Budget 2012 Hints Test The Water

With the 2012 budget fast approaching members of the coalition government have been speaking about possible changes that may feature in the budget. Some see this as testing the water, gauging the backlash on certain cuts or taxes that have been considered. Others, such as Fianna Fail finance spokesman Michael McGrath, calling these releases a “ deliberate softening up-exercise”.

So with the government aiming to reach a target of €3.8bn in spending cuts (€1.6bn) and tax increases (€2.2bn), just what potential implementations have been mooted so far?


Health minister James Reilly is believed to be aiming for cuts of circa €500 million in the health service and there is apparently disagreement between Minister Reilly (FG) and Brendan Howlin (Labour- Public Expenditure Minister) on how to meet €500m of health cuts.

Minister Reilly has spoken of the possible introduction of an annual charge of €50 on medical card holders. Given there are some 1.5 million medical card holders in the country that is an annual additional income of circa € 75 million per annum.  Which is just under one sixth of the target of €500m.

This potential move has been criticised by many including Stephen McMahon of the Irish Patients Association who has said that many will not be able to afford such a charge.

Others, such as Dr. Mark Hannon wrote in the Irish Medical Times in May of this year that even small charges for medical care can help prevent serious abuses of the health system taking place.

Another change suggested for this budget is to apply an increase of €1 or €1.50 on prescription charges for those on medical cards. This has also caused much uproar, for the same reason as the flat medical card fee in that those with medical cards possess them because of poor financial circumstances, and as such are not in a position to pay an additional fee for prescription medication. Lest we forget that last year also saw the introduction of a  50 cent fee on prescription items for medical card holders. This would prove especially crippling to those with long-term illnesses.

Minister Reilly has come under particular criticism for this proposal as earlier in the year he had repeated his intention to press ahead with his pre-election promise to abolish prescription charges for medical card holders.

Minister Reilly has also said that some community nursing units around the state are going to be closed down. However, he added that there would be no more hospital closures in this budget. Health Service Executive chief executive Cathal Magee said that a capital investment of between €600 million and €900 million would be required to bring many nursing units up to the required standards and that there were “significant challenges around the viability of units when you get below 50 beds”.

Mr. Magee also pointed out cost benefits to the customer to pursuing many private options as opposed to underperforming State-run units saying that under the Fair Deal scheme the cost per patient per day in a private nursing home was €850 while in the public system the cost was €1,350-€1,400 and in some smaller facilities up to €1,800.

Social Welfare

The Minister for Social Protection Joan Burton is believed to have the unenviable task of having to plug a gap of €1.6 billion in the Social Insurance Fund.  This covers areas such as Jobseekers Allowance, Worker Illness and disability.

Minister Burton said “I can plug this hole either by increasing rates of PRSI, reducing benefits or reforming the system. My preference is to reform the system.”

It is believed that she is looking to reform the PRSI system (which pays for the above) by widening the net to make certain types of unearned income such as rent profits and dividends liable to PRSI.

It has also emerged that Minister Burton is looking at a proposal to transfer responsibility for paying sick pay from the Department of Social Protection to individual employers in the first four weeks of an employees illness. The proposal would take at least a year to get up and running but is projected to save the exchequer €150 million in 2013.

This has not gone down well with Employers representatives.  Brendan McGinty of Ibec said :

The issue for business here is that it is a straight hit to the bottom line, it is going to increase employer costs in terms of the cost of employment.

Isme chief executive Mark Fielding said:

To further add to costs when businesses are struggling to stay afloat, maintain and create employment, is daft. It is as if the Government have a ‘death wish’ for the small business sector.

Another option the coalition are believed to be looking into is the possibility of cutting the child benefit allowance by €10. It is perhaps this possible proposal that has received the biggest backlash, especially given Labour leader Eamon Gilmore’s election pledge that he would not allow Fine Gael to cut child benefit rates. As such, the possibility of this cut has also lead to apparent unease within the Labour party.

Independent TD for Dublin North Central Finian McGrath said that child benefit helped to reduce poverty levels for poor families and went on to ask Taoiseach Kenny whether he accepted that child benefit was not a slush fund for the rich but was a huge help to families, particularly those women and children at risk in dysfunctional families where the partner or husband controlled the purse strings.

Representative McGrath also added that :

It’s a bit rich and a bit hypocritical to be talking about children’s rights referendums in the future when you’re planning to take €10 off these poor families.”

However, Cabinet Minister Leo Varadkar commented that should the child benefit be cut, that certain measures could be taken so that it may be partially offset by increases in other payments targeting the most badly-off families. An example of this is the possibility of increasing means tested payments such as the Family Income Supplement.

Possible support came from children’s charity Barnardos, saying that they would be willing to support some cuts in child benefit if it resulted in a more targeted system, according to its chief executive at an Oireachtas committee in November.


The government has spoken of the possibility of increasing the VAT rate in the country by 2% to 23%.

The Taoiseach said the VAT increase would not apply to food, children’s clothing or services, but would apply to goods like televisions or washing machines where people make choices. He said he believes income tax increases would kill jobs and he wanted to get people off the dole and back to work.

Mr Kenny also said that currency fluctuations have a greater impact on cross border trade than VAT increases.

It appears the government may have been listening to warnings about further hits to income tax from  the  Irish Tax Institute, which had previously warned that Government’s reliance on income tax is probably at an unhealthy level.

Gov has said it won’t touch income tax with Income tax now representing 40 per cent of the overall tax take compared to 29 per cent in 2007, despite the decline in the number of people at work.

According to figures compiled by the Irish Tax Institute, budgetary cuts over the last four years have cost one-income families on the average industrial wage €453 per month on average equating to a 16 per cent reduction in monthly take-home pay.

Bernard Doherty, president of the Irish Tax Institute, said there had been a dramatic impact on people’s ability to pay in just four budgets.

“The capacity for people to bear more pain is running out as we approach an overall tipping point in terms of the money that can be taken from them in tax,” he said.

Public Sector Pay

In a statement last night the Department of Public Expenditure and Reform said a core priority is to continue to tackle and reduce the overtime bill across the public sector after significant savings have already been achieved through better management and work place changes.

The McCarthy bord snip report recommended looking at cutting “liberal system of allowances” paid to new hires in the future, with regard to areas such as rent allowance, premium rates and overtime.

Government expenditure on overtime is to be cut by about 10 per cent next year with deeper cuts earmarked for the following year, 2013.

Tánaiste Eamon Gilmore said the huge salary savings would have to be discussed with unions as part of the Croke Park agreement. “All State organisations are well aware that there is a necessity to bring down costs of all kinds, including payroll costs,” the Tánaiste said.

“What the Government is seeking to do is to get the savings in payroll where they can be achieved but that will be done in the framework of the Croke Park agreement.”


These are just some of the issues and discussions that have taken place so far regarding the upcoming budget announcement. We can expect to hear more as we get closer to Budget Day 2011.

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