Plan gives confidence to spend, claims Lenihan
FINANCE Minister Brian Lenihan yesterday declared the national recovery plan would give people the "confidence to spend" – despite its €15bn in cutbacks and taxation increases.
He was speaking after the unveiling of the plan, which will reduce the spending power of consumers by cutting the hourly minimum wage by €1, increasing income tax by almost €1.9bn and increasing the VAT rate.
But Mr Lenihan described the plan as a realistic strategy for growth in the economy that would boost consumer spending.
“The certainty that the plan gives about taxation in the next four years will allow consumers to plan their investments and give them confidence to spend,” he said.
Taoiseach Brian Cowen had opened the news conference about the 140- page four-year plan in Government Buildings yesterday.
Flanked by Mr Lenihan and Green Party leader John Gormley, he said those who had the most would make the most contribution and those who had least would be protected to the greatest extent possible.
“Knowing the size of the crisis means no one can be sheltered from a contribution that has to be made towards national recovery,” he said.
Mr Cowen attempted to put the cutbacks in context for people by getting them to travel back in time. He said that people should recall their tax situation in 2006 – because the Government was trying to get tax revenues to that level again.
And he said that government spending would be reduced from the current levels to 2007 levels, and the public service would be reduced to 2005 levels.
Mr Cowen stressed the positives in the “strong, diversified” Irish economy – the well-educated population, the multinational companies, the homegrown exporters, the financial services industry and the national resources in agriculture and tourism.
“We are a smart resilient people and we are going to come through this challenge because we love our country and we want to make sure our children have a future here too,” he said.
Mr Cowen said the implementation of the plan was a matter of “generational solidarity”, but denied that the burden was actually falling on the young rather than the elderly.
Although he avoided using the word “cutbacks”, he said the Government had made €14.5bn of “adjustments” in the past two and a half years and now had to make adjustments of a similar size over the next four years. He said €6bn of the €15bn in cutbacks would be “frontloaded” (brought in straight away) in next month’s Budget.
And when asked if he was aware the plan would cause a lot of hardship to people, Mr Cowen said he was confident the Government could do it in as fair and equitable a manner as possible.
“This crisis has really hit people hard in many respects. People are trying to find a direction, a way forward, they are trying to plan for themselves and their families. It’s a very human issue for many,” he said.
Green Party leader John Gormley said the State was facing the biggest economic challenge in its history. He then claimed credit for his party for the fact that education spending would be increased rather than cut over the duration of the four-year plan.
“Spending on education is above all central to efforts to rebuild national prosperity,” he said.
The Green Party had promised third-level fees would not be introduced during its term in government.
But Mr Gormley denied that the promise in the four-year plan to raise charges for third-level students was just “fees by another name”.
In another pitch to the electorate, Mr Gormley said it was the Green Party that ensured water meters would be installed before water charges were introduced in four years’ time.
MR Lenihan dismissed the Labour Party’s policy of just cutting €4.5bn in this Budget rather than €6bn.
He said if there were not a correction of €6bn, there would be no credible way for the State to borrow to pay for social welfare, public services and the education system.
“We have to face up to that as a nation and stop pretending there are cure-all solutions that can be found in someone else’s pocket,” he said.
Mr Lenihan accepted there would be a cost of €20 per week to each taxpayer.
He defended one of the new taxation measures, the “site value tax”.
“The minimum contribution of €100 per household will be a maximum contribution for those who are most in need, pensioners and those on lower incomes,” he said.
Mr Lenihan said there would be reforms in the labour market to incentivise work and “make it worthwhile to employ and to be employed”.
He confirmed the minimum wage would be cut. He also signalled potential further wage cutbacks by saying there would be a review of employment agreements that set wages in the agriculture, catering and construction sectors to ensure they did not “endanger jobs or prevent jobs”.
Mr Lenihan acknowledged that unemployment was still “unacceptably high”.
But he declared that the economic recovery was beginning to take shape, with a small increase this year in national income (gross domestic product) and tax revenues somewhat ahead of target.
Under questioning, Mr Lenihan admitted the four-year plan did not include the potential cost of putting more money in to rescue the banks.
He said this was part of the negotiations with the IMF and EU, which are due to provide the financial loans needed.