“The size of the crisis means that no one will be sheltered from the contribution that has to be made towards national recovery,” said Brian Cowen as he announced the four-year plan.
In a week where a debate raged in the Republic following an Irish Times editorial suggesting that the country had given away its sovereignty by asking for a €85 billion loan from the International Monetary Fund, the EU and Britain, the plan was announced in a bid to win approval from the EU and the IMF. Economic and Monetary Affairs Commissioner Olli Rehn welcomed the austerity package.
Spending cuts of €10 billion will include €3 billion in capital expenditure and €7 billion in current expenditure. This will include a €1.2 billion cut in the public sector wage bill, a €2.8 billion cut in social welfare and a €3 billion cut to health, education, agriculture and justice.
Tax rises will total €5 billion and will include €1.9 billion in income tax rises, €865 million in pension adjustments, €570 million in VAT increases and €530 million in land and property tax.
The minimum wage will be cut from €8.65 to €7.65, welfare expenditure reduced by €2.8 billion, a reduction in public sector pay and lowering the rate at which earners start to pay income tax. In addition, VAT will rise from 21 to 22 per cent in 2013 and up to 23 per cent in 2014, public service staff numbers will be cut by 24,750 back to 2005 levels, and new entrants will have a smaller public service pension and a 10 per cent pay cut.
Corporation tax will remain unchanged at 12.5 per cent but pension-related tax changes will yield €700 million (€240 million from public sector pension reductions). The carbon tax will increase from €15 to €30 and water charges will be introduced by 2014.
Irish ministers predict that the economy will grow by an average of 2.75 per cent from 2011 to 2014 but most commentators say this is too optimistic.
Announcing the plan, Finance Minister Brian Lenihan said it set out a “credible path to the overall aim of reducing our deficit to 3 per cent of GDP by 2014 since the gap between revenue and expenditure – €19 billion this year – is unsustainable.”
With Fianna Fáil likely to be in opposition after the general election (to be called after the 7 December Budget) and opposition parties calling for an immediate general election to allow a new government to negotiate its own four year plan and Budget with Europe, the Republic is in turmoil.
Fine Gael has said it will re-examine any IMF-EU deal if it comes to power. Its Finance spokesman Michael Noonan added that during consultations with the Commission, the party was told that while the target of 3 per cent of GDP by 2014 is “non-negotiable”. The Commission “will sit down with an incoming government to re-negotiate the specific details of the next Government’s economic strategy.” He added that the four-year plan is “disappointing in its poverty of ambition and detail.” Labour’s finance spokeswoman Joan Burton criticised the plan because it “provides a hard landing for PAYE workers and a soft landing for the friends of Fianna Fáil.”
“There is no higher tax rate for higher earners, no cap on high-level public sector pensions and no cap on public sector pay. Once again, the Government is resorting to crude cuts, rather than to reform,” she stated.
Sinn Féin’s Arthur Morgan has said the plan “is not a recovery plan but a destruction plan.”