Monday 24 July 2017

Take your medicine

Fionnan Sheahan and Brendan Keenan

THE Government will today unleash the harshest Budget in decades with a 1pc 'super tax' on income among a string of swingeing measures.

But even as Finance Minister Brian Lenihan was putting the finishing touches to his package, experts forecast he would face an additional €3bn shortfall as the economy continues to shrink dramatically.

The 'super tax' -- which will rise to 2pc for higher earners -- will hit all taxpayers and will be deducted from gross income. It differs from a straight increase in income tax rates because it is applied on all earnings and no tax free allowance, bands or credits apply.

Nobody will be spared the brunt of the cuts, but working families face having to swallow the harshest medicine as take-home pay is expected to bear the brunt of the toughest Budget in a generation.

Facing a €15bn black hole in the public finances, Mr Lenihan is looking at a range of spending cutbacks and increases in taxes and charges in Budget 2009. These are likely to include:

> A 30c rise on the price of a packet of cigarettes.

> Additional rises in the tax on alcohol and gambling.

> A €10 charge on every airline ticket.

> Curbing of temporary teachers as part of education cuts.

> Medical cards for those aged over 70 to be means tested.

> The merging of between 15 and 25 State agency quangos.

> PRSI reform to increase payments by higher earners.

> Child benefit and childhood allowance cuts.

> Ministerial pay cuts.

> Pension tax relief slashed.

> Redundancies in the HSE and the public sector.

> The doubling of college registration fees.

> Sports and arts funding cuts.

> Closure of army barracks.

> Scrapping of some agricultural grants.

> Slashing garda overtime.

Middle income earners are predicted to be hardest hit by the squeeze as tax bands and credits are unlikely to be increased and additional taxes on wages will also be applied.

Among the cutbacks is a curtailment of the childcare assistance payment made to parents for all children under six. It is predicted that the payment will stop when the child reaches about five years of age.

The Government is trying to avoid cutting frontline services, but the failure to keep spending increases in line with inflation will result in inevitable cutbacks.

Education is expected to be one such loser with cutbacks likely to mean bigger primary class sizes.

In the agriculture sector, the suckler cow welfare scheme, introduced this year, is also expected to be scrapped to save up to €80m a year.

Today's Budget has been framed in the face of the most difficult conditions in living memory, Mr Lenihan said last night. The first and foremost aim of today's package of measures would be to stabilise the financial position of the State in the face of that horror background, he said.

But new forecasts from the research arm of Davy Stockbrokers claim that the Government is still being too optimistic about the state of the public finances.

Predicting that the economy will shrink by 3.4pc next year, Davy said the gap between spending and revenue next year would be €18.5bn, rather than the €15.5bn estimated by the Government.

In his Budget, Mr Lenihan is expected to reduce that deficit to a target of €12.5bn, through a mixture of spending curbs and tax rises. But a severe recession could mean the targets fall short again, unless further corrective action is taken.

The minister said the Government had looked at every facet of public spending costs across the board, not just in payroll, but in consultants, advertising, and schemes in all departments.

"We've tried to adjust expectations," the minister said on 'RTE Six One News', adding that existing conditions were "the most difficult in living memory".

Mr Lenihan said taxation was needed to meet the cost of public services.

"Tax adjustments are also needed to promote sustainability in our economy," he added, raising the clear prospect of an increased revenue drive across the board.

The minister said the only department to escape savage cuts would be Social and Family Affairs, the administrators of welfare payments.

Mr Lenihan said: "We must protect the vulnerable. That is a vital aim in any Budget, but especially this Budget." It is thought that savings will instead be made elsewhere in the department.

Transport Minister Noel Dempsey last night signalled that high earners would be targeted with tax hikes in today's crunch Budget.

"It is going to be a tough Budget. There is no question or doubt at all about that. There is a very big gap as people have seen -- about €15bn of a gap currently. We've had to make cuts to tighten that gap," he said.

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