Transcript HERE - Paschal Donohoe

Pre-Budget Perspectives on a
Fair Way to Fix the Economy and
the Public Finances
Ireland vs The World
2
% Change, 2008 & 2009
0
-2
-2.6
-2.9
-4
-6
-6.9
-8
Increase in Unemployment
Rate, -7.3
-10
Drop in GDP, -10.5
-12
Increase in Deficit,
-12.4
-14
Ireland
OECD
(OECD Economic Outlook, Nov 2009)
A Home Grown Recession
Not Internationally Driven
End of the Domestic Bubble
5.0
2.2
0.0
-1.1
Government, -2.6
Exports, -2.2
% change, 2009
-5.0
Consumption, -7.5
-10.0
-12.1
-12.8
-15.0
-20.0
-25.0
-30.0
Investment, -28.9
Ireland
OECD
(OECD Economic Outlook, Nov 2009)
Fine Gael Budget Perspectives
1.
2.
3.
4.
5.
6.
7.
We cannot tax our way to recovery
Politics must lead the adjustment
Broadest shoulders to bear the biggest burden
We have to make room for job measures
Protect services by cutting costs and bureaucracy
We must protect those who cannot work
Activate the unemployed
1. We Cannot Tax our Way to Recovery
€4.0 Billion Fine Gael Fiscal Adjustment
Tax (net of €1.3bn jobs stimulus)
Payroll savings from cuts in pay, over-time etc.
Payroll savings from 10,000 headcount reduction
Other savings from service reconfiguration
€m
-389
-1,200
-500
-1,072
SW (net of €308m “activation” measures)
-387
Capital budget transfer to FG “NewERA” Plan
-500
Total 2010 deficit reduction measures
-4,048
2. Politics Leading from the Front
• 100% of McCarthy recommendations for
Oireachtas accepted
• Additional FG proposals:
– Commitment to cut Oireachtas members by
one-third, including abolition of the Seanad
– Cut no. of Junior Minister’s to 12 from 15
– Taoiseach’s salary as cap for public sector
3. Broadest Shoulders Should Bear
the Biggest Burdens
• €593m in extra taxes on better off for job
creation and deficit reduction, incl.:
– Tighter rules for non-residents (€20m)
– restriction of exemptions for artists (€33m)
– Restrictions on pensions tax relief (€235m)
– Curtain other tax shelters (€87m)
– Lower threshold (€125k-€250k) for minimum
20% tax rate on higher earners (€9m)
– Abolition of PRSI ceiling (€120m)
4. Make Room for Job Measures
• €1.3bn tax cuts for jobs, trade and tourism
– Cut the jobs tax (€887m)
• 2% off 10.75% employers’ PRSI rate
• 4.25% off 8.5% lower employers’ PRSI rate
• Allow R&D spending offset against employment tax bill
– Reverse 2008 0.5% VAT hike (€127m)
– Abolish €10/€2 travel tax (€125m)
– Cut in 13.5% VAT rate on labour-intensive services
(building, catering, motor repairs) to 10% (€175m)
• €250m Sustainable Economy Fund
4. Make Room for Job Measures
• Free up resources for:
– NewERA (€750m seed capital in 2010)
– National Recovery Bank (€1 billion capital)
• By:
– Winding down Anglo Irish Bank – save €2-3
billion in repayments of sub-bonds
– Selling non-network utility assets (€2-3 billion)
5. Protect Services – Cut
Costs and Bureaucracy
• Permanent €1.2 billion reduction in the pay
bill (excl. head-count)
– shelter earnings below €30,000
– cut core payroll by 3.2% (€575m)
– defer increments (€250m)
– local pay efficiencies (€375m)
• Future upside dividend linked to public
service re-configuration and fiscal stability
Sample Salary Range
No. of Employees
After Tax Reduction*
per week
%
up to €25,000
22000
0
0
€25,000-30,000
33000
0
0
€30,000-35,000
38000
€ 1.8
0.28
€40,000-45,000
33000
€ 7.5
0.92
€60,000-65,000
9000
€
28
2.29
€80,000-85,000
4000
€
45
2.83
€100,000
n.a.
€
61
3.19
€150,000
n.a.
€ 156
5.40
€220,000
n.a.
€ 276
6.53
5. Protect Services – Cut
Costs and Bureaucracy
FG Spending Cuts
Year 1
Savings
(€m)
F/Y
% of
Savings McCarthy
(€m)
(%)
Programmes and Grants
199
199
16%
Big Bureaucracies
386
514
63%
Back Office Efficiencies
446
594
67%
Quangos
88
175
107%
Shared services/ outsourcing
24
48
115%
431
431
131%
1,572
1,961
56%
Procurement
Total
• 10,000 head-count (extra €500m off payroll)
• 150 cut in agencies (€175m)
5. Protect Services – Cut
Costs and Bureaucracy
Total FG (€m)
Finance / NTMA / State Claims Agency
Houses of the Oireachtas Commission
Defence
Enterprise, Trade & Employment
Taoiseach
Foreign Affairs
Transport
Arts, Sports & Tourism
Justice
Health & Children/HSE
Education & Science
Agriculture, Fisheries & Food
Social & Family Affairs
Community, Rural & Gaeltacht Affairs
Communications, Energy & Natural Resources
Environment, Heritage & Local Government
Total
% McCarthy
Savings Accepted
182.9
100%
8.2
100%
46.6
87%
220.3
84%
22.0
83%
22.3
53%
87.9
69%
48.1
41%
134.0
35%
779.1
38%
230.1
26%
87.5
29%
320.0
25%
47.4
22%
9.1
87.2
14%
13%
2,332.6
35%
5. Protect Services – Cut
Costs and Bureaucracy
•
Start a total Public Sector
Transformation, with 3 drivers:
1. Performance at the heart of new Budget
Process (B.A.R.T.)
2. Reconfigure Routine Processes
3. Choice, contestability and local mgt.
autonomy at the Front line (FairCare,
Choice, Contestability)
6. Protect Those Who Cannot Work
• Ring-fence from cuts the “human shield”
against poverty and isolation
– old age pensions
– children (child benefit and qualified allowances)
– carers, the disabled and the blind
– foreign aid
6. Extra Tax Relief for Young
Home-Owners in Debt Distress
Mortgage year
Extra FG relief
Aver. Monthly
Saving (Samples)
Year 2
Year 3-5
Year 6
10%
7.5%
5%
€91
€68
€46
• Increase mortgage interest relief rates from 20-25% of
interest paid to 25-35% for 160,000 First Time Buyers in
2004-08, nearly all of whom are in negative equity
• Financed by closing mortgage interest relief to new
entrants and cuts in other property-related tax reliefs
7. Activate the Unemployed
• Protect Family Income Supplement
• Move recipients of Rent Supplement to
Rental Accommodation Scheme to make
savings and reduce poverty traps)
• Youth Activation Plan to support 38,000
job and training places (removing 30,000
under 25s from next year’s live register)
• 3% cut in weekly working age payments
• €50 weekly cut for < 25s who refuse offers
of training or work after six months
Summary of Jobs Measures
Jobs Measure
Year 1
Full Impact
NewERA / National Recovery Bank
10,000
105,000
Jobs Tax Cuts
6,000
30,000
Youth Employment Pact
14,000
28,000
Workshare
10,000
10,000
VAT / Travel Tax
7,500
2,000
Sustainable Economy Stimulus Fund
2,500
N/A
Total
50,000
175,000