Taoiseach Enda Kenny will prepare the country for a looming austerity Budget when he delivers an historic State of the Nation address tonight.
Mr Kenny’s 10-minute speech, televised live after RTE’s Nine O’Clock News, will outline the difficult challenge of plugging an €18bn hole in the public finances.
The Government will announce a €3.8bn adjustment over the next two days with Public Expenditure Minister Brendan Howlin outlining €2.2bn in spending cuts tomorrow and Finance Minister Michael Noonan detailing €1.6bn of tax hikes on Tuesday.
It has agreed to make total savings of €12.4bn from now to 2015 to meet deficit targets outlined under the conditions of last year’s EU/IMF bailout.
Budget 2012 will include €700m of cuts to social welfare, health and education spending.
The average two-child family could be left €240 worse-off per year following a €10 cut to child benefit.
Dole payments to the 440,000 job seekers on the live register may also be cut by €8 a week.
Some €500m of savings for the health budget is likely to be announced through a €50 annual charge for medical care and a 50% hike in prescription charges.
The Irish Patients Association warned these measures could cost lives among society’s most vulnerable.
€1bn of the €2.2bn in spending will be sliced off the public service pay bill, which will include a possible 5% cut to allowances, premium pay and overtime to new doctors, nurses, teachers and gardai.
With low to medium earners taking such hard hits, Mr Howlin said it was important that high earners bear some of the burden too.
He will impose a 20% levy on pensions of public servants exceeding €100,000 a year.
However, the opposition has described the 20% levy, which will save just €400,000, as "scandalous".
Top pension earners, including former Taoisigh, chief justices and heads of state, will still bring home more than €100,000 after the levy.
Other spending cuts may result in university registration fees increasing by €250, along with the postgraduate grant being replaced with a loan.
As for tax hikes, VAT is certain to rise by 2% to 23%, along with increases in carbon tax on home heating and motor fuels, which could rise by at least €5 a tonne to €20.
This would add around 3c to a litre of petrol on top of the VAT rise.
Mr Kenny has been forced to defend the VAT hike, saying it allows the Government to leave income tax untouched.
He explained that the country’s main focus was getting people back to work, protecting jobs and job creation and that maintaining income tax would support this.
The opposition has argued that hiking VAT will encourage consumers to travel across the border for cheaper products, putting Irish businesses at risk.
Meanwhile, the Irish Tax Institute warned that average workers are reaching tipping point over the amount of tax they can pay.
In the last three years of austerity budgets, families have seen take-home pay slashed by up to €613.
Other tax hikes will include motor tax, a 3% hike in deposit interest retention tax and a raise among the lowest bands of the Universal Social Charge.
Social Protection Minister Joan Burton suggested the Government should tax the wealthy more by making certain types of unearned income such as rent profits and dividends liable to PRSI.
This could see landlords and investors faced with a new levy.
Mr Kenny’s State of the Nation address is just the sixth of its kind in Ireland’s history.
It has traditionally been reserved for times of national crisis, such as in 1980 when Taoiseach Charles J Haughey told the country it was living beyond its means.