XS1 - V1
Wednesday, December 8, 2010
• VIEWS • ANALYSIS • EXPERT COMMENT • PUBLIC REACTION • CASE STUDIES
■ This is a graphical representation of Brian Lenihan’s budget speech, in which the 150 most frequently used words are highlighted and given prominence according to how often they are used. Generated by Wordle.
Private health insurance
From single workers to
How the people of one
Almost 140,000 people will
From retail to tourism to
is to increase as private
unemployed families to
hard-hit town are using
be forced to pay income
construction, we ask
bed charges in public
retired couples, a
local talent and ingenuity
tax for the first time as a
leaders in their sectors
hospitals are set to soar
complete breeakdown of
to fight back in a
result of changes to the tax
how the cuts will affect
how the cuts will hit you.
landscape of job losses.
2 BUDGET 2011
and snow and we’re expecting the budget to end all budgets (but hopefully not put an end to the country)
BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
Wholesale destruction of a generation of the middle class
CCORDING to the latest Exchequer returns, from January 2008 through November 2011, Government spending, inclusive of the capital cuts, will contract by 6.6%. The total net cuts in public expenditure achieved in the 11 months since January 1, 2010, amounted to just over F1.4 billion or a miserly 1.1% of GNP. At the same time, this year’s deficit, ex-banks, will add up to about 14.7% of the gross national output. These figures put into perspective the Herculean task that is faced by the economy in terms of the deficit reductions that have to be achieved to restore our fiscal health. In this context, Budget 2011 is just a minor step on a long and arduous journey ahead of us. Going into his budget speech, Minister Lenihan carried the dubious distinction of having been voted as Europe’s worst finance minister by the Financial Times. He earned his title by presiding over the economy in which combined household and government debt, inclusive of NAMA and banks recapitalisation costs, is forecast to rise from F496bn (or 3.8 times the size of our current GNP) to F594-654bn (or five times our expected 2014 GNP). Reducing our deficit by F6bn today and by F15bn over the next four years is hardly a drastic step on the path to solvency. In his speech, he all but confirmed the validity of the global markets’ no confidence vote in his ability to manage the economy. Mr Lenihan had three budgets before this one to make necessary spending adjustments. He failed to deliver on all of them. Instead, his Government produced the Croke Park Agreement that has tied the hands of the country’s leaders when it comes to extracting savings out of the public sector. This was duly reflected in Budget 2011 which provided for virtually no reforms in public sector costs (save for the token and largely symbolic cuts to senior state company executives’ salaries and ministerial pay). Take for example the savings of F1.2bn pencilled in for the public sector as part of Government plans to reduce the number of sector employees by 24,750 over the next four years. These do not take into the account the atrocious cost of voluntary redundancies and early retirement packages through which the reductions are to be achieved. Nor do they account for the knock-on effect of reducing Government tax revenue due to taking highly paid public servants out of the tax net, and, worse, converting them into highly paid retirees. Over the last three years, our Government spending, as a share of domestic economy, has risen to levels in excess of any other European country save Sweden. Over the same time, Mr Lenihan has presided over budgetary policies that saw dramatic increases of tax burden on the middle class and declines in what the taxpayers actually get for their taxes. Despite all the talk about Budgets 2008-2011 being harsh on the poor, Mr Lenihan allowed social welfare costs to balloon from 19.1% of the total Exchequer expenditure in 2008 to over 29% in 11 months through November 2010. Currently, one euro out of every ten produced in this economy goes to pay for social welfare bills. More than half (55%) of our entire Government budget is swallowed by health and welfare spending. The latest budget worsens this already absurd situation. As it stands, by 2014 the average taxpayer will be facing the interest costs on their own and Government debts amounting to close to 50% of the average wage, before tax. Over half of the entire tax intake — taken out of the ordinary taxpayers’ incomes — will be providing social welfare and public sector wages cover. At the same time, all the normal costs — from mortgages to childcare to education and out-of-pocket health expenditures — will continue to rise. Does anyone, save for our out-of-touch-with-reality policy mandarins think that raising taxes even further in such an environment is a good thing? Can anyone call this a Programme for Recovery? Or for that matter a budget at all? Yesterday’s budget was nothing more than a continuation of the very same failed budgetary policies adopted since 2008 that can be best described as transferring onto the middle class and entrepreneurs the entire cost of rescuing banks and the insolvent Exchequer. Cuts in social welfare rates and other supports for the poorer households have masked that fact, deflecting the attention of the media toward the plight of those on lower incomes. The end effect of Budget 2011 will be a wholesale destruction of a generation of the middle class, the very people who are expected to carry most of the burden of Mr Lenihan’s spectacular failure to rein in banks’ losses and manage Exchequer finances during this crisis. With this prospect in mind, all the talk about protecting the vulnerable and ensuring delivery of the public services is nothing more than academic. ■ Dr Constantin Gurdgiev is lecturer in finance with Trinity College, Dublin
‘Lenihan allowed social welfare
costs to balloon from
19.1% to 29% in 11
09:02 — Someone’s driven a cherry picker up to the gates of Leinster House, the country is encased with ice
HOW AN HISTORIC DAY UNFOLDED: EXTRACTS FROM NOEL BAKER’S LIVE BUDGET BLOG WHICH RAN YESTERDAY ON IRISHEXAMINER.COM
Hike in health insurance as private bed costs increase PRIVATE health insurance is expected to increase after Health Minister Mary Harney confirmed last night that private bed charges in public hospitals are to rise by 21%. Ms Harney said it was estimated that the recovery of the full economic cost for private treatment in public hospitals would involve an increase of F93 million. She said the 2011 increase would recover an additional F75m and the balance, approximately F18m, would be recovered in 2012. “In the current fiscal situation, increased income from private patient charges provides an important revenue source which can serve to avoid budget reductions in other priority areas,” she said. According to the Health
Main points ■ Cut of F727m next year — about 5% of last year’s spend on health. ■ Expenditure provision of F14.1bn represents 27% of public spending. ■ Further examination of fees paid to pharmacists under emergency financial legislation. ■ Administrative and other savings in the Health Service Executive to yield F43m in savings.
Mary Harney: Not sustainable to subsidise private care.
HEALTH Insurance Authority, 34,000 people cancelled their private health insurance cover this year. It estimated that 49.8% of the population now has private health insurance. A VHI spokesperson said the increase in private bed charges would have a very significant additional impact and did make public hospitals very uncompetitive. Ms Harney said she decided to make an exception last year in not increasing private and semi-private treatment services. But, given the current pressures on the public health system, it was no longer sustainable for the exchequer to subsidise private patient treatment. She pointed out that there were no increases in the accident and emergency charge, the statutory day and in-patient charges or the monthly threshold of F120 for the Drug Payment Scheme. The minister also announced that state fees to GPs had been cut by F48m for next year under the Financial Emergency Measures in the Public Interest Act. Fees were being cut for the provision of GP care provided out-of-hours and to residents in private nursing homes. There were also reductions in payments for the provision of nurses and secretaries in GP practices and allowances paid for operating a number medical care schemes. Other savings of about F1 billion would come from non-core pay in the Health Service Executive and would include the use of agencies, overtime and on-call payments. Ms Harney said she wanted to reduce the use of agencies and the rates paid. A further F123m will be saved following the decision of over 3,000 HSE staff to accept the recently-introduced voluntary early retirement and redundancy programme. “We are also hoping that the Croke Park Agreement can deliver the kind of work practice changes that will allow for services to continue to be provided in a more flexible arrangement for our patients,” she said. As well as the F200m from measures to reduce drug costs, it was planned to look again at fees paid to community pharmacists for dispensing drugs under General Medical Services and Drug Payments Scheme.
Jenny Buckley Waterford “I will be affected by the diesel price increase. But there has been worse, we have to stay optimistic.”
James O’Brien West Cork “I’m down at least F10 a week. It’s ridiculous — there needs to be a total change of Government.”
Yvonne Matthews Louth “I am just finished travelling, and I am sorry I came back to Ireland. It’s hard, but I think we will get through it.”
Sinead Casey Tipperary “I have family members on social welfare who are going to be affected, I think they should have taken that cut from somewhere else.”
Michael Cotter The Glen, Cork city “The social welfare cut will hit a lot of people in my area, it is very harsh.”
Pat Flynn Ballincollig, Co Cork “I don’t think that F14,000 off the Taoiseach’s salary is enough, and once again they are hitting the people at the very bottom.”
Stamp duty slashed to 1% or 2% by Tommy Barker Property Editor IT took five years of annual pre-budget speculation, lobbying and hopes but, finally, Ireland’s stamp duty regime on house sales has been tackled, simplified — and slashed. A new flat rate of just 1% on all house sales worth under F1 million comes into force from today with a 2% rate for F1m-plus properties. It removes inequities among first and second-time buyers, and between new and second-hand properties. Previous rates had been high — up to 9% at maximum. “It brings Irish property transaction taxes in line with international norms,” said national agency Sherry FitzGerald. British rates average 2%.
Irish commercial property transaction rates will remain at an average of 6%. Finance Minster Brian Lenihan said he had three aims: ■ To stimulate the property market. ■ To provide necessary valuation information. ■ To increase market transparency for a smooth market operation. The move will provide some stimulus to a moribund property market, commentators said — and, perhaps in turn, trickle through into increased Government revenues in coming years. Stamp duty income from residential property tax had slumped from 2006 market peak multi-billion euro sums (circa F3 billion overall from property, of which F1.3bn came from residential sales) to just F85m
Tax relief boost for energy savers by Fiachra Ó Cionnaith FOCionnaith.firstname.lastname@example.org
PEOPLE who attempt to make their homes more energy efficient will be rewarded with standard-rate tax relief on costs up to F10,000. Finance Minister Brian Lenihan announced the F30m rare positive move — potentially the Green Party’s last major impact on Government policy — amid a string of negative budget cuts, stating that it could result in long-term state energy cost savings. A list of “approved works” which will be covered by the scheme are due to be decided in the coming days before the
Finance Bill is put before the Dáil, with thousands of people expected to benefit from the plan. A spokesperson for the Department of Communications, Energy and Natural Resources said it has not yet been confirmed whether this payment will be available over a number of years or if it will be spent on one particular project. However, Energy Minister Eamon Ryan’s department is hopeful the move could entice hard-pressed homeowners to improve their energy efficiency. The development is in addition to the F99m made available last year via home energy savings schemes and insulation grants.
Among the other budget changes relating to environmental or energy issues in the budget is an “environmental fund” which will allow for certain areas of Government spending to be ring-fenced for green projects. The amount of money available to this fund will rise from F66m in 2010 to F101m next year. This funding will be spent on issues such as waste recycling and landfill remediation. However, money available for the “water capital project” will drop from F508m this year to F435m in 2011. A total of F350m of this will be for the water services investment programme.
Eamon Ryan: Hopeful provision will improve energy efficiency.
DIRT hike hopes to turn savers into spenders by Niamh Hennessy THE Government has made an attempt to encourage consumers to spend their cash by increasing a tax on savings. DIRT tax on deposit accounts will be increased by 2% to 27% and by 2% to 30% in the case of longer-term deposit accounts. Financial service providers such as banks, building societies and post offices offer accounts where you can save a sum of money for which they will pay
you an annual rate of interest in return, usually as a percentage of the deposit. The interest you receive is subject to a tax called Deposit Interest Retention Tax (DIRT). The tax is deducted by the bank before the interest is paid to the customer. Head of William Fry Tax Advisors, Martin Phelan, said private savings in bank deposit accounts represent dead money to the economy, especially now when “banks can’t lend”. “Offering a lower tax rate on
What you need to know:
savings income (without even a limit) just encourages the private citizen to save. Most of the billions of profits made by people from the property bubble are sitting dead in deposits earning millions of euro in interest and still only paying 27% tax. “Compare that to a worker who earns F50,000 and pays a top rate of 42% income tax. We are rewarding those who earn passive income and penalising those who work, surely everyone should pay the same rate of tax
on income, earned or otherwise.” The last time DIRT was increased was in April 2009 when it went up from 23% to 25%. Tax partner with KPMG, Michael Lynch said: ‘The DIRT changes were expected and are designed to encourage spending and reduce the saving incentive for consumers.” The increased rates will apply to payments, including deemed payments, made on or after 1 January 2011.
Des Donnelly Cork city “It’s very bad — the Irish people didn’t vote for the budget did they? This country is extremely corrupt.”
Claire O’Carroll Cork city “F14,000 off the Taoiseach’s wages is not enough. We live in a country with around four million people. Why is he being paid as much as the American president?”
Richard Cooke Cork city “It’s the ordinary class taking the brunt on social welfare and child benefit. It’s not fair that those at the top are never hit as much.”
Jo Byrne Kilkenny “I am on social welfare and in January I’m not sure I will be able to pay my bills. Unless I can find a job things are going to be very tight.”
Q Who is going to be hit hardest by Budget 2011? A. Social welfare claimants as well as the self-employed and PAYE workers, through income tax and PRSI changes. Landlords will also be hit through the overhaul of property-related reliefs. Some on lower levels of pay will now have to pay tax. Q: How much is the average PAYE worker going to lose? A: The average industrial wage in Ireland in 2010 is F36,000. After the budget overhaul, their take home pay will be slashed by F1,392 a year or F26.77 a week. Q: What sectors of society will be happiest with the budget and why? A: Civil servants — their pay has not been touched. Old age pensioners will be relieved their state pension has avoided the axe. The wealthy elite will be happy: what they have, they hold. Q: What is the most significant budgetary reform announced? A: Proposed changes to PRSI and income levies, which are to be scrapped and replaced with a single universal social contribution. Workers on as low as F10,000 a year will be F200 less well off. Also, the abolition of property reliefs which fuelled the property bubble. Q: How likely are the tax reforms to reinvigorate the economy? A: Tax rarely invigorates the economy, but there is a golden opportunity in this crisis to widen the narrow tax base. There is very little taken from capital and wealth taxes in Ireland — which affect the richest — and reform here could reap revenue. Q: Will the minimum wage cuts have a severe impact on low paid workers or boost employment? A: The newly reduced minimum wage should apply mostly to newly employed workers who don‘t have existing contracts. About 50,000 workers are already on the minimum wage. Finance Minister Brian Lenihan said they will not have to pay tax. Q: What, if any, “untouchables” in
Government spending and tax could have been looked at? A: The Government missed an opportunity to boost taxes on the wealthy elite. There has been no real change in capital gains tax with only minor changes to the threshold of capital acquisitions tax. Changes could have raised billions of euro. Q: Are the Government’s tax targets feasible/achievable? A: They will be difficult to achieve. They assume the economy will grow at twice the EU average. This is hard to imagine as spending cuts and tax hikes will drive prices down. Q: What in layman’s terms are the effects of changes to tax relief on pensions? A: It is going to make funding private pensions much more expensive. High earners who paid the maximum contribution and got 41% relief will be hardest hit. Company pensions are now more attractive and may become more popular. Q: Should the Government have opted for a VAT increase next year rather than delay the inevitable? A: No. An increase in VAT rate would hit an already struggling retail sector and those on lower incomes more severely. Q: Why is corporation tax considered a sacred cow and would a modest 2.5% increase have raised enough money to avoid some of the pain? A: A 2.5% rise would raise F500 million. Three-quarters of the money raised from the tax comes from multinationals and large corporations. They employ 100,000 people here and some argue they could pull out over any hike. ■ Brian Hutton spoke to tax experts BKR International firm Ormsby & Rhodes.
Outrage over ‘savage and cruel’ budget
in 2009, and an estimated F100m in 2010. The change, in force from today, means a buyer of a F375,000 property will save more than F17,000 on the tax, paying just F3,750. Buyers of F200,000 properties (a national average value outside of Dublin) will save F4,250, while buyers of a F600,000 property will save F27,000. However, the change means first-time buyers (FTBs) of new properties will have to pay a 1% charge, as previous targeted reliefs to FTBs have been removed. It will be an extra inhibition for FTBs, coming on top of abolition of Mortgage Tax Relief, said mortgage brokers body PIBA. Simon Ensor of the auctioneer body IAVI, described it as “a long-awaited reform”.
THIS budget has been described as “savage”, “cruel” and “unimaginable” by shocked community and anti-poverty groups who are outraged at the cuts aimed at the poorest people in the country. Under the budget, jobseekers benefit is to be cut by F8. And widows’ pensions, carer’s benefits, blind person’s and invalidity pensions are all also to be cut by F8. The one parent family payment will also drop by F8. There is also outrage at the new social charge with several politicians pointing out how the new scheme benefits the more wealthy at the expense of the poor. People earning more than F75,000 will see their contribution drop under the system compared to the previous one of the health and income levies. “Currently, a single person on F400 per week has a marginal rate of tax of
Homeless will feel pain of ‘savage’ cuts
Primary pupils face F50 school bus charge
by Jennifer Hough
by Niall Murray Education Correspondent
THE planned “savage” cuts under yesterday’s budget will cause a severe deepening of the homeless problem across the country and, furthermore, puts in doubt the future viability of the Governments own homeless strategy. The warnings came yesterday from a leading charity for homeless, Focus Ireland. The budget saw a massive F300m cut to social housing provision next year and F400m less for HSE bodies that fund and service, among others, the homeless. Focus Ireland chief executive Joyce Loughnan said the budget would undo much of the good work achieved in recent years, in issues of homelessness. Meanwhile, terms of the Tenant Purchase Scheme announced under the last budget and which allows local authority tenants to purchase their homes at a discount is to be improved for 2011. According to the Minister for Housing Michael Finneran, tenants will be able to avail of a discount of up to 45% on the market price of a house they are eligible to purchase under the scheme.
WHAT YOU THOUGHT OF THE BUDGET
by Claire O’Sullivan
PRIMARY school children will be charged to travel on the school bus for the first time next autumn as part of a F4.5 million savings package on school transport. Although it is far less than the F500 annual charge proposed for all school bus passengers by An Bord Snip Nua last year, the National Parents Council-Primary warned that the new F50 fee for those travelling to hundreds of rural primary schools is another added cost to families in the budget. “The families being hit with school bus charges are the same people losing out on child benefit payments and paying higher taxes,” said council chief executive Áine Lynch. The primary school bus charge will be limited to F110 per family, but second-level students using the service face a F50 rise to F350 a year. The distance that third-level students must live from college to qualify for higher grant payments is being almost doubled to 28 miles as part of Education Minister Mary Coughlan’s plan to save F22 million next year and F51m a year on student support by 2014. She had to
26%. The changes raise the marginal rate of tax for a single person to 31%. At the same time, it appears that some higher income categories will be paying less under the USC regime than they are under the current health and income levies regime. “The proposed change will significantly shift the burden of this tax to lower income workers,” said the Labour Party’s social protection spokeswoman, Roisín Shortall. Barnardos chief executive, Fergus Finlay said his organisation had been “been braced for something bad but this is unimaginable”. “In terms of current spending, the single biggest cut in the budget — in excess of F800 million — was in support for the poorest families in Ireland. The next biggest cut was in the health budget, and the third biggest swipe was in the amount taken from PAYE families — including thousands on the lowest incomes,” he said.
Community Platform is a network of 30 national organisations which seek to reduce poverty and exclusion. Its spokeswoman, Anne Costello said cutting social welfare, the minimum wage and child benefit “will not only have a devastating impact on the vulnerable it will also have a damaging impact on consumer spending, resulting in even more job losses and a further shrinking of the economy”. Ireland’s largest housing association, Respond has said yesterday’s budget disproportionately affects the most vulnerable. “What the minister achieved with this budget is a widening of the gap between the rich and the poor,” said spokeswoman Aoife Walsh. Sinn Féin Cavan Monaghan TD, Caoimhin O’Caoláin described the budget as “cruel” and “savage”. “The result will be poverty and unemployment and social misery,” he said.
