Given plunging taxation revenues, the Finance Bill has put those who are super-wealthy more firmly in the cross-hairs, writes STEPHEN COLLINS.
THE MOST challenging fiscal and economic conditions in a generation was how Minister for Finance Brian Lenihan described the background to the Finance Bill published yesterday and he may even have been understating the case.
Never in the history of the State hasthere been such a calamitous collapse in tax revenues as has happened over the past six months. To make matters far worse, it has coincided with a savage international downturn that has the potential to turn into the worst recession since the 1930s.
Last month's Budget was drawn up in the context of rapidly deteriorating economic conditions but the Minister failed to bring public opinion along with him. That was mainly because of the medical card controversy but it also reflected a public resistance to spending cuts of any kind.
The Finance Bill contains the Budget modifications already announced and Lenihan insisted yesterday that the overall figures were still in line with the targets he announced in the Budget.
For instance, the decision to exempt people earning less than €18,304 from the 1 per cent income levy will be compensated for by the measure in the Finance Bill to impose a 3 per cent levy on those earning over €250,000.
An interesting statistic produced by the Minister at his press conference yesterday was that 20 per cent of all income tax is paid by the 12,000 or so people who earn more than €250,000.
Another significant statement by the Minister was that he was not going to take any more tax out of the economy in 2009 than the extra €1.75 billion contained in the Finance Bill. If tax revenues decline further for the rest of this year and into next year, he will not produce a supplementary budget to raise extra tax revenue but instead rely on cuts in public spending to plug the gap.
Given the furore that developed after the Budget, the question is where the Minister is going to find spending cuts, unless he tackles the most obvious but untouchable spending item of all - the public service pay bill. This item accounts for more than €20 billion a year of all State spending but Government reluctance to contain it threatens to cripple the economy in the longer run.
As time passes, the Government decision to proceed with the 2.5 per cent public sector pay increase on September 1st, without a murmur, looks like wilful recklessness. With people all across the economy - including young part-time and temporary public servants - now losing their jobs, the issue cannot be shirked in the next round of spending cuts.
As well as hitting the high-earners with the 3 per cent levy, the Minister also tried to squeeze super-wealthy tax exiles a little by tightening up residency requirements. Tax exiles can spend 183 days in the country but now the so-called "Cinderella clause", which meant that a day didn't count if they left before midnight, has been abolished.
This move is designed to show those who are bearing the brunt of cutbacks that the Government is doing what it can to deal with the unpatriotic "fat cats" who don't pay tax here. One-day visits to attend major sporting occasions or family events are currently not counted but will be in future.
The Cabinet examined the position to see if it was possible to reduce the 183-day-a-year provision for the super-wealthy tax exiles but Lenihan said yesterday that it was not possible to change it because of a range of double-taxation agreements entered into with other countries.
The 183-day provision was introduced by Bertie Ahern in 1994 during the Fianna Fáil-Labour government. At that time, he doubled the number of days tax exiles could spend here, arguing that he was bringing the law into line with international norms.
Lenihan made the point that the Finance Bill had to be seen against an economic context that was changing dramatically and with great rapidity.
"Confronted with severe budgetary pressures and negative economic growth, we face difficult choices. In making those choices, I will continue to be guided by the principles of fairness, sustainability and affordability, and by the need to put in place measures to enhance our economic performance."
The coming year will certainly test his commitment to the principles of fairness and affordability, because almost every group that suffers a cut will insist it is a victim of unfairness.
It is interesting to note how few of the well-paid chief executives of State bodies have followed the example of the Taoiseach and his Ministers by agreeing to accept a voluntary pay cut. Senator Eoghan Harris, who is not in their earnings league, has put them to shame by following the Government's lead. To be fair, Fine Gael leader Enda Kenny and most of his frontbench actually anticipated the Government's move by taking a pay cut before the Budget but it is telling that so many well-paid public officials obviously don't appear to understand the concept.
The reluctance of well-paid public servants to even grasp the concept of the call to patriotism issued by Lenihan in his Budget speech demonstrates just how difficult it is going to be to persuade the rest of society about the need to accept tough measures in the months and years ahead.
With the jobless figures inevitably going through the roof and most private sector workers who are lucky enough to hold on to their jobs being asked to endure either a pay freeze or pay cuts, the Minister will have to nerve himself to take on every vested interest that stands in the way of national recovery.
Stephen Collins is Political Editor