The Budget 2010

Budget Overview

The Government’s aim in Budget 2010 is to:

• Stabilise the budget deficit in a fair way;
• Restore our competitiveness;
• Safeguard those worst hit by the recession;
• Stimulate crucial sectors of the economy to sustain and create jobs.

Over the past eighteen months, since when we have been in the middle of an international banking crisis which triggered a worldwide recession, we have achieved savings of over €8 billion. The Government is making a further €4 billion reduction in 2010. Despite this, we are putting in place measures to provide:

• Additional resources for training and employment to assist those who have lost their jobs and to protect those in employment;
• Providing support for enterprises and viable businesses;
• Protecting the delivery of public services by focusing the reductions in spending on the cost of providing those services, and;
• Sustaining high levels of investment in public projects, as tender prices fall.

Expenditure Review

Total gross expenditure savings in 2010 will amount to €4.051 billion, which amounts to a very sizeable adjustment of 6.3% of total expenditure in 2009. The savings represent a reduction in current expenditure of over €3 billion and almost €1 billion in capital expenditure.

The capital allocation for 2010 is €6.4 billion, which at 5% of our GNP in 2010 is about twice the EU average. This level of investment in capital projects will deliver the greatest returns and enhance the country’s infrastructure, while costs are reduced.

Non-pay expenditure is down in most Departments, with the exception of Social & Family Affairs (up 3.3%) and Enterprise, Trade & Employment – the latter reflecting the Government’s priority to protecting existing employment and create new jobs. In addition, the pay bill of Government Departments is being reduced by more than €1.05 billion.

Social Welfare

Tax revenues in 2010 are likely to be at comparable levels to those of 2003.

Unfortunately, the past two years have seen a significant increase in the numbers in receipt of unemployment benefit to over 430,000. Because of the pressures on the public finances, the country cannot continue to borrow to maintain the existing rates of social welfare payments.

The Government has decided, therefore, to reduce most social welfare payments by about 4.1%. This will see a reduction in the rate of Unemployment Benefit/Jobseekers Benefit from €204 to €196 per week.

State Pension

There is no change in the state pension – this Government is protecting the elderly who have contributed so much for the development of this country. This decision also reflects the fact that older people have experienced the smallest reduction in living costs over the past year

Jobseekers' Allowance

The rate of Jobseekers' Allowance and Supplementary Welfare Allowance for new applicants aged between 20 and 21, with no children, is being reduced to €100 per week and for those aged between 22 and 24 to €150 per week. For all other cases, the rate will be reduced to €150 per week where job offers or activation measures have been refused.

Most social welfare rates, for those aged 25 or over, will now revert to just below 2008 rates. Even with this reduction in rates, almost all social welfare payments are more than 50% higher than in 2003, when tax revenues were last at current levels.

Child Benefit

The Government is providing €170 million for the early childhood and education scheme for all children between the ages of 3 years, 3 months and 4 years, 6 months. Up to 65,000 children in this age range will benefit from these pre-school places Child Benefit rates will be reduced by €16 per month from January 2010, bringing the lower rate to €150 per month and the higher rate to €187 per month.

As a result, rates of Child Benefit payment will revert to 2006 levels. When compared with 2003, Child Benefit rates in 2010 will still be 19% higher. Welfare dependent families and low income families in receipt of FIS will be fully compensated.

The Government has identified as its priority the protection of vital services to the public and cannot continue to borrow €400 million a week to fund the cost of delivering these essential services.

While recognising that public servants have already made a substantial contribution to reducing public expenditure (pension levy of 7%), the Government has decided that the pay of all public servants will be reduced with effect from 1 January 2010, as follows:

• a reduction of 5 per cent on the first €30,000 of salary;
• a reduction of 7.5 per cent on the next €40,000 of salary;
• a reduction of 10 per cent on the next €55,000 of salary.

The reductions range from 5% to 8% in the case of salaries up to €125,000 and between 12% and 15% above that.

