Budget to cut €277m from child allowance

CHILD allowance cuts of at least €277m are looming, Brian Cowen signalled as the Government braced the country for a savage budget.

The Taoiseach appeared to reveal how deep impending reductions to the benefit would go when he indicated that ring- fencing the family payment as well as restoring the €223m welfare Christmas bonus would mean the state needed to find savings of €500m elsewhere.

The move came as Finance Minister Brian Lenihan insisted €4bn worth of spending cuts are unavoidable as pre-budget estimates showed the economy in dire straits, though facing a slightly less pessimistic future than projected.

Mr Lenihan said he had the support of Fianna Fáil TDs in cutting welfare payments as he warned doing nothing would add €2bn to dole payments and benefit spending, resulting in “colossal” borrowing levels. The minister tried to soften up opinion by saying living costs had fallen by 4%-7% this year as he again indicated deep public sector pay cuts were on the cards.

“You cannot escalate the cost of public services at the expense of others in the community,” he said.

Mr Lenihan said unemployment would stay “stubbornly high” but peak at 13.75% (481,000) next year, lower than the previous 15.5% (540,000) prediction in April.

Mr Lenihan said the budget deficit would stay at 12%, despite the €4bn cuts, the EU limit on state borrowing of 3%.

The Finance Department predicts the economy may contract by 1.5% in 2010, compared with a drop of 7.5% this year. But Ireland will not experience even sluggish growth until 2011.

Mr Lenihan indicated that if the EU offered to let Ireland sort out its finances in six years rather than five he would agree.

Labour attacked the pre-budget proposals for lacking any hint of job creation initiatives, and Fine Gael said the €2.5bn child allowance bill could be preserved by targeting other savings.