In April 2009, the Irish government unveiled an emergency budget in response to the country’s deteriorating finances. It is the harshest budget facing citizens for many years and contains a number of ‘across the board’ tax rises. The budget includes a new early retirement scheme for civil servants aged over 50 years, a review of top public service pay to be undertaken by the Review Body on Higher Remuneration, and an Enterprise Stabilisation Fund to help protect jobs.
The emergency budget imposed by the Irish Minister of Finance, Brian Lenihan, on 7 April 2009 places an emphasis on tax raising measures rather than expenditure cuts; nevertheless, the latter seem likely to be further developed in the near future. The budget was framed in the context of the harsh economic reality facing Ireland. Some of the main points in the emergency budget are outlined below, highlighting certain industrial relations issues and reactions from the social partners.
Main points of budget
- Income levy rates, which were introduced in the previous budget in October 2008 as an additional income tax, are doubled to 2%, 4% and 6%.
- Furthermore, the income levy thresholds are lowered, with the 2% rate now starting at €15,000, while the 4% rate is effective at €75,000 and the 6% rate at €175,000.
- A new National Asset Management Agency (NAMA) is to take bad loans off the banks’ balance sheets.
- The early childcare supplement is being halved from 1 May 2009 and will be scrapped in 2010.
- No increases are to be made in social welfare for the next couple of years, and the current rates may be reviewed at a later stage.
- The Christmas social welfare bonus will not be paid this year and social welfare payments will be halved for those aged under 20 years.
- The ceiling up to which employees have to contribute pay related social insurance (PRSI) will rise from €52,000 to €75,000.
- Health levy rates will double to 4% and 5%. The entry point for the higher rate will be reduced to €1,443 a week, which amounts to €75,036 a year.
- A new scheme has been introduced to allow civil servants over the age of 50 years to retire.
- Capital Gains Tax and Capital Acquisitions Tax will both increase from 22% to 25%.
- A 10% cut has been made in political expenses, while long-term payments to politicians will be abolished.
- The Commission on Taxation (Coimisiún Cánachais) will decide how to raise further money from either taxing or means testing child benefit.
- A national infrastructure bond will be considered to raise money for capital projects.
- An Enterprise Stabilisation Fund is to be set up to help protect jobs in troubled companies.
- A review of top-level public sector pay rates is to be undertaken.
Impact on industrial relations in public sector
Some of the above measures relating to the public sector could potentially have a significant industrial relations impact, notably the review of top public sector pay and the public service early retirement scheme for those aged 50 years and over. It is expected that the early retirement measure, the new career break initiative and the review of top pay by the Review Body on Higher Remuneration in the Public Sector (Comhlacht Athbhreithnithe Ardtuarastal san Earnáil Phoiblí) will all result in significant savings. Early retirement is likely to become popular; however, it could lead to serious skills gaps unless well planned and targeted.
The proposed Higher Review body process has the potential not only to diminish higher pay levels in the public service, but also – as identified by the weekly magazine Industrial Relations News (IRN) – to lead to the gradual unravelling of the benchmarking related pay increases in the rest of the public service (IE0801059I). In short, any attempt to cut senior public service pay could have a knock-on effect in the rest of the public sector, in terms of reducing pay.
Furthermore, the public service related issues will inevitably place a strong emphasis on productivity or the need to ‘get more for less’, as advocated by the Prime Minister (Taoiseach), Brian Cowen. Achieving this goal might be easier if the public sector trade unions can be persuaded to cooperate in this effort, by diverting them away from their current criticism towards a more positive approach.
Social partner reactions
The social partners have given mixed reactions to the emergency budget. It has been criticised by the trade unions, with Ireland’s largest union – the Services, Industrial, Professional and Technical Union (SIPTU) – suggesting that the measures would make it very difficult to reach a deal on economic recovery with the government. SIPTU’s President, Jack O’Connor, declared that the budget was ‘not a basis for social solidarity’. He highlighted that those who were losing their jobs faced reduced social welfare payments but saw no tangible measures for maintaining jobs.
Meanwhile, the General Secretary of the Irish Congress of Trade Unions (ICTU), David Begg, described the budget as:
harsh and lacking in a serious and structured response to the jobs crisis, which is the single greatest problem we face. Protecting jobs, maximising employment and creating new opportunities should have been to the fore in this budget, but the measures were simply not commensurate with the gravity of the problem we face. Some €4.5 billion is to be injected into the banks this year, but all they could muster for helping the unemployed was €128 million.
However, the Irish Business and Employers Confederation (IBEC) welcomed the budget as ‘a credible response to the current difficulties in the public finances’. IBEC Director General, Turlough O’Sullivan, considered that the budget sent ‘a clear and positive signal that the Irish government is taking effective remedial action over the next five years’. However, Mr O’Sullivan remarked that the employer organisation would have preferred a greater emphasis on cutting current expenditure immediately rather than on increasing taxation.
Tony Dobbins, National University of Ireland (NUI) Galway