Acquisitions tax intake to rise over years by Geoff Percival
Gary Redmond: Budget 2011 ‘Pearl Harbour’ of Irish education. seek an extra F43m last week to cater for this year’s growth in eligible students, but she is also imposing a 4% cut in payment rates next year on top of this year’s 5% cut. The Department of Education investment in colleges will be cut by 7% next autumn but this will be offset by the additional F500 per student they can charge undergraduates, although families with more than one child at college will pay the same F1,500 as this year for second and subsequent children. Students whose families earn up to F56,000 will only pay half the charge. Union of Students in Ireland president Gary Redmond described Budget 2011 as the Pearl Harbour of Irish education that will deeply wound thousands of existing and potential students, and said the cuts will simply mean some will be forced to drop out of college.
THE Government is anticipating a modest tax take of around F27 million from Capital Acquisitions Tax (CAT) next year, but this will rise significantly over the coming years. All that is changing — via Budget 2011 — in regard to CAT (which covers inheritance and gift tax) are the tax-free thresholds, which came down by approximately 20% as of midnight last night. Finance Minister Brian Lenihan said the move was in response to “the economy-wide fall in asset values in recent years and builds on a similar measure introduced in the supplementary budget last year.” While still a relatively small area of the overall tax tree, a change of filing date — to the end of October — and an eventual increase in the CAT rate should bring in closer to F40m on an annual basis in time. In all, Mr Lenihan ushered in the abolition, or at least restriction, on 10 existing tax reliefs. Going, from January 1, are tax reliefs on trade union subscriptions, professional body subscriptions, benefit-in-kind on employer-provided childcare and on loans to acquire an interest in certain companies. Rent relief will be phased out over an eight-year period.
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4 BUDGET 2011
10:44 — Another excellent effort on Twitter: ‘Hello. What’s the capital of Ireland? About F5. That concludes today’s budget announcement. Thanks.’
11:03 — Upset on politics.ie after gardaí apparently removed a slogan from the cherry picker parked outside the Dáil that read: ‘To the politicians who vote for the budget today, the people will vote you out tomorrow.’
Brutal cuts ‘will impoverish children’ CHILD BENEFIT by Juno McEnroe
We are paying a terrible price for Government failure
SEVERE cuts to child benefit are set to drag more children into poverty and disproportionately hit poorer families, charities have claimed. Pressure was piled on the Government last night to lighten the burden on more vulnerable families affected by the reductions in child benefit rates. Parents with one child will see benefits cut by F10 for their first and second child while F20 will
be deducted by claims for a third child and F10 for every child thereafter. Social Protection Minister Eamon Ó Cuív defended the draconian measures, insisting that the savings of F149m had to come from somewhere. He added: “If we put off these changes there will be a greater burden in the future on all those who can least bear it.” But St Vincent De Paul vice president John Monaghan warned that a failure in the budget to increase the qualified child allowance, a separate supplement which boosts poorer families
claims for child benefit, would impact on less well-off parents. “More people will end up in poverty,” he warned. Children’s charity Barnardos also criticised the fact the child benefit cuts were not countered by increasing the separate qualified child allowance claim. Director of advocacy Norah Gibbons said as many as 92,000 children were already living in consistent poverty in Ireland, a number that would “fill the Aviva Stadium twice over”. Mr Ó Cuív said the decision not to increase the lower qualified child allowance rate of F29.80 a
week to counter the main child benefit cut was down to cost. Such a move would have cost an extra F50m, he claimed. The new child benefit rates will apply from January. While state pensions escaped cuts in the budget, other reductions announced yesterday included an F8 weekly drop in a blind person’s pension from F196 to F188. Weekly widow allowances have also been reduced from F196 to F188. Carer’s allowance rates for carers aged 66 years and over will not change but rates for carers under
Jobs strategy based on tax and investment scheme
that age will be reduced by F8 a week to F204. All carers will also continue to receive their annual respite care grant of F1,700. Guardian payments will also be hit with a reduction in weekly rates from F169 to F161. The overall cuts in Mr Ó Cuív’s department are expected to make savings of up to F873m. Other areas which will add to savings include a F30m reduction in energy and communication payments under household benefit payments, partially through negotiations on better deals with suppliers.
by Caroline O’Doherty
Living just got tougher for jobless mother Jackie
E HAD all been braced for something bad. But this is unimaginable. In terms of current spending, the single biggest cut in the budget — in excess of F800 million — was in support for the poorest families in Ireland. The next biggest cut was in the health budget, and the third biggest swipe was in the amount taken from PAYE families, including thousands on the lowest incomes. Forget the self-congratulatory tone of those ministers saying they’ve taken the hard decisions in the country’s interest. This budget will go down in history as a monument to failure. It may take a few days to sort out the real impact from the myriad of hidden figures, but even at first glance it is clear that we are paying a terrible price for Government failure. This budget reflects the total failure of this Government’s policies over many years. It reflects a failed ideology of constant genuflection to the principle of the fast buck. It reflects a total failure to use the resources generated by growth to put decent structures in place. Fifteen years of wealth left us with a legacy of crumbling schools, overcrowded hospitals, and waiting lists for essential services. At the end of the day, this Government even sold our destiny — to the point where they weren’t even able to put their own budget in place. Today’s budget is the first instalment of the shameful deal they had to put in place, that ensures that all economic and social policy will be dictated by others for the foreseeable future. A government that has about a month left to live has left nothing behind except padlocks and chains to seek to tie the hands of the government that succeeds them. In that context, if they’re expecting the nation’s gratitude and respect for the too-little, too-late decisions they have made on ministerial pay and perks, they can forget it. They’ll survive on their pensions and golden handshakes. They won’t have to make choices between heating the house and taking a child to the GP. They won’t go hungry. But others will. I never thought I would see the day when an Irish government legislated to make families hungry, but it happened yesterday. The cuts in social welfare and in child benefit will force thousands of families to make choices no family should ever have to make. The cut in the minimum wage will impose hardship on thousands of people, and for no good purpose. This particular cut will make not one whit of difference to our competitiveness or to the national finances. And the added — and disproportionate — tax burden on people with the tiniest incomes will add even more pain. Poor children live in poor households. The 4% cut to adult social welfare payments on top of last year’s F8 cut could well mean that many children will go without one full meal every week. Added to this the F10 and F20 cut to Child Benefit will make fundamentals like heat and electricity difficult to pay for many families. Child Benefit was the Government’s own instrument of choice for tackling child poverty over the past 10 years. Children living in disadvantage will be disproportionately affected by the cuts to Child Benefit. Families struggling to get by on meagre incomes are now facing the prospect of trying to trim budgets that have no fat. There is simply no logic in taking so much money out of families that they are pushed further into debt and poverty. People cannot spend what they do not have and Ireland cannot recover if no one is spending. A couple of weeks ago the Government published figures which showed that 30,000 more children fell into consistent poverty last year. Today’s cuts will simply add to that number, and there is no gainsaying that. Children in consistent poverty are hungry and cold. Isn’t that some legacy after nearly a decade and a half of Fianna Fáil government? This is the same Government that has told us again and again in the past year that we need to pull together and take the knocks to ensure the country’s economic future. Budget 2011 indicates that what they really mean is that, in line with the economics of the Celtic Tiger, the first casualty of the cutbacks will be the poorest families in Ireland. We have learned nothing from the collapse of our economy and our most vulnerable children will now pay the price for our mistakes. The shockwaves of this budget and the policy choices made by this Government will be felt for generations to come. ■ Fergus Finlay is chief executive of children’s advocacy group Barnardos
BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
UNEMPLOYED by Juno McEnroe
biggest cut — in
excess of F800m — was in support for the poorest
Jackie Kane: Must cope with cuts to single parent allowance and child benefit.
Picture: Maura Hickey
JACKIE KANE and her 11-year-old daughter watched as the Government slashed her yearly income of just F13,000 by more than F500 in a matter of minutes. She was one of thousands of unemployed parents hurt by harsh welfare cuts announced in yesterday’s budget. Living in Lucan, west Dublin, Ms Kane already struggles to make ends meet. But the 32-year-old and her young daughter now must cope not only with cuts made to her single parent allowance but also to child benefit. Standing at a protest in the bitter cold near government buildings last night, she said: “I’m already living week to week with the cost of fuel and food prices being so high. When the monthly bills come in, I’m going to be faced with tough choices. Child benefit when you’re a single parent, you really rely on it as an income for your bills.” Ms Kane’s weekly parent allowance of F205 will be reduced to F197, while the monthly child benefit will fall from F150 to F140. While changes may seem small, the difference will hit this
family hard. “We’re already trying to budget for this year. What do you tell your child — that they haven’t been good this year? My child is very good and she deserves to get what she wants from Santa. “I’m facing very difficult choices now, like having to turn off my heating to try and save money so I can get her what she wants for Christmas.” Ms Kane is training on an organic horticulture course with the support organisation OPEN which represents lone parents’ groups. “Lone parents want to work. There’s a myth out there that lone parents don’t want to work. But there are so many barriers there, like child care and the services to help us. Now with the cuts in the minimum wage it’s ridiculous, there’s no incentive to work. We’re at the mercy of the state.” The budget cuts for the single mother means her annual income will be reduced to less than F12,500, with an overall loss of F530 in the year. She added: “That doesn’t sound like much to people who are on a really good wage, but for me that’s huge. What sort of quality of life is that? The price of everything is still going up. I’m absolutely terrified for me and my daughter’s future. I’m so angry at this Government. Putting a private debt on our children is disgusting. It’s a tough time.”
Payment cuts ‘will cause more job losses’ WELFARE by Juno McEnroe CUTS to welfare recipients will have a knock-on effect on consumer spending and result in even more job losses and a further shrinking of the economy, it was claimed last night. Main social welfare payments and one parent family payments all
face weekly cuts of F8, it was announced. People under 66-years of age will see losses of around 4% in their weekly dole money, bringing the main rate down to 2007 levels of F188. The measure was announced yesterday along with other welfare cuts in a move that is expected to save F397 million. Where a couple are claiming the main welfare benefit type, the
weekly income will drop from F326.10 to F312.80. There will also be a decrease of F8 per week for maternity benefits. Young jobseekers aged 18 to 21 will not be affected. However, those aged 22-24 will see their weekly dole claim drop by F6. On top of the changes to jobseekers payments, the Social Protection Minister Eamon Ó Cúiv said he expected to make up
a further shrinking of the economy”. The National Youth Council of Ireland also said the cuts would promote an exodus of young people. Council assistant director James Doorley said: “The further cut of F6 to the already very low F150 that young jobseekers aged 22-24 will only compound the difficulty young people are having making ends meet.”
Spending on mental health cut by 1.8%
Tenants on welfare forced to contribute
MENTAL HEALTH by Jennifer Hough
RENT ALLOWANCE by Juno McEnroe PEOPLE on welfare will be asked to contribute F2 a week towards their state-supported rent following yesterday’s budget. At present, the state pays rent supplement on behalf of welfare-dependant tenants. However, according to Minister for Social Protection, Eamon Ó Cuív the Government wants them to contribute a small sum towards their own rent. Concern has been expressed about how this F60 million cut in the rent supplement budget will impact upon tenants who saw their welfare entitlements slashed yesterday. Discussions are also to take place between the Department of Social Protection and the Department of the Environment to devise a scheme where long-term tenants using rent supplement will be asked to contribute towards their
to F100m in savings by reducing the live register through more intensive work schemes. Community Platform, a network which address poverty and social exclusion, said: “Cutting social welfare, the minimum wage and child benefit will not only have a devastating impact on the most vulnerable it will also have a damaging impact on consumer spending, resulting in even more job losses and
Chef Paddy Markey serving a hot meal to Dublin’s homeless in Focus Picture: Leon Farrell Ireland, Temple Bar. rent so it is “in line with local authority rental schemes”. It’s feared cheaper rent supplement schemes are disincentivising tenants from moving into local authority homes. Charity workers are warning that homelessness will increase because of the measures. Threshold said it was “gravely concerned” at the F60m cut. Chairperson Aideen Hayden said: “We know very little at this stage about how the Government intends to make this massive expenditure saving. At this stage, we can only be hopeful that they will take our advice and bring about a complete reform in the way in which rent supplement is paid.” She added: “All rent-supplement tenants are dependant on social
welfare. To this end, on top of an F8 cut for people in receipt of the standard social welfare payment, people in private rented accommodation will have to pay out a further F2 in rent contributions. “Indeed, in the course of the past two years, the contribution which rent-supplement tenants make towards their rent will have doubled from F13 to F26,” said Ms Hayden. But Mr Ó Cuív said that even with the savings in rent supplement, the bill for the allowance would still come close to half a billion euro next year. Ms Hayden said: “The number of evictions, homelessness and hardship for some of the most vulnerable in our community will accelerate in 2011.”
MENTAL health and disability spending will be cut by a maximum of 1.8% in what has been described by health minister of state John Moloney as “special consideration for the two sectors”. Under the terms of the budget, an additional F10 million in funding is being provided to the HSE for disability in 2011 to meet extra demand in respect of emergency residential, respite and home support hours. Additionally, there’s further provision for expenditure of up to F15m on priority mental health projects. They will be funded from receipts of the disposal of surplus mental health properties. The minister also welcomed an additional F1m provided for suicide prevention. This funding will ensure that helpline supports for those in emotional distress are coordinated and widely publicised, improve the response to deliberate self-harm and develop the capacity of primary care to respond to suicidal behaviour and consider new models of response. However, Inclusion Ireland crit-
icised the budget saying people with a disability have been “hit as an easy target” as the disability allowance has again been cut — down F847.60 a year since 2008. A spokesperson for Inclusion Ireland described it as an attack on the direct living standards and the quality of life of people with disabilities and their families. The F8 weekly cut to disability allowance announced comes on top of an F8.30 cut last year, amounting to F16.30 a week in just two years — from F204.30 in 2008 to F188. Carers Allowance is also down, with cuts of F16.50 per week on the 2008 rate, down from F220.50 a week in 2008 to the rate of F204 announced yesterday. Meanwhile, the National Council for the Blind of Ireland (NCBI) expressed disappointment at the announcement to cut the blind pension and disability allowance. This is on top of a reduction to the blind person’s tax credit of F180. The supplementary allowance payable to blind persons in receipt of a blind pension has been also reduced from F61 to F58.50. NCBI chief executive Des Kenny said these cuts have a profound impact on the most vulnerable.
The Government hopes that changes to the business expansion scheme that will be based around job creation and extending corporation tax reliefs will help boost employment levels. Picture: Daragh McSweeney
THE retention of the 12.5% rate of corporation tax and expansion of business investment schemes are the key features of the budget’s enterprise strategy. The existing three-year corporation tax exemption is being extended to new companies starting up in 2011 but, to try to boost job creation, reliefs will be calculated so that they are linked directly to the number of workers employed. Also being extended is the PRSI exemption scheme introduced this year that exempts employers for one year from paying their share of social insurance contributions for new staff taken on who have been at least six months unemployed. A revamp of the Business Expansion Scheme will also take place, subject to approval by the European Commission which will vet it for any breaches of the prohibition on state aid to business. Under the proposed revamp, tax reliefs will be available on investments of up to F10 million, compared to F2m at present. Up to F2.5m of that figure can be invested in any one year and still be eligible for reliefs compared to F1.5m in any one year at present. Reliefs for the construction industry are also changing, with the 35% rate of Relevant Contracts Tax being reduced to 20% for subcontractors registered for tax while the higher rate will continue to apply to unregistered operators. Enterprise Minister Batt O’Keeffe said the change would improve cash flow for subcontractors and act as a disincentive for black market operators. The minister also announced 15,000 new ‘labour market activation’ places for unemployed people to gain paid-for training in specific
Enterprise ■ Corporation Tax remains at 12.5% ■ BES tax reliefs to apply to investments up to F10m (up from F2m) ■ New 20% rate of Relevant Contracts Tax for tax compliant subcontractors (down from 35%) ■ 15,000 new ‘activation’ places to provide vocational training for unemployed
vocational fields, and a F42m or 12.5% increase in investment in research and science, technology and innovation programmes. Mr O’Keeffe said the IDA and Enterprise Ireland would create 27,300 new jobs next year while the reduction in air travel tax, the extension of the car scrappage scheme and investment in the retrofit programme for upgrading insulation and energy efficiency in homes and businesses would help provide additional employment. He could not say how many jobs were expected to be lost next year but he insisted the signs were good for job creation, particularly in the indigenous export market which he expects to grow by 5%. “It’s extraordinary the perception that is out there of Ireland, of the skilled workforce available and particularly of the 12.5% corporation tax which is still a very important feature.” He said the 7% average drop in labour costs was also an attraction. Costs are to reduce further when the F1 reduction in the hourly minimum wage comes into effect. Labour Affairs Minister Dara Calleary said he expected the change would take effect next month.
15,000 workplace internships offers ray of hope WORK SCHEMES by Stephen Rogers IN a budget statement bereft of detail on stimulation for the economy, one small ray of optimism came in the decision to spend F200 million on 15,000 workplace internships. In schemes similar to those
announced in the Department of Education last month, the unemployed will be taken in on work placements in the public service, the community sector and in the private sector. The money will be spent in three strands. Under the Skills Development and Internship Programme, the private sector will stump up F38m to cover the cost of internships for
up to 5,000 people. Another 5,000 places will be available in the public service under the Work Placement Programme and the final 5,000 will be created through the Community Work Placement Scheme in the community sector. “We know from the 1980s the importance of equipping the unemployed with skills and keeping them close to the labour market,” said Brian Lenihan. “To that end,
Pension proposal could be ‘win-win’ PENSION SCHEMES by Dan Buckley A BUDGET provision that will allow cash-starved pension schemes to purchase annuities invested in Irish government bonds could be a ‘win-win’ situation for both scheme members and the state’s finances. The move will provide relief for defined benefit pension funds in particular, as it will allow them to lower their deficits by being able to set aside less money to cover liabilities. More than 75% of the country’s defined benefit pension schemes are in deficit to the tune of an estimated F13 billion. Over 250,000 workers are in impaired schemes. Finance Minister Brian Linehan said yesterday: “The Irish Association of Pension Funds (IAPF) and the Society of Actuaries put forward a proposal under which Irish pension funds would have the opportunity to invest in longer-term Irish bonds at higher yields than are available elsewhere, and to price their liabilities to pensioners on the basis of those higher yields. “Following extensive consultation with these bodies, the Government has decided to proceed with such a measure.” IAPF director of policy Jerry Moriarty last night welcomed the decision and insisted the plan did not constitute a bailout of
private sector schemes. He said the plan could be a win-win situation for both pension schemes and the Government but that pension trustees would have to weigh up their options carefully. “We have not seen the detail yet and there is no doubt that the bond market is more unsettled now than when we made our proposal last February. “While the concern is that pensioners could lose out if the Government defaulted on the bonds, the same risk is there already for public sector workers and old age pensioners too. “Overall, this is good news for pension funds.” His views were echoed by Frank O’Dwyer, chief executive of the Irish Association of Investment Managers. “This is a new departure and will offer trustees more options,” he said, adding that it could be of benefit to both trustees and members of defined benefit schemes. “It will also provide another source of funding for the Government,” Mr O’Dwyer added. A spokesman for the Society of Actuaries in Ireland said it would not comment until it saw the legislative detail of the plan. “At this stage we are waiting to see the detail the Minister for Social Protection is going to announce, so we have nothing to add to our recent statement.” As part of its submission to the Government, the Society of Actuaries in Ireland stated: “We believe that the sovereign
we are refocusing the National Employment Action Plan to establish clearer pathways to employment by ensuring that state agencies interact early and often with those who have lost their jobs to provide opportunities for education, training or work experience placements as appropriate.” Last month Tánaiste and Education Minister Mary Coughlan announced to the Dáil that unem-
ployed teachers were to be given the chance to gain classroom experience through a dedicated internship programme. The programme allows schools to apply to take on one or more people for a work experience placement for 25-40 hours a week. The placement period is for a minimum of two months and a maximum of nine months.
