Minister for Finance Brian Lenihan has unveiled one of the toughest Budgets in two decades that includes a 1 per cent levy on incomes, significant cutbacks across most Departments and a 10 per cent ministerial pay cut.
Employees who earn up to €100,100 per annum (€1,925 per week) will pay the new 1 per cent tax, while a 2 per cent levy will be imposed on the balance of all income above that level. Mr Lenihan said the levy would be “kept under review” and said it would help Ireland to return to a healthy economic situation.
“We realise the solidarity it demands of all taxpayers,” he told the Dáil. “But there is too much at stake: we all have too much to lose by not taking action now.
“This levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability to the public finances.”
Ministers, junior ministers and some senior civil servants will take a 10 per cent cut in current total pay, Mr Lenihan said. “Other public servants in leadership and senior positions may wish to consider whether it is appropriate for them to make a similar move in current circumstances,” he added.
He said the Budget would "restore order and stability in the public finances" but would "protect the most vulnerable". Cigarettes are to rise by 50 cent per packet, while 50 cent will also be added to the price of a bottle of wine. Tax on petrol will rise by 8 cent per litre, but excise on diesel will not increase.
A new airport tax of €10 per passenger will be introduced, raising €150 million per annum, Mr Lenihan said. Motor tax will rise by 4 per cent for cars with engines of up to 2.5 litres and in CO2 bands A to D. It will rise by 5 per cent for bigger vehicles.
The State pension will rise by €7 a week, while the automatic entitlement to a medical card for the over 70s will be removed. Those who do not qualify will receive a cash payment of €400 a year. Child benefit is to rise by €2 a week for those on social welfare but will be halved for 18-year-olds from January 1st. Benefit for this age group will be abolished for over 18s in 2010.
The standard rate tax band for a married couple will rise by €2,000, where both are working, while it will rise by €1,000 for a single person.
In measures affecting the property market, a €200 levy will be imposed on owners of holiday homes and second houses. Mortgage interest relief is to be increased from January 1st next for first-time buyers from 20 per cent to 25 per cent in year one and year two and to 22.5 per cent in years 3, 4 and 5. The additional relief will be available to new first-time buyers and first-time buyers who have bought a house in the last 4 years.
Mortgage interest relief for non-first-time buyers is to be cut from 20 per cent to 15 per cent from January 1st.
Mr Lenihan said a “targeted voluntary early retirement scheme” would be introduced in the health service, targeting “surplus middle management” and possibly “other surplus staff”.
A “focused review of public sector numbers” is under way and a report is due in November. The number of State bodies and agencies will reduced by 41 and a number of Army barracks will be closed.
The National Consumer Agency will be amalgamated with the Competition Authority. Longford and Monaghan Barracks, Rockhill House in Letterkenny and Lifford Military Post in Co Donegal will be closed and consolidated into existing barracks at Finner, Athlone and Dundalk. St Bricins Hospital, Dublin will also be closed.
On decentralisation, Mr Lenihan said the timeframe had been revised. “Priority elements” will proceed as planned, he added and some 2,500 had already moved. However other parts of the programme are being deferred for budgetary reasons.
Mr Lenihan said State would help those seeking affordable housing by taking an equity share in houses.
Mr Lenihan took to his feet in the Dáil at 3.45pm, saying the Budget was set against the "most challenging fiscal and economic position in a generation". He said it would "restore order and stability in the public finances" but would "protect the most vulnerable".
He said the economic downturn had “taken even the most pessimistic of commentators by surprise”. He said GNP would decline by over 1.5 per cent this year, the first decline since the early 80s and by 1 per cent next year. Unemployment will continue rise, he added.
