The Minister for Finance, Mr Brian Lenihan TD, presented his Budget to Dáil Éireann on 7 December, 2010. As expected, this has delivered on the promises set out in the Government's Four Year Plan, which was published ahead of the agreement with the EU and IMF. It proposed tax increases of €2 billion and expenditure cuts of €4 billion in 2011. Most of these changes have already been well flagged either in the Four Year Plan or in the media in recent days.
We will have to see what impact these changes have on the overall economy but, as unpalatable as they are, it is an important step in addressing the imbalance in our public finances but more importantly a significant message to the international community that Ireland is prepared to take the hard decisions to put its house in order.
These changes must be seen as a first step on a long road – they only address 40% of the overall adjustment that is required to get us to the deficit being only 3% of GDP. Over the longer term, we must hope that Ireland can return to growth as the international markets improve so that we can eliminate even this deficit and thus start to pay the State’s debt.
As there will be a new Government before the next steps are taken, there is some uncertainty as to how the further reduction in the deficit will be obtained. The opposition parties have published their proposals, which differ in some significant areas. Some parties would see significant tax increases with an increased public service kick-starting the economy, while others would follow closely with the present Government plans with some variations on where the tax increases would arise and how they would create employment. It is hoped that the new Government gives some confirmation of their approach shortly after they are elected to give some certainty to both business and the individual. Ongoing uncertainty as to the pain that each will have to take will continue to contribute to weak demand in the local economy.
In our view we have a golden opportunity to implement new operating models in a Public and Private sector context to ensure that we are fit for purpose for the challenges ahead.
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