Irish Government passes €4 billion Budget cut

The Government announced €4 billion worth of public spending cuts for 2010 in the most severe budget in the history of Ireland.

The Government announced €4 billion worth of public spending cuts for 2010 in the most severe budget in the history of Ireland.

On December 9th 2009, the Irish Government announced further cuts in public spending to rebalance the shortfall in the country's finances.

In what was the third national budget in 14 months, and the most severe budget in the history of Ireland, the Government announced an austerity package that will bring €4 billion in savings for the Irish economy through cuts in public sector pay, social welfare, and public investment.

The Irish Budget 2010 was passed with the votes of Fianna Fáil, Greens, three independents and Sinn Féin. Fine Gael, Labour and three independents voted against it.

"Everybody has to take a hit"

In the months leading up to the budget the Government had been calling on the Irish people to make one "last big push" to stabilise the economy, which was severely hit by the global financial crisis.

Taoiseach Brian Cowen stated "We have an unsustainable public finance position and, if we are to protect the most vulnerable in our society, as we must and seek to do, we must do so in a way that provides a sustainable way forward."

Transport Minister Noel Dempsey admitted "It's a tough Budget, it's going to be difficult... We are going to try and protect the vulnerable as much as we can but we cannot say that anyone is going to escape."

"Everybody has to take a hit," said the Transport Minister.

As he presented the Budget to the Irish Parliament, Finance Minister Brian Lenihan admitted "The effort demanded of every citizen in this budget is substantial, but it is the last big push of this crisis."

"I've made it clear, and the Government have made it clear, we have to secure €4 billion in savings and we are going to do that... And we are going to ensure that is done as fair as possible," said the Finance Minister.

Savings of €4 billion in the country's finances

"Our economy is still in a weakened condition, and our self confidence as a nation has been shaken," stressed Finance Minister Brian Lenihan as he unveiled the most severe budget in living memory.

In what was one of the most controversial parts of the Budget, Finance Minister Brian Lenihan announced that €1 billion euros were to be saved on public sector salaries. Public servants will face pay cuts ranging from 5% on those earning €30,000 euros to 15% on those earning more than €200,000.

The Government implemented the public sector pay cuts following the recommendations of the Review Body on Higher Remuneration in the Public Sector, which was set up in early 2009 to compare public servants' salaries between Ireland and other EU countries.

Social welfare cuts will deliver savings of €760 million euros by reducing child benefit rates by 10%, jobseekers allowance by 4.1%, and further cuts on prescriptions and home carer's benefit.

The Government justified the cuts based on the current backdrop of falling prices, as well as on Ireland's generous spend of €21 billion on social welfare.

The Government will also save a further €980 million on day-to-day spending programmes and €960 million on capital investment projects.

In contrast to April 2009's Budget, the overall burden of taxation remains unchanged, with the only exception of a new tax of €15 per tonne on carbon emissions which will affect petrol, diesel and heating oils and gas.

VAT was cut by half per cent down to 21% and excise on alcoholic drinks was reduced to counter cross-border shopping from the Republic into Northern Ireland, where alcohol is cheaper. The Taoiseach justified the measure "in order to protect revenue flows... which is having an increasingly negative effect on our economy". Despite the reduction, Ireland still has the highest excise rates for alcohol the EU after the Nordic Countries.

The Government also introduced a levy of €200,000 on Irish tax exiles who have a house in Ireland.

Corporation tax -which has been one of the most important incentives for foreign investors in Ireland over the last decade- remains unchanged at 12.5%

Taoiseach and ministers take pay cut

"Those at the top will lead by example", told Finance Minister Brian Lenihan as he confirmed a 20% reduction in the Taoiseach's salary and a 15% reduction in the salary of all senior Ministers.

A 10% of those cuts were already in place as all Cabinet members had already taken a voluntary salary drop in the October 2008 budget.

The Taoiseach has lowered his salary almost €110,000 in the space of a year. Mr Cowen now earns a salary before income tax nearer to €175,500, down from the €285,500 he earned before the October 2008 budget.

Fine Gael and Labour criticise budget

The Government's decision to introduce cuts in public sector pay and social welfare brought loud protests from trade unions and opposition parties.

Opposition parties Fine Gael and Labour said the government was taking away money from people who need it.

Fine Gael leader Enda Kenny and Labour leader Eamon Gilmore claimed the government was trying to mislead the public by making the cabinet members' cuts seem larger than they were.

Mr Kenny and Mr Gilmore argued that a low paid public sector worker was taking the same level of salary reduction as a minister. There was also criticism about the Taoiseach's pay cut and the announcement that judges’ pay would not be reduced.

The Fine Gael leader believed that at least €2 billion could be found if social welfare fraud was properly tackled, and Fine Gael's finance spokesman, Richard Bruton, said the Budget was not taking into account how much the Government was going to spend recapitalising bailed-out Irish banks.

Public service workers strike against budget cuts

The Budget was met with fierce opposition from trade unions, which resisted the cuts in public sector pay.

Following the collapse of talks between Government and the unions, some 250,000 public service workers staged a one-day strike in November 24th 2009 to show their opposition to the budget cuts.

The general strike was called before the budget cut announcement, and followed several months of industrial disputes and demonstrations about the government's handling of the crisis.

Trade unions leaders agreed that budget cuts were necessary, but said they wanted the government to impose them gradually and called for higher taxes on on top earners.

Trade Union Congress' General Secretary, David Begg, said "If we extend recovery over a longer time frame we can ensure important services and supports are maintained."

Lenihan predicts economy will be back on track by 2014

As a member of the European Union, Ireland is expected to keep its budget shortfalls below 3% of Gross Domestic Product (GDP).

Since Ireland was hit by the global economic crisis, the Irish deficit has soared to 12% of GDP.

Finance Minister Brian Lenihan defended his handling of the downturn and said the situation could have been much worse if it was not for action taken by the government.

"The government over the past 18 months has made budgetary adjustments of more than €8 billion. Had we not done so, the deficit would have ballooned towards 20% of GDP - a level at which the very financial survival of this country would have been at risk," said Mr Lenihan.

Taoiseach Brian Cowen announced his Government expects the deficit to come down to 11.6% in 2010, 10% in 2011 and 2.9% in 2014, thereby complying with the 3% ceiling allowed under the EU's stability and growth pact.

Brian Lenihan told "The government's strategy over the last 18 months is working and we can now see the first signs of a recovery here at home and in our main international markets."

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