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Six steps to go forward

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Six steps to go forward


There were few major surprises in Brian Lenihan’s speech, but the pain will still be keen for many


John O’Flynn

AS the dust settled on the Minister for Finance Mr Brian Lenihan’s first Budget back in October, the overwhelming question then was if the measures announced would be sufficient to put the public finances back on track or if further corrective action would be required in the months ahead.
As the tax take continued to fall below expectations, as unemployment continued to rise and as the banks continued to struggle, it became ever more apparent that a supplementary Budget was a matter of when and not if.
On Tuesday last, Minister Lenihan delivered this Budget, which incorporated a mixture of both expenditure cuts and tax increases.

The Minister’s budget speech was encapsulated by ‘Six essential steps to renewal’. These are:
> Stabilise public finances
> Restore the damaged banking system
> Regain competitiveness
> Protect jobs and invest in retraining those who have lost jobs
> Support and stimulate economic confidence
> Restore Ireland’s reputation abroad

The Minister announced a number of measures with respect to cuts in Ministerial allowances. He also introduced a multi-annual consolidation package over five years in which public spending can be put back on track.
But how did individuals fare? The most expected measure announced was the change to the income levy. The existing levels are to be doubled and new entry rates have been announced. The new rates will be two per cent, four per cent and six per cent, and the new entry points will be €15,028, €75,036 and €174,980 per annum.

Other measures announced that will impact individuals include:
> Jobseekers’ allowance for the under twenties will be halved to €100 a week
> A free Early Childcare and Education year for pre-school children will be introduced
> Mortgage Interest Relief for principal private residences will only be available for the first seven tax years of the mortgage
> Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) will increase to 25 per cent with immediate effect
> The DIRT rate on ordinary deposit accounts will increase to 25 per cent and to 28 per cent on certain other savings products
> Health Levy rates will double to four per cent and five per cent and the entry point for the higher rate will be reduced to €1,443 per week or €75,036 per annum
> The PRSI ceiling will be raised to €1,443 per week
In addition to the above, excises on cigarettes will go up by 25 cent per packet of 20 and on auto-diesel by five cent per litre. It is interesting to note that the Minister did not increase excise duties on alcohol or petrol because of the substantial risk of loss of revenue by the purchase of these items in Northern Ireland.
Banking
Again, unsurprisingly, the Minister addressed the banking system in his speech. Two main measures were announced – firstly that the role of the Central Bank of Ireland will be reformed to place it at the centre of financial supervision and financial stability oversight.
Putting an end to much speculation around it, the Minister outlined details on a National Asset Management Agency that will be established on a statutory basis. Fundamentally, this will be where assets from the banks are transferred to – in order for the banks’ balance sheets to be strengthened and uncertainty over bad debts to be reduced. It is hoped that this will ensure a sustained flow of credit on a commercial basis to individuals, households and businesses. In total €80 to €90 billion will be transferred, although the amount paid by the agency will be significantly less than this to reflect the loss in value of the properties.
Business
Finally, a brief look at business and how it fared. The Minister again reiterated his commitment to the 12.5 per cent corporation tax, which is very welcome. Similarly, he highlighted the importance of Intellectual Property as a means of supporting the ‘Smart Economy’ and we look forward to the details on a tax relief scheme to which he referred.
It was announced that an Enterprise Stabilisation Fund worth €100 million over two years is to be set up, the purpose of which is to provide direct financial support to eligible internationally trading enterprises. This is certainly a welcome measure – again we look forward to seeing further details on this.
 
This supplementary Budget was always going to be challenging. The Minister has highlighted that significant tax changes will also come as Ireland makes its way through the five-year plan announced. As has been the case with Budget announcements in recent times, we await with vested interest the impact that these measures will have.

John O’Flynn is a Tax Partner with Deloitte

KEY CHANGES AND REACTION
INCOME LEVIES
2% on income over €15,028
4% on income over €75,036
6% on income over €174,980
“Unpleasant though it is for all of us, the increases in income levies announced today are the most effective means of raising revenue with the urgency and simplicity required.”
Turlough O’Sullivan Director General, IBEC

MOTORING
+ 5 cent – Litre of diesel
+ 1% – Levy on motor insurance
“The cost of motoring does not just affect motorists. It affects the cost of living for almost every household in the country. Fuel cost rises also add to the cost of business, affecting virtually every product and service produced in the Irish economy.” 
Conor Faughnan
Director of Policy, AA

CIGARETTES

+ 25 cents – Pack of 20 cigarettes
“ASH Ireland is very disappointed with the 25 cents increase in the price of tobacco announced in the budget statement. This approach to tobacco price runs totally contrary to the Government’s stated policy of creating a tobacco free society.” ASH Ireland

SOCIAL WELFARE
Loss of Christmas bonus payment
“Hypothermia is a major difficulty for older people, causing a number of deaths each year. Whilst this payment is termed a ‘bonus’, the fact is that older people are reliant on this additional payment to help with these additional winter costs.”
Máiréad Hayes CEO of the Irish Senior Citizens Parliament

CHILDREN
Free pre-school place for all children the year prior to joining primary school
“We have long fought for the introduction of this measure and are delighted that our calls have been heeded. Research has shown that investment in early years education is a cost-effective use of resources and has well-proven benefits to society and children, particularly those who are disadvantaged, both during childhood and into adulthood.”
Norah Gibbons Barnardos’ Director of Advocacy

AID BUDGET
- €100m
“These are difficult times for us all but it is not the time to abandon our commitment to tackling poverty and injustice. Ireland’s international standing will be damaged even further by this decision to turn its back on the world’s poorest when they need our assistance most.”
Jim Clarken Chief Executive of Oxfam Ireland

UNEMPLOYMENT
- €100 Jobseekers’ benefit for Under-20s
“The INOU believes that a more productive development would have been to introduce an integrated education, training and employment initiative supported by all required players including employers.”
Bríd O’Brien Head of Policy and Media, INOU

WHAT THE MAYO POLITICIANS SAID

“The provision of a year’s free pre-school to all children will promote equality of opportunity at the most important development stage of children’s lives. Regardless of income or ability to pay, all children will be entitled to avail of this pre-school service.”
Beverley Flynn TD FF

“This measure [National Asset Management Agency] is not designed to save developers, it is designed to increase the capability of banks and financial institutions to lend to stimulate economic growth which is vital for the future of local industry and jobs.”
Dara Calleary TD FF

“With  this  Budget, the Government has proven beyond all doubt that it does not have the vision, capacity or political credibility to lead Ireland out of the worsening economic depression that threatens to sink the hopes of an entire generation.”
Enda Kenny TD FG

“This [halving of Jobseekers’ benefit for under-20s] is appalling. A lot of unemployed 19-year-olds left school at 15 ors 16 to work in construction and now there is no work for them. The decision to halve their allowance is a desperate measure and is simply another sign that this government is completely out of touch with so many sectors of the community.”
John O’Mahony TD FG

“Brian Lenihan is placing the burden of Fianna Fáil mistakes on the backs of honest, hard-working people. For those on social welfare, they have callously cut the Christmas bonus for people who have the least to give. He has effectively cancelled Christmas for thousands of families in this county in March.”
Cllr Harry Barrett Labour

“Over the last three years the Government has spent €113 million on prefabs. The Education Minister has projected a further spend of €48 million on prefabs for 2009. The annual average cost to the Department for each prefab is €12,500. The reality for thousands of children across the country is that they will have spent their entire education in substandard accommodation.”
Cllr Thérèse Ruane SF