Spending cuts will be main focus in future

FIVE-YEAR ECONOMIC PLAN:THE FOCUS in next year's budget will move from extra taxes to cuts in public spending, Minister for Finance Brian Lenihan pledged in his Budget speech.

Outlining the five-year plan for the public finances which has been agreed with the European Commission, the Minister said bringing sustainability to the public finances was the Government’s priority.

“In 2010 and 2011, the plan envisages greater reductions in expenditure than increases in revenue.

“I want to stress that the expenditure figures are the minimum that must be achieved and the figures mentioned for tax are the very maximum that can be imposed,” he said.

Mr Lenihan said in January the Government had proposed to the European Commission that we could fulfil our obligations to secure stability and growth over a five-year period.

“I am glad to report to this House that, following intensive discussions with the European Commission, agreement has been reached with the commission that five years is the appropriate timeframe for addressing our structural problems.”

To bring sustainability to the public finances, the Government was announcing a necessary multi-annual consolidation plan, he said.

“Spending reductions that the Government has decided on for 2009 to 2011 will have a cumulative full-year effect on current spending of €2.7 billion in 2010 and €4.2 billion in 2011.

Reductions in capital spending will accumulate to €1.3 billion in 2010 and €2.4 billion in 2011.

“The policy decisions underlying these reductions are already in train. They entail further reductions in pay costs, programmes and numbers.

“There is no provision for extra social spending, other than dictated by demography and unemployment. There will be a cap on capital spending and efficiencies will be found throughout the public sector,” he said.

Mr Lenihan added that savings on day-to-day spending would be made through more targeted welfare provision, further reductions in public service costs and numbers, and the wider application of charges.

Sharper targeting of programme spending and more efficient use of resources across the board would also be required.

“Difficult decisions in all areas of policy are in prospect,” said the Minister who committed the Government to taxing child benefit next year as well as looking closely at structural changes in the tax system such as the introduction of a property tax.

“In 2010, we will seek up to an additional €1.75 billion from taxation. In 2011, the target will be to raise up to an additional €1.5 billion. Options to raise this may include the taxation of child benefit, the introduction of a carbon tax, a form of property tax and significant further base broadening through the elimination of unnecessary reliefs and a review of all areas of tax exempt incomes.

“Over the later years of the five-year plan, further adjustments will be required. The scale and nature of these measures will depend to a great extent on the strength of the economic cycle. If growth is better than forecast, less will need to be done at that stage,” he said.

The Minister said that the pre-budget data published last week showed a €5 billion widening from the budget deficit projected this January.

“A correction of this amount in a full year approximates to a €3¼ billion adjustment in the part of this year which remains.”

Mr Lenihan added that the Government recognised that part of this shortfall relates to the global economic cycle and it was reasonable to expect part of the shortfall to disappear as economic activity recovered here and abroad.

“However, part of the gap between spending and revenues derives from structural problems in the public finances. We must take firm actions to eliminate these problems within a reasonable period of time.

“The problem is our expenditure base is too high and our revenue base is too low.

“If we fail, refuse or neglect to address this structural problem, we will condemn our generation and the next to the folly of excessive borrowing,” Mr Lenihan said.