A Cheann Comhairle,
This has been a traumatic and worrying time for the citizens of
our country. They are concerned that we had to seek external
support to help us with our economic and financial difficulties.
They are worried about the impact of this momentous and
difficult decision on their lives.
Yet, in fact, even in this most intractable and complex crisis,
there are clear signs of hope.
Amid the turmoil in the financial sector over recent months, it
is easy to lose sight of the fact that economic activity in this
country has stabilised. From a drop of 7.6% in 2009, GDP will
record a small increase this year. Recovery in the real economy
is beginning to take shape.
As anticipated, this recovery is being led by exports. Our
exports increased by nearly 7% in real terms in the first half
of this year. Output in the manufacturing sector was up 12% in
the third quarter, while surveys point to continued strong
growth in export orders for both goods and services.
Agriculture and the agri-food sector has strengthened this
The growth is broadly based and is being driven not only by a
pick-up in demand in our trading partners but also by the
significant improvements in competitiveness we have achieved
over the last two years.
Yes, domestic demand remains weak, as households and businesses
continue to work off the excesses of the boom. But continued
export growth will protect and expand high-value employment and
stimulate domestically trading sectors of the economy. This, in
time, will reduce unemployment, help build confidence among
households and firms and stimulate renewed growth in consumer
spending and investment.
There are signs too that conditions in the labour market are
beginning to stabilise. The Live Register has fallen for the
third month in a row, the first time since early 2007.
Redundancies in the last three months were over 30% lower than
in the same period last year.
Our underlying budget deficit has stabilised at 11.6% of GDP.
Our tax revenues are ahead of target despite a weak start to the
year and our spending has been brought under control. So our
actions to stabilise the public finances are making progress.
The balance of payments is expected to record a small surplus
next year, meaning that the economy as a whole will be paying
its way in the world.
These data taken together paint a picture of an economy that is
returning to growth after a deep and prolonged recession. For
the period out to 2014, real GDP is forecast by my Department to
increase by an average of almost 2¾% per annum with real GNP
growing by an average of just over 2% per annum over the same
So if the real economy is poised to grow, why do we need the
help of the IMF and the EU?
The answer is: we need their support to break the vicious cycle
that has threatened our national finances and our banking system
since the second quarter of this year. Following the Greek
crisis this spring, funding for the State and our banks became
increasingly expensive. The rising costs of dealing with the
banks that became evident during the autumn and the growing
concerns about the prospects for the global economy reinforced
doubts among international investors about the sustainability of
our public finances and our capacity to fix the financial system
The Joint Programme of Assistance, involving stand-by resources
of up to €85 billion, provides us with the firepower we need to
restore market confidence, strengthen the financial sector and
press ahead with our plans to reduce the budget deficit and
facilitate the economy’s return to sustainable growth.
Without this support, there would have been serious doubts about
the ability of the State to raise funds at reasonable cost to
pay for key public services and to provide a functioning banking
system to support economic activity. That is the reality.
Yes, we are in a position to contribute one fifth of the fund
ourselves from the National Pensions Reserve Fund and domestic
cash balances. As I said last week, it is not credible to
suggest we could have retained a sovereign wealth fund while
expecting others to make resources available to us.
The policies set out in the Joint Programme, which closely
reflect our National Recovery Plan, are not a new departure.
They are, in fact, a continuation of the Government’s strategy
for recovery which has remained steadfast since the onset of the
Over the last two and a half years, the Government has worked
hard to get its spending back under control. We have made very
difficult decisions and our citizens have demonstrated enormous
forbearance in accepting the need for those decisions. We have
secured an overall adjustment of €14.6 billion. Without this
adjustment, our underlying deficit would already have ballooned
to more than 20% of GDP.
The budgetary adjustments we plan for the coming four years are
large. But if we postpone them, even bigger and more wrenching
adjustments will be needed at a later date. Our proposed
budgetary measures have been laid out in considerable detail to
give certainty to households and firms so that they can plan for
It is the Government’s strong view that the economy can continue
to grow while we make the budgetary adjustments outlined in the
National Recovery Plan.
