THE GOVERNMENT is expected to introduce massive cuts in social welfare, as well as a range of new taxes, in its four year economic plan to be published later today.
The plan, signed off on by the cabinet yesterday, seeks to bring the government’s Budget deficit to within 3% of Ireland’s GDP by 2014, and will introduce a total of €15bn of budget adjustments within the next four years.
The Irish Times quotes a government source indicating that the spending cuts – though significant – will not be introduced across all departments, with the old age pension likely to be safeguarded, though the welfare budget will be cut by almost €3bn in the coming years.
That move had been anticipated by the government in order to placate backbench government TDs and independents who had threatened to vote against any individual Budget in the Dáil if it included any pension cuts.
The €3bn in welfare cuts will come as part of a €10bn overall cut in government spending, with Taoiseach Brian Cowen indicating on Sunday night that the other €5bn would come from new taxes and levies.
Among the measures included to increase government revenue will be the increase of the upper income tax rate to 42% (from 41%), while tax bands will also be widened. Tax credits, meanwhile, will be cut.
Further welfare cuts are hoped to occur naturally with a drop in the numbers on the live register.
Danger to economy
Other potential measures in today’s plan could include the reform of the PRSI system to be replaced by a ‘universal social contribution’ and the introduction of some kind of property tax or levy.
The Irish Examiner expects a property tax to be introduced by means of what it terms a “local services charge”, while the public sector will see significant job losses – indicating that up to 25,000 may be laid off – while the minimum wage could be cut, if not abandoned altogether.
European economics commissioner Olli Rehn has underlined the importance of the enactment of the four year plan, saying yesterday that the ongoing bailout talks taking place between the state and the IMF and ECB were conditional on the plan being adopted.
The Financial Times reports that the European Central Bank, while welcoming the publication of the 160-page plan, had sought an austerity programme seeking billions more in adjustments than the €15bn outlined by the government.
It also quotes London investor Ted Scott as suggesting the plan “will help by reducing public spending and increasing tax revenues,” but warned that it “can only be effective if real GDP does not suffer as a result of the fiscal consolidation” – fearing that the level of the adjustments could do more harm than good.
That view is supported by the ESRI, which suggested in a report last month that €15bn in adjustments would cause the economy to remain stagnant for what it called “a lost decade”.
The scale of the financial programme has been criticised by the Irish Congress of Trade Unions, which is holding a public demonstration against the government’s austerity programme this Saturday.
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