Lenhian warns further cuts may be made in public spending

The Minister for Finance Brian Lenihan has warned that the further cuts in public spending will have to be made and has not rule out a further income tax increases over the next two years.

Speaking on RTE radio the Minister said that 10% of the state’s day today public spending currently needs to be borrowed. He said that is 10% of every salaries, medical services, welfare payments and education services.

“That is unsustainable in the medium term,” he said.

He said that the essential issue now facing the Government is the need to reduce the “overhang of public expenditure”

“We cannot continue to borrow for day to day purposes,” said the Minister who said that an “ongoing radical programme” is required to examine public expenditure if the target of a 3% deficit is to be meet by 2011.

“We have to adjust our public expenditure to ensure that it corresponds to what we can afford. We don’t have any option on this.”

The Minister said that he is awaiting a report from the Tax Commission, which will indicate how Ireland’s income tax system can be reformed.

Pending that reform the minister said that income tax levy he introduced in the budget was the fairest and progressive way to raise funds.

He said that there was “a difficulty in maintain tax and expenditures in the current climate.”

He said that putting the budget back to mid October was a wise decision in political terms, because it began “the essential process of public understanding of the gravity of the situation we are in financial terms.”

He expressed his confidence that FF will stay together over these difficult and unpopular cuts despite two recent defections from the Parliamentary Party.

“We (FF) are focused on leading this country out of its current difficulties,” he said.

“I am confident that we have the resilience as a people to pull ourselves together as a people and get out of these difficulties which we face.”

“In the past when we adopted a path of fiscal responsibility we prospered, and I think that is the signal we should be sending to the world today that Ireland will put its house in order and make itself a place where people can invest,” he added.

The Minister said that Financial Times report which classified him as the second worst Finance Minister in Europe didn’t really upset him.

He said that the reason was because he did not consult with other EU Ministers over the decision to guarantee bank deposits.

The Minister said that last September he took decisive action and put the national interest first when he saw that the banking system was in imminent danger.