Belt Tightening on New Budget Day

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Belt Tightening on New Budget Day

September 10, 2008

By Paddy Clancy

IRELAND is tightening its belt by several notches with the decision of the government to bring forward the date of the Budget by seven weeks.

Fierce pressure from business leaders, and particularly from the crisis-ridden construction industry, for urgent action to correct the economic downturn, left Taoiseach (Prime Minister) Brian Cowen with little choice but to abandon the traditional early December date for the next year’s Budget.

Even if those pressures weren’t sufficient to spur early action, the latest exchequer figures showing a whopping deficit of almost $12 billion so far this year were bound to spur ministers into overdrive on their return to government buildings from the summer recess.

The first decision of the first full Cabinet meeting of the new term was to fast-forward the budget – and ministers were given only seven days in which to prepare their submissions for their respective departments.

Finance Minister Brian Lenihan will now present the budget to the Dail (Parliament) on October 14, and the nation anticipates the most stringent cuts in public spending despite Tanaiste (Deputy Prime Minister) Mary Coughlan’s assurance that there will be no further reductions following nearly $705 million of economies imposed in July.

Senior government sources indicated that the cuts will continue at least at the same level next year – bringing minimum savings of $1.41 billion. Even more savings will be sought, and ministers are working out where they can be found.

Lenihan was considered to have made the understatement of the year when he announced that the public finances were under considerable pressure.

He said the unprecedented earlier budget will give clarity and confidence to investors and taxpayers and will give a sound base for economic recovery.

While ministers attempted vigorously to play down all speculation on what corrective measures will be taken, there was widespread agreement that there must be a concentrated effort to save the construction industry, which is accepted as being the most affected by the crisis.

There is likely to be a range of new measures to help first time homebuyers in order to revive the ailing property market.

An illustration of how seriously hit the sector is came with the publication this week of some details of a letter to Cowen from one property developer who faces financial ruin.

Charlie Fergus, who once had 3,000 employees on his payroll in Ireland and the U.K., heads up a company in Bundoran, Co. Donegal, that’s unable to complete two building projects because he has run up debts of almost ?22 million and banks are closing in.

He wrote to Cowen urging emergency measures to save the construction industry and told him, “I do believe that this change in trading climate has not happened to this extent in the history of the human race.

“I will unashamedly say that I and my family stand to lose everything. We are not alone.”

Nor are they.

Two other prominent developers have taken drastic measures in a bid to revive the property market. They are offering interest-free loans to purchasers to help them bridge the gap between the actual price of a property and the mortgage financial institutions are prepared to advance.

On other economic fronts, a 1% rise in income tax has been mooted much to the consternation of trades union chiefs who, when the national pay talks resumed this week, were being urged to prepare for a two-year pay freeze for public servants, a move that would save the exchequer close to $850 million next year.

Lenihan called on negotiators to reflect on the extra cost to the taxpayer that would result from any increase in public service payroll costs.

“There are times when the general economic welfare of the country has to take priority over all sections,” he said.

The decision to bring forward the budget date was greeted by main opposition finance spokesman Richard Bruton of Fine Gael as indicating that the government had “finally woken up” to the scale of the crisis facing the economy.

“Fianna Fail only has itself to blame for this debacle. Fine Gael has been warning for years that the government’s over reliance on a debt-fuelled housing boom was unsustainable,” he said.

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