Budget will focus on cuts, and not re-igniting economy
THE prospect of Finance Minister Brian Lenihan trying to re-ignite the economy with VAT cuts and car scrappage-type schemes appeared increasingly remote last night.
Ministers had raised hopes that special incentives to get people to start spending instead of saving would be included in the forthcoming Budget.
But Department of Finance sources last night made it clear there was no money available for these types of schemes.
They said the focus would remain firmly on €3bn in cuts and increased taxation.
Justice Minister Dermot Ahern had earlier raised hopes of an economic stimulus package by talking about the fact that the level of saving had risen from 4pc to 12pc.
"What we need to do as a nation is to get those people who are saving their money to spend their money in the economy. You have seen that in some areas, like in the motor industry and and some areas in retail where there has been some increase," he said after ministers met at Farmleigh to discuss ways of securing €3bn in savings in the next Budget.
However, a spokesman for Mr Ahern said he was merely reflecting the views of economists who had noted the increase in the saving rate -- and was not arguing for an economic stimulus package.
The Department of Finance has repeatedly said the State does not have the resources to afford an economic stimulus package such as the $787bn (€620bn) stimulus announced by US President Barack Obama last year.
Taoiseach Brian Cowen also spoke yesterday about the need to boost domestic spending, but he did not indicate that there would be any lowering of tax rates in the Budget.
"We're looking at adjustments on the expenditure side but at the end of the day, it'll be a matter for the Minister for Finance to decide on any taxation measures in any budgetary situation," he said.
Mr Cowen made it clear yesterday that the Government would be still aiming to reduce the deficit in the public finances by €3bn rather than following the ESRI think-tank's recommendation to consider an even tougher cost-cutting Budget.
The Government is set to turn its attention to state agencies, nicknamed quangos, as part of its efforts to find savings in current spending.
Around 43 of them were specifically identified for merger or closure by the An Bord Snip Nua group, but most survived last December's Budget.
Junior minister for labour affairs Dara Calleary, said a reduction of the 500 or so agencies was on the agenda.
"We have to ask: 'Is its role still relevant in Ireland in 2010?', 'What is it actually doing to serve the citizens of the country?', and come back with answers," he said.
The Cabinet still has some minor details to finalise on the €40bn, five-year capital spending programme before it is officially launched.
It will contain approximately €1bn of spending cuts on planned infrastructure projects-- with the other €2bn coming from current spending cutbacks and increased taxation.
The Cabinet is due to meet again next Monday before going on its summer break.
Mr Lenihan said it was important to be clear that the "key objective" was to continue to meet the target of reducing the deficit in the public finances.
"Side by side with that, we have to take measures to promote and secure confidence in the economy and we also have to do everything in our power to increase jobs and to tackle the problems of those without jobs."
Fine Gael finance spokesman Michael Noonan said that the Government had to provide a functioning banking system, a reduction in high business costs and new jobs policies, as well as cutting €3bn.
"Unless effective labour market policies are put in place, the next few years will see an appalling combination of high emigration, and high levels of long-term unemployment."
Sinn Fein finance spokesman Arthur Morgan described the all-day cabinet meeting on the Budget as a "farce".
"This Government hasn't one shred of credibility on the economy and yet it is planning to cut another €3bn from the Budget.
"Based on the Government's record it will be the least well-off who will once again suffer the brunt of the cuts while multi-millionaires get off scot-free," he said.