Dublin unveils radical austerity programme

The Irish government has unveiled a far-reaching austerity package with sweeping cuts and tax hikes in an effort to meet the tough conditions of an €85 billion EU-IMF bail-out plan, an architecture of adjustment that will radically alter the very structure of how the country is run.

It is a plan that will hit every citizen and sector of the Irish economy, but will hit working people, students and low-income earners the hardest, a move that has already provoked both a deep fury from many but also a bitter resignation amongst others.

Key measures include a slashing of welfare benefits, a hiking and broadening of income taxes, a sharp increase in university fees, the imposition of property taxes and water charges. Dublin hopes to save €15 billion over the next four years, including €10 billion in cuts and €5 billion in new taxes and other sources of revenue. The shocking sums come atop a total of €14.6 billion in austerity measures introduced in the wake of the wider economic crisis.

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"As Ireland is a small, open economy, our economic recovery will be export-led. This plan stimulates exports, increasing productivity and rebuilding competitiveness," the government said in a statement. The plan forecasts economic growth of 2.75 percent of GDP on average over 2011-2014, and hopes this will result in the creation of some 90,000 new jobs.

Dublin appears to have won the day against pressure from other EU member states and the commission that it hike its ultra-low corporation tax of 12.5 percent, calling the rate "a cornerstone of our industrial policy".

Acquiescing to an IMF demand that labour costs be slashed, pay for minimum wage earners will be reduced by a full 12 percent, higher than the 10 percent that had been predicted, from €8.65 an hour to €7.65.

Low-income earners have in recent years enjoyed considerable relief from income tax, with as many as 45 percent of employees not paying at all. This era has come to an end, with income tax from now on to be applied on all who earn over €15,300 a year, down from the current €18,300. The government hopes to raise an additional €1.9 billion this way.

VAT will also be jacked up a total of two percent, spread over the last two years of the four-year package, while water charges will be introduced by 2014.

Social welfare spending is to be lacerated by €2.8 billion and student 'registration fees' will climb from €1,500 to €2000, an adjustment of 33 percent. The figure is not as high however as had been feared, with early reports suggesting a doubling to €3,000.

The cuts in 2011 will be worth some four percent of GDP and over the four-year period, equivalent to a full 11 percent.

As part of the cuts to spending, public service staff levels will be reduced by 24,750 positions and salary adjustments, including a 10 percent pay cut and a new pension scheme for fresh hires, will shave off €1.2 billion in costs over the next four years.

Property owners will now be subject to a tax for the first time, to be initiated in 2012, and business owners will be slapped with a local services levy.

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Lisbon 2010

“This summit was not as exciting as other summits because we basically agreed on everything.”

Obama on the EU-US summit in Lisbon

Ireland to request bailout package from European Unio

Ireland's Finance Minister, Brian Lenihan, is to recommend the debt laden country make a formal application for a bailout loan from the European Union and the IMF. He gave no indication of how much will be needed but said it would not be a 'three-figure sum' - reports today have put figure needed as high as €120bn - but said it would be "tens of billions of euros".

A rescue from the EU, European Central Bank and International Monetary Fund has been wideley expected despite strong denials from Ireland. The recommendation will be made when the government meets later today to finalise a four-year plan to cut its budget deficit, he told RTE, the Irish broadcaster.

"The key issue is ensure we do not have a collapse of the banking sector," Mr Lenihan said in an interview. He acknowledged that Irish banks have become too dependant on ECB funds and had to be "weaned" a way from this funding. Mr Lenihan described the funding being applied for as 'a standby fund' and said not all of it would necessarily be drawn down.

Details of the bailout - or the conditions attached - will be the subject of discussion. However, the Irish government has been given a stark warning from some of the biggest American companies in Ireland on the risk of a mass exodus if the country's low corporation tax rate is raised.

Telegraph

Germany ups pressure on Ireland over business tax

Germany stepped up pressure on Ireland to raise its corporate tax rate on Tuesday with a senior finance expert in Chancellor Angela Merkel's party saying the Irish government could do so without hurting growth.

Dublin's 12.5 percent corporate tax rate, one of the lowest in the 27-nation European Union, has been a key part of its economic strategy and crucial to tempting big employers like Google Inc and Pfizer to Ireland.

Irish borrowing costs have surged in recent weeks and the country is now under pressure to ask the EU for financial assistance to help it cope with its fragile banks. It is unclear what kind of reforms the EU could demand in exchange for aid. But Michael Meister, a deputy leader in parliament and finance expert for Merkel's Christian Democrats (CDU), said the country needed to consider raising the levy. "The Irish rates are below the European Union average," Meister told Reuters on the sidelines of the CDU annual party congress in the southwestern city of Karlsruhe. "I therefore see here at least a possibility, given the high (Irish) budget deficit, to improve revenues without causing a negative impact on growth," he added.

The low rate is a source of irritation in some European capitals, including Berlin, which view it as unfair competition and there has been a real fear in Dublin that Europe would demand an increase. Meister's comments come one day after Elmar Brok, a senior CDU lawmaker who has sat in the European Parliament since 1980, said Ireland may have no choice but to raise the rate. "Ireland has two options to consolidate its budget -- cut expenses even further or increase taxes like the corporate tax rate," Brok said at the congress in Karlsruhe.

Ireland is relying on exports to help the economy grow by a forecast 1.75 percent next year and has repeatedly said it will not increase the rate it taxes the output of multi-nationals. A 2008 report by the Organization for Economic Cooperation and Development said that on average studies find that a one percentage point increase in the effective corporate tax rate leads to a 3.7 percent decline in foreign direct investment.
Reuters