We need to ensure our economic growth is built on solid
foundations: that are sustainable socially, economically and
The Government has committed to the introduction of a new
national performance indicator to allow a variety of quality of
life measurements to be assessed and reported on a regular
basis, complementing traditional economic data. This will be
used to guide policy development. It will allow the public to
assess the progress being made across a range of indicators.
The CSO is working on the development of this new national
welfare index. Our attractiveness as a country in which to live
is an important part of our overall competitiveness.
EXPENDITURE AND TAX ADJUSTMENTS
This time last year, it was assumed that an adjustment of €7.5
billion would lead to a deficit of 3% of GDP by 2014, the target
year agreed with our European partners. Because medium-term
growth prospects have been revised down and our debt interest
costs have risen, this adjustment has had to be revised upwards
to €15 billion.
In the National Recovery Plan, we have set out the timetable for
achieving this adjustment over the next four years. These
targets are reflected in the Joint Programme of Assistance.
Because the European Commission has more conservative forecasts
for the medium-term, we have been given an extra year to reach
the 3% deficit target required under the Stability and Growth
Pact. But this changes neither our targets nor our timetable for
As outlined in the Plan, €6 billion of the overall adjustment is
being made in today’s Budget. The scale of this adjustment is
demanding but it demonstrates the seriousness of our intent.
In simple terms, the gap between Government receipts and
spending is almost €19 billion this year. This gap must be
closed. We got into this position by seeking, with the full
support of those opposite, to spread the benefits of the boom
across every section of the population. Between 2000 and 2008,
public spending increased by over 140%, while the consumer price
index increased by just 35%. Working-age social welfare rates
are now more than twice their rate in 2000. Over the same
period, the State Pension almost doubled. These increases were
well ahead of the cost of living.
At the same time, taxation was reduced and the proportion of
income earners exempt from income tax increased from 34% in 2004
to an estimated 45% this year. All of this was made possible by
the very large property-related tax intake during the boom
years. In our dramatically changed budgetary circumstances, it
is clear the State can no longer afford this level of social
The changes I am announcing today are substantial but it is
important to keep things in perspective. The current spending
reductions set out in the National Recovery Plan out to 2014
will bring total gross voted current spending back only to
2007/2008 levels. The income tax measures in the Plan will bring
us to levels prevalent as recently as 2006. Those years were not
times of hardship. The reductions will impact on living
standards but the fact is social welfare rates are still high in
this country and much higher than our nearest neighbour.
Budget 2011 continues the task of bringing the cost of our
public services back to levels that can be sustained by our
economy. I do not propose to repeat here today the spending
reductions that have already been outlined in the National
Recovery Plan and are set out again in the Estimates published
SOCIAL PROTECTION ADJUSTMENTS
The only area of expenditure in which decisions have not yet
been detailed is social welfare. First, I want to confirm that
the Government has decided there will be no reduction in the
State Pension this year. We have significantly increased the
State Pension over the last ten years and it is the Government’s
view that the security this has brought to older people should
In the case of working-age rates of payment, there will be a
reduction of about 4%. The Government has maintained these
payments at a rate which far exceeds total inflation since 1997.
The 2011 basic working-age payment will be almost 117% more than
it was in 1997. Cumulative inflation over the same period was
Regrettable as they are, the impact of the reductions is
lessened by continued low inflation. The rates in question will
still be slightly ahead of the 2007 working-age rates of
payment. The fact is we have built up a generous level of
welfare provision over the last decade and though they must now
be reduced somewhat, our record of commitment to those in need
Over the next four years, further reductions in social welfare
spending are unavoidable if we are to reduce the budget deficit.
The size, nature and composition of these reductions will depend
on the rate of decline in unemployment; the effectiveness of
anti-fraud and control measures; and the reform of the benefits
system. Our number one priority for 2011 and onwards must be
economic growth and maximising employment creation. That demands
improved competitiveness which is at the heart of the social
welfare and labour market measures we have proposed.
There will be a €10 reduction on both lower and higher child
benefit rates with an additional €10 reduction for a third child
only. These reductions will bring rates of payment back to the
2006 rate for the first and second child and to 2005 rates for
the fourth and subsequent children with the rate for the third
child reflecting the 2004 rate. The new rates are still three
times higher than they were in 1997.
