Reaction to Budget 2012: Part 1

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Today we got a look at the first part of Budget 2012 . Minister for Public Expenditure and Reform Brendan Howlin today announced a series of measures that add up to the €2.2bn in cuts.

The main points that I took from today’s announcements:

  • Government will reduce the size of the public service to 282,500 by end 2015
  • €250 added to the Student Registration Fee
  • Student Support funding cut by 14%
  • Student Maintenance Grant cut by 3%
  • No new post Graduate Maintenance Grants
  • Community Employment Scheme: The training and materials grant will reduce from €1,500 to €500 per participant per annum
  • Disability Allowance Cut to €0 for those aged 16 and 17
  • Disability Allowance for under 25s cut from €188 to €100 if under 21 and €144 if under 24. Now same as jobseekers allowance
  • Drugs Payment Scheme increased to €132
  • The frequency of the grant for hearing aids will change from 2 years to 4 years.
  • Winter Fuel Allowance reduced to 26 weeks from 32

There are plenty of other cuts and changes announced, see the links at the end for them all.

To me what stands out from this budget is the Disabled. Above I highlighted the cuts to young people with Disabilities, but on top of that there are cuts to the Equality Tribunal, Equality Authority and the Budget for Equality Proofing is completely gone. This is not how we are going to look after people in our society and allow them to live their lives with dignity.

The cuts also focus on students with an increase in Registration fees and grant cuts. We cannot tax our way out of the recession but we do need a knowledge economy we we want to get out the recession so cuts in Education make very little sense.

In these times it is understandable that the Government faces tough choices, and these cuts were probably hard to make. No one is ever 100% happy we a budget, and very few people will be close to that after today’s announcement. But as An Taoiseach warned us in his National Address, these are tough times and tough measures are needed, but they too need to be balanced. The problem with the cuts announced today is that these same people will be hit tomorrow in any announcement of an increase in indirect taxation, especially a VAT rise.

The Minister for Finance will deliver his Budget statement at 3:45pm tomorrow.

Further Reading:

Budget 2012 (pt 1): the main points of Brendan Howlin’s announcement

First Junior Minister Resigns

Willie Penrose TD and Minister of State at Department of Environment, Community & Local Government with responsibility for Housing & Planning has resigned from the Cabinet and from the Labour Party. Penrose was a Super Junior Minister meaning he was entitled to attend all Cabinet meetings.

He has resigned over the issue of the closure of Columb Barracks in Mullingar which is within his constituency.

He has issued this statement (from Politics.ie

)

It was regret that I tendered my resignation as Minister of State at the Dept of the Environment today.

Over recent weeks and months, I had made my clear unstinting opposition to proposals to close Columb Barracks in Mullingar, so arising from a decision that was made at cabinet today, I had no alternative but to take this course of action.

I fully appreciate that difficult decisions have to be made by the Govt if we are to get out of the economic mess in which we have found ourselves, but I was not prepared to stand over a decision that was not backed up by the facts and figures.

In the context of collective cabinet responsibility, and given my vociferous opposition to this proposal, I could not continue in Govt, and so have tendered my resignation to the Tanaiste, the Taoiseach and the Labour Whip.

I understand and appreciate that significant efforts were made by my Labour colleagues in Govt, who fully understood the depths of my feelings in this regard, to resolve this matter, but to no avail.

While I will no longer hold the Labour whip, I will continue to serve the people of Longford Westmeath as an active and vocal public representative.

While this will not make much of an difference to Government numbers, it may be a wake up call to Labour Ministers that at the end of the day its their constituencies that matter and with €3.8bn worth of cuts to come, it will be a hard time for them at home.

House of Commons to Debate Loan to Ireland

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This Evening the House of Commons will be debating the Loans to Ireland Bill which will allow the United Kingdom to give a loan of £3,250 million to Ireland.

The plan is that the bill will finish off all stages today. It will pass the Committee stage in the whole House.

Already today the issue has been raised four times in the House of Commons. The first time by Mark Reckless, MP for Rochester and Strood, during Northern Ireland Questions, in relation to assets held by NAMA in Northern Ireland and suggested that maybe some of these assets could be used as collateral in the loan. The second time was in relation to the effect of the economy in the Republic on the North. Northern Ireland Minister, Hugo Swire MP for East Devon, said that it was important that the UK was seen as part of the solution for Ireland and not the problem.

During Prime Ministers Questions, Mark Reckless MP, again, raised the issue of the loan to Ireland and suggested that the UK does not follow the wishes of the German Finance Minister. David Cameron in his response agreed with Mark Reckless and said that he was glad that the UK could come to Ireland’s aid.

I will be watching the debate on the bill and it will be interesting to see some of the remarks that are made.

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The Budget Axe Falls… on me

So I deliberately didn’t write about the budget yesterday. I was too annoyed and I would write the wrong thing. But today, I am a little calmer. This post is about how the budget affects me, expect broader posts as the week go on. Basically this is a rant!

Overall I am not happy with the budget. That is fairly obvious. While I myself am not massively hit straight away, my pay package from the 1st of January will be hit with the Universal Social Charge.

This budget also limits my choices in furthering my education. The €200 charge on Post Leaving Cert Courses means that it will cost in the region of €500 to do the course I was planning to do next year, which means I have to now reconsider my options. Is this what we want for our knowledge economy? One where people have to figure out whether they can attend college. The higher education student contribution of €2,000 rules out university for me.

