Welfare cuts on cards under bailout targets

THE Government faces having to cut social welfare as part of a range of tough targets that must be included in December’s budget.

The updated memorandum of understanding with the EU and IMF, published yesterday, sets out measures such as social welfare cuts and mechanisms to raise more taxes — including a lowering of personal income tax bands and credits.

The EU and IMF believe €1.5 billion will be raised from higher taxation, and €2.1bn from spending cuts.

The document, posted on the Department of Finance website, says there will be a reduction in private pension tax reliefs, a property tax and reform of capital gains and capital acquisition tax.

It confirms an increase in the carbon tax.

There will be a cut in public service worker levels and public service pension reductions.

The document also says the Government should, by the end of October, present a pre-budget outlook to the Dáil, setting out a medium-term fiscal consolidation plan for 2012-2015.

This will outline revenue and expenditure adjustments for each year of the plan, consistent with targets set.

Spending cuts will include social expenditure reductions. A passage relating specifically to the Department of Social Protection says it must produce a report before the end of the year on progress in attempts to reform disability allowance and child income support.

The document also addressed the issue of ailing credit unions.

It says the operations of credit unions worst-affected by rising arrears and subdued lending will be restricted in a bid to underpin the solvency of the sector.

Ireland will have to restructure the credit union sector and specify additional funding needs by year-end.

“Steps will be taken to deal with weaknesses in the most troubled institutions, including restrictions on their operations where appropriate,” the document said.

“Commencing in this quarter [Q4], the authorities will take all the necessary actions to restructure the sector and address difficulties in individual credit unions while minimising any fiscal cost.”

The restructuring must take into account the interim report of the Commission on Credit Unions — an 11-person group comprised largely of senior managers from within the sector — due in September.

Amid these revelations, Finance Minister Michael Noonan and Central Bank of Ireland governor Patrick Honohan yesterday told the ECB, IMF and EU Commission that Ireland remains on course to reduce the deficit to 10.6% or less of gross domestic product (GDP) this year — despite a forecast slowdown in GDP growth this year.

The Government said it has met and “in some important cases exceeded” its commitments under the aid deal with the EU and IMF.