UNEMPLOYMENT could reach more than 10 per cent with over 120,000 people losing their jobs this year and in 2010, the Government has warned.
In a document outlining a proposed path to economic recovery, the Government is seeking a mix of spending cuts and tax increases to head off the “profound risks” facing the economy.
The Draft Framework for a Pact for Stabilisation, Social Solidarity and Economic Renewalis being used as the basis for talks between the Government and employers, unions and the other social partners.
The document, which seeks agreement on €2 billion of cuts in exchequer spending this year, says national income could fall by up to 10 per cent over the 2008 to 2010 period.
It says that tax revenue last year came in at more than €8 billion below expectations and a further fall is projected for this year, “creating an unsustainable exchequer deficit”.
The document warns that without further adjustments, there will be “a general Government deficit in the range of 11 to 12 per cent of GDP for each year up to 2013”.
It states that “failure to implement radical decisions has the potential to erode national and international confidence in the Irish economy with profound risks for all sectors of Irish society”.
In the document the social partners agree on the need to progressively reduce the level of exchequer borrowing over the coming five years to bring the general Government deficit to below 3 per cent by 2013.
It says this should come about through a mix of spending cuts and tax rises. The document notes that all sectors of society should contribute to the recovery programme according to their ability to do so.
However, it says that the most vulnerable – the low-paid, unemployed and social welfare recipients – should be insulated against the worst effects of the recession.
The document states that the Government is also to introduce measures to assist those with mortgage arrears.
It also signals significant changes in taxation.
The Government is to change the terms of reference of the Commission on Taxation “to identify appropriate options to raise tax revenue and complete its report by September 2009”, it proposes.
Union leaders have said the commission has a mandate to retain a low-tax environment.
The framework document says that taxation changes should be introduced on a fair and equitable basis “with the higher proportion falling on higher incomes while minimising distortionary effects between forms of tax”.
As a means of showing that the recovery burden is to be shared equitably the Government is to introduce controls on top-level executive pay, the document indicates.
It states that in a bid to maximise economic activity and employment, the Government is to introduce a fiscal stimulus in 2009 and 2010 by maintaining capital investment at a high level.
The Government will also address serious and urgent difficulties facing private sector pension schemes.