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NOVEMBER 2011
Table of Contents
EXECUTIVE SUMMARY 1. Determining the necessary budget adjustment 2. Delivering jobs and growth 3. Supporting Irish enterprise 4. A fair adjustment of the taxation burden 5. Investing in our future 6. Reducing expenditure, protecting services 7. Protecting the family home 8. Ensuring banks serve the needs of society 9. Providing flexible pension options Appendix 1: Impact of taxation measures Appendix 2: Expenditure savings 2 7 8 13 17 22 24 29 31 32 33 34
Executive Summary
Ireland has reached a key stage in its recovery from the unprecedented economic crisis that has been ongoing since 2008. The measures taken by the previous Fianna Fil / Green party Government since the crisis emerged were wide in scope and substantial in nature. On the public finances, a cumulative 21bn in expenditure and taxation measures was put into effect. While undoubtedly painful for all sections of society, it is important to recognise that had these measures not been taken, the implied, uncorrected deficit would this year have reached an utterly unsustainable 23% of GDP. While the measures taken have unquestionably had a negative impact on living stands, postponing action would have led to greater burdens in the future, particularly on those who have least capacity to bear them. By the end of 2011, around two-thirds of the required measures on the fiscal side will have already been completed. The Financial Support Programme is conditional on Ireland adhering to a programme of fiscal consolidation and a number of other economic reforms. However, we are now on a path which sets us apart from the other EU / IMF programme countries. An anticipated outturn in 2011 of modest economic growth based on a rise in net exports and a current account surplus represent welcome developments. In framing the 2012 budget, the difficult challenge for the Government is to introduce measures that narrow the budget deficit in line with the agreed target of 8.6% of GDP while at the same time maximising employment and economic growth. Innovative policy responses that encourage investment in labour intensive areas such as home improvements and energy retrofitting can create a significant number of jobs and boost the overall economy.
The primary aims for the budget and government economic policy should be: Delivering growth and jobs Continuing the correction of the public finances. In particular progress needs to be made in stabilising the General Government Deficit / GDP ratio Boosting consumer confidence and stimulating demand in the domestic economy Safeguarding key public services and promoting social solidarity Supporting business and enhancing competiveness Ensuring the banking sector serves the needs of the economy
We concur with the overall adjustment figure of 3.8 billion in 2012, though the composition of the adjustment must be achieved in a way that maximises job retention / creation. In this regard, we propose a smaller cut in the capital budget with a corresponding larger decrease in current expenditure. Given the importance of reaching the 8.6% target as a milestone towards the reduction of the deficit to 3% by 2015, the Government should be willing to take necessary additional measures if the mid-year Exchequer returns indicate that the target may not be met. The Fiscal Council can play an important role in monitoring progress through the year and we suggest that they appear before the Oireachtas Finance Committee at least twice during 2012. There are significant downside risks that could impede Irelands recovery. These are further highlighted in todays ESRI Quarterly Economic Bulletin which predicts GDP growth of just 0.9% in 2012 with GNP forecast to contract by 0.3%. We are concerned that the Governments forecast of GDP growth of 1.6% in 2012 is already looking optimistic. Our key proposals are:
Taxation
The Government should not proceed with the proposed 2% VAT increase at this stage. Retail sales and consumer confidence are too fragile and the Government risks a severe contraction in domestic demand. We believe the yield will be less than the 670 million estimated by the Minister because of the negative impact it will inevitably have on the volume of demand. The focus of taxation measures should be on reducing tax expenditures and broadening the tax base. We propose curtailing some reliefs while introducing a new levy on alcohol sales in off licence premises and a tax on high sugar content products. We propose reforming the Universal Social Charge by increasing the rate payable by persons earning over 115,000 by 2% (excluding self-employed) while raising the threshold below which the tax is not payable to benefit low paid and seasonal workers. The duty on agricultural diesel should be equalised with other motor fuels. A rebate system for approved users should be introduced.