Performance indicators to assess policy success COMPETITIVENESS by Scott Millar
Move will provide relief for defined benefit pension funds in particular. annuity concept could play a significant role in alleviating the funding difficulties currently faced by most defined benefit pension schemes, and it could alleviate exchequer funding requirements at the same time. “However, we emphasise that the concept is not a substitute for the fundamental reform of the pensions system that is urgently needed — it is a shortterm tactical measure, and one that should be introduced only in a way that averts potential unintended consequences and market distortions.”
FROM next year the Government will seek to measure the success, or otherwise, of policy initiatives in improving general social well-being through new national performance indicator measurements. According to Brian Lenihan the “national performance indicator” will seek to measure Ireland’s “attractiveness as a country in which to live” and “is an important part of our overall competitiveness.” The development of a national performance indicator was included in the 2009 renewed Programme for Government agreed by Fianna Fáil and the Green Party, the project being associated with the Greens. In his budget speech Mr Lenihan said the Central Statistics Office (CSO) was working on the development of this “new national welfare index,” but as of yesterday no information had been released on what exactly the office intends to measure. The setting of targets to be monitored quarterly by county council departments and returned annually as part of a national performance indicator has, however, already been included in local government plans concerning housing and minority groups. The attempt to move beyond the mere measurement of government policy through raw numeri-
cal statistics follows that of countries such as France and Britain, where attempts at capturing the national mood beyond the scope of traditional economic data are also being sought. Last month, British Prime Minister David Cameron set out plans to measure the national mood and help build “a more family-friendly nation” — a tough endeavour at a time of sharp spending cuts. In Britain it is intended that the indicators will include measuring citizens’ views and perspectives collected on a regular basis by the state. Last year, President Nicolas Sarkozy asked Nobel laureate Joseph Stiglitz, a former White House adviser and World Bank chief economist, to find new ways to measure economic progress taking into account social well-being. Economists have previously expressed scepticism over whether such a gauge should be taken seriously. When the proposal to establish a national performance indicator was included in the revamped Programme for Government Trinity college economist Constantin Gurgiev strongly criticised it. He said; “In other words, given that we already have non-descriptive stats, such as GDP-based measures that do not reflect our true income, the Green Party is offering more smoke to cover up the real rate of economic decay in this country.”
Increasing poverty is not the way to economic prosperity
HE past few years have been difficult for the 9,500 volunteers of the Society of St Vincent de Paul, but much worse for the many thousands people who have had to seek our assistance. So it’s very clear that following the budget and the introduction of the four-year plan things will be even worse. We can say that with absolute certainty because in 2008, the SVP spent more than F53 million and this increased to F66m in 2009. More worryingly since January, calls for assistance to the society have increased by an average of 35% throughout the country and higher in urban areas like Cork, up over 50%, and Dublin, up over 40%. So even before the budget, we estimate that we will have spent more than F70m this year, a lot of money for a voluntary organisation. The human story behind this expenditure gives some indication of the current level of suffering. The F66m we spent last year was divided roughly 50/50 between the provision of services and direct support to families and individuals. These include: ■ F9.7m in cash assistance, (household appliances, medical expenses, rents/mortgages, transport costs, etc). ■ F7.6m on food. ■ F5.8m on energy bills. ■ F4.2m on education expenses — securing the future and keeping the dreams of children and adults alive. So who are contacting the SVP for help? ■ Most calls come from households with children, of which lone parents are the single largest group, followed by people living alone. ■ Nearly 80% of callers are receiving some form of welfare payment. ■ About 25% calls come from people contacting SVP for the first time. What is very clear from these figures is that more and more of our friends, neighbours and their children struggled in 2010. Consequently based on our daily experience we are certain that many of the measures in the budget and the four-year plan will not only increase poverty, hardship and despair, but will in fact be counterproductive. Apparently increasing poverty is good for the economy. Any reduction in either welfare rates or eligibility criteria will inevitably push more people into even deeper poverty. Many of those we assist are in work on low pay and so the proposal to cut the minimum wage will have a significant impact on their ability to cope and stay out of debt. The suggestion that the 40,000 workers on the minimum wage are to be a cornerstone of our economic recovery is daft. We hear a lot about incentivising those on welfare to take up employment, but it’s our long experience assisting unemployed people that it’s the lack of jobs, and not the level of welfare payments, that keeps them on the dole. The proposed increase in the carbon tax will increase fuel poverty among the poorest households unless effective measures are introduced to assist them. The SVP is particularly concerned about the impact of cuts in primary education because of their potential to damage the life chances of children from poor households. While it’s possible to repeat second or third level education, albeit with difficulty, a child only gets one chance at primary school. Equally it is imperative that the increasing cost of third level programmes does not prevent young people from poorer households entering college otherwise even more of them will be starting life on the dole and that will do nothing for either them or the economy. We are worried about the impact of cuts in health services because it’s a sad fact the people we assist get sick more often and die younger than people who have access to private health care. Our concerns are not just about the medical card but also the impact of cuts on services such as respite care, home help, and psychological and psychiatry service for children and young adults. After this current crisis is over, we must have a functioning society and not just a financially stable economy. Therefore government performance should be judged on how it protects those most in need, not just on rhetoric about protecting the vulnerable. As a Catholic organisation, SVP believes that over the coming years the Government could do a lot worse than apply the principles of Catholic Social Teaching and the ‘Common Good’ to their actions and above all to ‘Give Hope’ to a struggling population. Finally it is our firm belief that if politicians, employer organisations or economists think that increasing poverty is the pathway to economic prosperity then they are, at the very least, seriously deluded. ■ John Monaghan is national vice president of Society of St Vincent de Paul
Calls for assistance to the society have increased by 35% across the country
6 BUDGET 2011
13:49 On the amount of advance coverage of the content of the budget, this comment from someone on boards.ie: today’s budget is leaking like a loose pipe. ... many aspects of it have already entered the public domain...
14:55 From Newstalk.ie: Pupils from Moyle Park College, Deansrath Community College and Coláiste Bríd in Clondalkin staged a walk-out in protest at the budget and marched to the offices of Fianna Fáil TD John Curran.
BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
Personal and Qualified Adult Rates
Person with qualified adult under 66
Person with qualified adult 66 or over
Tax / PRSI / Levies
Person with qualified adult under 66 Person with qualified adult 66 or over
THE BREAKDOWN Monthly Summary
Tax / PRSI / Levies
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Universal Social Charge
Universal Social Charge
Personal with qualified adult under 66
Person with qualified adult 66 or over
80 or over
State Pension (Transition)
Tax / PRSI
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Pete and Anna are married, no kids, both working. Pete earns €40,000 while Anna is on the minimum wage and works 36 hours a week.
Karen is single with no children and earns €38,000.
State Pension (Contributory) (i)
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Social Welfare changeS
Changes in maximum weekly rates of Social Insurance from January 2011
Widow’s/Widowers Contributory Pension €201.50
80 or over:
Invalidity Pension (i)
Under 65: Personal Rate
Person with qualified adult under 66
Person with qualified adult 66 or over
Age 65: €230.30
Person with qualified adult under 66
Person with qualified adult 66 or over
Carer’s Benefit Personal rate
Occupational Injuries Benefit — Death Benefit Pension (i)
Personal rate under 66
Personal rate 66 and under 80
Personal rate 80 or over
Note: Death benefit pension is not reduced for those aged 66 and over
Kevin earns €40,000, married to Julie who is a stay-at-home mum. They have two children.
Kieran is unemployed. He has no children and is single.
THE BREAKDOWN Monthly Summary
Family, two children, one earner
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Under 66: 66 and under 80:
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Occupational Injuries Benefit — Death Benefit Pension
Illness/Jobseeker’s Benefit €196.00
Person with qualified adult
Person with qualified adult
Injury Benefit/Health and Safety Benefit
Guardian’s Payment (Contributory) Personal rate Increases for a qualified child All schemes State Pension (Non Contributory) (i)
Retired couple Noreen and Paddy are both retired. Paddy is a retired teacher and his pension is €40,000 per annum. Noreen is on the State pension. THE BREAKDOWN Monthly Summary
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Under 80: Personal Rate
Person with qualified adult under 66
80 or over Personal rate
Personal with qualified adult under 66
Person with qualified adult under 66
Blind Person’s Pensions
Minister for Finance Brian Lenihan poses for a photocall outside Government Buildings,
Widow’s/Widower’s Non-Contributory Pension One Parent Family Payment (one child not aged 18) Personal rate
Carer’s Allowance (i)
66 or over
Disability Allowance Personal rate
Person with qualified adult
Person with qualified adult
Supplementary Welfare Allowance
Jobseeker’s Allowance (i)
18 and 21 years of age: Personal rate
Person with qualified adult
Person with qualified adult
Co-habiting couple Tom and Denise live together and are not married and have no kids.Tom earns €16,000 and Denise earns €40,000. THE BREAKDOWN Monthly Summary
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22 and 24 years of age:
Over 25 years of age: Basic personal rate
Person with qualified adult
Pre-Retirement Allowance/Farm Assist Personal rate
Person with qualified adult
Increases for a qualified child All schemes in respect of all children
One parent family
Child Benefit (i)
First and Second Children
Fourth and Subsequent Children
Supplementary Allowance Payable to Blind Persons in receipt of a Blind Pension (i)
Blind Married Couple
Tax / PRSI
Universal Social Charge
Tax Credits Child Beneﬁt Net Income
BRIAN LENIHAN was last night derided by the opposition as a puppet whose strings were being pulled by the IMF. Fine Gael finance spokesperson Michael Noonan rounded on the F6 billion package of cuts and tax hikes as a missed opportunity to kick-start growth through job creation, while Labour insisted it was the dying gasp of a failed administration. Sinn Féin went further, saying the budget amounted to “economic treason”. Mr Noonan insisted a “New Ireland” could be forged out of the mistakes of the past two years, but the current administration’s credibility was in tatters at home and abroad. “The Government’s policies have wrecked the economy, they have destroyed the confidence of the people, they have put 450,000 people out of work, they have forced over 100,000 of our adult children to emigrate, they have increased poverty and they have undermined any concept of social justice in our society,” Mr Noonan said. The one-time Fine Gael leader said the package did not contain a single progressive idea to deal with the fact Ireland had become insolvent due to Mr Lenihan’s banking policy. “I wonder do members of the Government ever feel ashamed?” he asked in the Dáil. Mr Noonan added he had felt ashamed to read the letters from the Government to the IMF and European Central Bank over the bailout.
by David Young
Monthly Summary Tax / PRSI / Levies
by Shaun Connolly Political Correspondent
“If it wasn’t so serious it would be kind of funny, because, when you read the letters, they sound like confessions beaten out of you. It’s like as if they water-boarded you in Merrion Street and made you sign the letters,” he said. He said a more generous country was now needed and quoted Michael Collins, saying that Ireland “needed to be loved.” Labour’s Joan Burton called the budget the last sting of a dying wasp. “But it’s a pretty vicious sting and one that carries a long tail life, not just for today, but for the next four years,” she said. “The people who will feel the biggest sting will be people with children.” Ms Burton said the winners from the budget were the banks, while a family with three children would lose F40 a month in child benefit. She claimed there was nothing in the budget to get credit flowing for small and medium businesses. “Of all the catchphrases and soundbites that come from this set of dejected ministers, nothing grates more than the sound of the two Brians repeating we’re all in this together as their mantra,” she said. “Well I have news for them. Nothing in this budget offers a shred of evidence that they really believe this themselves. In fact, every line of the budget suggests the exact opposite,” she said. Sinn Féin said the budget was a disgrace. Newly-elected finance spokesman Pearse Doherty said it was a full frontal attack on the lowest-income earners and the unemployed. And he said it amounted to a recipe for economic suicide. “It is times like this when you have to
Unions slam savage
Sinéad has one child, is unmarried and earns €35,000. THE BREAKDOWN
Guardian’s Payment (Non-Contributory) Personal rate
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Opposition deride whose strings are
A CUT to the minimum wage of lowest paid workers is a savage attack on those the Government believe won’t fight back, unions have claimed. A date for the one euro slice off the F8.65 an hour rate has not been confirmed but it is expected to be introduced in the next 12 months. Around 50,000 workers receive the lowest pay rate. The change, when it comes, will only apply to new employees and not those on existing contracts. Those on the lower minimum wage will not be brought into the income tax bracket. But trade union Unite condemned the
cut. “We have been told for two years, over four budgets, that cutting back would save us,” said Jimmy Kelly, Unite Irish Regional Secretary. “Some F14 billion later and we are staring down the barrel of a decade of desolation. “This Government has sought to right the wrongs of the bank leadership’s criminal misadventure by taking F40 per week off workers on the minimum wage. “The cutbacks included in this budget will strangle growth and render the Government’s Four-Year Plan redundant, but they don’t care because they will hand this poisoned chalice to the people and depart for the opposition benches. “It is wrong that a Government so out
Dublin, yesterday, prior to delivering his budget to the Dáil.
Picture: Julien Behal/PA Wire
Lenihan as puppet pulled by the IMF think, what would the founders of this state think about what has gone on earlier today in this chamber? “What would people who struggled into being, the people who gave their lives, the people who laboured to bring the Dáil into being, to bring the dream of the Proclamation into being . . . I’m sure that they would be ashamed by what has gone on in this chamber today,” he said.
Compiled by Ellen O’Leary and Marie O’Shea
Tax / PRSI
Universal Social Charge
Tax / PRSI / Levies
Tax Credits Child Beneﬁt Net Income
Mary and James are living together, they are not married and have two children. Mary earns €38,000 and James earns €55,000.
Jennifer and Ian are married with four children. Jennifer earns €40,000 and Ian earns €75,000.
THE BREAKDOWN Monthly Summary
THE BREAKDOWN Monthly Summary
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Universal Social Charge
Unmarried both earning, two children
Family, four children, two earners
Tax / PRSI / Levies
Louise and Alex have two kids and are both unemployed.
Tax / PRSI / Levies
Universal Social Charge
attack on lowest paid of touch with the will of the people should have the gall to introduce this budget which is a savage attack on those who they think will not fight back.” Public sector workers’ union Impact also hit out against the cut to the minimum wage. General secretary Shay Cody said Ireland needed an alternative approach that put jobs and stimulation at the centre of economic policy. “Impact and other unions will strongly resist the cuts in the minimum wage and social welfare which, coupled with an additional tax burden, will impoverish tens of thousands,” he said. He said the budget as a whole would not revive the economy.
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“By taking yet more money from those on low and middle incomes — be they workers, welfare recipients or pensioners — the Government is guaranteeing that we won’t grow out of the financial crisis,” he said. “Instead, the Government’s vicious circle of economic decline will continue as consumer demand falls further, creating more unemployment and further declines in tax revenue.” But the Irish Small and Medium Enterprises Association (ISME) said the cut would enable some firms to save jobs. “The decision to reduce the minimum wage will assist some companies in addressing their labour costs,” said an ISME spokesman.
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Single high earner Simon is single, no kids, earning €150,000. THE BREAKDOWN Monthly Summary Gross Pay Tax / PRSI / Levies
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Irish Examiner Graphics
The first cut is the deepest ... especially for taxpayers
HE “eagerly” awaited National Recovery Plan delivered two weeks ago paved the way for what has turned out to be a very difficult, but not unexpected, Budget 2011. No one was under any illusions in terms of the expenditure cuts and tax-raising measures the country was facing — the finer detail set out by Minister Lenihan yesterday drives home the harsh reality that lays ahead for most households. Over the last decade or so, the income tax system has gone through two distinct phases. 1997-2001 saw a sequence of income tax rate reductions (48% to 41% and 26% to 20%) followed by a “hollowing” out of the tax system in 2002 to 2008 where the entry to the tax system rose by 153%, from F7,238 to F18,300, together with an increase in the single rate bands/tax credits by 105% and 92% respectively. All of this culminated in a tax system where 45% of income earners paid no tax, which clearly is unsustainable, particularly where we can no longer rely on tax take from a thriving economy. This budget is phase one of what is a fundamental reform of the income tax system together with a closer integration of tax with the welfare system. The first step is a reduction of 10% in the standard rate tax band and tax credits in line with overall reduction in incomes. Single/married personal tax credits will be reduced from F1,830/F3,660 to F1,650/F3,300 respectively, effective from 2011. Other tax credits have been similarly impacted such as the employee tax credit, home carer, widowed person, and dependent relative. The minister also announced the abolition of the Income Levy and Health Levy, replaced with a single Universal Social Charge (USC). The rates of the new USC vary from 2% (income F4,004) to 7% (income F16,016). Even though this was highlighted by the minister as a revenue neutral measure in 2011, the reality is this is likely to disproportionately impact those on lower salary levels eg currently a F16,500 salary is liable to levies of cF330, whereas under the USC system this increases to F474. PRSI remains, however, with a number of changes, in particular, the abolition of the employee PRSI ceiling (currently F75,036) and PRSI for self-employed individuals increasing from 3% to 4%. Interestingly, the effect of the above is that the marginal tax rate for high earners in 2011 will be 52% (ie. income tax 41%, PRSI of 4% and USC of 7%), whereas previously this would have been up to 56%. There will be a phased abolition of property based tax relief schemes for high earners to ensure such individuals pay a higher effective rate of tax. Such schemes had been significant impacted by changes made in prior budgets and this serves to further curtail the “legacy” reliefs with a “guillotine” date from 2014 in most cases. In the case of employee contributions to pension schemes, such contributions will now be subject to employee PRSI and the USC. This represents a cost to employees of up to 11% of the contributions made. Currently, employee contributions qualify for relief from both PRSI and the Health Levy. Tax free ex-gratia termination payments and pension lump sums in excess of F200,000 are to be taxed. The current tax-free thresholds applicable for gifts and inheritances are being reduced by 20%. This reduction applies in respect of gifts/inheritances taken from midnight on 7 December 2010. There is to be a fundamental reform of Stamp Duty on residential property transactions with immediate effect. This has three aims: to stimulate the property market, to provide necessary valuation information and to increase market transparency. There will now be a flat rate of 1% on all residential property transactions up to a value of F1 million, with a rate of 2% applying to property transactions above F1m. All existing reliefs and exemptions from Stamp Duty are to be abolished in respect of instruments executed on or after December 8, 2010, such as first-time buyer relief, exemption for residential property transfers valued under F127,000, exemption for new houses under 125 sq m in size, site to child relief. In the case of Deposit Interest Retention Tax (DIRT), the existing rate of 25% is to be increased to 27% from January 1, 2011. In short, this is a very difficult budget for individual taxpayers who will bear the brunt of the F2bn tax-raising measures introduced, with little in the way of incentives or tax reliefs evident. Moreover, this is merely one difficult budget down, three to go, although the first cut is the deepest. Eugene O’Riordan is tax director at PricewaterhouseCooper
This is merely one difficult budget down, there are three more to go
8 BUDGET 2011
15:00 — A listener to Liveline claims she is ‘so disgusted’ that the driver of the cherry picker has been brought before the courts, asking ‘Who are the real criminals?’
