ONE OF the toughest budgets in the history of the State, involving substantial tax increases and welfare cuts, is expected to be approved by the Dáil today following the declaration by Independent TD Michael Lowry that he will vote for the measure.
The 2011 budget will involve a €6 billion package of adjustments agreed between the Government, the European Union and the International Monetary Fund as the first instalment of the four-year National Recovery Plan.
Mr Lowry said last night that he had come to his decision after extensive consultation with the Government over the past week. The other Independent TD, Jackie Healy-Rae, was also involved in talks with the Taoiseach and is expected to back the budget as well.
“Failure to pass a budget would lead to further economic failure,” Mr Lowry said last night. “If our Government and political leaders renege on a vital condition of our agreement with the EU/IMF we will suffer irreparable reputational damage. Such an abdication of governance would attract ridicule and scorn throughout Europe and the international financial markets.”
One of the issues raised by the two Independents, which was also a focus of pressure by the Green Party Ministers during budget discussions, was the need for those at the top to give a lead by taking pay cuts.
Sources say the Taoiseach will take a pay cut of €14,000 and Ministers will also take pay cuts. Reform of the system of State cars will also take place including a pool system for Ministers based in Dublin. One of the two Government jets will be disposed of.
A cap on salaries at the top of the public service and in semi-State organisations will also be adopted as part of the budget, although there are legal problems about forcing some of the most highly paid semi-State bosses to take pay cuts.
Homeowners in negative equity who find themselves in arrears on their mortgage will not be required to pay any stamp duty if they trade down, the Government will also announce. The measure will be aimed at those who bought substantial homes at the height of the property boom and now face the prospect of having fallen behind in mortgage payments on a property that has fallen in value.
Among the key elements expected to feature in the budget are:
A reduction of about 10 per cent in tax credits and a narrowing of the income tax bands.
A cut of just close to 5 per cent in most social welfare payments.
The elimination of some of the tax advantages for pensioners but no change in the State pension.
Cuts of about 5 per cent in the pensions of public servants up to 9 per cent for those at the top of the scale.
A cut of €10 a month in child benefit for the first and second child and a cut of €20 for subsequent children.
Abolition of the €75,000 ceiling for employee PRSI contributions.
Registration fees of €2,000 for third-level colleges. Families with more than one child in college will pay a reduced fee of €1,500 for the second and subsequent children.
The elimination of a number of tax shelters including a cut in the tax exemption for pension contributions.
An increase in the excise duty on petrol.
The abolition of stamp duty for those downsizing.
The impact of the budget will be felt most keenly by taxpayers on low incomes who will be brought into the budget for the first time and by people dependent on social welfare.
At present more than 45 per cent of the workforce is outside the tax net as workers do not begin to pay tax on income of €18,300 or less. The budget reduction will aim to bring more than 60 per cent of the workforce into the tax net through a reduction in tax credits.
A narrowing of the tax bands is also expected, which will mean more people pay the higher rate of income tax. The budget is also expected to begin the process of consolidating PRSI, the health levy and the income levy into one social charge which will apply to virtually all income.
