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Lenihan makes 'down payment' on nation's future


FINANCE Minister Brian Lenihan yesterday insisted his savage cost-cutting Budget was a "substantial down payment" on the country's journey back to economic health.

But despite his claim that there were "clear signs of hope" for the future, he admitted that this was a traumatic and worrying time for citizens.

Mr Lenihan began his 7,200-word speech by trying to emphasise the positive.

He said tax revenues were ahead of target, exports were growing strongly and conditions in the labour market were stabilising -- although he did not mention the current unemployment figure of 425,000.

"These data taken together paint a picture of an economy that is returning to growth after a deep and prolonged recession," he said.

And although some economists have cast doubt over the economy's potential to grow next year, Mr Lenihan stuck by the predictions made by his department that national income would grow by 2.75pc in 2011.

He confirmed that there would be €6bn worth of taxation increases and spending cuts in his Budget -- as had been detailed in the four-year plan last month.

"The scale of this adjustment is demanding but it demonstrates the seriousness of our intent," he said.

Mr Lenihan then sought to justify the Government's decisions, saying it had increased public spending by 140pc, doubled the state pension and increased the percentage of workers exempt from income tax from 34pc to 45pc in the 2000-2008 period.

"All of this was made possible by the very large property-related tax intake during the boom years. In our dramatically changed budgetary circumstances, it is clear the State can no longer afford this level of social provision," he said.

As expected, Mr Lenihan announced there would be no cutbacks to the state pension.

"We have significantly increased the state pension over the last 10 years and it is the Government's view that the security this has brought to older people should be preserved," he said.

There was no response to this announcement from Fianna Fail backbenchers who had lobbied for pensioners to be left untouched.

The minister did not refer to the decision in his Budget to cut the age-exemption tax credit for older people over 65 -- which will see them pay more tax.

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He also refrained from specifically announcing the cuts to maternity benefits, the blind person's pension, the disability allowance and the carer's allowance.

But he confirmed that most social welfare payments -- such as jobseekers' allowance -- would be cut by 4pc.

"Regrettable as they are, the impact of the reductions is lessened by continued low inflation. The fact is we have built up a generous level of welfare provision over the last decade and though they must now be reduced somewhat, our record of commitment to those in need stands up," he said.

Mr Lenihan also confirmed that he would be cutting child benefit rates for the second Budget in a row.

He said there would be a €10 reduction on both lower and higher child benefit rates, with an additional €10 reduction for a third child only.

But in a rare 'good news' announcement, he said he would give €40 extra to families currently receiving the fuel allowance "in view of the harsh weather conditions experienced in recent weeks".

Mr Lenihan announced three new initiatives, at a cost of €200m, for some of the 425,000 people who are unemployed. They included 5,000 private-sector internships, 5,000 work placements in the public sector and a further 5,000 work placements in the community.

"We know from the 1980s the importance of equipping the unemployed with skills and keeping them close to the labour market," he said.

Mr Lenihan then moved onto the subject of the public sector, which he praised for making a "substantial contribution" to national recovery.

However, he warned that the Government would only stick to the Croke Park Agreement if the "reductions" promised by the unions were delivered.

The minister highlighted the Government's attempt to lead by example when he said that the salary of Taoiseach Brian Cowen would be reduced by €14,000 (to €214,000) and the salaries of ministers by €10,000 (to €181,000).

Pensions for all retired public sector workers, including ministers and judges, would also be cut by 4pc.

Furthermore, Mr Lenihan said there would be a salary cap in the public sector to ensure that nobody earned more than €250,000 --including the new president, who will be elected next year.

Mr Lenihan unveiled a range of measures to increase the amount of income tax collected.

These included a reduction in tax bands and credits by 10pc and a new 'universal social charge' of 7pc to replace the income levy and the health levy. And the rate of DIRT tax on standard savings accounts was raised from 25pc to 27pc.

In a surprise move, he announced that there would be a flat 1pc rate of stamp duty for all property buyers. Previously, it was 7pc above a €125,000 threshold, with first-time buyers exempted.

Mr Lenihan announced a significant U-turn on his 2008 decision to bring in an air-travel tax. He acknowledged that it had been blamed for reducing visitor numbers and cut it from €10 to €3.

Although he said excise duty would increase the cost of a litre of petrol by 4c and a litre of diesel by 2c, there were no rises in the 'old reliables' of alcohol and cigarettes.

Mr Lenihan defended the Government's banking policy, saying that bank shareholders and sub-ordinated bondholders had been forced to absorb tens of billions of losses.

But he admitted that the State would soon own "the bulk of the banking system" due to its injection of capital to make up for their losses of €70bn-€80bn.

"Loan losses on this scale are unforgiveable. They reflect the recklessness of lending decisions during the bubble years and the weakness of the previous regulatory framework. We must ensure they never happen again," said Mr Lenihan.

He indicated that EU members would not allow the State to impose losses on the "senior bondholders" who lent money to the banks.

"There is simply no way this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of our European partners and the European institutions. That course of action has never been an option during this crisis," he said.

Mr Lenihan admitted that the Government itself had made mistakes but his next comment had Fine Gael leader Enda Kenny shaking his head.

"The Government has accepted that analysis: more should have been done to counter imbalances in our economy.

"I do not know if any alternative government would have done better," he said.

Last year, Mr Lenihan concluded his budget speech by declaring that the country had "turned the corner". But this time, he had to temper his natural tendency to be optimistic.

He said the Budget was the country's first step in ensuring that we can get back firmly on our own feet. There was every reason, he said, to be confident about the future "if we only have confidence in ourselves".

The Fianna Fail backbenchers stayed in their seat and although most of them clapped him, not all of them joined in the applause.

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