Details of the specific social welfare measures are set out in
the Summary of Budget Measures along with a number of other
changes to social welfare schemes and entitlements.
Extra Fuel Allowance Payment
In view of the harsh weather conditions experienced in recent
weeks, I am allocating an additional €14 million to the fuel
allowance scheme to enable a payment of €40 to households that
receive the fuel allowance payment. The Department of Social
Protection is putting measures in place to roll out this
additional payment as soon as possible and many households will
receive this payment this year.
Helping the Unemployed
We know from the 1980s the importance of equipping the
unemployed with skills and keeping them close to the labour
market. To that end, we are refocusing the National Employment
Action Plan to establish clearer pathways to employment by
ensuring that State agencies interact early and often with those
who have lost their jobs to provide opportunities for education,
training or work experience placements as appropriate.
Building on the work placements and training places that have
already been introduced, I am providing for an additional 15,000
activation places and supports for the unemployed at a cost of
about €200 million.
The Skills Development and Internship Programme will provide up
to 5,000 places in the private sector with a contribution from
that sector of an additional €38 million or so to pay some of
the costs of the internships.
The Work Placement Programme will provide up to 5,000 places in
the public service. The Tánaiste announced the scheme in the
Education sector last week and similar announcements for other
sectors will be made by Ministers over the coming months.
A New Community Work Placement Scheme will provide up to 5,000
additional places in the community and voluntary sector.
The labour activation measures will be complemented by the
extension of the Employer Job (PRSI) Incentive Scheme to the end
of 2011 and by the transformation of the Business Expansion
Scheme into a new Employment and Investment Incentive.
The National Recovery Plan provides for reform of the labour
market and the removal of barriers to job creation resulting
from the current level of the minimum wage and inflexible
employment agreements. The aim here is to provide more job
opportunities, especially for the young.
We will continue to spend significant sums on investment to
sustain growth and jobs. The Exchequer capital programme will
amount to some 3.6% of GNP in 2011. This programme will be
augmented by the investment programmes of the commercial State
In addition, the National Pensions Reserve Fund has confirmed it
is willing to invest in Irish infrastructure assets on a
commercial basis in partnership with third party institutional
investors. The Government will help identify opportunities for
the NPRF and other private investors.
ADJUSTMENTS TO PUBLIC SERVICE PAY
I want to acknowledge the substantial contribution made by
public servants to national recovery to-date. In my own
Department, I see day in day out and at weekends the commitment,
above and beyond the call of duty, shown by civil servants who
have accepted significant pay cuts. More work is being done with
less staff at lower cost. That is real public service reform.
To meet our targets, the cost of delivering public services must
fall further. Savings will continue to be made through planned
reductions in the number of public servants and through greater
efficiencies in the way public services are delivered.
Despite the economic constraints, the Government has abided by
the Croke Park Agreement on pay, compulsory redundancies and on
pension terms. Public servants, their unions and their managers
for their part must abide by their commitments to pursue
flexibilities and reforms in every part and level of the public
service. We have made commitments to a continued reduction in
the cost of the public service. If the Government is to be held
to its side of the Agreement, those reductions must be
The Taoiseach and Ministers have already taken substantial
reductions in their pay. The effect of the pension levy and the
pay cuts introduced earlier this year amount to 28% in the case
of the Taoiseach and 23% in the case of Ministers.
The changes in PRSI introduced in this Budget as they affect
office holders will bring about a further cut in their net pay.
Nonetheless, the Government has decided to introduce another
reduction in the salaries of the Taoiseach, Tánaiste and
Ministers. The salary of the Taoiseach will be reduced by over
€14,000 per annum and the salary of Ministers will be reduced by
over €10,000 per annum. This brings the overall reduction in the
gross pay of the Taoiseach to over €90,000 and in the case of
Ministers to over €60,000. Details to changes in the
Government’s transportation arrangements and Ministers’ pay and
pensions are set out in the accompanying documentation.
The Government believes there should be a maximum salary rate of
€250,000 in the public sector. Only a few office holder posts
have salaries above this level at present but there is a larger
number in the State Agencies.
While there are issues about the contractual position of
incumbent post holders, I think the position of the Minister for
Finance as a shareholder or statutory stakeholder in these
companies can be used to enforce the objective of the maximum
salary within a reasonable timeframe.
