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Hammered: Middle-wage bracket bears Budget brunt

Middle-income earners will be hit hardest by the toughest budget in living memory which will include the introduction of a new "universal levy" on all homeowners and a hike in the higher rate of income tax, the Sunday Independent has learned.

Information from a number of government sources this weekend revealed that people who earn more than €35,000 are to be hammered in the budget by a range of benefit cuts, service cuts and a range of tax increases.

The Sunday Independent has confirmed the level of cuts will be between €4.5bn and €5bn and not the €7bn Fine Gael's Michael Noonan said he was told by Department of Finance officials.

With less than three weeks to go before the government publishes its four-year austerity plan, it has emerged that the majority of the adjustment will come from spending cuts.

However, senior officials have confirmed that Ireland will experience lower growth between now and 2014 than expected, and the total level of correction needed will be €15bn, double the previously stated figure of €7.5bn.

Under the latest plans being discussed, the household levy of up to €200 will be charged to all 1.5 million homes around Ireland and has been designed to raise revenue until the introduction of property tax and the full roll out of water charges which won't come in until 2012 at the earliest.

"Such a plan works out at about €4 a week, which is not excessive and it is an easy way of raising revenue ahead of the property tax and water charges, which won't be ready for budget day," a senior government source told the Sunday Independent.

The Department of Finance has said it was greatly encouraged by the ease and success of the €200 levy on second homes that raised €63m last year.

It has been confirmed that the higher rate of income tax will rise by between one and two per cent, but that the lower rate will escape change because the department fears an increase would be a disincentive to work for lower-income workers.

On Thursday the Cabinet met for its latest bout of Budget meetings at which spending cuts in each department were discussed.

The three biggest spending departments -- Health, Social Protection and Education -- will between them be expected to take combined cuts of between €2.7bn and €3bn. Mary Harney's Department of Health will see a cut of €1bn, as will Eamon O Cuiv's Department of Social Protection.

Following a cut of five per cent last year, it is virtually certain that the basic social welfare will be reduced by a further five per cent.

Middle-income families will be also hit by cuts to child benefit of up to 10 per cent for larger families. The Government would save up to €246m with these reductions.

Despite assurances it won't impact on pupil-teacher ratios and special needs assistants, its budget is expected to take a hit of between €700m and €1bn.

This means extreme pressure will be put on the third-level sector, with questions rising again over the issue of student contributions.

It has also emerged that the Croke Park deal is under question this weekend, with senior sources within Mr Lenihan's department saying it is no longer viable.

Departmental sources have revealed that a voluntary redundancy scheme for thousands of public sector workers is also on the table, however there is no clear idea where the money will come from to pay for it.

The Government wants to offer big redundancy pay-offs to up to 8,000 backroom and management workers in overstaffed areas such as the Health Service Executive in a drive to reduce the €20bn public pay bill. Reducing staff in the public sector by 16,000 would save around €700m, although that does not take lost taxes or pension payments into account.

Sunday Independent