Irish economy to return to growth, says Lenihan

Ireland's Finance Minister Brian Lenihan today claimed the country's economy will grow slightly this year as he unveiled 6 billion euro (£5 billion) savings in the most draconian budget in the history of the state.

"Our actions to stabilise the public finances have made progress," the minister said.

Mr Lenihan said Exchequer figures painted a picture of a country returning to growth after a prolonged and deep recession.

Opening his budget 2011 speech he told the Dail (parliament) that the economy, as measured by gross domestic product, would increase by an average of 2.75% by 2014.

Mr Lenihan said Ireland needed the help of the International Monetary Fund to break the vicious cycle that threatened the national finances and banking system.

"Without this support, there would have been serious doubts about the ability of the state to raise funds at reasonable cost to pay for key public services and to provide a functioning banking system to support economic activity," he said.

"That is the reality."

Setting out the many dramatic reforms facing Irish workers, families and the unemployed, the minister said the old age state pension would not be touched.

But he warned over the next few years there will be further social welfare cuts.

The Budget also includes plans to make a 10 euro (£6.40) reduction in the lower and higher child benefit rates.

Households receiving a fuel allowance payment will get 40 euro (£34) to help fight the harsh weather conditions, at a cost of 14 million euro (£12 million).

"The Department of Social Protection is putting measures in place to roll out this additional payment as soon as possible and many households will receive this payment this year," said Mr Lenihan.

An extra 15,000 work placement and training places under existing unemployment schemes are to be introduced, at a cost of 200 million euro (£168 million).

Salaries of the Taoiseach Brian Cowen, Tanaiste (deputy prime minister) Mary Coughlan and government ministers are to be cut.

The Taoiseach's annual salary will be reduced by 14,000 euro (£11,800) with ministers taking a 10,000 euro (£8,400) cut.

Public sector worker pay will be capped at 250,000 euro (£210,000).

"Only a few office holder posts have salaries above this level at present but there is a larger number in the state agencies," said Mr Lenihan.

"While there are issues about the contractual position of incumbent post holders, I think the position of the Minister for Finance as a shareholder or statutory stakeholder in these companies can be used to enforce the objective of the maximum salary within a reasonable timeframe."

The cap will also apply to judges and the President of Ireland.

Public service pensions above 12,000 euro (£10,000) a year will be reduced by an average of 4% while those under the watershed will be exempted.

Mr Lenihan said the cuts will apply to former political office holders, retired members of the judiciary, and their survivors or dependants.

"Reducing the income of pensioners is an exceptional measure. But these are exceptional times," he said.

Mr Lenihan also signalled a massive overhaul of the income tax system, saying the current regime is no longer fit for purpose.

The Government plans to:

* abolish the Income Levy and the Health Levy and replace both with a single Universal Social Charge.

* remove the employee PRSI (Pay Related Social Insurance) contribution ceiling;

* increase the PRSI rate for the self-employed, higher earning public servants and office holders;

* reduce the value of bands and credits by 10% in line with overall reductions in incomes;

* tackle excessive reliefs associated with private pension provision;

* abolish or restrict many tax reliefs that higher earners use to shelter income unfairly.