Expenditure
The proposed 750m cut to the capital budget is too deep and will damage the output potential of the economy in future years while causing further job losses in a labour intensive sector of the economy in the short term. By increasing the exchequer capital budget by 250m relative to the Government projection, we will be able to bring forward additional labour intensive capital projects to maximise the employment return. We urge the Government to maintain social protection payment rates including child benefit. The Commission on Taxation and Social Welfare, reporting in 2012, affords an opportunity to re-design the system to ensure the most effective targeting of available resources. We believe the 400m target set in the Four Year Plan for public sector pay savings in 2012 should be increased to 500m. The focus of the incremental adjustment should be on non-core pay areas of allowances, overtime and certain premium payments as well as an accelerated implementation of other efficiency measures. The overall current expenditure reduction we propose is 1.7bn. In addition to pay savings and changes to certain social protection programmes, Departmental managers should be instructed to target much more ambitious non-pay savings by focusing on procurement, shared services, out-sourcing and administration. As a solidarity measure, the Public Sector Pension Reduction for retired senior civil servants, public servants and politicians should be increased. This would only impact pensions greater than 75,000. We propose the amount of a pension between 75,000 and 100,000 be reduced by 25% and any excess over 100,000 be reduced by 30%.
Stimulus Measures
The market for repair, maintenance and improvement work on private residences has suffered from the general decline in economic activity and much of the work is now taking place in the black economy. We suggest that a tax credit of up to 2,500 be made available for a two year period for approved works subject to engaging a registered, tax compliant contractor.
We are proposing an investment stimulus of at least 5.6 billion over four years. The Governments pension fund levy should be phased out and replaced with a mandatory investment by private pension funds of 4% over four years (average 1% per annum) in the Strategic Investment Fund announced by Government in September. This would be an investment of 700 million per annum and would be supplemented with an equivalent annual investment from the NPRF. This would offer a long term cash flow benefit to private pension funds while stimulating economic activity and developing the infrastructure capacity of the State. The Strategic Investment Fund should also be open to regular savers in a manner similar to the National Solidarity Bond. Additional incentives to encourage energy efficiency can build on the achievements to date in this sector.
Supporting Families
We have put forward detailed measures to protect the family home and we urge the Government to act on these proposals. The Family Income Supplement payment should be reviewed to give consideration to allowing mortgage payments as a deductible expense. This may make it worthwhile for some families to return to employment. We are preparing legislation which will give the Central Bank powers to intervene in the interest rate-setting policy of financial institutions. One model being examined, which is widely used internationally, is to set a maximum rate relative to the average APR in the market.
The 2011 deficit is now expected to be 10.3% of GDP, which is a deterioration from the 9.4% projected at the time of Budget 2011 and 10% in the Stability Programme Update in April. The Medium Term Statement notes that there is "downside risk attaching to the budget day tax revenue of 34.9bn and an overall shortfall of 450m is being estimated for the end of year budgetary position". The deficit target for 2012 remains unchanged at 8.6% of GDP, but the adjustment required to get there has increased from 3.6bn to 3.8bn. The Medium Term Fiscal Statement projects GDP growth of 1.6% in 2012 (from 2.5%) and 2.4% in 2013 (from 3%) citing a weaker European economy as the main reason. The stabilising of our Debt / GDP ratio over the medium term will be a key benchmark deployed by the EU / IMF in evaluating the performance of the Stability Programme. In this context, we believe the debt dynamics set out in the Medium Term Fiscal Statement are extremely fragile. The overall interest bill is forecast to increase from 5.4bn in 2011 to 10.4bn in 2015. In 2008, that bill was 1.5bn. As a percentage of tax revenue, the bill is expected to rise from less than 3% in 2008 to 12% in 2011 and 20% by 2014. The Debt / GDP ratio is now expected to peak at 118% in 2013 before declining. Previously, the peak was estimated at 116%. If economic growth is 1% less than forecast, then the Debt / GDP forecast will peak at 123%. If it is 2% less than forecast then the debt level will go over 130% with no sign of reducing. The peak in debt / GDP was similar in the 1980s but at the time household debt was considerably lower. By 2015. the national debt will be 203bn from a projected 163bn at the end of 2011. The bottom line is that Irelands debt sustainability is finely balanced and we are dependent on achieving reasonable growth levels in the short-term. The ongoing Eurozone debt crisis and the debate about the future of the Euro pose an enormous threat to our economic recovery. Given our reliance on exports, the risk of a prolonged economic downturn among our main trading partners is a cause of great concern. While Irish bond yields had fallen before rising again quite recently, we need to reinforce the view that Ireland is on a path of fiscal sustainability. This is not a short term project and progress needs to be maintained through 2012.
