€2bn cuts: Cowen lays it on the line
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Wednesday February 04 2009
TAOISEACH Brian Cowen ploughed ahead with €2bn spending cuts yesterday as public finances continued to deteriorate rapidly and record numbers of people joined the dole queues.
After the collapse of the social partnership talks, Mr Cowen forced in a new pension levy for 350,000 public sector workers and froze their pay.
The average public sector worker, on €45,000 a year, will now pay €62.50 a week into their pension fund.
The levy will come into effect next month.
However, the spectre of industrial unrest looms as public sector workers feel the impact of the downturn for the first time, with some unions threatening action over the "double whammy" of cuts.
The frightening pace of job losses in the private sector will be highlighted again today, when new live register figures confirm a record 300,000 people are now signing on.
The Government is also poised to put €8bn of taxpayers' funds into the country's two main banks.
Yet, to bridge the gap in the public finances, ministers took away the early childcare allowance from the parents of some 30,000 children.
Payment of the allowance for the remaining 350,000 children will now be cut off once the child turns five, and the amount handed out will be cut from €1,100 to €1,000 a year.
It is the second reduction in the early childcare supplement in recent months, after Finance Minister Brian Lenihan initially decreased the threshold from the age of six to five-and-a-half in his October Budget.
In a televised address to the nation, Mr Cowen outlined the full range of spending cuts in the Dail after consulting his Cabinet, which also included adjustments to the National Development Plan as well as a cut in the overseas aid budget. Just as the Taoiseach announced his plans, Exchequer returns for January revealed that tax revenue was €875m, or 20pc lower than the same month last year.
The drop means a €750m hole has already opened up, even though January is normally a buoyant month for taxes.
Deferring
Aside from the imposition of an extra pension levy of up to 9.6pc, Mr Cowen is also deferring pay rises due under the national pay deal.
Outlining the seriousness of the financial situation, the Taoiseach said that the Government was borrowing €4,500 a day for every man, woman and child in the country.
"Today we are starting the fight back," he said.
Mr Cowen said the pension levy was "an unpalatable decision and it's one that people will not immediately welcome", but it was necessary.
"Knowing that if we don't make these necessary decisions, if we defer them, if we don't have the commitment to take these necessary decisions, we go back to that cycle we saw in the past, in the 1980s and previous generations -- higher unemployment, higher taxes, uncompetitive economy, more job losses and even forced emigration.
"We don't want to go back there," he said.
The Taoiseach said the alternative to a pension levy was a pay cut, which would have affected the pensions of retired public sector workers.
He confirmed that senior politicians and public servants, who already took a 10pc pay cut, will also have to pay the levy.
"People in leadership positions have to lead from the front. Obviously, I'm on a high enough income to do that," he added.
But after Mr Cowen pressed ahead with the pension levy, a number of disgruntled unions told the Irish Independent they were considering industrial action.
The Irish Congress of Trade Unions (ICTU) said it would not take a decision on its response to the measures to cut €1.4bn off the public sector payroll until it meets.
The prospect of a trade union backlash began after the head of the trade union movement, David Begg, warned there would have been a "revolution" if they had accepted the deal.
Mr Cowen insisted social partnership was not dead, despite the collapse of talks at 4am over the levy, and promised to continue to deal with the unions.
"I'd hope to avoid industrial action because industrial action does not bring a win for anybody," he added.
The Taoiseach left some wriggle room last night, when he said he would negotiate changes with the unions on the pension levy, provided the measure still brought in the targeted €1.4bn.
"If there was a tweaking that would help to bring them onside, of course I would listen attentively to that," Mr Cowen said.
Reductions
The Taoiseach also promised reductions in energy prices and a statutory code for banks, so that people at risk of losing their homes would be protected.
He admitted that he would only achieve €1.8bn in savings this year, due to the changes only applying to the final nine months of 2009.
But the full year saving was €2.1bn
The opposition attacked Mr Cowen, saying the collapse of the talks raised further questions about his handling of the economic crisis.
The Cabinet also yesterday paved the way for €8bn of taxpayers money to be pumped into Allied Irish Bank and Bank of Ireland.
Ministers passed amendments to legislation so the National Pension Reserve Fund coffers can be tapped for the recapitalisation.
Minister Lenihan said the €2bn spending cut would ensure "that Ireland pays its way in the world again".
"Our State is living beyond its means," he added, and it was not open to it to pay for current spending by day-to-day borrowing.
Fine Gael finance spokesman Richard Bruton said the decisions taken were not a fair or balanced set of proposals.
"They haven't thought this through, and we don't have a strategy that will carry us through the next five years," he said.
- Fionnan Sheahan, Michael Brennan and Anne-Marie Walsh
