Lenihan Presents First Budget

'Difficult Choices' Were Made

Saying that the country faced "difficult choices," and amid fears of a wider recession, Finance Minister Brian Lenihan announced his new budget on Tuesday afternoon in the Dáil.

Minister Lenihan confirmed that the Budget deficit would be 6.5 per cent of GDP next year, exceeding the EU limit of 3 per cent.

Current spending is also predicted to rise by 1.8 per cent, leaving a current deficit of just over €4.7 billion and a capital deficit of 8.7 per cent.

The Minister also said that he expected the economy to shrink by 1.5% next year, as measured by GNP, with GDP contracting by 0.75 per cent amid worries that unemployment would rise to 7.3 per cent

However, he predicted that inflation would ease to 2.5 per cent.

In response to these dire numbers the main measure announced by the Minister is a new 1-2 per cent levy on workers' salaries intended to bring in about €815 million next year and €1,180 in 2010.

The levy will apply to gross income up to €100,100 and a rate of 2 per cent will apply on all earnings over that level.

Mr Lenihan said the levy would be "kept under review" claiming that it would help Ireland to return to a healthy economic situation.

"We realise the solidarity it demands of all taxpayers," he said during his statement, "but there is too much at stake: we all have too much to lose by not taking action now.

"This levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability to the public finances."

Excise duties on cigarettes, wine and petrol with an extra 50 cents added on 20 cigarettes, 50 cents on a bottle of wine, and eight cents on a litre of petrol - though duties on diesel remain unchanged.

A new airport tax of €10 per passenger will be introduced, raising €150 million per annum, Mr Lenihan said.

There was bad news for owners of property in Ireland, with a €200 levy to be imposed on owners of holiday homes and second houses.

Mortgage interest relief will be increased from January 1, 2009 for first-time buyers from 20 per cent to 25 per cent in the first two years to 22.5 per cent in the next next three.

This additional relief will be made available to new first-time buyers and those who bought their first house in the last four years.

In what is likely to prove to be a popular move, Mr Lenihan announced that Ministers and Ministers of State are taking a 10% pay cut.