Fianna Fil believes that while the measures necessary to achieve this will be enormously challenging for the State and its citizens, we must continue along the path of fiscal consolidation. In this regard, we support an adjustment of 3.8bn (including a 600m carryover from actions announced in the current year). We concur with the need for 1bn in new taxation measures. However, we propose a different composition to the expenditure reduction. Specifically, we propose an Exchequer capital budget of 4.2bn, 250m more than proposed by the Government. International experience shows that fiscal consolidation focused on current expenditure is more successful. To maintain the overall balance in the adjustment to the public finances we propose reducing current expenditure by 1.7bn driven by a more ambitious target for efficiency savings within the public sector.
Total Consolidation 2012 Expenditure Current Capital Tax New Measures Carry Forward
Dealing with the unemployment crisis is the single biggest challenge facing the State. Last year, in Budget 2011 the unemployment was projected to be 9.8% in 2014. In April, the Government projected unemployment to be 10% in 2015. Under the Medium Term Fiscal Statement, the Government now expects unemployment to be 11.6% in 2015. In April, the Government projected net employment to grow by 102,000 over the period 2012-2015. This has now been revised down to 65,000. Long term unemployment is of particular concern and now represents over 50% of total unemployment for the first time since the late 1990s.
We believe that restoring the public finances and prioritising supports for the enterprise sector provide the essential bedrock upon which recovery will be built. Restoring confidence for investors and consumers will have a very direct positive impact on job creation. In addition, targeted measures to stimulate the domestic economy are urgently required. The core principles which underpin our proposals to create jobs are: Promote Irelands position as a world centre for high-technology enterprise by investing in training and research which are vital to this objective. Fully exploit our competitive advantages particularly in the agri-food sector. Help individuals with targeted education and training opportunities which can get them back into employment. Aid businesses that have the capacity to innovate and grow. Sustain high levels of capital investment in employment-intensive projects which boost the competitiveness of the economy.
revised in light of the pressure on company budgets. In order to encourage investment in the sector, all R&D expenditure should for a two year period be eligible for a tax credit, subject to EU competition approval. The outsourcing cap on R&D expenditure should be reviewed. The scheme currently limits the outsourcing of R&D from business to research institutes to just 5%. This greatly limits the degree to which enterprise can collaborate with universities and third level institutes on R&D activity and is inconsistent with other government policy aimed at fostering linkages between these two sectors. In order to encourage the widest possible uptake of the R&D tax credit, Revenue and Enterprise Ireland should actively target the Irish SME sector with user friendly information guides on how the relief works. The UK plans to compete very strongly with Ireland for mobile investment. Ireland will have to adapt its tax scheme to enable us to withstand this. Profits from ownership, development and exploitation of innovation should be taxed at a single low rate of 5%.
incentivised via a tax credit to purchase additional shares in order to provide funding to build additional capacity within the milk processing sector. In the current talks underway regarding CAP Post 2013, the Government must ensure that our farmers and processors are positioned to adapt to emerging challenges and ensure that the EU maintains a strong agricultural production base. EU co-funded initiatives such as the Dairy Equipment Scheme and Water Harvesting Scheme should be fully exploited. The Irish seafood sector is worth 700 million and employs 11,000 people. The Government must protect and enhance the sector in the current review of the Common Fisheries Policy due to be completed in 2012. An increase in the quotas for Irish vessels is urgently required.
