IBEC recommends public sector and social welfare cuts

IBEC has recommended the Government cut public sector pay and social welfare rates in the emergency Budget next week.

The April 2009 Supplementary Budget is the first in a series of budgets required to address the deficit in the public finances, according to the business group.

On a pre-budget basis, IBEC forecasts that the Irish economy will contract by 7.5% in 2009 and the General Budget Deficit will be 12.5%.

The group said the Government must not over-react, however, to the current deterioration in tax revenue by introducing measures which will excessively contract economic activity.

It must strike a balance between its efforts to stabilise the public finances and the need to sustain activity in the real economy.

IBEC said that a reduction of €3bn in net terms is the most the Irish economy can bear at the current point in the business cycle with two thirds of this coming from spending reductions and a third from tax increases.

Among the moves IBEC recommends is:

A 9% cut in public sector pay and pensions and on the provision of current services - yielding a gross saving of €2.1bn for the remainder of 2009.

Social welfare rates should be adjusted in line with changes in the cost of living and should therefore be reduced by 3%, resulting in savings of €400m this year.

The existing income levy should be adjusted so that it yields an additional €1.2bn for the rest of the year.

There should be no increases in corporation tax, employers PRSI , excise levies or VAT.

A reallocation of €1bn should be made from the NDP to a programme to support employment in enterprise.

In addition, IBEC believes that any increases in VAT or excise would incentivise cross-border shopping and would be counter-productive from a tax revenue perspective.