15:40 — Green TD Paul Gogarty, on RTÉ One, says it is our ‘moral and patriotic duty’ to get the budget passed, echoing Mr Lenihan’s call to patriotic duty. The Greens must not know if they are coming or going at this stage…
9 BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
TOWN BANKING ON HOME GROWN SURVIVAL EFFORT
Breda Gardiner: Fears her daughter may follow her son overseas.
The people of Youghal in East Cork, who have suffered from the vagaries of relying on multinational firms, are using their local talent and ability to try to beat the recession, writes Claire O’Sullivan
Kay Curtin: Wants people to start spending again.
REDA Gardiner’s greatest fear at present is that her 20-year-old daughter, Kate, won’t be able to find nursing work in Ireland. She’s already lost one of her two children to emigration and says the prospect of a second packing their bags “devastates” her. Kate is a third year nursing student at UCC and already she has “spoken about emigration” as “there are no nursing jobs coming up here anymore”. “It really is no joke. I’m devastated at the thought that she might go too. There are some of us that never saw the Celtic Tiger yet now we are educating our children to emigrate. It’s horrible.” Breda, who lives in the Seafield area of Youghal, is a separated office administrator who lost her job just two months ago. Over the past number of years, she has done a raft of training courses and is hoping her increased skills base, that includes an
accountant technician course, will help her find work after Christmas. “What I want out of the budget is to see a plan to make the economy improve. We need to urgently start creating jobs again. We can’t keep on sending our children off on planes.” Her son William is in Canada since August last year where he is working as an operations manager at a Toronto nightclub. He won’t be home for Christmas, wasn’t home last year and she never got to celebrate his 21st birthday with him either. “It was so hard to get used to the house without him. But no matter how much I miss him, I know that he’s better off over there as there’s nothing here,” she says. “I have to keep on telling myself that.” What she wanted from the budget: Job creation for young and old. Budget reaction: No job incentives and viciously unfair on the poor.
Tom Connolly: Hopes to carve a route back to prosperity.
TOM CONNOLLY: Enterprise Centre
ROM the Enterprise Centre in Youghal, Tom Connolly does IT-based business with Argentina, France and Germany. However, the ex-Apple employee is also working on his new business project — a concept with enormous potential, he believes — the sale of musical instruments fashioned from Irish animal bones. A talented musician (Tom plays the mandolin, banjo and piano), he is also a bones player. “Bones are the second oldest instrument in the world after the human voice. They are used across cultures and you see them being played in some of the Irish music scenes in the movie, the Titanic.” While he says there is wide interest in bones-playing across the world — everyone from cowboys to Scottish musicians have played them over the years — the craft sector would be his likely main market. “Bones would be seen as a very unique instrument and I can design them to have photographs or drawings mounted on them. They are a fantastic percussion instrument. Mel Mercer, the
well-known UCC percussion lecturer and musician plays them, for instance.” So how do you make bones? Well the bones have to be boiled, baked in a hot oven for 2/3 hours, hollowed and then carved into shape. At present, all of this work is being done at Michael’s own home with the help of his 11-year-old son, Nathan who is already fascinated with the instrument. “I’m getting my bones from Michael Twomey in Macroom who is a guaranteed Irish butcher. It’s a labour intensive production so I’m hoping to hire some employees once it takes off. We’re hoping to go into proper production early next year.” For Tom, the retention of corporation tax at 12.5% is the single most important element of the 2011 budget. “That allows us to do business all over the world”. What he wanted from the budget: Redundancies in public sector management and a reduction in TD and senator numbers. Budget reaction: Pleased with retention of corporation tax rate.
HE enterprise centre on Youghal’s Emmet Place is a symbol of what the East Cork seaside town is, was and wants to be. A stunning 16th century building that was part of St Mary’s Collegiate Church, it is a beacon of light for a town that has lost up to 2,000 jobs over the past two decades due to the export of manufacturing jobs overseas. For a low fee, entrepreneurs can avail of fully furnished office space, fast broadband speeds, a free telephone line and have their electricity and heating bills paid. In the words of Helen Coady, who runs the centre, it gives “people help when they need it most — during start up”. The famed walled town is now placing its emphasis for the future on entrepreneurship and tourism. They’ve learnt their lesson about how multinationals can pack up and leave with a few hours notice. They now want to exploit fully their tourism potential and develop sustainable small businesses as a source of future employment. Cork county manager Martin Riordan declared when he opened the centre: “The new vision for Youghal incorporates its past by revitalising its heritage, enhancing Youghal’s significant natural resources, including marine, conservation and ecology areas.” From the 1960s onwards, Youghal was renowned for its factories, particularly textile manufacturing. However earlier this year, its last factory ceased production. Danish-owned Tytex, which developed and made medical textiles at the Springfield Industrial Estate. At its peak, Tytex employed 150 workers. In 2007, the closure of office supplies manufacturer, Elba had seen the loss of another 55 jobs. The year previous it had been 92 jobs at Courtisan Carpets and in 2003, the former Eastman Kodak left with the loss of 200 jobs while Artesyn Technologies’ exit in 2002 saw 160 jobs go. Youghal Carpets, Seafield Fabrics, Blackwater Cottons and Bryant Rubbers have all also closed their doors. Youghal Chamber of Commerce PRO and publican, Michael Farrell says that “the construction boom masked the jobs losses for a
Florist, North Main Street long time but now with the recession and everything, tourism is our only established industry”. The chamber has long been campaigning to upgrade beach facilities in Youghal and they wanted to see funds earmarked in the 2011 budget for this. “We need an upgrading of the front strand, improved quay facilities with toilets, showers etc,” says Mr Farrell. He and the other chamber members are also looking for more land around Youghal to be zoned for caravan and camping parks, now that there is greater competition around land use. “There is a huge demand for camping and caravan parks, now more than ever. Our town is not really a viable tourist destination without them.” Youghal county councillor and town councillor, Sinn Féin’s Sandra McLellan points out that the town has unrivalled beaches and a stunning river. “We have two blue flag beaches and that is a huge asset to us. Foreigners take blue flag status very seriously and will base their holiday around access to these beaches. The Quality Inn reckons the blue flags are worth 18 jobs a year to them alone.” Youghal has long been a holiday favourite among Cork city dwellers with thousands of mothers and their children relocating to holiday homes in the town for the long school holidays. Surprisingly, auctioneer Diarmuid Keogh, whose family have been in business in the town for 40 years, says such holiday home properties are still selling unlike the residential sector which is frozen. Up in Bawnmore and White Barn on the hills outside the town, Murphy Construction and McInerney Homes were separately granted planning permission three years ago to build 366 and 298 houses in what would have been a massive development for the town. However the construction implosion hastily ended those plans with the lands in the hands of NAMA now. “The first-time buyers market has been decimated by the lack of funding from the banks and this means that people aren’t trading up either as they can’t sell on their
KAY CURTIN, who runs Condon’s Florists on North Main Street, is refusing to give in to the recession and last week shut up shop for a few hours so she could personally organise a group advertisement in one of the local East Cork newspapers. Dozens of the town’s traders joined together to advertise as a bloc entity, reducing their individual costs. “I just keep on trying to be positive and I would just try and encourage people to do their shopping in our town and not elsewhere. We’re suffering a lot from people going to the bigger shops in Cork and Dungarvan,” she said, a statement that was echoed by all the Youghal traders we met. ”They’re going to Dungarvan and to Midleton. Aldi and Lidl is attracting the people out of town for the heavy shopping. People will have to start supporting the town.” If there’s any main street business that is feeling the economic
original home,” said Diarmuid. “We’re lucky in that the holiday home sector and retirement home sector are still moving. People with money can see that there is value there. At the moment, there’s a return north of 8% on some investment properties — if you can access the funds.” Mr Keogh, who is also a member of the Youghal Chamber of Commerce, says the property market will only come back to life when the overall economy is stimulated. “The economy needs a stimulus. Confidence needs to return in the country and that will help kickstart the property market. If one improves, it will lift the other. “There’s a lot of potential in Ireland still. Most Irish town centres are dormant with nobody living in them. We need future tax incentives to make them
functioning residential areas,” he said. Like many other towns in Ireland, Youghal is having problems attracting people into the town to shop never mind to live. In recent weeks, two more town centre businesses, Chez Marie and Gowrans, closed their shutters for the last time — victims of consumers’ dwindling disposable income. Rent, rates and electricity are constantly blamed for making businesses unviable. Sammy Revins, a Fianna Fáil councillor and local butcher, says he has “tried”, and failed, “to keep rates low”. “It’s a rating office in Dublin that sets them and so it’s nearly impossible to communicate from the ground. It’s not the fault of the local authorities.” He says his own business has
pay and conditions of employees. “When I lost my job earlier this year, I got rid of my car as my wife has a car. If I get a new job, I need some kind of job security as the first thing I have to do is buy a car, tax and insure it. “I’ve scouted for work but most of it is through agencies. Agencies aren’t paying the proper rate and they’re not paying travel to work. There is also no job security. “I know of one guy who got a job with Hasbro Toys in Waterford through an agency. He was told it was a week on, week off job. “He worked his first week and was then told by the agency that was it. Sorry no more work. They had a glut of production to get rid of and that was that, they didn’t need him again.”
been suffering hugely at the hands of supermarkets who “are selling meat cheaper than I can buy it”. Mr Revins is more than aware
of public anger with his party and admits that he “won’t be knocking on people’s doors this general election. “People know where I am in the shop if they want to talk to me”. He believes Fianna Fáil have “lost touch with reality” and need to “return to listening to the people”. Kay Curtin of Condon’s Florists on North Main Street is adamant though that the people of Youghal can’t focus on what’s gone wrong but must try to focus on what they can do to support the town. She points to recent positives such as the scheme whereby the town council offered to pay 50% of the cost of painting shopfronts. Up to 26 shops availed of the scheme which also gave a supply of local work to local painters. Cllr McLellan agrees wholeheartedly and talks of the F200,000 given by the council
towards restoring the town’s ancient walls. Talking to the people of Youghal, they repeatedly voiced fears about the difficulty of keeping children in college and paying mortgages during this great recession. Liam McLellan, the husband of Cllr McLellan, says his fear is for his children. He lost his job at Tytex earlier this year. “My fear is not for myself but for the kids. Will we be left on our own when they are all forced to emigrate? What is being done to create jobs for them?” Fine Gael TD, David Stanton thundered last year that the Government had “abandoned Youghal over the past decade”. However, the Chamber of Commerce and town council is increasingly coming to the view that they must rely on nobody but themselves to rejuvenate the town.
Back in the Enterprise Centre, Tom Connolly, who runs a business development and consultancy IT company, is emailing his clients in France, Germany, India and Shannon. He describes himself as a “virtual emigrant” thanks to Enterprise Centre. Sitting at his desk in Youghal, he does business worldwide thanks to the web and fast broadband speeds. “There isn’t the level of business in this country and the broadband speeds at the Enterprise Centre allow me to work anywhere from this office. I also do work with the South Cork Enterprise Board and the University of Limerick. The facilities at the Enterprise Centre are fantastic and it’s great to able to bring them in here.” For the people of Youghal, this is just the type of growing business that they hope will pull them out of the current doldrums.
M Tony Hennessy: No job security for people employed by agencies. Tony, who lives in the Town Walls area of Youghal, also laments the demise of the fishing industry in the seaside town, an indigenous industry that he says collapsed in the face of competition from overseas super trawlers. “There isn’t half a dozen fishing boats here now. The only fish coming into this town is
Donegal Catch and that’s through the airport. Cork Airport is the biggest port in these parts now.” What he wanted from the budget: Job creation and investment in industry. Budget reaction: Nothing to get country back to work. Unjust cuts.
Michael Farrell: Pubs in Ireland the most expensive to run in the world.
MICHAEL FARRELL: Publican
Shop owner, Main Street ERRICK’S department store on North Main Street in Youghal is the oldest department store in the country. Built in 1580, Lil Danne has owned the business for the past 16 years. She says that up to three years ago, it was a “brilliant” business but now the recession, competition from low-cost international retailers and the lack of free parking in the town has all combined to drive business downwards. “The lack of free parking is the bane of our lives. It is totally affecting the numbers coming into town but despite our best efforts, we can’t get the town council to cut the parking costs in the run-up to Christmas. “It’s putting us at a huge disadvantage. Even to allow reduced
What Kay wanted from the budget: Kay believes spending has frozen since last August as people were so scared of the budget. She wanted people to start spending again. Budget reaction: Middle incomes have been even more squeezed.
The Clock Tower in Youghal, Co Cork, which is battling to survive the recession. Picture: Denis Minihane
ONY HENNESSY, 48, is married with four children, aged 16 to 18 months. Up until recently he was working on the construction of the Bord Gáis electricity plant at Whitegate in East Cork. However with its official opening earlier this week, he found himself without work earlier this year for the first time in 15 years. Many of his former work colleagues have taken jobs in France and Germany, he says, where their employer, John Sisk Construction is developing power plants. With four children, this isn’t an option for him, he says. The lack of construction jobs in this country is well documented but Tony says that where construction and factory work is available, the increased usage of agencies and subcontractors is doing damage to the
There is a huge demand for camping and caravan parks. Our town is not really a viable tourist destination without them
squeeze, it’s florists. Aside from weddings and graduation balls, their offerings are now seen as being beyond the purse of many. “We used to have builders that would throw up F60 or F70 for whatever bouquet was in the shop window. They wouldn’t think twice of it. That’s all gone,” she said. Prices have been cut in response but it’s making little difference. Kay is an Interflora agent and says many of their prices have been cut in half. A bunch of four lily stems that would have cost F50 during the boom can be bought for just F35 now.
parking costs on a Saturday would make a huge difference.” When Lil took over Merrick’s, she had 16 staff. In recent weeks, she opened a smaller clothes shop on North Main Street, but now she only has 10 staff working between both premises. Many of the employees are also on reduced working hours. “People are buying in Penneys. They have changed their purchasing and it’s all about affordability. We’ve changed too buying less stock and also losing a lot of the higher end products. “This year was hard. Our turnover is down by over 50%. “The closure of Tytex and Artesyn Technologies really affected us. We always had payment deposit schemes in place but you can see,
Lil Danne: Was hoping for more support for small businesses. they are really being used now. “Every retailer on North Main Street says the same thing: it’s rent, rates and utilities that are choking them. We’re trying to sell on the lease of Merrick's as we just can’t afford the rent of F52,000 per year plus rates and utilities. The
overheads are killing us.” What she wanted from the budget: A move by the Government to support small business and jump-start spending. Budget reaction: Spending will drop further.
HE only viable industry in Youghal these days is tourism, says Michael Farrell, the owner of Summerfield Bar on the outskirts of the town. “We are totally dependent on tourism as we have lost more than 2,000 jobs here in recent years. There were also another 1,000 jobs lost in service industries providing to those factories.” Michael says the Government “has been found wanting” when it comes to Youghal, failing repeatedly to invest in infrastructure in the town. “Tourism has improved in this town due to an increased marketing effort by the Chamber of Commerce and the town council. Last summer we also benefited from the good weather. “However, we need to upgrade the quay area and need toilets and showers and the like developed at the beach. Our beaches need to be comparable to France. If the Government were to invest in this, they would reap rewards through increased tourism and
the boost in employment.” Like many of the other business people in the town, he says his greatest financial pressure is rate payment and electricity. He says that excise duty is another factor making “pubs in Ireland the most expensive to run in the world.” Farrell, who is also PRO of the Vintners Association and the local Chamber of Commerce, says the Government needs to start seeing the Irish pub as the major tourist attraction it is. “They are visited more than any other tourist attraction in Ireland, more than the Cliffs of Moher or Blarney Castle. Yet, we’ve had the cost of a late night bar extension doubled in recent years making late night entertainment, which tourists seek, unviable.” What he wanted from the budget: The Government must tackle below-cost selling in supermarkets and not touch excise duty. Budget Reaction: Happy with excise duty decision. It will protect jobs and support the tourism industry.
15:46 — What is likely to be the last act of this government is about to begin. Lenihan strides around the back of the chamber and down the steps. His tie is blue, striped. The session is about to begin...
15:51 — Nicola writes: This blog is distracting me from studying for college exams. But may not be able to afford college next year so what the heck?
BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
Lenihan’s cuts show we haven’t turned that elusive corner just yet
AST December the Finance Minister Brian Lenihan declared our plan is working and that “we have turned the corner”. He also suggested that while the effort demanded of every citizen in Budget 2011 was substantial, and that while further corrections would be needed in the coming years, none would be as big as in Budget 2011. Alas these predictions could not have been further from the truth. Yesterday, we were treated to one of the toughest budgets in our history and one still cannot say with any degree of confidence that we have turned a corner. In many ways yesterday’s budget is a bit of a non-event in the sense that it was well flagged in the recently published National Recovery Plan and was further pre-announced under the terms of the IMF/EU bailout plan that was announced last week. Budget 2011 means the Irish economy will face a fiscal correction of F6 billion in 2011, with F4bn to come from expenditure cutbacks and F2bn from tax increases. While many people will severely criticise Budget 2011, the reality is that due to past mismanagement of the economy and a global crisis of unprecedented enormity, the Irish public finances had quite simply become unsustainable. Furthermore, Ireland would not have been given access to the IMF/EU bailout fund if it did not adhere to the fiscal principles laid out in the National Recovery Plan. The budgetary arithmetic for 2011 is predicated on the economy expanding by 1.7% in GDP terms and by 1% in GNP terms over the coming year. This distinction between the two growth metrics is important. The multi-national sector is doing very well in Ireland at the moment and this should help contribute to a reasonably strong GDP outturn in 2011, albeit probably not as vibrant as forecast in yesterday’s budget. Unfortunately, this growth will not do much for tax revenues or for employment creation. The GNP metric is more significant in that context. GNP is principally driven by consumer spending, business investment spending and construction activity. Such activities are the ones that generate the bulk of tax revenues and employment creation. The construction sector is obviously dead and will remain so for some years to come, despite the changes to stamp duty on residential property. There was not a lot in yesterday’s budget that will inspire business owners to get out there and engage in investment or indeed in employment creation. From the perspective of the consumer, Budget 2011 will further erode disposable incomes and will just continue to fuel growth in precautionary savings. It is incorrect to suggest that the budget has targeted any particular segment of society. All middle and high income workers will face a significant hike in their tax bill in 2011 and with the exception of old age pensioners, most recipients of social welfare will see a hit to their income. It is clear that 2011 will be another very difficult year for the Irish economy. Significant spending power will be taken out of the economy in the form of expenditure cutbacks and increases in the tax burden. It is hard to believe that consumer spending will stabilise in 2011 given the hit to disposable incomes. The sharp reduction in capital spending will undermine investment. The reduction in stamp duty on housing could give some boost to housing transactions, but this will be unlikely to significantly offset the negative forces that are impacting on the housing market at the moment. The key aim of the budget is obviously to try to restore some order to the public finances. Tax revenues are projected to grow by 10.7% in 2011, bringing the tax take up to F34.9bn. The Exchequer deficit is projected to decline to F17.67bn, down from a projected deficit of F18.75bn in 2010. Excluding the cost of the banking bailout, the General Government Deficit, which is the measure targeted by the EU, is projected to fall from 11.6%of GDP in 2010 to 9.4% in 2011. The ultimate target is 2.8% by 2014. Budget 2011 is the most deflationary that this country has experienced in many years, but there is not a lot of choice. The public finances had become unsustainable — the tax take and base are too low, and expenditure is too high. This budget is attempting to bring expenditure down and to widen the tax base. This is hard to argue with, but it is a risky strategy and it remains to be seen just how the struggling Irish economy will cope with such an extraction of money. Most workers will end up paying more tax on a progressive basis, pension coverage will be damaged, and those dependent on social transfers will see another drop in income. Unfortunately, there is nothing in the budget that would encourage employers to go out and create employment. ■ Jim Power is an economic commentator
There is nothing in the budget
that would encourage employers
to go out and create jobs
Nearly 140,000 to pay income tax for first time by Niamh Hennessy ALMOST 140,000 people will be forced to pay income tax for the first time as a result of changes to the tax system. Thousands of single people will now have to pay tax at the higher rate of 41% on income of more than F32,800, down from the original cut off point of F36,400. Finance Minister Brian Lenihan said the current tax system is no longer fit for purpose and by cutting tax credits and bands by 10%, the changes aim to bring more of the country’s workforce into the tax net. This will also mean more people will now pay tax at the higher rate. Mr Lenihan said that to date 45% of the workforce was outside the tax net and no income tax was paid on incomes of F18,300 or less. Under the changes the personal tax credit is being reduced from F1,830 to F1,650 for single persons and from F3,660 to F3,300 for married people. This will mean individuals will now pay an extra F180 in tax and married couples will pay F360 more. Married people with a single income will pay tax at the higher rate on income more than F41,800 which is down from F45,400 while married people in double income families will now start paying tax at the higher rate on income over F65,600, after the band was cut from F72,800. The cut-off point for single parents is F36,800, down from F40,400. High earners will also be hit by the abolition of the F75,036 PRSI ceiling for employees. Also the PRSI rate for self-employed people will be increased from 3% to 4%.
