Budget cuts aim to reshape Ireland

Finance Minister Michael Noonan said in his first budget delivery on Tuesday that the government is trying to repair a decade of disastrous policy.

“The people of Ireland have paid a very high price for this mismanagement of the economy. Personal wealth has been destroyed, thousands of people are sinking into poverty, emigration has returned and unemployment is far too high,” he said.

“The task of this government is to regain control over Ireland's fiscal and economic policies, to grow the economy again and to get people back to work."

The Republic’s 2012 budget, seeking to create jobs and at the same time make savings of €3.8 billion, was released for the first time over two days in the Dail (Parliament) and was described by main opposition public expenditure and reform spokesperson Sean Fleming as a “triumph of spin over substance.”

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Fianna Fail’s Fleming said the Fine Gael/Labor coalition is intent on “protecting their friends and cronies in high places” while placing charges on the less well-off.

There wasn’t even a hint that budgets in the next few years will less punishing than the 2012 which has been called the budget from hell. Public Expenditure and Reform Minister Brendan Howlin said Ireland’s budgetary system is old-fashioned and would be radically overhauled, with emphasis on planning for three-year terms.

Even before Noonan gave his main budget delivery, day-to-day spending cuts which will add up to €1.4 billion across a range of state services were unveiled by Howlin in the first leg of Budget 2012.

Although there was no increase in income tax, families faced up to being €1,000-a-year-worse off under his measures, with slashes in welfare allowances for families with more than two children, reductions in back-to-school clothing and footwear allowance, a cut of six weeks -- from 32 to 26 -- in cold weather fuel allowances for the elderly, and security services downgrading that means 31 Garda (police) stations will be closed.

The Department of Health is taking the biggest cut of €543 million, followed by Social Protection with an adjustment of €475 million.

Minister for Education Ruairí Quinn has to increase registration fees for third-level students by €250 despite an election pledge not to do so but he has protected the pupil teacher ratio in primary and secondary education, with the exception of private schools.

Howlin admitted, “As a Labor Minister I never expected that I would be making the type of announcements I am making today. We have been forced to make difficult and unpalatable decisions.”

When Noonan delivered stage two of the budget on Tuesday he emphasized its primary function was to create jobs.

Noonan said he was bringing in a range of measures to boost smaller firms, including tax credits on the first €100,000 spent on research and development.

A corporation tax exemption for new start-up companies was extended for three years to 2014, a move aimed at helping to kick-start the domestic economy, which would be the “real engine” for job creation, Noonan said.

There will also be incentives to be outlined in the Finance Bill, which will be delivered later, for the international financial services industry in Ireland.

There would be significant reductions in the rate of stamp duty for the transfer of commercial property, including farms, to encourage the transfer of family agricultural businesses on to the next generation.

One of the most significant tax changes in the budget will be to ease the burden of the Universal Social Charge, applied to the earnings of virtually all workers.

The threshold at which the 4% levy kicks in is to be raised from €4,004 to €10,036 from January 1, benefiting 330,000 people.

VAT rates will increase from 21% to 23%, but Noonan claimed that should not drive customers across the border to shop as the rate differential with Northern Ireland was now only 3% when it was 6% a few years ago during the big shopping rushes. He pledged there will be no more VAT increases in the term of the present government.

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Cigarettes go up by 25 cents for a packet of 20 -- not enough, according to anti-smoking campaigners -- and petrol rises up by up to three cents per liter following a carbon tax increase of €5 per ton, and Environment Minister Phil Hogan is to increase motor tax in the New Year to raise €47 million,
In an attempt to add some optimism to the crippled property market, a new capital gains tax incentive has been drawn up. The gains on any property purchased between midnight on budget day and the end of 2013 and held for at least seven years will be exempt from the tax.

For first-time buyers who bought homes during the property boom between 2004 and 2008 and now facing negative equity, mortgage interest relief will be increased to 30%.

For first-time buyers purchasing next year, a mortgage interest relief of 25%t will apply, while non-first-time buyers can benefit from a 15% relief rate.