The 10% reduction in the pay of new entrants to the public
service contained in the National Recovery Plan will be applied
to the salary rate of those appointed to hold office in the
Judiciary in 2011. The €250,000 maximum will be applied to all
A reduced maximum rate of pay of €250,000 will apply to the next
President of Ireland. I want to record the significant
contribution made by the current President who, since this
downturn began, has waived a significant portion of her
I intend to make provision for these reductions in legislation.
In addition to reduced pay rates, all new recruits to the entry
grades of the public service must start at the first point of
the relevant pay scale without exception. Although recruitment
will necessarily be limited over the next number of years, this
measure will ensure a medium-term reduction in the overall cost
of public service pay.
PUBLIC SERVICE PENSIONS
The cost of providing public service pensions has increased
significantly in recent years. Pensioner numbers have grown from
76,000 in 2006 to about 103,500 in 2010, an increase of 36%,
while expenditure has risen by 56% from €1,433 million to €2,235
million in the same period.
Public service pensioners have so far been unaffected by the
reductions imposed on serving staff. The Government considers it
appropriate that those pensioners who can afford to should now
share the burden of adjustment.
Accordingly, public service pensions above €12,000 a year will
be reduced by an average of 4%. Those on a pension below €12,000
a year, roughly equivalent to the value of the social welfare
pension, will be exempted. The reduction will be applied fairly:
those on higher pensions will pay most. It will apply to former
political office holders, retired members of the Judiciary, and
their survivors or dependants.
Public service pensions have until now been unaffected by the
pay reductions. The grace period, under which previous salary
levels are to be used to calculate pension entitlements, was due
to expire by the end of 2011. This is being extended by two
months so as to prevent a log jam of public service retirements
in 2011 and to spread the extra pension lump sum costs over a
more manageable period in both 2011 and 2012.
But I want to make clear that public servants or office holders
retiring during the grace period will be subject to the pension
reduction I am introducing today. Legislation to provide for
this reduction will be brought before the Oireachtas very
shortly. Further details are provided in the Summary of Budget
Reducing the income of pensioners is an exceptional measure. But
these are exceptional times. The Government has to make savings
and pensions costs are a very significant part of public
expenditure. Failure to reduce the cost of pension provision
could undermine the longer-term viability of the public service
pension system. Furthermore, it would be unfair if highly-paid
pensioners remained unaffected while serving staff on low pay
have had their pay reduced.
The new single pension scheme for new entrants, which I
announced in last year’s Budget, will come into effect in 2011.
This will bring future public service pensions more in line with
private sector provision. Pensions will be based on career
average earnings rather than final salary; the pension age will
be increased; and post-retirement increases will be linked to
retail price inflation rather than to pay.
This new scheme is a crucial part of the longer-term reform
required to put the public finances on a sound basis. The
legislation will be published very shortly to ensure that the
new scheme can be put into operation for new entrants in 2011.
A Cheann Comhairle, the primary purpose of the tax system is to
provide the resources to pay for the services the public expect
from the State. Our tax system no longer fulfils that purpose
well. The line of least resistance would be to increase the
rates. But revenue is generated by economic activity: not by
increased tax rates. High tax rates on a narrow base of economic
activity may raise far less revenue than lower rates on a much
We cannot have a tax system that damages our potential to grow.
That is why the Government has decided in the National Recovery
Plan that two thirds of the required budgetary adjustment over
the period 2011-2014 should be through expenditure reductions
and one third should be raised by taxation.
Our income tax system, as it stands today, is no longer fit for
purpose. At one level, too few income earners pay any income
tax. This year, just 8%, earning €75,000 or more, will pay 60%
of all income tax while almost 80%, earning €50,000 or less will
contribute just 17%. At another level, too many high earners
have opportunities to shelter their income from tax. We must
address both these structural defects.
Our system is also unduly complex. With four separate charges on
income, each rational in its own terms, it contains too many
distortions, steps, and discontinuities. Our goal must be to
create a system that is rational, sustainable and fair, and that
delivers the resources needed for essential public services.
