Public Expenditure Minister Brendan Howlin will today announce €2.2bn in public spending cuts, including a €700m reduction in welfare, health and education spending.
Minister Howlin will reveal the first part of Budget 2012 this afternoon at 2.30pm, with Finance Minister Michael Noonan to follow up tomorrow with changes in the tax regime.
Between them, the two men will reveal the detail of the Government's plan to make an adjustment to the public finances of €3.8bn.
Mr Howlin is also expected to announce that €1bn will be sliced off the public service bill, while €500m is likely to be cut from the health budget.
Tomorrow is the 90th anniversary of the signing of the Irish Treaty and the creation of the Free State.
The auspicious date will see Finance Minister Michael Noonan outline €1.6bn of savings through tax hikes, including a 2% rise in VAT, a motor tax rise, a 3% hike in deposit interest retention tax and a hike among the lowest bands of the Universal Social Charge.
The Irish Tax Institute has warned the Government that average workers were already reaching tipping point following the last three years of austerity budgets, but the Taoiseach has argued that all hikes are necessary on the road to recovery.
In an address to the nation last night, Taoiseach Enda Kenny said Ireland remains in crisis.
Ahead of the country’s Budget, Mr Kenny addressed told the public they were not to blame for the economic collapse.
The Taoiseach warned that Ireland is spending €16bn more than it is taking in from taxes.
“Let me say this to you, you are not responsible for this crisis,” said Mr Kenny. “My government is determined that now the necessary decision and challenges are made to ensure that this is never allowed to happen again.”
The historic address was the first of its kind in three decades.
Charles J Haughey made a similar appeal in 1980 when he claimed the country was living beyond its means, and before him, taoisigh Jack Lynch and Garret FitzGerald delivered their own addresses at times of national crisis.
Budget 2012 is the Fine Gael-Labour coalition’s first attempt to mend the country.
As such, Mr Kenny said he chose to address the Irish people directly as the nation faces such a crisis together – as a community, as an economy and as a country.
“I know this is an exceptional event,” he said. “But we live in exceptional times. And we face an exceptional challenge.”
Mr Kenny said it was important that people realise the extent of the problems that lie ahead.
“We will reform how we run the country so that we never return to the practices that drove our economy into freefall – reckless spending, weak oversight of banks and reliance on a property boom for tax revenues,” he went on.
He also warned that everyone is likely to feel the brunt of the spending cuts and tax hikes, one way or another.
“I do not for a moment want to make it sound simplistic or painless. It is not,” he said. “We are on a four year path to recovery. This, our first Budget, is a necessary step, but it will include cuts to many worthwhile projects.”
He pointed out that projects such as Metro North would be sacrificed as the Government endeavours to make the €3.8bn in savings to reach its deficit targets.
The Government must come up with a total €12.4bn between now and 2015, under the conditions of the EU/IMF bailout that took place last year.
The Taoiseach explained it would be several years before the country has fully recovered and he warned that people should be aware just how fragile the economy really is.
But he said he wants to be the man to help lead it to recovery.
“I want to be the Taoiseach who retrieves Ireland’s economic sovereignty, and who leads a Government that will help our country succeed,” he said.
“I want to make this the best small country in the world in which to do business, in which to raise a family and in which to grow old with dignity and respect.”
Mr Kenny said the four-year plan ahead will be difficult for many, including those struggling to pay mortgages and looking for work, and young people trying to fund an education.
He said this is the reason it was so important for him to be honest with the public ahead of the austerity Budget, which may include cuts to child benefit of 10 euro a month, dole payment cuts of eight euro a week and a 50 euro annual fee imposed on medical cards
“I believe Government, being honest and open, working with the people, will meet and beat the challenges we face,” he said.
“I believe with all my heart, that we the Irish people can now make our way to recovery, to prosperity and to the fulfilment of the dreams of our children and the founding fathers of our nation.”
Mr Kenny made clear that the Government’s key focus and route out of the economic crisis was getting people back to work and job creation.
He said that working gives the Irish people both meaning and dignity. In protecting workers and jobs, the Taoiseach pledged to protect income tax and promised it would not increase as part of the Budget.
He has in the past defended the Government’s plans to hike VAT to 23%, saying that an increase in indirect taxes would allow for income tax to remain the same.
Although his opposition has argued that a VAT hike would damage local businesses and drive consumers north of the border, Mr Kenny has rejected this and maintained that getting the 440,000 people off the live register was his number one priority.
But despite the Taoiseach’s promise to help lead Ireland back to recovery and economic sovereignty, his opponents have criticised him.
Sinn Fein President Gerry Adams said he had failed to justify in advance what is likely to be a tough Budget.
“Enda Kenny’s tax plans will hit those on lowest incomes hardest,” warned Mr Adams. “What is most striking about the Taoiseach’s remarks is that there is no clear plan to stimulate the economy.”
Fianna Fáil TD Dara Calleary said Mr Kenny’s speech was more like a party political broadcast than an address to the nation.
“He mentioned jobs repeatedly but the hard fact is that his VAT increase and decision to cut capital spending this week will cost jobs and damage the economy,” warned Mr Calleary.