Pre-Budget Perspectives on a Fair Way to Fix the Economy and

the Public Finances

Ireland vs The World

(OECD Economic Outlook, Nov 2009)

Drop in GDP, -10.5

Increase in Unemployment Rate, -7.3

Increase in Deficit, -12.4

-6.9

-2.6-2.9

-14

-12

-10

-8

-6

-4

-2

0

2

% C

hang

e, 2

008

& 2

009

Ireland OECD

End of the Domestic Bubble Not Internationally Driven

A Home Grown Recession

(OECD Economic Outlook, Nov 2009)

Consumption, -7.5

Government, -2.6-1.1

-12.1

2.2

-12.8

Investment, -28.9

Exports, -2.2

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

% c

han

ge,

200

9

Ireland OECD

Fine Gael Budget Perspectives

1. We cannot tax our way to recovery

2. Politics must lead the adjustment

3. Broadest shoulders to bear the biggest burden

4. We have to make room for job measures

5. Protect services by cutting costs and bureaucracy

6. We must protect those who cannot work

7. Activate the unemployed

€4.0 Billion Fine Gael Fiscal Adjustment €mTax (net of €1.3bn jobs stimulus) -389

Payroll savings from cuts in pay, over-time etc. -1,200

Payroll savings from 10,000 headcount reduction -500

Other savings from service reconfiguration -1,072

SW (net of €308m “activation” measures) -387

Capital budget transfer to FG “NewERA” Plan -500

Total 2010 deficit reduction measures -4,048

1. We Cannot Tax our Way to Recovery

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)

• 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

5. Protect Services – Cut Costs and Bureaucracy

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

FG Spending Cuts

Year 1Savings

(€m)

F/YSavings

(€m)

% ofMcCarthy

(%)

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%

Procurement 431 431 131%

Total 1,572 1,961 56%

5. Protect Services – Cut Costs and Bureaucracy

• 10,000 head-count (extra €500m off payroll)• 150 cut in agencies (€175m)

Total FG (€m)% McCarthy

Savings Accepted

Finance / NTMA / State Claims Agency 182.9 100%

Houses of the Oireachtas Commission 8.2 100%

Defence 46.6 87%

Enterprise, Trade & Employment 220.3 84%

Taoiseach 22.0 83%

Foreign Affairs 22.3 53%

Transport 87.9 69%

Arts, Sports & Tourism 48.1 41%

Justice 134.0 35%

Health & Children/HSE 779.1 38%

Education & Science 230.1 26%

Agriculture, Fisheries & Food 87.5 29%

Social & Family Affairs 320.0 25%

Community, Rural & Gaeltacht Affairs 47.4 22%

Communications, Energy & Natural Resources 9.1 14%

Environment, Heritage & Local Government 87.2 13%

Total 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)

5. Protect Services – Cut Costs and Bureaucracy

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

• 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

Mortgage year Year 2 Year 3-5 Year 6

Extra FG relief 10% 7.5% 5%

Aver. Monthly Saving (Samples)

€91 €68 €46

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