Such a system cannot be created in one Budget. But today we take
a major step forward in the reform process. In this Budget, we
abolish the Income Levy and the Health Levy;
replace both with a single Universal Social Charge, governed by
one set of rules on a broad base;
remove the employee PRSI contribution ceiling;
increase the PRSI rate for the self-employed, higher earning
public servants and office holders;
reduce the value of bands and credits by 10% in line with
overall reductions in incomes;
tackle excessive reliefs associated with private pension
abolish or restrict many tax reliefs that higher earners use to
shelter income unfairly, and
target the remaining reliefs more clearly on employment growth.
By broadening the base at both ends of the income spectrum, the
nominal rates of tax can be kept lower while the effective rate
can be raised in a way that is fair to all.
In the measures I am presenting today, those on the new reduced
minimum wage will not be brought into the tax net. The top
marginal tax rate will be kept at 52% for all taxpayers.
As I said in the 2010 Budget, the Universal Social Charge
requires that everyone makes some contribution, however small,
to the provision of services. This charge is separate from
income tax which is levied proportionately as income increases.
The changes made today generally either maintain or enhance the
incentive to work relative to social welfare. For a married
couple with no children earning €25,000, their net income will
fall by 2.8% or €12 per week. For a similar family with two
children, net income will fall by just 1% or €5 a week. We must
always ensure an appropriate balance between the rewards from
work and income support from welfare. I believe that in these
most difficult of circumstances we have struck the right balance
in today’s Budget.
Our objective is to move steadily in the direction of an income
tax system that is fair, universal in its application and more
easily understood. This Budget marks a decisive step towards a
unified income tax system with a minimum of tax shelters, the
broadest base and competitive rates. A unified income tax system
with appropriate tax credits will facilitate the closer
integration of tax with the welfare system.
Broadening the Tax Base
In last year’s Budget, I said high earners availing of tax
incentive schemes must contribute more in the current difficult
circumstances. The restriction of reliefs measure, which
increased from 20% to 30% last year, is already having a
significant impact. But we can and must do more.
The National Recovery Plan contains a commitment to the
abolition or the curtailment of tax expenditures and to the
phased abolition of property-based legacy reliefs. The 16
measures identified in the Plan will be given full legislative
effect. Today, I will abolish or restrict a further nine reliefs
bringing the total to 25.
Full details are set out in the Summary of Budget Measures.
Many property-based reliefs have already been abolished, but
some legacy costs remain. Such costs will be further restricted
as a result of today’s changes. Three new measures in particular
will be targeted at passive investors:
Restrictions on the carry forward capital allowances will start
in 2011 and impact progressively over the next few years.
From 2011, Section 23 relief will be restricted to income from
Section 23 property, and
A “guillotine” provision will ensure that all unused capital
allowances after 2014 and Section 23 reliefs are lost.
This last provision will effectively terminate all property-based reliefs in 2014. Again, full details are set out in the
Summary of Budget Measures.
The base for Capital Acquisitions Tax is being broadened by
reducing the tax-free thresholds by 20%. This reduction follows
the economy-wide fall in asset values in recent years and builds
on a similar measure introduced in Supplementary Budget 2009.
Finally, I am increasing the Deposit Interest Retention Tax rate
on ordinary deposit accounts by 2% to 27% and on longer-term
deposit accounts by 2% to 30%.
Tax Treatment of Pensions
The National Recovery Plan contains a commitment to significant
reform of pension tax relief. Today, I am abolishing employee
PRSI and Health Levy relief on pension contributions. I am
reducing the annual earnings cap for tax-relievable pension
contributions. The portion of retirement lump sums above
€200,000 will be subject to tax and the maximum allowable tax-relieved pension fund will be reduced.
Employer PRSI relief on employee pension contributions is being
reduced by 50% from 1 January next.
The effective tax rate on Approved Retirement Funds will be
increased by raising the deemed annual distribution of assets in
those Funds from 3% of end-year assets to 5% per annum with that
distribution subject to full income tax each year. Details of
all these measures are in the Summary of Budget Measures.
