All pain, no gain
Finance Minister Brian Lenihan pictured during his press conference in Government Buildings after yesterday's Budget
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FINANCE Minister Brian Lenihan picked the pockets of low and middle-income earners with the brunt of his €2bn tax hikes yesterday But he failed to take tough decisions on public service reform and spending.
In a series of Budget measures, Mr Lenihan lashed those in the middle income bracket – mainly through a 1pc super levy tax on all income.
However, the most politically explosive measure was the abolition of the automatic right to a medical card for those over 70. This will affect 140,000 pensioners.
Last night there was uproar among Fianna Fail backbenchers over the measure. The issue dominated a post-Budget meeting of the FF parliamentary party. Several TDs openly expressed their strong opposition to the move. Many said they had been inundated with phone calls from angry and concerned constituents.
The 1pc super tax on income is applied on all wages, irrespective of whether a worker is low paid. There is no cut-off point.
It was estimated last night that ordinary PAYE workers on €50,000-a-year will face a cut of as much as €1,000 in their disposable incomes.
The tax changes, including the failure to increase tax credits, will cut take-home pay by €290 in a year.
But the same workers will also be hit by:
- The cut in the tax relief on mortgages for non first-time buyer;
- The hike in VAT rates, the 8c duty on petrol and higher motor tax;
- Increased excise duty on cigarettes and wine;
- And a cut in what he can be reclaimed on medical costs, the new travel tax and hikes in hospital charges.
PAYE earners also face a €200 car space tax and a doubling in betting tax.
Mr Lenihan said all sections of society would have to play their part in the drive for national recovery.
But the Cabinet's selfimposed 10pc pay cut was exposed as a publicity seeking stunt last night, as it emerged that ministers pensions will still be based on the higher salary they earned before the pay cut.
Last night a spokesman for the Department of Finance confirmed that the pensions of the ministers and most senior civil servants would not be affected by their cuts in salary.
Mr Lenihan also kicked to touch a number of major decisions.
He announced he was conducting a review on the National Pension Reserve Board and changes on child benefit are being referred to the Commission on Taxation to consider.
He reiterated that the return of third-level fees is also under review.
The troubled decentralisation plan was effectively killed off, but official final decisions on individual projects were deferred pending a review in three years time.
On the HSE redundancy programme, the minister has no specific details on numbers of staff or a timeframe. A redundancy programme in the wider public sector won't happen either until a review is conducted after the Taoiseach's Task Force on the Public Service reports back next month.
Mr Lenihan said his Budget was a plan of action for economic renewal.
“This Budget serves no vested interest. Rather, it provides an opportunity for us all to pull together and play our part according to our means so that we can secure the gains which have been the achievement of the men and women of this country. It is no less than a call to patriotic action,” he said.
The Government has also increased the rate of capital gains tax by 2pc with immediate effect. And there were signs it will get even worse in the coming years. The Government will have to find an additional €2.4bn in 2010, in spending cuts or tax increases, to meet its three-year objective of bringing the public finances back within EU rules, the official projections show.
A further €850m will have to be found in 2011, to get the general government deficit back below the 3pc of output (GDP) allowed under the rules.
Taoiseach Brian Cowen last night defended the introduction of the 1pc across-the-board levy, saying the most progressive way to deal with the situation was to bring in a full 1pc on all income. Fine Gael finance spokesman Richard Bruton accused Mr Lenihan of threatening to turn the “recession into a depression”, with the extra tax increases and stealth charges in his budget.
“The minister is raising €2bn in taxes. That is the reality. That is €2bn out of the economy.
That is making it tougher for people to get by,” he said.
Mr Bruton said the new 1pc income tax levy was going to “crucify” people on very modest incomes. “The Fianna Fail economic miracle has turned into a mirage,” he said.
Labour’s finance spokeswoman Joan Burton said PAYE workers would bear the brunt of the tax increases, particularly in the wake of the income levy.
“Middle-class and working families have not just taken a hit, they have been mugged by the minister,” she said.
Today, Mr Cowen will answer questions from the leaders of the Opposition and give his official response to the controversial Budget.
