Finance Minister Brian Lenihan today claimed the economy will grow slightly this year as he unveiled €6bn savings in the most draconian budget in the history of the State.
"Our actions to stabilise the public finances have made progress," the minister said.
Opening his budget 2011 speech he told the Dail that the economy, as measured by gross domestic product, would increase by an average of 2.75pc by 2014.
Mr Lenihan said the country needed the help of the International Monetary Fund to break the vicious cycle that threatened the national finances and banking system.
"Without this support, there would have been serious doubts about the ability of the state to raise funds at reasonable cost to pay for key public services and to provide a functioning banking system to support economic activity," he said.
"That is the reality."
Setting out the many dramatic reforms facing workers, families and the unemployed, the minister said the old age State pension would not be touched.
But he warned over the next few years there will be further social welfare cuts.
The Budget also includes plans to make a €10 reduction in the lower and higher child benefit rates.
Households receiving a fuel allowance payment will get €40 to help fight the harsh weather conditions, at a cost of €14m.
"The Department of Social Protection is putting measures in place to roll out this additional payment as soon as possible and many households will receive this payment this year," said Mr Lenihan.
An extra 15,000 work placement and training places under existing unemployment schemes are to be introduced, at a cost of €200m.
Salaries of the Taoiseach Brian Cowen, Tanaiste (deputy prime minister) Mary Coughlan and government ministers are to be cut.
The Taoiseach's annual salary will be reduced by €14,000 with ministers taking a €10,000 cut.
Public sector worker pay will be capped at €250,000.
"Only a few office holder posts have salaries above this level at present but there is a larger number in the state agencies," said Mr Lenihan.
"While there are issues about the contractual position of incumbent post holders, I think the position of the Minister for Finance as a shareholder or statutory stakeholder in these companies can be used to enforce the objective of the maximum salary within a reasonable timeframe."
The cap will also apply to judges and the President of Ireland.
Public service pensions above €12,000 a year will be reduced by an average of 4pc while those under the watershed will be exempted.
Mr Lenihan said the cuts will apply to former political office holders, retired members of the judiciary, and their survivors or dependants.
"Reducing the income of pensioners is an exceptional measure. But these are exceptional times," he said.
Mr Lenihan also signalled a massive overhaul of the income tax system, saying the current regime is no longer fit for purpose.
The Government plans to:
- abolish the Income Levy and the Health Levy and replace both with a single Universal Social Charge.
- remove the employee PRSI (Pay Related Social Insurance) contribution ceiling;
- increase the PRSI rate for the self-employed, higher earning public servants and office holders;
- reduce the value of bands and credits by 10pc in line with overall reductions in incomes;
- tackle excessive reliefs associated with private pension provision;
- abolish or restrict many tax reliefs that higher earners use to shelter income unfairly.
Main Budget points:
- GDP to increase on average 2.75pc by 2014
- No reduction in State Pension
- €10 reduction to child benefit, with an additional €10 reduction for third child
- Taoiseach to take €14,000 pay cut
- Ministers to take €10,000 pay cut
- Cap on public service pay of €250,000
- 10pc cut in pay for new judges
- Max €250,000 salary for judges
- President's pay to be reduced to a maximum of €250,000
- 4pc cut on public service pensions above €12,000 per year
- Social welfare payments to be cut by 4pc
- No change to 12.5pc corporation tax rate
- 1pc stamp duty on all residential property transactions up €1m
- 2pc stamp duty on all residential property transactions over €1m
- Petrol duty up 4c per litre
- Diesel duty up 2c per litre
- No duty rise on cigarettes and beer
- Property-based tax reliefs to be phased out by 2014
- Travel tax reduced from €10 to €3 from March 2011 and only to remain if the airlines do not use it to raise their charges
- Car scrappage scheme extended for further six months
- VRT relief of up to €1,500 for series production hybrid and flexible fuel vehicles 2 two years to end in 2012
- VRT relief for plug-in hybrid electric vehicles will continue at up to €2,500 until end of 2012
- Income and health levies to be replaced by single universal social charge
- Those on the new reduced minimum wage will not be brought into the tax net
- Top marginal tax rate will be kept at 52pc for all taxpayers
- DIRT rate on ordinary deposit accounts increased by 2pc to 27pc
- DIRT rate on longer-term deposit accounts increased by 2pc to 30pc
- Base for Capital Acquisitions Tax is being broadened by reducing the tax-free thresholds by 20pc