Tourism
Tourism is a hugely important indigenous industry supporting in the order of 200,000 jobs. Britain is our key market given the many family and personal ties that exist between our countries. The visit of Queen Elizabeth further highlighted the attractiveness of Ireland as a destination for UK visitors. A targeted marketing campaign highlighting the attractions of visiting Ireland has the potential to increase the number of UK visitors to 8 million by 2015. All airport and port charges should be reviewed to ensure they are competitive. Tourist-friendly immigration and visa arrangements will also assist in building tourist numbers. The hosting of the Europa League final in the Aviva Stadium was a great success. Every effort should be made to identify and attract other major events in co-operation with the sporting bodies. Census online has attracted millions of visitors from around the world. It offers a unique opportunity to reach out to people of Irish heritage all over the world. We must fully exploit this by giving practical assistance to all those who wish to trace their genealogy. We can build nationwide on the St. Patricks Festival in Dublin by developing an offering of arts and culture events aimed at attracting tourists from around the world.
Energy Retrofitting
A comprehensive approach to retrofitting across the countrys existing stock of buildings has many direct and indirect benefits: Significant jobs in the construction sector, and additional indirect and induced employment in the wider economy. Substantial savings for Irish home owners, businesses and the State through reduced energy bills. Increased energy security and reduced reliance on imported fossil fuels.
By developing a highly skilled workforce in this area, we can tap into a growing export market for energy efficient goods and services. In order to further support developments in the sector, we propose consideration should be given to the following: Green Loans on favourable terms administered through the credit union sector. The roll out of a Pay as You Save scheme to promote the energy retrofitting of public and commercial as well as residential buildings would be of substantial benefit.
The steps we have taken since 2008 have resulted in a marked improvement in our competitiveness. A difficult process of adjustment has resulted in a lowering of unit labour costs. The European Commission forecasts that by 2012, Irelands competitiveness will have improved by 14%. This downward adjustment of our cost base together with the recovery in the global economy is producing a strong, broadly-based revival in our exports. Our exports are now at their highest level ever. Both the multinational sector and indigenous exporters are winning increased market share abroad. Many export businesses, in sectors ranging from agri-food and
agriculture to computer software, healthcare and financial services are expanding and creating jobs. We propose the following measures to encourage enterprise and job creation: Allow businesses to appeal an assessment for commercial rates on the basis that the ratepayers economic circumstances have changed. A number of factors should be set out for guidance purposes for the local authorities in determining the amount by which to reduce rates in the event of deteriorating economic circumstances. A simplified form of appeal should be allowed to the Valuation Office. Enhance the Employment and Investment Scheme (EIS) to make it more attractive. Allowing full tax relief when the investment is made in a start-up company would facilitate raising capital for SMEs. Investigate the potential for providing access to vacant or underutilised public property for entrepreneurs or business start-ups to use as incubation centres. Undertake an urgent overhaul of bankruptcy legislation. The State should consider a voluntary PRSI scheme for the self-employed so they can claim Jobseekers Benefit and other welfare benefits if their business fails as a means of encouraging entrepreneurship. City and County Enterprise boards should be retained under the aegis of Enterprise Ireland and should be strengthened by providing business incubation units in each board and by the provision of a one stop shop helpdesk for business start-ups. Legal, human resources, patents, accountancy and funding advice would be available. Each Enterprise Board should be linked with a third level institution. To further enhance the work of the Enterprise Boards we propose a doubling of their annual budget to 50m. Impose rigorous efficiency targets on the ESB, Bord Gis and Eirgrid. A National Energy Efficiency Action Plan should be undertaken to achieve a national energy saving of 20% by 2020 including measures to assist SMEs to lower electricity costs. The Metro North is a key piece of infrastructure for the greater Dublin region which would be of benefit to consumers and businesses. The Government
must examine the full range of funding options including the Strategic Investment Fund to complete the project.