Motorists up in arms as car fuel hits all-time high by Seán McCárthaigh
Distribution of income earners for 2010 anD 2011 on a pre-buDget anD post-buDget basis paying
on a prebudget basis
on a postbudget basis
tax at thE standard ratE
2,220,300 2,224,800 2,224,800
Note: The pre-budget 2011 distribution forecasts the numbers of income earners who would be in each category in 2011 if no budget changes were introduced.
Dublin Chamber chief executive Gina Quin said: “It is these workers, in the knowledge and creative sectors, that cities like Dublin are looking to attract. The abolition of the ceiling will reduce the attractiveness of Dublin as a location for high productivity employment.” Tax partner with Ernst & Young Jim Ryan said: “Despite the 1% increase in the rate of PRSI payable by the self employed, when it is aggregated with the universal social contribution, which replaces the health contribution and income levy, it will bring their marginal rate in line with those in PAYE employment of 52%, thereby removing the current anomaly under which self employed individuals have a marginal rate of up to 55%. “Both the amount of income chargeable at 20% and the personal tax credit have been reduced by 10%, and we can expect to see similar reductions for the next three
years.” Tax reliefs on patent income, trade union subscriptions, private rented accommodation, employer-provided childcare, farm building pollution control spending, approved share option schemes, and various other minor schemes, are to end. Mr Lenihan said those on the new reduced minimum wage will not be brought into the tax net. Irish Taxation Institute president Andrew Cullen said the budget represents the first phase of the four-year plan which will lead to a change in the structure of Ireland’s tax system with more reliance being placed in the future on indirect taxes through property taxes, water charges, carbon taxes and increased VAT rates. “This will bring about a more sustainable tax base and will allow Governments to plan spending based on a more solid tax base.”
Self-employed on low incomes to suffer most by Fiachra Ó Cionnaith FOCionnaith.email@example.com
THE percentage of cuts facing single self-employed people in the lowest earning income bracket is more than five times worse than what their counterparts earning over F175,000 will suffer. Figures detailed by the Department of Finance confirm that, despite official claims that the budget pain is being shared equally, there continues to be a significant discrepancy in what is really taking place. According to the statistics, a single self-employed person with no children who has a gross income of F10,000 will be F480 worse off per year (5.3%) as a result of yesterday’s budget details. This is due to proposed increases to their income tax (F50 to F230), PRSI contribution (F300 to F400) and the new universal social charge (F200). In comparison, a single person
earning F175,000 or more will suffer a mere F755 annual hit in their pocket, just F275 more than this lowest income group and only 0.9% more of a deficit than previously. This is the result of income tax (F57,971 to F58,907), PRSI (F5,250 to F7,000) and the combined health levy, income levy and universal social charge costs (F25,069). The situation has been linked to the recent Government announcement that 100,000 people may have to emigrate over the next four years to stabilise the country’s finances. The same unequal nature of the cuts being imposed is also apparent among self-employed married couples with one income and one child. In this scenario, the three groups earning below F25,000 will suffer percentage cuts of 3.3%, 4% and 5.7%. By contrast, families in the same scenario earning F125,000,
Harpist Ruth McDonnell and Maire De Cógain who played the uilleann pipes and tin whistle at the top of St Anne’s, Shandon, Cork, at dawn bringing musical cheer on the day of the budget. A recording of the event is available for viewing at www.positivelycork.ie. Picture: Denis Minihane
Social charge means by Niamh Hennessy MIDDLE-INCOME earners will be hardest hit by the introduction of the new universal social charge, which sees the abolition of the income and health levies into one payment. Many of those earning more than F75,036 will be paying less following the introduction of the new charge.
Previously workers paid a 4% health levy on income up to F75,036 and a 2% income levy on earnings up to that level. The new charge will see anybody earning over F16,016 paying a rate of 7% on their income. In the previous system, high earners would have paid a health levy of 4% on income up to F75,036 and 5% health levy on the remainder.
F250k cap on public sector pay
Low earners ■ Single self-employed person with no children on a gross income of F10,000 faces a 5.3% cut to their income, compared to a 0.9% cut for someone in the same position on F175,000 or more. ■ In financial terms, these cuts are F480p/a and F755p/a respectively. ■ Self-employed married couples with one income and one child in the lowest three income brackets (under F25,000) will suffer cuts of 3%, 4% and 5.7% ■ Their counterparts in the highest three income brackets (F125,000, F150,000 and F175,000 or more) face cuts of 2.2%, 1.6% and 1.1% respectively.
by Stephen Rogers
Self-employed low earners are hit 5.3%, compared with 0.9% for self-employed high earners.
F150,000 and F175,000 or more will face cuts of 2.2%, 1.6% and 1.1% to their annual income, significantly lower than those worse off. Budget announcements unequally weighted against those in lower incomes are also apparent for self-employed married couples
with no children. However, the issue does not arise for general employees of companies or public sector workers who are married with one family income, one child and taxed under the PAYE system, and those under the same scenario with no children.
Croke Park deal must deliver, warns Lenihan by Stephen Rogers FINANCE Minister Brian Lenihan issued a coded warning to public servants that the Government will walk away from Croke Park if it does not get the cost efficiencies it wants. “Despite the economic constraints, the Government has abided by the Croke Park Agreement on pay, compulsory redundancies and on pension terms,” he said in yesterday’s budget statement. “Public servants, their unions and their managers for their part must abide by their
commitments to pursue flexibilities and reforms in every part and level of the public service. We have made commitments to a continued reduction in the cost of the public service. If the Government is to be held to its side of the Agreement, those reductions must be delivered.” There had been many calls in recent weeks, given the dire financial circumstances, for the Government to abandon the deal which guarantees no pay cuts or compulsory redundancies. Meanwhile, there had also been considerable criticism that
retired public servants had escaped the worst effects of the recession and when the Croke Park deal failed to offer protection to them it seemed only a matter of time before they would be targeted. As announced last month in the four-year plan, the minister confirmed his intention to take an average of 4% off existing pensioners. Those receiving an annual pension under F12,000 will be exempt. However, through legislation which will be passed before the end of this year, anyone who receives an an-
For a single worker earning F150,000, for example, they will pay F1,432 less following the introduction of the universal social charge than they did paying the health and income levies. The rates for the new charge will be 2% up to F10,036, 4% from F10,036 to F16,016 and 7% above this level. The charge will be applicable on income over
nual pension of between F12,001 and F24,000 will see a 6% reduction, those with a yearly pension of between F24,001 and F60,000 will see a 9% reduction and those receiving more than F60,001 will see a 12% reduction. Furthermore, two years after they were hit with the pension levy, existing public service workers are, from January 1, to have employee PRSI and the universal social charge applied to their pension levy contributions like their private sector counterparts.
THE days of senior public servants, including the President, earning more than 10 times the average industrial wage are to be brought to an end. Brian Lenihan confirmed the Government’s intention to introduce a maximum salary rate of F250,000 in the public sector. And the Finance Minister said that maximum should also apply in the semi-state sector where the massive pay packets were particularly prevalent. “Only a few office-holder posts have salaries above this level at present, but there is a larger number in the state agencies.” As reported in the Irish Examiner earlier this week, there are a large number of semi-state heads earning in excess of F250,000, including HSE chief executive Cathal Magee (F335,913) and Frank Gannon of Science Foundation Ireland (F259,698). After showing great reluctant to part with up to 10% of their pay through an income levy, a number of judges are also to face cuts. “The 10% reduction in the pay of new entrants to the public service contained in the National Recovery Plan will be applied to the salary rate of those appointed to hold office in the Judiciary in 2011,” said Mr Lenihan yesterday. “The F250,000 maximum will be applied to all such offices.” However, it is understood that even though RTÉ is a semi-state body, its high earning presenters such as Ryan Tubridy and Pat Kenny will avoid the F250,000 cap due to the way their contracts are structured.
high earners pay less F4,000, which is a major drop on the F26,000 threshold for the existing charges. Tax expert with Ernst & Young Jim Ryan said in reality the universal social charge will simplify the administration, calculation and collection of the health contribution and income levy. The new charge will consolidate the levies into one contribution with a
combined rate of 7%. “This raises the question as to legitimacy of the temporary nature of the income levy,” he said. President of the Irish Taxation Institute Andrew Cullen said the introduction of the universal social charge is a major step in the reform of the tax system. “The introduction of the charge on all incomes over F4,000 means that almost
every income earner in Ireland will be making some contribution to the Exchequer. “One of the greatest challenges will be to ensure its smooth implementation, with payroll systems across the country requiring administrative changes to deal with the new charge,” he said. The universal social charge will be effective from January 1, 2011.
MOTORISTS have hit out at the latest increases in the cost of motor fuel which, they claim, have pushed the cost of petrol and diesel to all-time record levels. Vehicle owners were hit with an immediate increase in running costs as Finance Minister Brian Lenihan announced an overnight rise in the cost of motor fuel with petrol up four cent per litre and diesel by two cent per litre. The measure, which was widely anticipated, is expected to raise an additional F106m for the Government in 2011. The Automobile Association has estimated that the increases in excise on motor fuel will add F6 on average to a motorist’s monthly fuel bill. The AA said the latest increases meant the average cost of petrol is F1.40 per litre compared with the previous surge in oil prices in the summer of 2008 when they peaked at almost F1.34 per litre. “That record will now be broken not because of oil prices, but because of tax increases,” said AA spokesperson Conor Faughnan who expressed disappointment at the budget decision. “It is worth noting that, were it not for the tax increases of the last two years, petrol would cost approximately F1.21 per litre.” He accused the Government of treating motorists as a cash cow whenever it was short of money. “These price hikes mean a genuine increase in hardship for almost every family in Ireland. They come on top of continuing high
Car scrappage CAR dealers have given a broad welcome to the Government’s decision to extend the car scrappage scheme until the end of June 2011. The Society of the Irish Motor Industry predicted the measure would further increase employment in the sector. New figures published by the Central Statistics Office yesterday show the number of new cars licensed in the first 11 months of 2010 rose by over 56% compared to the same period last year. A total of 84,260 private cars have been licensed so far this year — up 30,302 on 2009 figures. The car scrappage scheme will now run until June 30, 2011 as a result of yesterday’s budget. However, the discount allowed to motorists in reduced Vehicle Registration Tax off the price of a new car when they scrap vehicles 10 years or older is being cut from a maximum of F1,500 to F1,250. Until the end of last month, a total of 16,468 cars were bought under the scheme, resulting in revenue for the Government of F57.6m. Finance Minister, Brian Lenihan, also announced an extension of VRT relief on hybrid and flexible fuel vehicles for two years up to the end of 2012. VRT relief on hybrid vehicles will be up to F1,500, while it will continue at up to F2,500 for plug-in hybrid electric vehicles. Seán McCárthaigh
motor insurance costs,” said Mr Faughnan. The AA said it was already aware that rising motoring bills were already putting many family budgets under strain. The rising cost of petrol and diesel comes against a background of a slow increase in the cost of motor fuel on international markets in recent weeks. It also follows increases of between four and five cent per litre in both petrol and diesel in last year’s budget as part of the Government’s carbon tax. Meanwhile, savings of F32m are to be achieved in cutbacks in the current budget of the Department of Transport next year. Spending on road maintenance will be reduced by
Surprise as ‘old reliables’ escape hikes by Claire O’Sullivan IN a surprise move, Finance Minister Brian Lenihan decided not to increase excise duties on cigarettes or alcohol. Traditionally, the “old reliables” were an easy target for former finance ministers. However, in the last budget, Mr Lenihan bucked the trend, not touching the excise duty on cigarettes and actually cutting excise duty on alcohol. This year, his position remains unchanged. He has, however, decided to review the excise payable for bar and off licence sales next year. According to Mr Lenihan, this “will ensure that the system is both transparent and fair”. Chairman of the Drinks Industry of Ireland (DIGI) Kieran Tobin welcomed the decision not to increase excise duties “in the context of the difficult
decisions that the Government has had to take at this time”. However, the national charity for alcohol-related issues, Alcohol Action Ireland has described the move as “incomprehensible” — especially seeing as excise duties were slashed in 2009. “Last year, the Government cut excise duty on alcohol and that resulted in the loss of millions in badly-needed tax revenue for the exchequer. We are now facing savage cuts to essential services and tax and levy hikes but the price of alcohol — a luxury good — will remain the same,” said Fiona Ryan. DIGI insisted the current excise taxes on alcohol are among the highest in the European Union. “This builds on last December’s excise reduction which was passed on in full by the industry, and had the effect of stemming
RTÉ to pay price of cuts to TG4 by Catherine Shanahan and Juno McEnroe
Sean Mullins and Mike Hurley with Donal McGrath watching the budget on TV at McCarthy’s Bar, Midleton, Co Cork. Picture: Dan Linehan cross-border sales and repatriating much of the revenue lost to Northern Ireland — as well as boosting consumer spending, the retail trade, the local drinks market, and the economy in general,” said Mr Tobin. “Today’s decision will also assist the pub bar, restaurant, nightclub and hotel trade that has continued to suffer serious declines throughout 2010, being down approximately 14% so far this year,” he said. According to DIGI, the sector provides approximately 78,000 jobs and F2 billion in tax
revenue. But Alcohol Action Ireland argued alcohol-related harm could cost the health service an estimated F1.2bn a year in treating alcohol-related illnesses and accidents. A spokeswoman for PJ Carroll cigarette company welcomed the retention of the existing excise rate. “The previous ‘tax and over-regulate’ approach to cigarettes has proved dysfunctional, resulting in Ireland becoming a paradise for criminals smuggling in contraband and counterfeit cigarettes,” she said.
Pension reform biggest hit for high earners by Brian O’Mahony THE impact of the pension reforms is the biggest hit high earners will take as a result of the budget. The loss in terms of tax breaks could be as much as F1,500 per month when the full impact of the reforms kick in over the four years to 2014. The implications are so severe a lot of people in the high-income category may be forced to “turn to alternative means of savings for their retirement,” said Susan Lynch, tax director with
Ernst & Young. Finance Minister Brian Lenihan said last year “high earners availing of tax incentive schemes must contribute more in the current difficult circumstances”. The restriction of reliefs “is already having a significant impact. But we can and must do more”. The National Recovery Plan contains a commitment to the abolition or the curtailment of tax expenditures and the phased abolition of property-based legacy reliefs, he said. As well as the 16 measures identified in the plan, he said he would
F9m next year with cutbacks spread across the board on repairs to national, secondary and regional roads, while the Government’s annual subvention to the CIÉ group of Bus Éireann, Irish Rail and Dublin Bus will also be cut back by 4.5% or F10m to F263.2m. While such a measure could prompt CIÉ to seek an increase in bus and rail fares, Transport Minister Noel Dempsey has indicated the CIÉ group should be able to cope with the reduced subvention through increased operational efficiencies. The Exchequer grant to the Road Safety Authority will also be reduced by F5.4m or 13% to F27.9m next year.
“abolish or restrict a further nine reliefs bringing the total to 25”. Many of them are linked into property investments and patents and some property-based schemes have already been abolished. Three new measures, in particular, will be targeted at passive investors: restrictions on the carry forward capital allowances will start in 2011 and impact progressively over the next few years. Also from 2011, Section 23 relief will be restricted to income from Section 23 property, and a “guillotine” provision will ensure that all unused capital allowances
after 2014 and Section 23 reliefs are lost, the minister said. This last provision will effectively terminate all property-based reliefs in 2014, he said. On the pension reform issue, Ms Lynch said the amount allowed to be written-off against tax would fall from 41% to 20% on a progressive basis over the four years. Overall, Ernst & Young said the main issues are the changes to pension reliefs and the abolition of various other reliefs flagged in the National Recovery Plan, as well as the removal of the PRSI ceiling which had not been anticipated.
RTÉ will have to pick up the tab for a F6.2 million reduction in Exchequer funding to TG4 on foot of measures outlined in Budget 2011. The national broadcaster must make up the shortfall from its licence fee income, although it is considered unlikely it will apply to the Broadcasting Authority of Ireland (BAI) for a licence fee hike. Yesterday an RTE spokesperson said budgetary plans were currently being finalised for 2011 “against a very difficult backdrop” and that the requirement to provide additional funds to TG4 would mean further reductions to the national broadcaster’s income. Commercial income is down by F70m and in July this year, RTÉ’s chief financial officer, Conor Hayes, told an Oireachtas committee that RTÉ has spent F40m putting the Digital Terrestrial Television (DTT) infrastructure in place. In addition, F14m of licence fee income went to the BAI. RTÉ currently provides one hour a day of Irish language programming to TG4 at an annual cost of F10m. Meanwhile, state contributions for free travel and TV licences for pensioners will be capped for the next five years, leaving RTÉ and CIÉ to pay for the increased numbers of the elderly coming becoming eligible for the allowances. The supplements, which cost the Exchequer F59m a year, currently cost the two bodies nothing, the minister said. RTÉ and CIÉ between them face paying an extra F5m-F8m a year to supplement the schemes.
