Irish people were tonight feeling the pain of one of the most ruthless Budgets in decades after the Government targeted everyone from the young and unemployed to workers and parents.
Finance Minister Brian Lenihan also announced plans for a controversial “bad bank” to buy up toxic debts while ordinary people were hit by across-the-board tax increases, including minimum wage workers.
Slashing cuts and tax hikes were unveiled as key drivers of a six-point economic rescue plan to reform the banks, regain competitiveness, protect jobs and restore Ireland’s battered international credibility.
“Those who have most will pay most but everybody has to give something,” Mr Lenihan said.
Mr Lenihan also revealed he will embark on a high level charm offensive around the capitals of Europe in an attempt to regain the trust and confidence of political leaders and investors.
April 2009 will be remembered as one of the most severe budget in decades.
Government TDs already fear a political backlash at the polls with the local and European elections in early June as the measures were outlined in the Dáil parliament. They include:
* An existing emergency income levy on workers to be doubled.
* Child benefit will be taxed or means-tested in future.
* Cuts for under 20s jobseekers.
* Early childcare payment abolished.
* Social welfare rates are untouched but the Christmas bonus is axed.
Officials at the Department of Finance grimly forecast that the economy will shrink by almost 8% in 2009 and unemployment will soar to 12.6% before hitting 15.5% next year.
As international markets looked on, Mr Lenihan’s Budget managed to save almost €3.5bn in cuts and taxes.
The minister also committed to raise billions of euro in revenue in 2010 and 2011 with new taxes on property and carbon emissions – widely regarded as a demand of the junior coalition partners the Green Party.
Regulation of the banking sector is also set for a massive overhaul with the setting-up of a “bad assets” agency that will buy up €90bn in bad loans handed out to property speculators and developers during the boom.
“The resolute actions we are taking to reduce the budget deficit and to boost competitiveness by driving down costs, prices and wages are needed to restore the confidence of prospective investors and foreign lenders,” Mr Lenihan said.
The 45-minute Budget speech ended with subdued applause, no standing ovation and paved the way for vicious criticism of the Government’s handling of the final years of the boom and subsequent economic downturn.
Opposition parties said the Budget was simply mopping up the mess created by several years of economic mismanagement by Fianna Fail-led coalitions.
Fine Gael finance spokesman Richard Bruton said: “We are seeing a government that is dying of shame as it faces up to its problem.”
Labour Party leader Eamon Gilmore warned the tax reforms and spending cuts would hit ordinary workers and families the hardest.
“This can best be described as a payback budget, where families on low and middle incomes are being asked to pay for 12 years of Fianna Fail financial recklessness and mismanagement of the economy,” Mr Gilmore said.
“People who pay for everything are being asked to pay again. They have already been asked to bail out the banks and now they are being asked to rescue wealthy property developers.”
Despite the major mid-year tax increases, Mr Lenihan also warned he would put further pressure on strained incomes in December as the Government eyes up new levies on property, carbon and also the child benefit.
The possibility of cuts to social welfare benefits remain an option.
The Budget also set out exactly how much extra workers were expected to pay under the new arrangements and on top of income tax.
According to Mr Lenihan;
* A minimum wage earner on about €17,500 per year, will be asked to pay €350.
* An employee on €50,000 euro a year will pay €1,500.
* A high earner on €300,000 euro per year will pay €15,655.