Taxation policy has a key role to play in supporting economic activity within the State. Policy should be designed in a way that underpins growth and all revenue raising measures should be benchmarked against alternative proposals in terms of their impact on employment and economic activity. We note the recent call by the Central Bank for households to be given as much certainty as possible in relation to the Governments fiscal consolidation programme. Ideally, the greater the level of detail that can be decided upon and announced in terms of the overall fiscal adjustment package, the better. This would help to remove uncertainty for domestic households and firms and contribute to confidence in the adjustment process overall. It could also help to limit the effects of higher precautionary savings by clarifying the impact of the overall fiscal adjustment package on households and firms. Central Bank Quarterly Bulletin July 2011 The Medium Term Fiscal Statement has not lived up to this challenge. The primary detail provided is that there will be 1.6bn of new taxation in 2012, and an additional 1.25bn in 2013, 1.1bn in 2014 and 0.7bn in 2015. The document is particularly vague in relation to income tax: The Governments objective not to make any further substantial changes in income tax in Budget 2012. This will require that other areas of taxation deliver the revenue increase consistent with the overall budgetary targets. Maintaining the current bands, credits and rates in the years 2013-2015 will be dependent on making progress on expenditure reductions and tax changes in other tax areas to ensure that the overall budgetary targets for the period are met. A progressive income tax system reduces income inequality and is beneficial to society. The impact of income tax changes since 2008 has fallen most heavily on those earning higher incomes with a consequent reduction in income inequality. The marginal tax rate inclusive of PRSI and the Universal Social Charge - for a single person earning more than 32,800 has been increased to 52% (65,600 for a couple where both spouses with income) and for a self-employed person in 55%. Given the extent of income tax measures already implanted, including the introduction of the Universal Social Charge, reductions in tax credits and adjustments to tax bands, we do not believe this is an appropriate time to increase income tax for those earning less than 115,000 and the focus of further taxation measures will be on widening the tax base and limiting certain reliefs.
17 BUDGET 2012 - PRIORITISING JOBS, GROWTH AND THE PUBLIC FINANCES
We are proposing to increase the universal social charge by 2% for individuals earning over 115,000 (excluding the self-employed whose marginal rate is already 55%). This will raise 65m. We propose to raise the threshold for exemption from the universal social charge from 4,000 to 8,000. This will benefit 224,000 persons. This measure will cost 25m.
While acknowledging that VAT will have to rise at some point in the next couple of years, retail sales are too fragile to do so at the moment. It is noteworthy that the estimate published by the Department of Finance of 670m in increased revenue arising from a 2% increase in the standard rate of VAT does not take in to account any impact on sales volume arising from the measure. The Government is in danger of precipitating a severe contraction in retail sales which, excluding motor sales, have been steadily contracting in recent months. We therefore recommend that the Government not go ahead with the proposed 2% increase in the standard rate. In addition to the changes to the universal social charge set out above, the taxation measures we propose are as follows:
Carbon Tax
Carbon taxes are increasingly a feature of national budgets across the world. From a fiscal perspective, a carbon tax is effective because it is hard to escape or avoid. Carbon taxes also recognise the need to choose tax options that have external benefits such as reduced import dependency on fossil fuels, reducing emissions and encouraging innovation by incentivising companies to bring low carbon products and services to the market. The carbon tax was introduced at a rate of 15 per tonne in the 2010 budget. We propose a 5 per tonne increase in 2012 with appropriate measures to alleviate fuel poverty. This would raise 100m.
a contributing factor to the rise in binge drinking and underage drinking. We propose to outlaw the practice of below cost selling of alcohol which will eliminate the loss of VAT to the State from such practices. According to industry estimates, this will raise 20m. In addition, there is an opportunity to establish a greater degree of fairness within the alcohol sales market and to raise revenue for the State by introducing a levy directed towards off-trade establishments. This would also be beneficial to society as a whole since the regulation of alcohol taxes is one of the most common ways to combat alcohol related problems, especially within European societies. The cost to the health care system of alcohol related illnesses is approximately 1.2bn out of a total estimated cost to society of 3.7bn. We therefore propose that a levy be designed which will raise 100m in a full year. The application of the levy should be weighted towards the large retail outlets selling alcohol, using a volume of sales basis. Consideration should be given to doing this in coordination with the Northern Ireland Executive.
Household Charge
The Minister for the Environment Phil Hogan announced details on 26 July 2011 of the Governments plans to introduce a 100 household charge in 2012, as a precursor to a full property tax. In introducing such an interim measure, careful consideration needs to be given to the instances where a waiver would be granted. In framing the relevant legislation, the Government needs to take account of issues such as the high level of mortgage arrears, negative equity, welfare dependency and persons who paid stamp duty on a house purchase in recent times.