Comments from irishexaminer.ie
WHAT YOU SAID
■ OFF with their heads!... the Government and the developers too... they got us into this mess... Charlie Haughey is rotting in hell... hopefully Bertie will too... and all the Fianna Fáil Government... they are a disgrace to the people of Ireland and a laughing stock to the rest of the world looking on... Off with their heads! — Marie Geary ■ Cuts must come from the top down starting with cutting TD numbers and their salaries and abolishing the Seanad. This didn’t happen. — Gabrielle, Co Cork ■ Tough budget, but had to be done. Parties can point score and look for scapegoats all they like. The reality is the Government needs to generate a lot of money and this is the way to do it. Wasting money/resources marching around town won’t help anyone bar the odd overweight protester. — David, Dublin ■ Bertie Ahern has a lot to answer for! Why should future generations suffer? — Denis Murray, Waterford ■ My husband (an engineer) lost his job last year and has to pay to do a university course out of our social welfare money. He is currently on a work placement 70 miles away with no real prospect of a job and now they are going to take more money off us and we are already in the position where we have to choose between heating our rented home or feeding our children. I fear that we will have to leave Ireland as our parents did before us or we will all starve and our children will have no future”. — Karen Foster ■ Draconian measures against the weakest in society. Every politician that served since 1990 should be made to resign and a whole new batch brought in. All senior government civil servants should be transferred out and a whole new batch brought in. Finally, don’t be afraid to move or have your children move. There are a lot better places to live and rear children than the ‘auld sod’. — Ciaran Dolan ■ It’s interesting that even though the minister announced cuts in the salaries of senior officers, ministers and the Taoiseach. Mr Cowen still earns more than the British PM. How is that? — Jim Jones ■ None of these top public servants contend with situations that frontline public servants (firefighters, nurses, prison officers, and gardaí) do. Last new year’s morning my son and his crew had to respond to an emergency where a person had fallen from a height and was impaled on railings. His salary has already been cut — now further cuts. None of those fat cat bastards will feel the slightest sneeze while all around them pneumonia will be epidemic proportions. — Jen Bolster ■ It is unjustifiable that anyone, especially very highly paid public bosses, should be exempt from pay cuts. — Lucy O’Mahony, Cork ■ I think we should put Mr O’Leary of Ryanair in charge of the Government and let him pick his own team and kick out the money grabbers that are there now. Shame on them, robbing the poor. — Joe Mac ■ God bless Ireland, but a curse on the Government for stupidity and heartbreak for all the future school leavers who will wave goodbye to their country and family... history repeats itself. — Seamus ■ I have recently emigrated. I have a young child who will now grow up in the UK. It has been a huge upheaval for all involved, but life here is fine. Also, there is an excellent education system here focusing on maths, science and technology in primary schools. Everything is not perfect, but Ireland could learn a lot from it. Ireland is in deep trouble and we have all been blinded by the fools we voted for over the years. — Anonymous, UK ■ We have always lived frugally, our standard of living has been same for last 10 years. I am married with five kids and making ends meet is getting tougher and tougher. It was the children of the rich who had the money to spend. They were the ones who were boozing and travelling. I am now looking at my kids not being able to go to college same as me. The working class will pay for all the sins of the rich (as usual). How do you fight the system when it’s designed to keep us out? — John D
16:22 — Bond holders have absorbed losses of F7bn to date, Minister says. There is a limit, he says, and we cannot renege on paying them and that “has never been an option”
16:34 — Michael Noonan questions how anyone could have confidence in the Irish banking sector and goes through the litany of problems that have beset it. He felt “ashamed” when he saw Minister’s “obsequious letters” to EU/IMF
13 BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
The myth of the ‘fair’ budget that was anything but fair
N the day after the budget is delivered, it is customary for some part of it to unravel. The first thing to start coming apart in Brian Lenihan’s plan presented yesterday should be the myth that everyone — rich and poor — will share equal pain. It was the “fair” budget that was anything but; one filled with empty gestures of cuts for ministers who won’t be around to take them, while loading a burden of suffering on children too small to understand, young people too disillusioned to stay in the country, and welfare recipients too busy worrying about how they will get through this difficult Christmas. In the last budget speech the myth was that “we have turned the corner”. The year before that, it was our “call to patriotic action” and this year’s big budget myth from Finance Minister Brian Lenihan, was: “Everybody pays, and those who can pay most”. It heralded the generosity of welfare increases during the years Fianna Fáil was in power while lamenting the pain that has been taken by politicians and even bankers. Mr Lenihan boasted that his party’s “commitment to those in need stands up”. Children’s allowance was cut by F10 (or F20 for those unfortunate enough to be the third child) on top of F16 cuts already taken last year. But families should be grateful, the minister reminded us, because: “The new rates are still three times higher than they were in 1997!”. In contrast, the Government, which will see its salaries cut by slightly bigger rates — of around 6% — had shown “great forbearance” in making hard decisions. “The Taoiseach and ministers have already taken substantial reductions in their pay,” Minister Lenihan declared as the country reached for their Kleenex. While PRSI changes will bring “further cuts in their net pay” the Government has “nonetheless” decided to introduce “another reduction” in the salaries of the Taoiseach, Tánaiste and ministers. Politicians were not the only ones to whom our hearts go out in sympathy. Bank bond holders too have already “shared a burden” and “absorbed losses” the minister reminded us. And while there will be new laws to allow subordinated bond holders to take more pain “there is a limit to burden sharing” they can take. Unfortunately, this “limit” did not apply to the blind and disabled whose payments are down F8 a week. It did not apply to children who will not just face a F10 cut in the children’s allowance but a school bus increase of F50 for primary and F350 for secondary pupils, or the unwelcome extended to all new babies by an F8 cut in the sum mothers get while they take time off work for maternity leave, in what is one of the starkest examples of how women and children pay in cuts imposed by a male dominated political system. The “limit” extended to bankers did not apply to already struggling unemployed people who face a further F8 cut in their dole payments in the run up to Christmas. And all of this while F100 million is being promised for a Tralee bypass to ensure that Kerry South independent Jackie Healy Rae voted these measures through. It was clear from what was strategically leaked to last Sunday’s newspapers that the Cabinet wanted to present cuts for politicians and a F200,000 cap on public sector pay as the headline item of the budget. But, in truth, the F14,000 cut in the Taoiseach’s pay and F10,000 in ministers’ pay was nothing more than an empty gesture. The cuts will be cold comfort to people suffering around the country, particularly when the Taoiseach will still have a massive salary of F214,000. In fact, the gap between him and the poorest widens with his pay going from 13 times the minimum wage to 14 times the minimum wage. There will be no cuts to TDs’ pay, which will be protected for Fianna Fáil when they are on the opposition benches in the new year. In pedalling their big “fairness” myth, the Government was careful not to reveal too much detail in the budget — leaving much of the bad news in complicated small print. This will ensure many workers will not see the full extent of their cuts until January pay packets or in the early months of next year, perhaps when the general election has taken place. The minister claimed he created a “rational, sustainable and fair tax system”. In the run up to this budget, the cabinet and Fianna Fáil TDs were acutely aware that the only chance they had to get away with F6bn in cuts and restore some credibility was to make it appear that the burden would be shared equally. Mr Lenihan gave a good impression that they were doing so. But the penny they are throwing at the poor is likely to drop sooner rather than later. In recent weeks, the Irish people have been told about the price of everything. But the Government has been silent on the value of everything about to be lost.
workers will not see the
full extent of their cuts until January pay
Travel tax to be cut from F10 to F3 by Conall Ó Fátharta THE much criticised air travel tax is to be slashed from F10 to F3 per passenger in a bid to boost ailing tourism numbers. The measure is being introduced with a new financial incentive scheme from the Dublin Airport Authority (DAA), which will see Dublin, Cork and Shannon airports effectively waiving all airport charges for passengers once a threshold of 23.5 million passengers is reached next year. Finance Minister Brian Leni-
han said the cut in air travel tax would be introduced for one year and warned it would be increased if it was “being used by airlines as an opportunity to raise their fees and charges”. However, chief executive of Ryanair Michael O’Leary described the reduction in the air travel tax as a “half-measure” forced on the Government by the EU and would do nothing to reverse the recent decline in Irish air traffic and tourism. “It is regrettable that the Government didn’t have the balls
or vision to go the whole way and scrap this stupid tourist tax altogether, when at this new F3 level it will bring in less than F35 million per annum. While the Government reduces the tourist tax by F7, the Government-owned DAA monopoly has increased airport fees by over F11 per departing passenger over 2010 and 2011,” he said. Chief executive of the Irish Tourist Industry Confederation Eamonn McKeown welcomed the reduction in air travel tax as a “significant development”.
“When this is coupled with the DAA incentive of free landing charges for all additional new passengers produced by the carriers, this is a major incentive for the airlines to develop new routes,” he said. The Irish Hotels Federation welcomed “the strong and decisive action” in the budget to help revive the tourism sector, particularly the reduction of the air travel tax, the maintenance of levels of marketing funding at F41.5m and the retention of VAT rates.
TDs escape cuts while Cabinet still handsomely paid by Paul O’Brien Political Correspondent
Michael O’Leary: The reduction in air travel tax was a half-measure.
THE Taoiseach and ministers will remain handsomely paid even after the pay cuts in the budget. TDs, however, will not suffer any reduction. Mr Cowen is taking a pay cut of about F14,000, which will see his salary fall from F228,466 to roughly F214,000. It means the Taoiseach will continue to be better paid than British prime minister David Cameron, although Mr Cowen has led
Ireland into an EU-IMF bailout. Mr Cameron earns about F169,500 a year. The Tánaiste and ministers will also remain better paid than Mr Cameron. Mary Coughlan is taking a pay cut of circa F11,000, meaning her salary will fall from F208,526 to approximately F197,000. Ministers are taking a pay cut of around F10,000, which will see their salaries drop from F191,417 to approximately F181,000. But TDs’ pay remains untouched at F92,672 a year as Finance
Minister Brian Lenihan opted to leave their salaries alone. In addition, the Department of Finance confirmed last night the 10% pay cut for all new public service entrants will not apply to new TDs who win seats, for the first time, at the next election. Fine Gael finance spokesman Michael Noonan questioned the decisions on politicians’ pay, saying no government would have the “moral authority” to impose widespread and painful cuts if they didn’t first take deep cuts themselves. But Mr Lenihan said the changes
Fiscal council to help draw up budgets of the future by Ann Cahill Europe Correspondent FUTURE budgets will be drawn up with the help of a fiscal council of independent experts while the Department of Finance will obliged by law to work towards balancing the country’s income and expenditure. These are two of the conditions of Ireland’s F85 billion EU/IMF loan package, formally signed off by the member states’ finance ministers in Brussels yesterday. Britain succeeded in adding a clause to the conditions ensuring it and other member states have a say in the design and implementation of the stress tests on Irish banks which must be carried out by March. A number of countries have fiscal councils, including Sweden, Hungary, Slovenia, the Netherlands and Britain. They are designed to be independent bodies of experts that provide analysis of budget plans and forecasts. It would also monitor that the rules of a Fiscal Responsibility Law are being followed. This law — which was introduced in Britain last year — will set out ceilings for spending in each area of government responsibility and make it obligatory for the Department of Finance to stick to them. In Britain’s case it lays down that government debt and deficit must be reduced annually and borrowing as a percentage of GDP must be lower each year than in the previous year. The EU finance ministers have agreed to draw up standards for fiscal councils and wish to see them established in every country. According to Professor Lars Calmfors, chairman of the Swedish council “the idea is to strengthen the incentives for fiscal discipline by providing better information on the consequences of various policy decisions and on the sustainability of public finances”.
George Osborne: We know a lot more about Irish banks than we ever expected or hoped to know.
Protesters, including Mary McCafferty, far right, and Right To Work supporters, below left, demonstrate outside the Dáil at yesterday’s budget. The world’s media, above, were also in evidence yesterday.
Picture: Nick Bradshaw, Mark Stedman and Julien Behal
Youth justice to suffer swingeing cuts
High Court releases cherry-picker protester
by Cormac O’Keeffe
by Brian Kavanagh THE High Court has ordered the release of a man who was placed in custody yesterday morning following a protest in which a cherry-picker bedecked with anti-government slogans was parked outside the gates of Leinster House. Mr Justice Michael Peart made an order releasing Joe McNamara, 41, from custody after his counsel Michael O’Higgins SC argued he was being unlawfully detained.
Joe McNamara in his cherry picker: He was released from custody after counsel argued he was being unlawfully detained. McNamara, of Dún na Carraige, Blackrock, Co Galway, was remanded after being charged with dangerous driving at Dublin District Court. He reportedly owes nationalised Anglo Irish Bank F3.5m. He is also
on bail for criminal damage charges, after allegedly engaging in a similar protest involving a cement-mixer daubed with the words “Anglo Toxic Bank” at the gates of the Oireachtas last September.
SWINGEING cuts to youth justice, immigration services, legal aid and the courts, but more money for prison building, witness protection and specialist agencies are detailed in Budget 2011. Funding for the Probation Service — signalled by Justice Minister Dermot Ahern as a way of addressing the prison overcrowding crisis — is being marginally cut. However, the union representing probation officers does not think the cut will hurt and believes the planned expansion will be able to take place. Reacting, Liam Herrick of the Irish Penal Reform Trust, said: “The main problem with Irish crime policy for many years has been a wasteful overemphasis on imprisonment and an under-investment in crime prevention measures. This imbalance will be dramatically exacerbated by this budget. “The retention of most of the
Farm groups relieved at retention of supports by Joe Dermody FARM groups have reacted favourably to many aspects of the budget, notably the decision to maintain funding for core farming supports such as the Disadvantaged Areas Scheme, REPS, suckler cow welfare and forestry schemes. Irish Farmers Association president John Bryan said the budget had recognised the vital role farming, forestry and the wider agri-food sector played in driving exports and maintaining jobs. “The farm schemes — especially
Disadvantaged Areas, REPS, Suckler Cow Welfare and forestry — are vital in maintaining low-income family farms. The decision to keep them in place and to provide for a new AEOS scheme, for the 10,000 farmers leaving REPS3 in 2011, is very welcome.” Minister for Agriculture, Fisheries and Food Brendan Smith said the 11% cut in his department’s spending for 2011 was largely due to a cut in farm waste management scheme payments, F100m of the final instalment of which had been brought forward to this
reduction of 6%. The cut to ministers’ pay represents a reduction of just 5%. Sources told this paper earlier this week that the cuts would be in the range of 5% to 10% and that ministers were reluctant to take more because of a sense they would not be thanked by the public no matter how deep the reductions. While the Taoiseach is now cutting his current pay by 6% and ministers by 5%, the Cabinet is preparing legislation to cut the national minimum wage from F8.65 to F7.65 an hour — a cut of 12%.
Lenihan looks back with pride on how he handled crisis
Finance ministers meeting in Brussels yesterday added two clauses to the legal agreement on providing assistance to Ireland. One was that the Commission, with the European Central Bank, will verify at regular intervals that the economic policy conditions are fulfilled and report to the Economic and Financial Committee before each instalment is made. The second, referring to bank stress tests, said that “the Commission, working with the ECB and the IMF, intends to involve member states, as appropriate, in the design and implementation of the Prudential Liquidity Assessment and in the development of the strategy for the future structure, functioning and viability of Irish credit institutions”. The British chancellor George Osborne said they had a major interest in Irish banks in the North and Britain. He told the meeting that they now know a lot more about Irish banks than they ever expected or hoped to know. British banks are owed the biggest single amount by Irish banks, at around F109 billion, which is equal to 6.6% of that country’s GDP. Germany, Belgium, France and Spain are all expected to take a similar interest given their sizeable exposure. The agreement also left it open to any new government to make some changes, giving them until June 7 to specify the measures that will be necessary to cut the budget deficit as set out — 10.6% next year, 8.6% in 2012, 7.5% in 2013 and move on to 2.9% in 2015. “In exceptional circumstances other measures yielding comparable savings than those mentioned above shall be considered, in close consultation with the Commission,” the agreement said. Commenting on the package, Economics Commissioner Olli Rehn said it was important to note that the real economy in Ireland was recovering, with export growth and economic dynamism in the private sector representing 77.5% of the economy. In answer to a question of why senior bank bondholders were not taking losses from their holdings in Irish banks, Mr Rehn said they wanted to give a clear signal that there would be no private sector involvement in EU bailouts before 2013.
to the PRSI system — under which “certain office-holders” will face a 4% charge — would bring about “a further cut” in the take-home pay of the Taoiseach and ministers. Mr Lenihan said the latest round of cuts would mean that the Taoiseach had reduced his gross pay by over F90,000 since the economic crisis began. Ministers had reduced their gross pay by over F60,000 in the same period, he said. But it’s understood ministers were very reluctant to take deep cuts this time. The latest cut of F14,000 to the Taoiseach’s pay is an approximate
month. “Including EU funding of F1.278bn, my department’s total expenditure in 2011 will be almost F3bn. Budget 2011 recognises that the agri-food industry has a key role to play in economic recovery. The sector is very labour intensive and is a vital part of the rural economy.” However, both the IFA and the Irish Creamery Milk Suppliers (ICMSA) both criticised the tax, PRSI and social welfare changes, which they judged to be too hard on low-income families, including those in farming. The main farm
groups also said the 20% reduction in the Capital Acquisition Tax threshold would impact negatively on the transfer of family farms to young farmers. ICMSA president Jackie Cahill criticised the social welfare cuts and fuel taxes, but welcomed the AEOS and stock relief provisions. “The decision to abolish accelerated capital allowances for farm investment will necessitate increased borrowings for investment. The increase in excise duty on auto diesel is inexplicable given the drive for an export-led recovery.”
Justice points ■ Total Justice budget cut by 3%, from F2.47bn in 2010 to F2.4bn in 2011. ■ Department of Justice’s own budget down 13%, from F430m to F373m. ■ Garda budget unchanged at F1.532bn. ■ Prisons budget down 1%, from F352m to F347.6m. ■ Courts Service budget down 27%, from F152.6m to F111m.
Probation budget is very welcome; however the decision to slash the youth justice budget is short-sighted and likely to prove counter-productive.” Mr Ahern welcomed investment in key areas, including additional prison spaces, new investigation technology
for gardaí and a state-of-the-art laboratory for the State Pathology Service. But Fine Gael’s Alan Shatter said drug gangs “will be toasting” Mr Ahern following cuts in garda numbers from 14,500 to 13,500 next year. Within the total Justice budget, the Department of Justice’s own funding is significantly down (13%). The biggest losers are: legal aid (down 9%); immigration and asylum (down 17%) and youth justice (down 24%). Specialist agencies have gained, including: Data Protection Commissioner (up 21%); Criminal Assets Bureau (up 7%); Prison Inspectorate (up 14%); Garda Inspectorate (up 26%) and Cosc, the domestic and sexual violence agency (up 18%). The Probation Service budget is down 2%, with funding for community service orders unchanged. Mr Ahern wants a significant expansion in these orders as an alternative to imprisoning people for a short period.