Thankfully none of the other cuts will affect me in any major way. But I am annoyed with the cuts in pensions for those under 65, and the cuts in careers allowance and tax credits. How does that make it a progressive budget?

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Bailing out the Banks

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So last night it finally happened. We formalised the bailout. We are taking an €85 billion loan. We will be paying an interest rate of about 5.8%. We will be loaning money to ourselves.

Yes, you read that last line right.

€17.5 billion will be coming for the National Pension Reserve Fund and the other cash on hand funds.

Who’s fault is this? The Banks.

€35 billion of this is for them. €50 billion is to cover state deficits. They are there because we gave the banks money!

It is a disgrace.

Links of Interest:

A difficult but essential deal – Irishtimes.com

€85bn rescue package – Unwelcome return to penal times – IrishExaminer.com

At least we know the grim reality – Independent.ie

Announcement of joint EU – IMF Programme for Ireland – Corkpolitics.ie

It’s All about Money – JasonoMahony.ie

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The Dáil must vote on the Bailout

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Charlie Flanagan TD has flagged up an interesting article in Bunreacht na hEireann on Facebook which could cause a headache for the Government.

The Constitution in Article 29.5.2 states

The State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann.

This will lead to a few interesting days in the Dáil chamber. The Bailout cannot be drawn down on without the Dáil supporting the bailout. That means the Government will have to try and get that passed. Will they do it before the Budget? Will all the Government TD’s vote for the Bailout?

The Government may try and weasel out of a vote using Article 29.5.3 which states

This section shall not apply to agreements or conventions of a technical and adminstrative character.

But I don’t think the Attorney General or the Courts would support that decision.

So who is going to lobby their TD on this bailout?

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George Osborne’s Statement on the UK’s Bilateral Loan to Ireland

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A statement by the Chancellor of the Exchequer, the Rt. Hon. Mr George Osborne. From Hansard:

With permission, Mr Speaker, I should like to make a statement regarding financial assistance for Ireland.I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the Chair of the Treasury Committee and the shadow Chancellor to keep them informed of the latest developments.

The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.

The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, Ireland’s had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as of the IMF and others, this situation could not go on.

Members will understand that it would not have been appropriate for us in recent weeks to have engaged in public speculation about whether Ireland should request assistance from the international community, but I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.

Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers to

“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system.”

The statements made it clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy which the Irish government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3% of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of Ireland’s banks, so that its banking system can perform its role in supporting the economy.

Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will, in part, depend on the IMF’s analysis of what is needed, and Prime Minister Cowen has said that he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute about one third of the total. The total European package will provide the other two thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort. The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland.

The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism; and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days. The United Kingdom is not a member of the euro, and will not be a member of the euro while we are in government, and so we will not participate in the eurozone stability fund. To be fair to my predecessor, he kept us out of that fund, but he did agree to the UK’s involvement in the European mechanism two days before we took office. I made it clear at the time that I did not believe he should make that commitment. However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states, and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.

On top of this, I have agreed that the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5% of Britain’s total exports—indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two fifths of its exports going to the Republic.

Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland. But two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an important presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland. It is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us to be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has already deemed it to be in its national interest to consider a bilateral loan to Ireland.

Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of the package. I shall keep the House informed.

Later this week, the Secretary of State for Northern Ireland and my hon. Friend the Financial Secretary to the Treasury will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, and we will need to take primary powers.

Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.

This is a situation of great difficulty for Ireland and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had a hugely leveraged banking sector that was badly regulated—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the crisis took hold. The arguments against Britain joining the euro are well rehearsed, not least by me, but although “I told you so” might be correct, it does not amount to an economic policy.

When the coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our house in order. We were once seen as part of the problem, but we are now part of the solution. Ireland is a friend in need and it is in our national interests that we should be prepared to help at this difficult time. I commend the statement to the House.

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Our Corporation Tax Rate is not safe?

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According to EUBusiness our Corporate Tax rate is not as safe as our government is claiming. Steffen Seibert the current head of the German governmental press- and information-agency has stated:

The German government will not be making proposals” regarding potential reforms to be put in place for the up to 90-billion-euro (123-billion-dollar) package

“But it is clear that corporation tax should be one point among others when one considers how to increase the ‘receipts’ part of the budget,”.

The German Daily Bild also launched an attack on our low tax rate in an editotial,

“First the country steals jobs and tax revenue from other countries with its extremely low taxes, and now the other countries have to pay up for the second time to prevent its banks from collapse,”

So the Government need to be telling us the truth on this one!

If we raise it, we could be jeopardising our recovery, as it could cause a flight of companies. While the average in the eurozone is 25.7%, we could raise it slightly and not damage it too much, but how much is that? Half a percentage point, a full percentage point? Interesting days ahead on this.

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The IMF Arrive tomorrow

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Maman Poulet has the story that the IMF are sending a team to Ireland to

“participate in a short and focused consultation, together with the European Commission, and the ECB, in order to determine the best way to provide any necessary support to address market risks.”

Full statement here

How long until they are running the country? And how long can we hold out on this bailout?

We either need a General Election or to give the EU-IMF control. It is obvious that FF don’t know what they are doing any more.

Then again can the opposition do a better job? I hope so. It would be better then giving all the power to the EU-IMF.

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