on diesel is to go up by 5 cent a liter while the excise duty on tobacco is to go up by 25 cent.
"Fairness must be the cornerstone of all our efforts," Lenihan told the Irish parliament.