FINANCE Minister Brian Lenihan said he looks back with pride on how he handled the economic crisis since he took office. He said he has done what none of his predecessors had to do and the Irish people were on his side. “I am very proud of the work I have done in the last three and a half years. I have faced an extraordinary financial crisis in this country. No finance minister since the foundation of the state had to deal with an equivalent crisis. “I have introduced four budgets and I think there is a huge acceptance among the Irish people of the steps that are needed now to ensure there is genuine and sustainable recovery in this economy,” he said. Mr Lenihan made his claim at a press conference held to explain the specifics of the Government’s final budget. He said it was a fair package in which those who could afford it paid the most. He defended the imposition of the full combined health and income levy on those earning less than F26,000. This will see this category of earner have their take-home pay fall by proportionally more than any other category. Mr Lenihan said this system had to be simplified. The press conference at Government Buildings began with the minister announcing the first of 34 votes scheduled to take place last night had been passed by 82 votes to 78. Mr Lenihan welcomed the fact there was an absolute majority of the Dáil in favour of the budget. He also revealed the effort to make savings in the capital budget meant the prospects of certain speculative projects going ahead had
Brian Cowen taoiseach
Salary x228,466 married, two children
assumptions: Married / spouse at home / child beneﬁt in respect of two children. gross pay net tax/levies net pay child beneﬁt difference
2010 3228,466 397,128 3131,338 33,600
2011 3214,466 387,467 3118,428 33,360 – 313,150
John Gormley leader green party
Salary x191,417 married, two children
assumptions: Married / spouse at home / child beneﬁt in respect of two children. gross pay net tax/levies net pay child beneﬁt difference
2010 3191,417 377,862 3113,555 33,600
2011 3181,417 – 3102,563 33,360 – 311,232
LENIHAN REACTION been diminished. Private sector investment was not available for the Metro North project and without it Dublin’s underground rail scheme could not go ahead. A further F800m had been stripped from the infrastructure budget, on top of the scaled back NDP announced during the summer. The national roads programme had been completed, the minister said, and further savings would be achieved from lower tendering prices. He explained the decision not to cut TDs and senators salaries by pointing to the 4% PRSI charge for office holders which they were now subject to, along with judges. Earlier, Fine Gael’s finance spokesman Michael Noonan had criticised the lack of clarity in many of the measures in the speech, in particular the unspecified income attributed to the sale of state assets. This was declared at F300m for 2011. Mr Lenihan said this did not relate to a specific publicly owned company and there were no plans to sell Bord Gáis. He said it was a conservative estimate based on the expected recommendations of Professor Colm McCarthy’s Review Group on semi-state assets. The minister indicated the Finance Bill would be ready to be debated by mid-January — the final piece of legislation required to pass before Taoiseach Brian Cowen calls a general election.
enda Kenny leader fine gael
Salary x98,424 married, three children
assumptions: Married / spouse at home / child beneﬁt in respect of three children. gross pay net tax/levies net pay child beneﬁt difference
2010 398,424 331,037 367,387 35,844
2011 398,424 – 366,400 35,364 – 31,467
eamon Gilmore leader labour
Salary x98,424 married, three children
assumptions: Married / spouse at home / child beneﬁt in respect of one child. gross pay net tax/levies net pay child beneﬁt difference
2010 398,424 335,657 362,767 35,844
2011 398,424 – 362,050 35,364 – 31,197
mary CouGhlan tÁnaiste
Salary x208,526 married, two children
assumptions: Married to a garda, two children in school.
Brian Lenihan, left, is ‘very proud’ of the work he’s done, while Michael Noonan, right, criticised the lack of clarity in many of the measures.
gross pay net tax/levies net pay child beneﬁt difference
2010 3208,526 391,379 3117,147 33,600
2011 3197,526 – 3105,946 33,360 – 311,441
Car-pooling proposal in bid to cut costs of ‘Ministerial Mercs’ by Paul O’Brien Political Correspondent
John Bryan: Farm schemes vital in maintaining low-income farms.
Mary McAleese: A carpooling arrangement is to be introduced.
A CAR-POOLING arrangement is to be introduced in a bid to reduce the costs of “Ministerial Mercs” but the Government has admitted that the detail is still to be worked out. Ministers provoked outrage when they appeared one by one in their chauffeur-driven Mercs for a budget meeting at Farmleigh earlier this year. In the budget book yesterday, Finance Minister Brian Lenihan pledged that the operational cost of the state car fleet would be reduced by
one third over the next two years. This will be done by: ■ Introducing a pooling arrangement so that former office-holders, such as ex-taoisigh and presidents, and “other users” will get a car only when they require one; ■ Reducing the number of gardaí assigned to this work on a daily basis; and ■ Opting for less powerful, and therefore less expensive, vehicles as the cars in the fleet are replaced. But the Department of Finance was unable to say last night how the new pooling system would work, and a
source at the Department of Justice admitted that the details were still to be worked out. It’s envisaged that demand on the fleet will be reduced in the first instance by pooling cars for the likes of the ex-taoisigh as well as the Director of Public Prosecutions and the Chief Justice. Those people are either mainly office-based, and do not need a dedicated car on standby all day, or in the case of retired office holders, do not undertake the same level of travel as ministers. It’s envisaged that rural-based minis-
ters will retain a dedicated car each. Dublin-based ministers are more likely to be asked to participate in the pooling system. But it is thought that a car will always be on hand to transport ministers given concerns over security. Security arrangements have been “stepped up significantly” in the last six months because of fears that ministers will be attacked, the source said. Figures released by the Department of Justice recently revealed the state car fleet costs an average of almost F5.5 million a year. In all, a total of 26 cars were provid-
ed for ministers and other current and former office-holders last year. A total of 54 armed gardaí, known as “Garda Protection Officers”, drive and protect the passengers. Meanwhile, Mr Lenihan has also said the coalition will not replace one of the Government jets which has reached the end of its lifespan. The Government currently has two jets — a Gulfstream for long-haul and a smaller Learjet for travel within Europe. The Gulfstream is at the end of its lifespan and the Government said it has “no plans to replace or repair this aircraft”.
16:44 — How will this impact on the lives of people? John Monaghan of St Vincent De Paul says the budget is “very disappointing” and will mean a cut of F8 a week, with some suffering more than that.
17:20 — We need something positive to hold on to, so I can’t help thinking that William Hill have hit a
bum note by offering a price of 100/1 that Mary Byrne will be working at Tesco by December next year.
Call to resist pressure to hike corporation tax
Americans: The chief executive of the American Chamber of Commerce in Ireland Joanne Richardson welcomed the Minister for Finance’s restated commitment to Ireland’s 12.5% corporation tax rate. “It is imperative that the Government continues to restate its commitment to maintaining the 12.5% corporation tax rate to reassure and provide certainty to Ireland’s investment community. “Given the continued debate in Europe on Ireland’s competitive tax regime, the Government must continue to stand firm on this issue and resist pressure for change from within the European Union. “Today’s budget speech recognised the importance of Ireland’s export sector to our economic recovery. The latest Forfás statistics confirm that 91% of Ireland’s exports are created by the multinational sector, emphasising the importance of foreign direct investment to Ireland’s economy. It is important that we maintain the climate which continues to attract this much needed investment to Ireland.”
GNP growth targets are fanciful at best, deceitful at worst
Brian Lenihan failed to tell the nation the detailed impact on people’s pockets
BUDGET 2011 WEDNESDAY, DECEMBER 8, 2010
WEDNESDAY, DECEMBER 8, 2010
RELAND’S domestic economy is a bit like Raftery the poet: its back to the wall, playing music to empty pockets. There is nothing in this budget to stimulate growth, making the Gross National Product (GNP) growth targets in this budget and the National Recovery Plan 2011-14 fanciful at best, deceitful at worst. This undermines the entire budget. If the growth targets are not met, then the anticipated tax yield will not materialise. It looks like the dunces of Merrion Street have got their sums wrong again and this time we will pay, sooner or later, by having to default on our burgeoning national debt. We won’t be able to pay the 5.7% interest rate on the F67.5 billion EU/IMF bailout. We will be paying F8.5 billion a year servicing the national debt by 2014 on the Government’s own projections. If the economy does not grow, we won’t be able to meet these payments and will be forced to default on the entire national debt, banks and all. Europe want us to hobble along until the rules change on screwing all bond holders in a default situation are introduced in 2013. Then, and not until then, they will make us default. That will be two years wasted and billions down the drain. Between now and 2013 Ireland will have depleted its F25 billion in cash reserves and committed the bulk of the National Pensions Reserve Fund to the banks. We will have no choice but to default, not only have the Government played bad poker with the EU they have failed to read the hand they have been dealt. Its time to face reality and get rid of the Germanimposed Stability and Growth Pact annual budget deficit target of 3% of GDP. The 3% is an arbitrary figure. Would it kill anyone if this was 5%? In a word “no”. The crafters of this budget have shown as much imagination as lighthouse whitewashers. There is nothing that gives any real hope to the hard-pressed citizenry. This savage budget will knock the stuffing out of consumers. It has been hard to separate consumers from the billions they have stashed away in low yielding bank accounts, but after yesterday’s budget the instinct to hoard will only be greater. And, those that do dip into their savings will be the families and individuals that have been forced to fall back on savings to meet day-to-day household budget requirements because of a combination of wage cuts and tax increases. The hit on ordinary taxpayers has been fierce. Finance Minister Brian Lenihan failed the test of statesmanship and manliness when he failed to tell the nation, live in his budget speech, the detailed impact on people’s pockets of the budget cuts. This has been custom and practice on Finance Minister’s budget speeches, instead he referred people to the “Summary of Budget Measures”. He bottled it, and left it to the media and others to tell people just how severe this budget is. Increasing education costs is a retrograde step and will result in people who should go to third-level institutions not getting the education their talents and this nation deserves. Many parents will not be able to afford to put their children through college, others will decide, selfishly, not to erode their standard of living to pay for their children’s education. In the 1980s during the last severe recession, there was the outlet of emigration to the US and Britain, jobs in the banks and civil service to take many of the talented who did not get to go to college. These outlets are gone for now, and those teenagers and their parents who want, and fail, to get a third level education, will never forget being left behind while their peers surge past them. It is worth noting that the IDA can only grant aid companies investing in Ireland to the same tune as other EU member states. We have a lever we can pull to make us more attractive as a location for vital foreign direct investment. It has worked well in the past and can do so again, its called education. There is no cap on investment in education and it is a well educated workforce that will in the final analysis keep this economy growing. Even if many of our graduates are leaving Ireland on the emigrant plane they are doing so with the ability to earn a decent wage and the potential to return as key movers and shakers in the years ahead. We should not be sending them away with a bitter taste in their mouth. We must now look to the future and it falls on each citizen to do what they can to make this a better place for all of us. That means working together and not having a go at each other. Ní neart go cur le chéile.
Failure to change regime is a ‘missed opportunity’ by Lenihan
Research and Development: The failure of Finance Minister Brian Lenihan to change the Research and Development (R&D) Tax Credit regime is regarded as a missed opportunity by Leyton who are nevertheless pleased that at least the regime still remains, even if unchanged. Consulting manager at Leyton, Eoin Brennan, said it is encouraging to know that they have acknowledged its significance by protecting it and not imposing any measures which could be perceived to be anti-business to the many companies who are engaged in R&D activities here in Ireland. “While the announcement will not dramatically enhance the attractiveness of the R&D Tax Credit to SMEs and large companies operating in Ireland, Leyton believes that retaining the R&D Tax Credit gives a strong signal that our Government is taking foreign direct investment and the rewarding of innovation seriously,” he said.
Eddie O’Brien Chief executive, Topaz Energy,
John Corcoran Managing director, Korky’s Shoes
HE first thing to say is that we absolutely accept that this budget was always going to have to be a tough one. The country is facing an unprecedented economic crisis and tough decisions have to be made. So, in broad terms, I welcome the general thrust of the announcement. Hopefully this will provide consumers with the certainty they want and see the economy beginning to turn a corner. However, in respect of the fuel area in particular, I’m very disappointed at the increase in excise duties on petrol and diesel — of 4 cent and 2c, respectively. There are two major problems with taxing fuels. Firstly, the amount of tax that Government levies on fuels in this country is very high, especially given the total dependence of the domestic economy on road transport. Even before yesterday’s announcement, 60% of the price of a litre of petrol was going directly to the Exchequer. This tax on transport has a direct impact on the broader economy and, through that, on economic activity. The second problem is the way in which tax on fuels is collected. Uniquely, in the whole economy, fuel companies like Topaz have to pay tax to the Government in advance of the fuel being sold — which means that there can be a significant timelag between when we pay tax to the Government and when we can collect it from our customers. No other sector has to deal with this and yesterday’s change imposes further working capital requirements on companies like ourselves. As a result, we will have to pay the additional financing costs of carrying that tax burden for the Government. — Geoff Percival
HE big minus, for us, was that the budget didn’t deal, in any way, with the ongoing commercial rent issue — which continues to be a major problem. Although, upward-only rent reviews have been scrapped for future leases, it doesn’t affect existing leases and tenants. There has been no relief for commercial property costs and rates and rents are still a concern. The economy is deflating, but those costs are not. In terms of what I think was left out of the budget — where the retail sector is concerned — I’d have to say pretty much everything. But, there is hope. It will be interesting to see what comes from any change of Government — given that Labour was the only major political party to tackle the commercial rents issue and include a call for revised legislation for existing leases. There is also hope around a resumption in consumer spending. Increases in DIRT (deposit interest retention tax) will surely act as a disincentive to leave deposits untouched, as they will shrink if left alone. Hopefully, it might get people spending some of their money; as should the revision of the stamp duty regime be an encouragement for people to buy homes. “The lowering of the air travel tax — to F3 per passenger — could also have a positive knock-on effect for people spending in the city centres. An overall positive could be that, at the very least, the Irish people are now finally seeing something being done. Although what’s being done is broadly negative, it could give longer-term confidence, as it provides a sign that there is finally someone in control and actively doing something to attempt to arrest the slide, after the paralysis we’ve seen over the past couple of years. But, in the retail sector, we could well see more casualties in the coming year. — Geoff Percival
IBEC claims measures will have implications for economic growth by Brian O’Mahony IBEC, the employer lobby group, yesterday criticised the budget for being too harsh in its implications for economic growth. “While the scale of adjustment in the budget was required, it could have been done in a way that was less damaging to economic growth and employment, it said. The group said the budget focused too heavily on raising tax revenue and cutting capital expenditure. IBEC’s director general, Danny McCoy said: “The scale of the budgetary adjustment is required, but how it is achieved is just as important.” He said more should have been done to cut current spending, which is still too high given the major fall in tax revenue. He added the scale of the public sector was out of line with the size of the economy and more action is required to tackle that imbalance. “Business is disappointed that
Fergal Brosnan Managing director, Berkley Recruitment
there is little in the budget to help job creation or to restore the competitiveness of the Irish economy. “The budget should give consumers greater certainty about their future incomes and encour- Danny McCoy: Little in budget to age a resumption of more help job creation. normal spending and saving patterns.” McCoy said that even allowing larly disappointing that the for the tough nature of the bud- budget did nothing meaningful gets the economy was still on to facilitate financing from other track to recover in 2011, thanks sources in order to offset the mainly to the good performance collapse in the Exchequer capital by the exports. He warned the budget”, he said. reduction in the employer PRSI He added that the proposed relief on pension contributions internship programme was a would cost Irish business “about good idea that would help get F90m per year at a time when graduates connected to employmany employers are already ment opportunities and limit the struggling to keep pension increase in emigration. “Business is concerned about schemes afloat”. “Cuts to some working-age the excise hike on transport welfare rates will also result in fuels. When the carbon tax is higher employment costs for added to this over coming budbusiness. Tax changes for gets it will lead to a significant employee financial involvement loss of competitiveness for Irish schemes will also be an addition- business. It would have been better to generate the revenue by al cost to employers.” The cuts in capital spending increasing the proposed property were “excessive and it is particu- tax,” he said.
HILE well flagged adjustments came to pass, it was very welcome to see both our 12.5% corporation tax reinforced again, and while not mentioned, but equally important, the continuation of the R&D Tax credit of 25%, which can be offset against Corporation Tax. This is crucial for our FDI projects going forward. In looking at how it will affect the jobs market, for those unemployed, there is a welcome focus of an additional 15,000 work schemes places, split 5,000 per the Skills Development and Internship Programme, Work Placement Programme and a new Community Work Placement Scheme. There is an opportunity to inter-link the private jobs market with state agencies, and perhaps this may be taken up at some stage by using an integrated and centralised technology platform. By going the current route, it just means people looking for employment, still need a twin track approach. Why not tie the employment agencies (licensed by the Government) to a central jobs reservoir. The PRSI incentive scheme being continued is welcome; however, I had hoped an employment retention incentive may also have been introduced. For those employed, it is welcome news for their employers that the schemes remain in tax and incentives for employment. The workforce continue to be flexible and accommodating, from adjusting salaries to taking on extra work. While the budget goes some way to helping those unemployed, the people employed are contributing their bit. Our employment glass is 87% full, not 87% empty. —Niamh Hennessy
Business Expansion Scheme to be updated if approved by Europe by Geoff Percival IMPROVEMENTS to the Business Expansion Scheme (BES), a range of work training schemes for the unemployed and a three-year exemption from corporate tax payments for start-up companies; provided some positivity for business in yesterday’s budget. Finance Minister Brian Lenihan included scope for an update to the BES programme — which is aimed at helping companies gain access to capital investment — depending on final approval from the European Commission. Once that approval is granted, the BES scheme system will become known as the Employment and Investment Incentive and will have a higher limit of how much money can be raised by companies; increasing from F2 million to F10m. The amount that can be raised in a single year will increase from F1.5m to F2.5m. Pat Burke, partner with accountancy firm, Grant Thornton, said: “The reform of the Business Expansion Scheme to increase the amount that compa-
nies can raise will be welcomed by entrepreneurs across Ireland.” The Government added that its 12.5% corporate tax rate for multinationals won’t be altered, while the temporary tax exemption for new start-ups (forming in 2011) is aimed at rewarding companies that are looking to create jobs. “Businesses need confidence and certainty — the Minister’s statement on corporate tax rates has been well received across the corporate sector in Ireland,” added Mr Burke. Some 15,000 “activation places and supports” are being provided for the unemployed, at a cost of about F200m and these will be divided between work placements, community work schemes and skills development programmes. Mr Lenihan said the government “are refocusing the National Employment Action Plan to establish clearer pathways to employment by ensuring that State agencies interact early and often with those who have lost their jobs to provide opportunities for education, training or work experience placements as appropriate”.
