Ireland takes tough medicine

EUROZONE leaders breathed a sigh of relief yesterday as the Irish parliament narrowly elected to swallow the bitter pill of fiscal austerity in return for its €85bn (£72bn) bailout. Eighty-two MPs voted in favour and 77 against the plan to deliver €6bn of budget cuts next year.

Finance minister Brian Lenihan said the budget, which is just the first part of a four-year programme to deliver a further €9bn of budget cuts, was “a down-payment on the journey back to economic health”.

There are still three more votes that could potentially derail the plan, which parliament must pass in order to qualify for the rescue funds, but it is unlikely that MPs will change their positions between now and today.

However, Lenihan’s Fianna Fáil party, languishing in the polls, is not expected to be in power to implement the plan after a promised election in January. Shadow finance minister, Michael Noonan, who could take over from Lenihan, called the bill “the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank”.

In order to get the budget through the razor-thin vote, the governing coalition had to rely on the votes of several independent MPs, which it courted in part by promising support for local constituency initiatives.

The emergency budget comes on top of €14.6bn in cuts already made during the government’s failed efforts to avoid a bailout. It consists of €4.5bn of spending reductions and €1.5bn in tax rises, with social welfare bearing the brunt of the cuts.
Benefits are to be trimmed by four per cent, while jobseekers’, carers’ and disability allowances will drop by €8 per week. Child benefit is to be reduced by €10 per month for each child and public sector pay will be capped at €250,000.

Ireland’s all-important low corporation tax is to remain at 12.5 per cent and air passenger tax will be temporarily cut from €10 per person to €3 for next year, with Lenihan saying that keeping business taxes down will encourage economic growth. Even so, many view his growth forecasts of an average 2.75 per cent per year until 2014 as drastically over-optimistic.

Individuals will see taxes rise however: the value of tax bands and credits is to be reduced 10 per cent to yield an estimated €395m and €435m extra respectively. Stamp duty relief will be abolished entirely and petrol tax will also rise by four cents per litre and diesel by two cents.

Ministers will see their salaries drop by €10,000 per year and the prime minister’s will be cut by €14,000.