Motor Tax
Motor tax has not been increased in the last two budgets. An average increase of 5% in 2012 would raise 50m. The new rates of tax based on CO2 emission have had the desirable effect of encouraging consumers to buy more efficient vehicles. However, the system has thrown up certain anomalies such as a new BMW 5 Series Diesel or 2-litre Skoda Octavia being in Band B and subject to an annual tax rate of 156, just a fraction of their market value. We believe a modest rebalancing of these charges, which would still leave such cars at a considerable tax advantage compared to other rates while contributing to raising additional revenue, should be considered. In addition the off the road facility in relation to the taxing of motor vehicles should be abolished, subject to a very limited number of exceptions, in line with the recommendations of the Independent Local Government Efficiency Review Group which will result in savings of 25m.
However, with due regard to the need to broaden the tax base and in light of the fall in value of residential property, it is appropriate that Capital Acquisition Tax thresholds be adjusted downwards. We propose to lower the thresholds by 10% and increasing the rate to 30% to yielding 72m.
Spending on public investment projects increased substantially between 1997 and 2008. This investment transformed the quality of our national road network, public transport system, and education and health infrastructure as well as our sporting and cultural facilities. During this period, we built up considerable expertise which was capable of delivering major projects such as the motorway network, the Aviva Stadium, the Criminal Courts of Justice and the National Convention Centre.
While the capital budget will continue to have to bear a considerable part of the fiscal adjustment, we must also acknowledge that the State has both long term infrastructure and short term employment needs which can be addressed by a more judicious allocation to the capital budget. Irelands population continues to grow rapidly. Census 2011 showed an increase of 341,000 since 2006, an annual rise of 1.6%. Ireland is expected to have the strongest population growth in the EU in the coming years. This is a huge long term economic advantage for the country but will undoubtedly place pressure on the infrastructural resources of the State. The impact of reduced investment spending has been stark. Since 2007, over 180,000 direct construction jobs have been lost in the economy. Whilst acknowledging that construction grew to become too large a proportion of the economy at its peak, especially over the period 2004 to 2007, the industry has now overcorrected. Construction activity this year is forecast to be 7% of economic activity and to fall to 5% in 2012. The Infrastructure and Capital Investment Framework (2012-2016) envisages a 60% reduction in Exchequer capital investment in 2014 from its peak in 2008, with the allocation in 2014 of 3.25 billion representing less than 2% of GDP. We believe this represents too deep a cut in capital expenditure. We propose a capital spend of 4.2bn for 2012 which is 250m greater than proposed by the Government. The incremental expenditure should be focused primarily on labour intensive projects.
investment by the National Pension Reserve Fund from its discretionary portfolio. This gives a potential 5.6bn for investment on a commercial basis in infrastructure opportunities and would be separate from the Public Capital Programme. The size of the fund could be further enhanced by making investment in it available to regular savers in a manner similar to the National Solidarity Bond as well as additional market funding where available. This programme will not impact on the General Government Deficit. The Governments Pension Fund Levy and the related VAT changes were an attempt to tackle the jobs crisis. To date, there is no clear evidence that the levy has produced any tangible benefit. The Government appear intent on undermining their efforts to assist the tourist related sector by increasing the standard rate of VAT by 2%. We suggest that the Government wind down the Pension Fund Levy and related VAT changes at the end of 2012 and bring forward separate proposals to assist the tourist sector. The long term nature of pension funds, both public and private, makes them uniquely suitable for investment in infrastructure assets that offer stable, predictable cash flows. Investment in the proposed Strategic Investment Fund offers pension funds the opportunity to partner with the State in the development of projects that will offer a commercial return, secured on a portfolio of real assets while also providing a significant stimulus to economic activity which would be beneficial to all sectors of society. In section 9 we outline additional measures that will assist in incentivising prudent pension provision by citizens.