Business and Employment
Two weeks ago, all political parties in this House supported a
motion calling for the maintenance of the 12½% corporation tax
rate. Our commitment to the 12.5% rate was restated in the
National Recovery Plan. I welcome recent comments by European
finance ministers who understand the importance of this issue to
Ireland. There will be no change to Ireland’s corporation tax
Better Focusing Tax Reliefs to Create More Jobs
Small and medium sized companies are the wellspring of
employment and innovation in the economy. The Business Expansion
Scheme has helped companies to gain access to capital
investments. But given that job creation and protection is our
top priority, it is essential that schemes like the BES and the
3 year corporation tax exemption for start-up companies are
targeted and evaluated against jobs created or retained.
Accordingly, the BES is to be revamped and renamed as the
Employment and Investment Incentive. This incentive will come
into operation once the necessary approval from the European
Commission has been received. In the meantime, the existing
scheme will continue to operate.
Under the new incentive, the limit that can be raised by
companies will be increased from €2 million to €10 million, and
the amount that can be raised in any twelve-month period will be
increased from €1.5 million to €2.5 million. In addition, the
certification requirements will be simplified. The new incentive
will expire on 31 December 2013.
I have decided to extend the three year corporation tax
exemption for start-up companies commencing a new trade in 2011
and to amend it so that the relief will be linked to the amount
of employers’ PRSI paid by the company. This change will focus
the relief on employment creation, rewarding new companies that
I have also decided to extend the accelerated Capital Allowance
Scheme for Energy Efficient Equipment for a further three years.
Further details of the changes are set out in the Summary of
Bringing Confidence to the Housing Market
I am undertaking a fundamental reform of Stamp Duty on
residential property transactions with immediate effect. This
has three aims: to stimulate the property market, to provide
necessary valuation information and to increase market
transparency for the smooth operation of the market.
There will be a flat rate of 1% on all residential property
transactions up to a value of €1 million with 2% applying to
amounts above €1 million.
In line with the base-broadening approach adopted in this
Budget, I am abolishing all existing reliefs and exemptions for
Stamp Duty on residential property. This means that 1% will be
paid on all residential property sales, new or old. If this
system had been in place instead of the previous volatile one,
it would have lessened the effect on tax revenue of the booms
and busts in the market. The information gathered from this new
regime can be used to compile data on house valuations to inform
a valuation database. This data will bring a greater degree of
transparency to the operation of the housing market that has
been previously absent. Markets operate best where buyers and
sellers have reliable information available to them.
The new rates will apply to property transfers on or after 8
December 2010. A transitional provision will be put in place to
ensure that anyone who has entered into a binding contract to
purchase a residential property before 8 December 2010, and who
executes the transfer of that property before 1 July 2011, will
not lose out.
The Tenant Purchase Scheme allows local authority tenants to
purchase their homes at a discount. Today, I am announcing a
short-term improvement in this Scheme. This will allow greater
access to tenant purchase by introducing a higher discount for
The details of this enhanced scheme will be set out by the
Minister for Housing.
Fostering Compliance Within the Economy
The construction sector has been at the vortex of this economic
downturn. It will be some time before the sector returns to a
sustainable level of output. In the meantime, the Government
wants to ensure that existing employment levels are protected
and allowed to grow by reducing black economy opportunities in
the industry. Today, I am proposing significant reform of the
Relevant Contracts Withholding Tax regime which applies to
contractors in the construction, meat-processing and forestry
sectors of the economy.
To foster compliance, a new withholding rate of 20% will apply
to subcontractors registered for tax with an established
compliance record, with the existing 35% rate retained for
subcontractors not registered for tax. In addition, the system
will be strengthened to enhance its effectiveness and reduce the
opportunities for fraud.
The proposed changes provide a cash flow benefit to registered
subcontractors that will enable them to compete for business on
a level playing field.
The recent cold weather conditions, once again, demonstrate the
benefits of ensuring that homes are as energy efficient as
possible. Today, I plan to introduce a new tax incentive in this
area which will support employment while improving energy
efficiency in homes.
The new incentive will complement the grant aid that is
available through the Home Energy Savings Scheme currently
available from the Sustainable Energy Authority of Ireland.
Standard rated tax relief will be available on expenditure up to
€10,000 on a list of approved works. The total relief available
under the scheme in any one tax year will be €30 million which
would allow for remedial works to be carried out on a minimum of
Contractors employed to complete the work must be registered
with the Revenue Commissioners. This incentive, together with
the proposed changes in Relevant Contracts Tax will support
construction businesses operating in the legitimate economy.
