Kenny and Gilmore square up over Budget
Row erupts as Coalition leaders involved in last-minute trade-off
A BLAZING row at the very top of Government between Taoiseach Enda Kenny and Tanaiste Eamon Gilmore erupted yesterday over a last-minute demand from Fine Gael to cut the primary social welfare rate, it has been confirmed.
The 11th hour "quid pro quo" demand from Mr Kenny's office was in response to Labour demands that a three per cent increase in the Universal Social Charge be slapped on people earning more than €100,000 a year.
According to a Government source, the FG demand was being driven by Finance Minister Michael Noonan, Mr Kenny and economic adviser Andrew McDowell.
Such are the strains on the Government that ministers may also back away from the target of €3.5bn in cuts and new taxes, with the adjustment likely to come in as low as €3.1bn.
One Government source told the Sunday Independent: "We are in difficulty. Gilmore's people believe the Parliamentary Labour Party needs the tax increase if they are to support the Budget, but the Blue Shirts say this will only be accepted if it's accompanied by a cut in social welfare rates."
Last night, battle lines were being drawn up, with one Labour minister saying bankers' pay and pensions and politicians' pay be cut to make the "horrendous cuts politically acceptable".
A party source said that "all things are being considered."
Last night, senior Labour figures responded angrily to the attempt by Fine Gael to secure cuts in the basic rate of social welfare in return for a change in the USC tax rate.
"We are not going to accept that the poorest in society should be hit for a totemic tax cut on those on incomes of €100,000," said one source.
It has emerged that Social Protection Minister Joan Burton, who believed she had finalised her package of cuts, was not told about the sudden U-turn by Fine Gael.
Senior Labour sources last night said they were not prepared to sacrifice the promise on welfare rates to achieve their desired increase in the USC for those on more than €100,000.
Apart from Ms Burton, also under fire is Health Minister James Reilly, who now cuts a very isolated figure from his Cabinet colleagues. Two senior FG ministers who spoke to this newspaper said they did not think the €900m savings needed in Dr Reilly's department were "credible".
"Look at the trouble he caused this year," said one.
Another FG minister complained that their department was forced to take an additional cut to its budget because of the failure of Dr Reilly and Ms Burton to deliver their stated targets.
"Health is in a terrible state. The concern, if we take €900m out of it, is that the whole system will collapse," said the minister.
Dr Reilly has also come under pressure from Labour and FG backbenchers and ministers over cuts to home help hours for the elderly.
Opposition leader Micheal Martin warned that Dr Reilly will "cause generational damage to the Irish health service with his plan to impose €900m of cuts".
He added: "The abject failure to collect revenue identified last year means the minister's own colleagues are finding it difficult to trust him."
Several ministers this weekend have concurred with this analysis.
The Sunday Independent has also learnt that the Troika singled out Dr Reilly and asked to see the figures on the basis that his arguments resemble what one minister called the "same old horse manure from last year that got him into the mess he is in this year".
Other measures confirmed to feature in Wednesday's Budget include:
- Cuts to benefits for the elderly and the poor including the provision of electricity, gas and free phone services. "The wealthy elderly will be asked to play their part, but this will not be a good budget for Fine Gael as our core vote will be hit hard," said one minister.
- Before the Cabinet meeting, it was unclear if the PRSI flat rate allowance of €127 a week would be abolished or half a per cent would be added to the current employee rate.
- Those caught defrauding the state will lose up to 15 per cent of their benefits.
- TDs and senators are to be hit by cuts of up to 15 per cent to their travel and subsistence allowances and expenses.
- The property tax will also be collected directly from the bank accounts of pensioners and the unemployed, but this will be done on a voluntary basis. Ms Burton told her party meeting on Wednesday that pensioners will have the option of deferring the tax until their deaths, when it will be deducted from their estate. The property tax will be collected in a number of ways. It will be collected by cheque in one payment, by cheque in instalments, by PAYE in instalments or from other State payments in instalments.
- Eager to be seen to share the blame, Michael Noonan will also move to reduce the "excessive pay and pensions" of senior bankers, but how this will happen has not been finalised.
- The Cabinet was, however, divided over the issue of a surcharge on the pensions of senior mandarins and politicians.
- In education, €90m in cuts are needed. Third-level fees are to increase again, to €2,500, while college funding is to be cut again in order to protect primary education and pupil teacher ratios.
- It is likely that Mr Noonan will include tax breaks (Real Estate Investment Trusts, REITS) for property developers to enable the development of primary care centres.
But speculation that the adjustment may be smaller than the previously stated figure of €3.5bn is the clearest illustration of the immense challenge facing the Coalition. The Government has consistently said it plans to take €3.5bn in cuts and new taxes in the Budget, but given the strain in securing agreement, the adjustment on Budget day may fall short of that, with some ministers saying the real level of cuts could be closer to €3.3bn.
One senior Government source said last night: "Depending on circumstances, the package of tax and cuts could go as low as €3.1bn. As of now it is a moving target."
Another source said: "The fact that we are ahead of the 8.6 per cent budget deficit ratio for this year means there is flexibility."