A series of measures to stimulate the commercial property market and support exporters and multinational employers were announced yesterday in Budget 2012 by Minister for Finance Michael Noonan as a counterbalance to the €1.6 billion in extra taxes that the exchequer will seek to raise next year.
Mr Noonan also plans to introduce reliefs for mortgage holders who bought their first homes at the height of the boom.
When the tax rises announced yesterday are coupled with the €2.2 billion in expenditure cuts announced on Monday, this will bring the overall budgetary adjustment to €3.8 billion for 2012.
This is expected to reduce the general government deficit next year to 8.6 per cent of GDP from about 10.1 per cent for 2011. This will allow the State to meet the deficit target agreed with the IMF-EU-ECB troika.
Mr Noonan said the core mission of the Coalition was to get Ireland working again.
However, Labour backbencher Patrick Nulty announced his intention to vote against the Government last night over the cuts in social spending.
"It is unjust, it hits people on low and average incomes disproportionately," Mr Nulty said. "It damages our prospects of economic recovery.
"Instead of creating jobs it will lead to higher levels of unemployment and it attacks the marginalised, the sick, the elderly and young people with disabilities."
The newly elected Dublin West TD became the second Labour Deputy in less than a week to leave the parliamentary party.
The Government was under pressure from other backbenchers last night to reverse cuts in disability allowances paid to people aged 16 to 24.
Four Fine Gael TDs – Joe McHugh, Kieran O'Donnell, Simon Harris and Damien English – met Minister for Social Protection Joan Burton in the Dáil last night to express their concerns.
While a range of indirect and capital taxes were raised, the Government stuck to its pledge not to raise income taxes.
"Income tax and PRSI are taxes on jobs," Mr Noonan said yesterday. "Indirect taxes have a lower impact on economic growth and on jobs."
About 330,000 low-paid workers will no longer have to pay the universal social charge after the threshold was raised to €10,036 from €4,004 currently.
However, the Government did a U-turn on a promise to ban upward-only rent reviews, citing constitutional issues and potential compensation payments to landlords as the reason for the reversal in policy.
The Minister said a "gradual recovery" had begun to take hold in Ireland. The Department of Finance has forecast growth of 1.3 per cent in GDP in 2012.
"All forecasters agree that growth will be significantly stronger in 2013 and subsequent years," he added.
The well-flagged €100 household charge will apply from January 1st, while the top rate of VAT will rise from 21 per cent to 23 per cent.
No further increases in the top rate of VAT will be implemented during the lifetime of this Government, Mr Noonan said.
Petrol, diesel and tobacco prices increased at midnight, although the price of home heating oil will not rise until next May. Stamp duty on commercial property (including farmland) transactions was slashed from 6 per cent to a flat rate of 2 per cent from midnight.
Any commercial property deals concluded from last night until the end of 2013 will be exempt from capital gains tax if held for at least seven years by the purchaser.
Mr Noonan said he hoped this would "restore some confidence" and "renew activity" in the construction, development and property sectors.
These now contribute just 5 per cent to economic activity, compared with 20 per cent in the boom.
A number of measures were announced to support inward investment.
These include a foreign earnings deduction for exporters. This will apply to individuals who spend 60 days abroad in Brazil, Russia, India, China or South Africa developing export markets.
A package of measures will be announced in the Finance Bill next year to support the international financial services industry here, which contributes €1 billion annually in tax to the exchequer.
Additional reliefs for research and development expenditure were also unveiled and start-up companies that begin trading in the next three years will be exempt from corporate tax.
AIB and Bank of Ireland have been directed to supply €3.5 billion each in lending to small and medium-sized firms for 2012 to support "increased activity in a key sector for job creation".
Those who bought their first homes between 2004 and 2008 will get an increase to 30 per cent in their mortgage interest relief.
Mr Noonan said measures to deal with mortgage arrears would be unveiled "shortly".
Fianna Fáil's spokesman on finance Michael McGrath said it was the day that Fine Gael and Labour could "no longer hide behind the actions or decisions of the previous government".
He said the budget represented the choices made by the parties.
"The EU and IMF didn't tell this Government to cut child benefit for third and subsequent children," he said. "The EU and IMF didn't tell this Government to increase the drug payment scheme threshold to €132 per month for hard-pressed working families; the EU and IMF didn't tell the Government to cut the fuel allowance to vulnerable elderly people by six weeks; and the EU and IMF certainly didn't tell this Government to breach its own pay cap and give one of its special advisers a pay increase of €35,000."
Mr Noonan told the Dáil that the budget changed the economic strategy of the previous government to put a much greater focus on jobs and employment.
"It balances the need to restore confidence in Ireland's fiscal position with the key objective of supporting economic growth that delivers jobs," he said.
Mr Noonan said the Coalition had decided to raise revenues through a raft of indirect taxes to ensure incomes were protected and the wealthy paid their share.
"Wages and salaries in January will be no less than wages and salaries in December," he said
MAIN POINTS.
UNIVERSAL SOCIAL CHARGE exemption on annual income up to €10,036 (up from €4,004)
CIGARETTES pack of 20 up 25c
INTEREST RELIEF for 2004-2008 first-time buyers up to 30%
FIRST-TIME BUYERS in 2012 to get interest relief of 25% with other buyers getting 15%
PETROL up 1.4c a litre DIESEL up 1.6c as CARBON TAX rises to €20/tonne
MOTOR TAX rising in January with smaller CO2 efficient cars hit hardest
CAPITAL GAINS TAX up 5%
DIRT on bank savings up to 30% from 27%