Supporting Job Creation

The Government is providing over €400 million to protect those already in employment and to create new jobs. The Government’s comprehensive package will enable 180,000 individuals to receive training or supports in 2010. The funding includes:

• €114.5 million for the Temporary Employment Subsidy Scheme for companies who employ ten people or more and export their products;
• €20 million for an Activation Fund – targeting the low-skilled. This will benefit 3,500 individuals;
• €14 million for the European Globalisation Adjustment Fund – to support up to 3,800 individuals who have been made redundant in firms such as Dell;
• €9.5 million to improve the competitiveness of the Irish food industry;
• €36 million to exempt employers offering jobs to people on Jobseekers’ allowance/benefit for three or more months. This should benefit 10,000 individuals in 2010;
• €56 million in additional training places for short-term training places to help people progressing from education and training to work. This will benefit 9,000 on short-term FÁS programmes.

Vat reduction

The standard rate of VAT is being reduced from 21.5% to 21% from 1 January 2010. This will cost €140 million in 2010 and €167 million in a full year. This measure will result in increased consumer confidence and will have a positive impact on retail and food sectors. The goods affected include items such as soft drinks, confectionary, alcohol, tobacco, adult clothing and footwear, sports goods, cars, petrol, diesel, electrical equipment and CD/DVDs, furnishings and jewellery.

The services affected include telecommunications, toll roads, television rental, haulage, advertising and legal services. The reduction in the VAT rate will reduce inflation by 0.18% in a full year.

Scrappage Scheme

In recognition of the difficulties being experienced in the motor industry, the Government has decided to implement the following package of measures.

Car Scrappage Scheme to be introduced from January 1st 2010 for one year. VRT relief of up to €1,500 will be provided for scrapping cars ten years older in accordance with certain criteria and a new car with emission bands A and B (CO2 emissions of 140g/km or less) is purchased.

Extension of VRT exemption for Electric Vehicles of up to €2,500 is being extended for a further two years - until 31 December 2012. Extension of VRT relief scheme for plug-in Hybrid Electric Vehicles is also being extended for a further two years - until 31 December 2012.

This package of measures is regarded as broadly revenue neutral. 

The Government’s policy is a simpler, broader and fairer tax system to safeguard the State’s ability to pay social welfare to those most in need. In the interests of fairness, 48% (1,051,000 of income earners) will continue to be exempt from income tax in 2010. A further 40% will pay at the standard rate and 12% will pay tax at the higher rate.

The following demonstrates the fairness and equity of the current income tax system:

• The top 1% of income earners will pay 26% of income tax in 2010;
• The top 4% of income earners will pay 48% of income tax in 2010;
• The bottom 81% of income earners will pay 18% of income tax in 2010.

Our tax system continues to compare favourably internationally. Ireland has the second lowest tax wedge in the entire OECD for a married one income family with two children on average income. Even after the tax increases in the two 2009 Budgets, Ireland still has the second lowest tax wedge for the same family.

While the Government has already signalled that there would be no changes to the income tax system in the 2010 Budget, there will be a Carbon Tax introduced as agreed in the Programme for Government. The tax is estimated to yield €250 million in 2010 and €330 million in a full year. The carbon tax positions us better to meet our challenging EU targets.

• It will be €15 per tonne on fossil fuels. These are being put in place to improve on energy efficiency. (According to the ESRI this measure should have an impact of around €2 to €3 per week);
• It will apply to petrol and auto diesel from midnight on 9th December and is expected to increase petrol by 4.2 cent per litre and auto-diesel by 4.9 cent per litre;
• For non-transport fuels – kerosene, marked gas oil, fuel oil, liquid petroleum gas and natural gas – the tax will be implemented on 1st May 2010;
• Implementation of the tax on solid fuels – coal and commercial peat – is subject to a Commencement Order. This allows for real progress in relation to the Retrofit Scheme;
• In the interests of fairness, no exemptions will be offered to any sector.