It is encouraging that, over the period of the agreement, the number of health service management and administrative staff is down by over 7.4%. The reduction in the number of civil service principal officers is three times the average reduction. The Governments new Public Service Reform Plan announced on 17th November provides for reducing the total number of Public Service employees by some 23,500 by 2015 compared to the total number at the end of 2010. Progress has been made on leave standardisation, rationalisation of services and agencies, redeployment, shared service initiatives, and many other local and national costsaving reform initiatives. In total, it is expected that by 2015, Public Service numbers are expected to have fallen by 37,500 since 2008 to 282,500 (a reduction of almost 12%). When delivered, this will have reduced the gross pay bill by over 2.5 billion (or 15%) since 2008. While we acknowledge the significant progress made to date, there is no room for let up in the implementation of the agreement. Given heightened levels of uncertainty in the international economy and the implications this has for the Irish economy, there is a greater need than ever to bring down the cost of delivering public services while maximising delivery. We believe now is the time to set more ambitious targets for 2012. The full year impact of measures taken in 2011 plus further efficiency measures should be initiated to bring the impact for pay savings in 2012 of 500m. The Implementation Body should monitor this closely to ensure that progress is made throughout the year.
system can give rise to genuine error amongst customers and staff. Merging and simplifying the range of schemes administered by the Department would assist in mitigating such losses without reducing entitlements.
Rental Schemes
The Rent Supplement and Rental Accommodation Scheme are vital State supports for those in need of both short term and long term housing support. At present, there are over 95,000 claimants in receipt of Rent Supplement and over 30,000 benefiting from the Rental Accommodation Scheme. The State needs to be both conscious of the direct cost of Rent Supplement and the indirect cost it may pose in terms of
distorting the private rental market resulting in increasing costs for low income working families. We propose an increase of 4 per week in the contribution by tenants under the Rent Supplement Scheme and an acceleration of the rate of transfer of claimants to the Rental Accommodation Scheme. In addition, a comprehensive review of the maximum payments to landlords should be made to ensure that the State in receiving value for money. Landlords not registered with the Private Residential Tenancy Board and landlords who are not tax compliant should be excluded from the scheme.
relevant State bodies will maximise their delivery and prevent operational drift setting in. A key improvement would be to introduce sunset clauses when new agencies are created which will ensure that the entity will cease to exist after a predetermined date unless its mandate is specifically renewed.
Education
The provision of educational opportunity as a means of advancement has always been and will remain a core value of Fianna Fil. As a country, we will pay a high price in the long-term for under-investing in education in the short-term. Investment in education, at all levels, must be protected and will pay a dividend over time. We do not support an increase in the pupil teacher ratio or cuts to special needs
28 BUDGET 2012 - PRIORITISING JOBS, GROWTH AND THE PUBLIC FINANCES
supports. At third level, in framing this budget, we believe the Government must give cognisance to the very significant increase in the registration fee / student contribution charge in recent years as well as the political commitments given by the Minister for Education Ruairi Quinn TD.
The level of owner-occupier mortgage arrears is deeply worrying and is a source of great stress and anxiety for the many thousands of individuals and families affected. The most recent figures released by the Central Bank show that, at the end of September 2011, 62,970 or 8.1% of residential mortgages were in arrears of 90 days or more. A further 36,376 mortgages have been restructured and have not fallen into arrears. The situation has been deteriorating steadily over the last year. % of residential mortgages in arrears Dec 2010 Mar 2011 June 2011 Sept 2011 5.7% 6.3% 7.2% 8.1% value of residential mortgage book in arrears 7.4% 8.3% 9.4% 10.8%
In addition to the official figures, information supplied to the Oireachtas Finance committee in November following questioning by Fianna Fil, provided further evidence of the scale of the underlying mortgage crisis. The Central Bank has informed the committee that, at end June 2011, some 46,634 mortgages were in arrears of up to 90 days. Combining the number of mortgages in arrears of 90 days or more with those that have had to be restructured and those that area in arrears of less than 90 days, the conclusion that up to 1 in 5 residential mortgages are in some level of difficulty cannot be avoided. This area is a policy priority for Fianna Fil. The Code of Conduct for Mortgage Arrears (CCMA) was introduced and revised during the lifetime of the previous Government and has been of significant benefit to people struggling with their mortgage. We believe that a greater public awareness of the code needs to be put in place. In addition, we are not satisfied that the banks are honouring the code in all respects. It is our experience that many of the distressed mortgage holders who contact
