OPINION:The measures we have introduced are demanding but they are a necessary first step. The 2009 Budget is on track, writes Brian Lenihan
THERE IS no painless way of dealing with our current economic difficulties. The date of the Budget was brought forward to bring home to the public the gravity of the financial position which the State is in. The choices we faced in the Budget were difficult and we did not take them lightly.
Some of our decisions met with considerable resistance. We have listened, as all governments should, and, where possible, we have addressed the public's concerns while maintaining the overall framework of the Budget.
Our duty as a Government is to take account of genuine and widely-held public concern and make practical changes that will allow us to achieve our immediate objective of stabilising the public finances.
The 2009 Budget is on track. The overall budgetary arithmetic remains intact. The measures we have introduced are demanding, but they are a necessary first step to safeguard Ireland's economic future. The Government will not allow our country to become dependent on large-scale, persistent borrowing to meet day-to-day spending. We owe that much to the generations to come.
Before any Budget decisions were taken, the Government was looking at an opening Budget deficit of 8 per cent of GDP - in other words, Ireland was set to borrow some €15 billion in 2009. No Government could allow such an unsustainable position to continue.
Those who choose to invest here need to know that we can manage our way out of this downturn. In the Budget, the Government has reined in next year's deficit from 8 per cent to 6.5 per cent of GDP. That means that next year, we will be borrowing over €1,000 for every man, woman and child just to fund the day-to-day cost of running the country. It is important that we all keep that in mind.
Some have criticised us for being too timid in our approach to cutting expenditure. But deep cuts in public spending at a time of weak consumer spending could have resulted in economic stagnation. There is a balance to be struck: we cut current spending as much as we believed sensible, while maintaining capital spending at over 5 per cent of GNP, the highest rate of public investment in the EU.
Our immediate task was to stabilise the public finances. We have committed ourselves to reducing the deficit to under 3 per cent of GDP by the year 2011. Make no mistake, the Government will have to take difficult choices over the next two years, but we will do so for the common good.
In framing the Budget, the Government was determined to protect as far as possible those who are most in need. That is why we increased the State pension by €7 a week. Other social welfare payments, such as the jobseekers' allowance, the carers' allowance and the supplementary welfare allowance went up by €6.50 a week. Those who depend on these payments to make ends meet are the truly vulnerable amongst us. Those who can afford to must make sacrifices to ensure this group is protected in this difficult time.
The Budget tax measures will bring in approximately €2 billion in a full year. Some have argued that we should have taxed more and cut less. I disagree. Most of the bill for public services is picked up by the taxpayers, that is all those earning in excess of €18,000 a year. This group is being asked to contribute an additional €1.2 billion in a full year through the income levy. Those who earn the most will pay the most. The top 1 per cent of earners will account for almost one quarter of the income tax collected.
In my judgment, low taxes on labour have been a key factor in our recent economic success. Increasing the headline rate of tax at this time would endanger jobs and job creation. The economy could not have taken any further increase in taxation, such increases would have suffocated economic activity. The Budget demands that savings are made across all Government departments. Our public servants will have to do more with less. In this regard, the savings initiative introduced last July has been of benefit.
The target of €440 million this year and €1 billion next year will be achieved. Indeed, the payroll reduction intended to deliver €190 million will yield savings of €260 million, allowing us to meet the pay costs of the 2,000 extra teachers and special needs assistants taken on this year, as well as the cost of implementing the new hospital consultants' contract.
The issue of public sector reform and public sector numbers will be addressed when the Task Force on the Public Service reports in the next few weeks.
As I promised in my Budget, a focused review of staffing levels will be undertaken to assess whether the taxpayer is getting value for money and establish where reductions can be achieved.
Our economic difficulties provide the impetus to reform the way in which we do business. In the current circumstances, change is essential. The Budget started a process of change in our approach to public spending that will result in long-term savings. Over the next three years, we will consolidate that process and return the public finances to a sustainable basis.
The tax measures in the Budget will also safeguard our productive sector and foster entrepreneurship. Even in this time of rising unemployment, there is a steady flow of high quality job announcements as leading multinationals confirm their commitment to Ireland as a location of choice. Our country has come a long way since the 1980s. Even as we weather the worst downturn since that decade, we are better placed than ever before to recover and renew our economic success.
Brian Lenihan is Minister for Finance