Full details of the new incentive will be provided in the
An air travel tax on passengers departing Irish airports was
introduced on 30 March 2009. The tax is expected to yield €105
million in 2010 despite the impact of volcanic ash on air travel
earlier this year.
Similar taxes apply in the UK, France, Australia, New Zealand
and the US. An air travel tax will apply in Germany and Austria
from January 2011.
There have been calls for the abolition of the tax which is
blamed for the reduction in our visitor numbers. Having examined
the issue in detail, I have decided to introduce a single
revised rate of air travel tax of €3 to come into effect on 1
March 2011. But let me be clear: this reduced rate is being
applied on a temporary basis until the end of 2011. The position
will be reviewed next year and the rate will be increased unless
there is evidence of an appropriate response from the airlines.
I do not want to see the reduction in the tax being used by
airlines as an opportunity to raise their fees and charges.
In conjunction with this initiative, the Dublin Airport
Authority is prepared to introduce an incentive scheme for 2011,
to provide, subject to certain conditions, a full rebate of
airport charges for any additional traffic above the current
levels. The DAA will provide further details of the scheme.
Excise will be increased by 4 cent per litre on petrol and 2
cent per litre on auto-diesel, both increases inclusive of VAT,
from midnight tonight.
In the light of its success, the car scrappage scheme introduced
last year will be extended for a further six months to 30 June
2011. The VRT relief provided in that period will be up to a
reduced maximum of €1,250.
I have also decided to extend the VRT relief for series
production hybrid and flexible fuel vehicles for two years to
end-2012. The rate of relief provided will be up to €1,500. The
VRT relief for plug-in hybrid electric vehicles will continue at
up to €2,500 until 31 December 2012.
A review will be undertaken of the excise duty payable for
licences for on-trade and off-licence sales of alcohol products
during 2011 to ensure that the system is both transparent and
I am making the necessary arrangements to ensure that bets
placed on the internet by domestic punters are subject to the
same level of betting duty as applies in high street betting
shops. Details are set out in an annex in the accompanying
Full details of these measures and related measures are
contained in the Summary of Budget Measures.
A NEW START
Public debate of our current difficulties is focused, almost
exclusively on our banks. Much of what is said is plain wrong.
For example, it is regularly claimed that the taxpayer will end
up bearing most or all of the cost of the banks’ bad loans. This
is not the case. As the Governor of the Central Bank has
previously indicated, over the period 2008 to 2012, the total
loan losses of the domestically-owned banks are expected to
reach €70-80 billion, equivalent to about half of this year’s
GDP. Loan losses on this scale are unforgivable. They reflect
the recklessness of lending decisions during the bubble years
and the weakness of the previous regulatory framework. We must
ensure they never happen again.
What is almost entirely overlooked, however, is the fact that
tens of billions of these losses have been absorbed by the
private shareholders in the banks. It is clear there has been no
taxpayer bailout for bank shareholders.
Neither has there been a bailout for holders of banks’
subordinated bonds. These bonds have absorbed losses of about €7
billion to date, and legislation to facilitate further burden-sharing by subordinated bondholders will be submitted to the
Oireachtas next week.
There is a limit to burden-sharing. As I said in this House last
week, there is simply no way this country, whose banks are so
dependent on international investors, can unilaterally renege on
senior bondholders against the wishes of the our European
partners and the European institutions. That course of action
has never been an option during this crisis.
It’s true the State has had to inject large amounts of capital
into the banks. In return, the State will own the bulk of the
banking system. The use of funds in the National Pensions
Reserve Fund to recapitalise the viable banks is necessary to
ensure that these institutions can serve the needs of the
The approach to fixing the banks agreed under the Joint
Programme will not reverse any of the Government’s banking
policies. In fact, the very opposite is true. The Programme
builds upon and intensifies the measures introduced to date. The
most senior members of the international team negotiating the
Programme have endorsed our policies.