Tony O’Leary Managing director, DD O’Brien Ltd
HAVE to give this very qualified welcome. The budget will not necessarily damage business, but could have repercussions if it further damages what is an already weak business environment. The severe nature of the total package will do nothing to inspire confidence or to boost flagging demand in a struggling economy. My main concern is the budget did nothing to boost capital spending which was a lost opportunity. Taking just one area, the building of schools: the country is dotted with prefab buildings, many of them in very poor condition that can attract rats, and the Government could legitimately tackle that area. Young pupils are learning in an inhospitable environment and the state is paying big money to rent those prefabricated school rooms at a long-term loss. This was a lost opportunity and the budget does nothing to inspire confidence in that sense. Equally worrying is the continuing loss of jobs in the building sector. Every job lost is an additional burden on the state, as well as a huge loss of spending power in the economy. Those who work in the sector tend to be good spenders when they have money in their pockets. There is nothing at all in the budget that will help to bring an improvement in the current depressed situation. With the business on its knees I have to question the inflexibility in the building pay rates agreed in the good times. Trades people are entitled to F18.50 per hour under the last pay deal agreed under the Regulated Employment Agreement and we have no flexibility in that regard. In the current difficult situation that rate of pay is a huge burden and is making it more difficult to employ people “even if the work is there”. Another huge bone of contention in the one-hour travel time trades people are entitled to even if they are just going next door. — Brian O’Mahony
Wrong to penalise workers, while rewarding passive income
Conor Hennigan General manager, The Malton
John Moloney Managing director, Glanbia
VERALL, the budget reflects a major move by the Government to boost tourism in the country and from that perspective I welcome some of the outcomes. Even though this is a temporary solution, it was great to see the travel tax will be reduced from F10 to F3 in March which should help drive inbound tourism. The minister said this is a temporary measure, to be reviewed at the end of next year to see if it results in increased passenger traffic (not increased profits for the airlines). If it has resulted in increased traffic, it may be retained. As I am based in Kerry, Kerry Airport is particularly vital to the area so we hope this alteration will not lead to the discontinuation or reduction of the PSO next April. The proposed rebate on airport charges is good news for Dublin/Shannon/Cork but again there is concern for regional airports like Kerry. The proposed rebate is based on airlines showing an incremental increase in traffic month for same month over the next 12 months. This is good for Ireland PLC but may have negative results for regional airports. That said I believe the reduction in air tax will be more of a help to the tourism industry than a hindrance. The Government’s decision to maintain the current level of tourism marketing funding is also a positive outcome. This will help our tourism bodies maintain the focus on promoting tourism in Ireland to overseas markets, particularly the UK and US. One concern is with cuts in family income including child benefit. It will definitely have an impact peoples’ spending and his has implications for tourism. —Niamh Hennessy
Levy for online and phone betting may not succeed, warn firms
Not enough measures to help small firms, claims lobby group by Niamh Hennessy THE Government did not introduce enough measures to help small businesses but the announcements will create a certainty among firms. Small business group, ISME said the budget was a “wasted opportunity”. However, another group, the Small Firms Association (SFA) said that the budget should generate greater certainty among small businesses. Chairman of the SFA, Dr Aidan O’Boyle, said: “Now we have a plan in place to tackle our problems and hopefully the creation of a better environment for business and growth.” He welcomed the extension of the 15-day prompt payment by the end of June next year to the HSE, local authorities and state agencies. He did, however, say that the budget is not sufficient to improve consumer confidence and get people spending. ISME welcomed that the majority of adjustments will come from cuts in current expenditure
but said it is disappointed at the scale of increases in income taxes, which it said will “reduce spending, slow economic growth and pile further pressure on hard-pressed businesses”. “The decision to increase PRSI for the self-employed is incomprehensible and is an additional tax on that sector of the economy,” said ISME chairman Mark Fielding. ISME said the decision to increase excise duties on diesel and petrol flies in the face of the Government commitment to reduce costs to business. “Contrary to what was announced in the recent National Recovery Plan, little or no effort has been made to address cost-competitiveness, which makes a nonsense of the so-called business focused recovery policy,” added Mr Fielding. ISME said overall this “slash and burn” budget failed to provide a sufficient business stimulus. “By ignoring the specific concerns of SMEs, and doing little to assist, promote or incentivise
ROM the perspective of the food and in particular the dairy industry I am concerned the focus is on tax and cuts and there is no real stimulus for business. While some of the tax initiatives are helpful — for example the retention of the 12.5% corporation tax, R&D tax credits — the energy policy is still inflationary in the short to medium term, and this is operating as an export tax. In overall terms the budget strategy is deflationary — consumers will have less disposable income and therefore spend less, which is not good for the domestic food market. A small initiative, but one that is positive for farmers is the extension of stock relief — the existing general 25% stock relief for farmers and the special incentive stock relief of 100% for certain young trained farmers are being extended from 1 January 2011 for a further two years (subject to clearance with the European Commission) and should be helpful in the context of quota expansion — one of the platforms for growth in the dairy industry. Meanwhile The Restaurants Association of Ireland said the reductions in the air travel tax by 70% to F3 helps the crisis in Irish tourism and it also welcomed the 20% increase in the tourism capital programme to F24m. The association was critical of the tourism marketing fund cuts by F3m. But in relation to the reduction in the air travel tax to F3, the association said it supported the Irish Government’s significant reduction. That was a “very welcome development and is expected to act as an incentive to airlines to increase the numbers of passengers coming here”, it said. The 20% increase to the Fáilte Ireland capital programme will be used for developing tourism attractions. —Brian O’Mahony
by Geoff Percival
Aidan O’Boyle: ‘Now we have a plan to tackle our problems.’ enterprise, the area of the economy which is relied on to produce wealth and generate employment, the minister is running the risk of killing the patient,” said Mr Fielding. Dr O’Boyle said while further investment was being made into the banking system, the Government had ignored the issue of credit for small firms. “This budget has ignored the fact that many viable small businesses lack two key ingredients to access financial support from the banking system: they lack collateral because of the property bubble collapse and associated high-negative equity, and they lack a good track record over the past two to three years because of the worldwide recession.”
THE Government has introduced a 1% tax for bookmakers on revenues from online and telephone channels — but has been warned, by industry players, that such a move might not succeed. Betting services firms already pay a 1% levy on revenue from their high street/retail outlets. The concern about an online/telephone betting tax, however, is that many companies plying their trade in the Irish market are located, for tax purposes, overseas. Of all the online betting providers operating in the Irish market, only two — Paddy Power and Boyle Sports — are tax domiciled in Ireland. There is a strong fear of an uneven playing field being established by those two companies being the only ones having to pay this extra tax. Paddy Power reacted to the budget measures by claiming there is a lack of positive precedent. “Countries with deeper pockets than Ireland — such as the US, Germany and Australia — have attempted enforcement measures on international Internet opera-
tors, with very limited success,” according to Paddy Power chief executive Patrick Kennedy. “We’ve consistently said that we’d support a tax introduced on Internet betting by Irish customers, as long as it doesn’t result in an uneven playing field for domestic employers,” he said. “All of the operators servicing the Irish online market must be forced to pay this tax, irrespective of where they’re located. Any failure to enforce in full will lead to Irish-based employers being put at a competitive disadvantage, which in turn will equate to a tax on Irish jobs,” he added. Boyle Sports said it was disappointed with the tax increase, saying it put the company at “a huge disadvantage”. “We’re very concerned with how the Government is going to regulate offshore competitors who aren’t registered in Ireland and we’ll need further clarification in terms of how this new tax will be implemented and when it will come into effect. It will also have a negative effect on job creation,” a company spokesperson said.
Dirt Tax: The head of William Fry Tax Advisers, Martin Phelan, said the continued obsession with taxing deposit interests at a more favourable rate (27%), compared to active employment income (52%), begs the question of how this is stimulating the economy and will lead to job creation. “Private savings in bank deposit accounts represent dead money to the economy, especially now when our banks can’t lend. Offering a lower tax rate on savings income (without even a limit) just encourages the private citizen to save. Most of the billions of profits made by people from the property bubble are sitting dead in deposits earning millions of euro in interest and still only paying 27% tax. “Compare that to a worker who earns F50,000 and pays a top rate of 42% income tax. We are rewarding those who earn passive income and penalising those who work, surely everyone should pay the same rate of tax on income, earned or otherwise.”
Lenihan promises legislation to facilitate further burden-sharing
Bondholders: Finance Minister Brian Lenihan said legislation “to facilitate further burden-sharing” by subordinated bondholders in Irish banks will be submitted to the Dáil next week. Banks’ subordinated bondholders “have absorbed losses of about F7 billion to date,” Lenihan told the Dáil, when presenting the budget for 2011. He said that “there is a limit to burden-sharing and that Irish banks can’t unilaterally renege on senor bondholders against the wishes of our European partners and European institutions”. He said such a “course of action has never been an option during this crisis”.
Adjustment more of a growth limiter than a growth killer
Growth: Chief economist of Ulster Bank in the Republic of Ireland, Simon Barry, said it is important to point out that even a budgetary adjustment of this magnitude is more a growth limiter rather than a growth killer. “Ireland is a very small, flexible and extremely open economy with exports amounting to some 90% of Irish GDP. Indeed, with exports continuing to perform very strongly, we expect that next week’s GDP report for the third quarter will signal a return to positive quarterly economic growth. While quarterly Irish growth figures are notoriously volatile and difficult to predict, we expect to see quarterly expansion in excess of 1% in GDP terms. While some of this performance is certainly attributable to a buoyant multinational sector, we wouldn’t be surprised to see a marginally positive reading on GNP also, which would mark the first positive quarter since early 2008. “Such an outcome would serve as a timely reminder that a return to positive economic growth in a small, open economy such as Ireland has much more to do with the supportive impulses of global recovery than domestic fiscal policy,” he said.
Increases in the cost of employment are regrettable
Chamber: Cork Chamber acknowledged that difficult decisions were required in order to stabilise the public finances, saying the swift implementation of measures to build on the strengths of the economy was essential to build confidence and achieve the priorities of economic growth and employment creation. Cork Chamber president Ger O’Mahoney said: “Any increases in the cost of employment are regrettable in the current climate. We are extremely critical of the reduction by 50% of employer PRSI exemptions on pension contributions. “Also, the increase in self-employed PRSI contributions may dissuade entrepreneurs. The extension of the employer PRSI incentive scheme until the end of 2011 does however offer employers some respite.” “As called for in our pre-budget submission to Government, the chamber is pleased to see a revised and simplified Business Expansion Scheme. “The new Employment and Investment Incentive will include a greater maximum amount that can be raised by companies and will enhance the ability of growing companies to access investment.”
WEDNESDAY, DECEMBER 8, 2010
Savage blow for struggling masses Ordinary people who are barely making ends meet on a daily basis will find it even more difficult to get by now, writes David Young
ETTING down his paper after digesting the gloomy pre-budget forecast, Brian Duggan barely needed a moment to recall exactly how many jobs he’s applied for since being laid off. “167 and counting,” said the former restaurant manager. “And you know how many interviews I’ve got? Five.” The 61-year-old from Dun Laoghaire has even tried to find work as a film extra since his restaurant was forced to close two years ago. “At my age who wants to employ me?” he said sipping a coffee in Davy Byrnes, an evocative art deco pub off the city centre’s Grafton Street made famous by its mention in James Joyce’s epic Ulysses. “But I’ll get by. My wife works as a nurse and though she’s taken a big hit to her pay we’ll just about have enough to manage. Who I worry for is the low-paid workers that are being hit by the budget, it seems they’ll suffer the most while the affluent escape the pain.” Tales like Brian’s are recounted in this landmark-setting daily in Ireland 2010. Every punter pulling up a stool to the grand marble bar has been knocked by the recession in some way. “At the start of the year I made a conscious decision,” revealed pub manager Frank Doyle. “I brought the staff in and told them they needed to go out of their way to be as positive as they could. To do all they could to try and cheer people up. There’s enough depression outside the door so we try to keep it out of here.” The biting wind and sleet on the slush-covered pavements did little to lift the spirits on Dublin’s streets as Finance Minister Brian Lenihan outlined the most swingeing budget in the state’s history. The meteorological metaphors were all too obvious as the soulless grey skies unloaded on those below, but Dublin’s citizens had no interest in imagery on a day like this. Joanne Ryan, originally from Sligo, warmed her hands on her takeaway lunch carton as she took shelter on her office porch. “I am one of the unlucky ones who
Joanne Ryan, from Sligo; Nollaig Downey, from Ranelagh; Gerard Tobin shows a picture of his daughter, Kate; Paul Caswell, from Co Fermanagh; Brian Duggan, from Dún Laoghaire. Pictures: Julien Behal/ PA
Before today I was just about getting by; paying my bills. After today I’m not so sure bought their own home three years ago in the boom,” she sighed. “I’ve stopped watching the news because all I hear is one hit on homeowners after another. “Before today I was just about getting by; paying my bills and maybe going out once a month. After today I’m not so sure.” For 26-year-old council street cleaner Peter Tobin there was no escape from the bitter temperatures. “I’ve been hit in the pocket and my girlfriend is going to lose child benefit for our three-and-a-half year old Kate,” said the Dublin man. “I reckon we’ll be around F130 down
a month. We can’t cope on that.” If deprivation-hit Dublin at the turn of the 19th century provided the backdrop for Joyce’s Ulysses, today’s authors can also draw on austere inspiration. Nollaig Downey from the south Dublin suburb of Ranelagh is a clinical psychologist by profession, but writing is her hobby. “My latest story is about a man who was laid off in London and moved to the west of Ireland to try and start again so of course the economic situation gives a context,” she said, while slicing a scone in the ever popular Bewley’s coffee shop.
The mother-of-four wishes the current situation was the stuff of fiction. “I’d already taken a 14% cut off my pay before today and now it’s only going to get worse,” she said. Paul Caswell, from Co Fermanagh on the northern side of the border, lived in Dublin through the boom years of the Celtic Tiger. He left only to return three years later to find a nation turned on its head. “I moved away in 2005 at a time when Irish politicians were gallivanting around Europe lecturing everyone else as to how it supposedly should be done,” he fumed outside the elegant Georgian facade of Buswell’s Hotel, which sits in the shadow of the Dáil. “They now hold out the country’s begging bowl. “This budget is going to make the hangover from the boom last for many more years.” But while he lays blames at the Government’s door he doubts whether political change will have an impact. “I just wonder if a new government will make or even can make a difference,” he said.
Yards away the masses of protesters made their feelings clear in a variety of ways. Painter Ramie Lahy, from Co Kilkenny, did not seem concerned that his oil canvases portraying the country’s politicians as clowns were getting drenched. “The theme is the circus that is Irish politics at the moment,” he explained. “Are you selling them?” one wag shouted out as he padded by on the treacherously slippy roadside. “You couldn’t afford it,” Ramie snapped back, in words that resonated deeply. In a bizarre episode ahead of the budget announcement, brewing tension between demonstrators and gardaí was momentarily defused when waiters from the nearby five-star Shelbourne hotel delivered coffee and croissants to all those waiting outside the Dáil. In another marketing coup, a well known bookmaker had erected a number of politically themed posters. “It’s time to clean up!” they proclaimed. A placard displayed by a lone protester with no discernible commercial interest put it rather more bluntly. “Bankrupt, bollixed and bewildered!”
Leadership at last but three years too late
HE difference between passing yesterday’s budget or not equated to Ireland’s reputation moving from desperate to dysfunctional. Notwithstanding electoral peril, the body politic is shifting towards sanity. It’s official. We are depending on the kindness of strangers. Since the bailout, our external reputation matters most. There are emerging reasons to be hopeful beyond 2011. The causes of our catastrophe, cowardly and incompetent politics, may be receding. A lot of baloney has appeared about our bailout. Apparently, we should have got a lower rate than 5.83%; have declined the credit; threatened to torpedo the euro, thereby fanning the flames of contagion to other PIIGS states. Allegedly, we bent the knee to bondholders. This analysis is wholly unrealistic. Our negotiating position carried all the threat of a dead sheep. The problems of the euro require a resolution that focuses on rectifying the divergent economic performances between peripheral states and Germany. The European Central Bank and Regling’s Stabilisation Fund can resolve the immediate sovereign and banking liquidity crisis by quantitative easing. Ben Bernanke took the US economy out of intensive care by creating extra dollars. Consequent inflation and ultimate devaluation are reasonable prices to pay to avoid depression. The “default bondholders” debate is achievable by EU authorities, rather than by weakened eurozone states. If we can manage the pain in 2011, we can be rewarded with gains of a 30c/F1 multilateral discount in 2013.
IVAN YATES COMMENT COMMENT The four-year Programme for National Recovery can be reviewed annually by our EU/IMF overlords. Beyond this budget, the intentions of the next government became clearer last week. Media focus centred on contrasts between Fine Gael and Labour strategies. There are apparent differences in the respective spending cuts/taxation increases ratios of 3:1 and 1:1. The realpolitik of 13 years in opposition means pragmatism will readily overrule party principles. Government realities procure expediency. My firmest prediction for 2011 is that Pat Rabbitte will be the next minister for finance. Why? The likelihood is that FG’s post-election tally will exceed 58 seats, with Labour registering around 38 TDs. Ergo, Kenny is taoiseach and Labour gets finance. Despite titles Eamon Gilmore’s closest bedfellow is his former Democratic Left colleague. When Pat departed the leadership he facilitated Eamon’s entry to the top job. As evidenced by the Mullingar accord, Kenny and Rabbitte have a good relationship. It’s vital to a cohesive cabinet that these two officeholders gel. Opinion polls predict that the next Dáil will be unrecognisable from the
current crowd. The likeliest scenario? Fianna Fáil’s tally will halve at around 35 seats. FG can gain 10 seats, with Labour perhaps doubling that windfall. This implies up to a 20-seat majority — enough to tolerate sore-head, dissidents being pushed overboard. FF needs time to recuperate, facilitating a tactical, temporary co-operation strategy, with muted opposition, until the local/euro elections. More than 20 TDs will comprise a cohesive chorus of protest politics — through Sinn Féin, other left-wing parties and independents. Key ingredients to national economic recovery will be the leadership, courage and resolve of Kenny, Gilmore and their leading lieutenants. As they progress their tenure in the asylum (accurately described by John Gormely), they must have the bottle for battles with vested interests. Powerful public sector unions threatening strikes, local communities in mutiny over axed services, student riots, mischievous critical media, dwindling poll ratings and nervous backbenchers must all be faced down. As so often, we mirror the path of British politics. Cameron and Clegg are travelling this journey already. The outward impact of such developments will provide enormous reassurance to our creditors. Potential inward investment will be enhanced. While living standards will remain lousy and subdued, Ireland Inc. will start to climb league tables of international competitiveness, export market share and inward FDI. The vague, medium-term fiscal intentions of the present govern-
ment must be solidified. This includes broadening the tax base. Awaiting installation of meters is a cop out from the patent absurdity of free domestic water. The complexity and bureaucracy of a site valuation tax only obscures implementation of residential property taxation. A simple start would be a F200 annual charge on principal domestic residences and F500 on each additional house. Respectively these could yield in excess of F300 million.
UR banking resolution ultimately must revert to commercial entities. As Patrick Honohan has alluded, all our indigenous financial institutions are for sale. When the toxicity of balance sheets abates there will be viable lending opportunities in our economy. Business, mortgage and personal credit demand is not being serviced. Lending portfolios will contract to sustainable levels. While some foreign banks have fled Ireland, expect others to enter on the basis of less competition and enhanced margins. The domestic NAMA cash-for-thrash assets will be the most difficult residual problem for the next government, as the property prices may be anaemic for two decades. The budget represents the most odious, heavy lifting of our extended stint of fiscal rectitude. Direct reductions in incomes, be they net take-home pay or welfare, are savage for families with costly children and negative-equity homes. These broad-brush, slide-rule adjustments mirror previous prescriptions of administrative simplicity such as linear pay cuts and pension levies.
It’s time to get down and dirty by making public services efficient, productive and cost effective. A department of public sector reform must be the cornerstone of the next government’s programme. Gilmore and Co must bite the union hand that partially feeds it. The most worrying aspect of FG and Labour’s alternative budget rhetoric is the unceasing claptrap about plans to create jobs. The notion that a new generation of state corporations will create 100,000 jobs in the water, broadband or renewable energy sectors is reminiscent of 1960 policy pamphlets. Committees of politicians and advisers are hopeless at creating and sustaining viable enterprise and attracting market investment. This naivety faces obvious exposure, even ridicule, in the election campaign. These pronouncements are not credible. There is no quick fix to unemployment of more than 10%. Lenihan’s brutal budget may amount to the last sting of a dying wasp. The net effect may be to decapitate even more government TDs on polling day. Yet, in doing so, they have probably done the state some service. These measures are three years too late and are all the more severe because of undue delays. Cowen’s political epitaph may transpire to be … “having bankrupt the country, it was only decent to bury the party”. At last, belatedly, and perhaps only at the insistence of external creditors, this government has shown effective leadership. As the baton passes to opposition parties, let’s hope they don’t drop it. Otherwise we may never get out of this deepest of mires in the foreseeable future.