individual Fianna Fil Oireachtas members seem to have little or no knowledge of the code. This situation must change through a proper public information campaign. The mortgage arrears problem is clearly accelerating and the situation is not helped by the indecision and lack of action on the part of Government. The Keane report was presented to the Government on 28 September 2011. To date, the Government has not made any decisions on the report and has not come forward with any action plan for dealing with the urgent problem of mortgage arrears. Regrettably, there is a distinct lack of urgency on the part of the Government in dealing with this crisis. In the midst of all the pre-budget speculation emanating from Government sources, mortgage holders who bought houses between 2004 and 2008 will not have missed the fact that there is little speculation that the Government will make good on its pledge to give up to an extra 166 per month of mortgage interest relief. Over the past number of months, Fianna Fil has published a number of proposals to assist mortgage holders: Family Home Bill to protect the family home from repossession Debt Management Advisors Bill to regulate debt management advisors Reforming Mortgage Interest Supplement making the scheme more accessible for families in need of support Debt Settlement and Mortgage Resolution Office Bill to establish a nonjudicial debt settlement system in Ireland which can deal with personal debt and mortgage debt. The Government allowed this Bill to pass second stage in the Dil and it has been referred to the Oireachtas Justice committee.
We acknowledge that the actions of the ECB have meant that the burden of loss arising from the banks fell most heavily on the State with limited private sector involvement. There is an onus on pillar banks to assist in flow of credit. The setting of strict loan to deposit ratios by the Troika is creating incentives for banks to shrink their loan books. This is contributing to the general weakness in the domestic economy. The context for negotiating a write down of Irelands banking debt has fundamentally changed following the European Council summit of 26 October which provided for a write down of 50% of Greek sovereign debt held by European banks. The government should engage in robust negotiations with the ECB to secure savings on the remaining 2.8 billion of unsecured, unguaranteed bondholders remaining in Anglo Irish Bank and Irish Nationwide. Anglo Irish Bank and Irish Nationwide (now known as Irish Bank Resolution Corporation) should be wound down in an orderly manner so as to minimise the bill for the taxpayer The government should use the new extended powers of the EFSF to substantially reduce the burden of the Promissory Notes on the Irish State. The Banks should be required to bring forward plans to bring about a significant reduction in their cost base. Remuneration structures for Bank management should be urgently reviewed to ensure that no repetition of reckless lending practices. It is not acceptable that senior executives (other than CEO level) have not taken any pay cuts since the crisis emerged.
An aspect of pension provision that often discourages pension take up is their perceived inflexible nature. At present in Ireland, there is an estimated 72bn invested in Irish pension funds. The majority of assets are managed on behalf of Defined Benefit Schemes (approximately 48bn) with the remaining 24bn managed on behalf of Defined Contribution schemes (including additional voluntary contributions). Most Defined Benefit schemes are now closed with members being transferred to Defined Contribution schemes. Many people in society face severe financial difficulties as a result of the economic crisis. In some cases, these individuals have significant pension assets accumulated which they are prevented from accessing until retirement under the terms of the Pensions Act 1990. We propose an amendment that would allow for early access by individuals to up to 20% of their pension schemes taxable at their marginal tax rate. For practical purposes, we suggest this would apply initially only to Defined Contribution Schemes. The conditions under which people would have access should be strictly defined and would include: Redundancy First Time buyer home purchase Critical illness Dealing with debt problems
The OECD in a recent report stated that whilst care is required to ensure that people do not unduly threaten their retirement incomes, early access to pension savings should be considered as a policy option by governments to reduce the effect of cyclicality in the economy. An alternative that could be considered is allowing tax free withdrawals subject to a requirement to pay back the amount in full within a specified period. This would be similar to 401(k) accounts in the USA where loans are tax free but have to be paid back with interest and generally within five years to avoid a penalty payment. If the loan is taken as a down payment for a home, it may be repaid over 15 years. New Zealand also offers early access to pension savings through its Kiwi Saver model.
million
Total
Increase threshold for universal social charge to 8,000
million
500 200 200 47 50 200 25 20 170 50 295 1,757 (20) (10) (25) 500
2,202
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