This Budget is the first instalment of the National Recovery
Plan. The Plan plots a course to sustainability for our country:
sustainable public finances, sustainable public services,
sustainable growth, and sustainable employment. It is a
sensible, rational plan that is proportionate and equitable in
the circumstances in which we find ourselves. Everybody pays and
those who can pay most will pay most. The Plan calls on us all
to take more responsibility for ourselves: to contribute to the
support of local services and to pay more towards the support of
college education. This Budget is not captured by any sectional
interest. The focus in the distribution of the tax burden, in
the reductions in public spending, and in the reforms it
introduces is the common good.
I believe that politics in this country must put the common good
at the centre of the stage in all that it does. The job of the
Government on behalf of the State is to ensure that the common
good is served: that requires saying “No” at least as often as
There has been much public debate about political reform during
the current crisis: some of it has been the stuff of cheap
headlines; some of it has been constructive and innovative. Any
reform proposals, whether they relate to the Dáil electoral
system, the future of the Seanad, the composition of Government
Departments or the size of Government, must have as their
objective, the pursuit of the common good.
Since I was appointed as Minister for Finance in May 2008, I
have been dealing with the worst crisis in our history and one
that has few international parallels. This is my fourth Budget
in that period. In every measure I have introduced, on behalf of
the Government, we have sought to stabilise our public finances.
In doing so, we have sought to protect those most in need.
Analysis using the ESRI model has shown that the measures I have
introduced on the Government’s behalf, have been progressive and
have distributed the burden of adjustment fairly.
It is clear to us all what went wrong in our economy. In the
period leading up to the crisis, the construction sector and
property prices grew to unsustainable levels. The appetite of a
rampant building industry for labour and other resources put
upward pressure on our cost structure. As a result, our
competitiveness was damaged and we lost market share for our
goods and services. Excessive public spending on the back of the
enviable but transient taxes of the boom added to the
overheating of the economy. A huge expansion in bank borrowing
for property and construction-related investment was the final
and most lethal domestic ingredient in the causes of our crisis.
The international financial crisis added pace and severity.
The Government has accepted that analysis: more should have been
done to counter imbalances in our economy. I do not know if any
alternative government would have done better.
We have taken steps to ensure that the mistakes that led to this
crisis will never be made again. We have broken with precedent
in key appointments: Professor Patrick Honohan, our foremost
academic expert on banking, is a widely regarded Governor of the
Central Bank. Mr. Matthew Elderfield, a highly qualified and
experienced professional is our new Financial Regulator. We have
introduced new legislation to reform the regulatory framework
for our banks and the Central Bank has greatly increased its
We have set out a programme of budgetary reform in the National
Recovery Plan and legislation providing for a Fiscal
Responsibility Law is in preparation. This will ensure that the
principle of keeping the public finances on a sustainable
footing is binding in law.
In other words: this Government has faced up to its
responsibilities; we have acknowledged our mistakes; worked
might and main to rectify them and we have put in place the
measures to ensure that these mistakes can never be made again.
Our country must now move forward with confidence and purpose.
The underlying strengths of our economy, built up over many
years by our citizens and by the actions of successive
Governments, have survived this crisis.
We continue to have a highly skilled, flexible labour force with
one of the highest levels of formal education in the OECD.
During the boom, we built a world class road network; we
invested in our public transport, our education and social
infrastructure. Continued capital investment over the next four
years will ensure that the economy is well equipped for
We have developed a highly competitive, pro-enterprise taxation
system which incentivises innovation and high-value economic
activity. The measures I have introduced today will benefit our
domestic sectors that have been particularly badly hit by this
downturn. We will defend our 12½% corporation tax rate against
The actions we have taken in Government over the last two years
have helped us to regain competitiveness. Wages have adjusted
and costs have fallen. More needs to be done but we are pricing
ourselves back into global markets and the performance of our
export sector is the proof of our success.
We know we can have sustained, balanced, export-led growth in
this economy. We had it in the 1990’s and we have what it takes
to win it back if we pursue the correct policies.
We have been through a tumultuous two years culminating in our
application for external assistance. Today’s Budget is our first
step in ensuring that we can get back firmly on our own feet. It
is a substantial down payment on the journey back to economic
health. We can emerge from this dark time as a stronger and
fitter economy to provide sustainable jobs and decent public
services for all our citizens.
A Cheann Comhairle, there is every reason to be confident about
the future of this economy and this country if we only have
confidence in ourselves.
I commend this Budget to the House.
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