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 BUDGET 2012 Prioritising Jobs, Growth and the Public Finances N  O  V E B E 2  0 1  1  

FF Pre Budget Proposals

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BUDGET

2012

Prioritising Jobs,Growth and thePublic Finances

N O VE MBE R2  0

1  1  

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BUDGET 2012 - PRIORITISING JOBS, GROWTH AND THE PUBLIC FINANCES 

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Table of Contents 

Proposals for Budget 2012

EXECUTI VE SUMMARY 2

1.  Determin ing the necessary budget ad justm ent 7

2.  Del iver ing jobs and grow t h 8

3.  Support ing I r ish enterpr ise 13

4.  A fa i r ad justm ent o f the tax a t ion burden 17

5.  Invest ing in our fu ture 22

6.  Reduc ing expend i tu re , p ro tec t ing serv ices 24

7.  Pro tec t ing the fami ly home 29

8.  Ensur ing banks serve the needs of soc ie t y 31

9.  Prov id ing f lex ib le pens ion opt ions 32

Append ix 1 : Impac t o f tax a t ion measures 33

Appendix 2: Expendi ture sav ings 34

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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 Fáil / Green party Government since the crisis emerged were wide in scope

and substantial in nature. On the public finances, a cumulative €21bn in expenditureand 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 beencompleted.

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

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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 thereduction 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 Ireland’s recovery. These are

further highlighted in today’s 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 Government’s 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 ratepayable 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.

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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 Governmentprojection, 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 paysavings 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.

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• We are proposing an investment stimulus of at least €5.6 billion over four

years. The Government’s 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 equivalentannual 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. 

Support for Business and Employment 

• An appeals mechanism based on economic circumstances is required to limit

the burden of commercial rates.

• Significant enhancement of supports for small businesses would include a

doubling in the budget for County and City Enterprise Boards.

• The Credit Guarantee Scheme for SMEs should be expedited and a more

rigorous measurement of actual drawdown of credit relative to the targets set

for the banking sector under the terms of the recapitalisation should be

initiated.

• We also suggest an increase of up to 20,000 in the number of places across

local employment schemes, including the Tús scheme. This can cover a wide

range of ventures including community centres, rural recreation, child care,

the warmer homes scheme, community enterprise, city, town and village

maintenance and renewal.

• The Government should provide €10m over the next two years for a national

community competition in job creation (similar in spirit to the tidy towns).

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A More Flexible Model of Pension Provision 

• Individuals should be allowed access of up to 20% of their pension fund

savings under strictly defined conditions to assist with first home purchase or

to deal with financial distress.

Banking & Economic Policy 

• As a matter of urgency, the Minister for Finance should bring forward the

review of pay of senior bank staff in the covered institutions. It is not

acceptable that senior executives in the guaranteed banks have not taken any

pay cuts, with the exception of CEOs, since the crisis began.

• The Government should convene an Economic Advisory Council comprising a

broad range of representatives from the private sector to advise Government

on enterprise and wider economic policy. The membership of the Council

could be drawn from the key sectors of the economy including SMEs,

Financial Services and the export sector such as the agri-food industry.

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.

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1 Determining the Necessary Budget Adjustment

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 riskattaching 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 thanforecast, 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 Ireland’s 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 enormousthreat 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.

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Fianna Fáil 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 anExchequer 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 €bn

Expenditure 1.7Current 0.5Capital 2.2

Tax 1.0New Measures 0.6Carry Forward 1.6

2 Delivering Jobs and Growth

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.

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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 Ireland’s 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.

Science, Technology and Research 

Research and Development is central to a modern successful economy.

We have an excellent base from which to make further progress, Science

Foundation Ireland maintain 29 world-class research centres and works with over

400 industry partners. In addition, Enterprise Ireland will help approximately 1,200

companies with research and innovation activities in 2011. Two thirds of Ireland’s

R&D is in the private sector, creating new product and service innovations that will

drive exports, growth, and jobs. Productive, high calibre research, undertaken by

highly skilled research teams working closely with industry partners must continue to

be a priority.

In addition we propose:

• As part of a wider reorganisation of research funding organisations, Science

Foundation Ireland should incorporate the principal academic research

funding programmes currently in other agencies.

• Currently the R&D credit is a function of increases in expenditure using 2003

as the base year of comparison. The incremental approach needs to be

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• 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 withuniversities 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%.

The Agri-Food Sector 

The agri-food sector is a great success story for the Irish economy. Quite simply, the

quality of our food offering is unsurpassed anywhere in the world and we must

market this asset at every opportunity.

As well as providing a livelihood for an estimated 120,000 farmers and their families,

the sector currently exports almost €8 billion annually in food and beverage products,

representing 50% of indigenous manufacturing exports. It employs over 45,000

people in over 800 companies throughout the country.

The Irish agri-food sector can be at the forefront in our export-led economic

recovery, with the potential to create thousands of new jobs.

• The Government needs to fully implement the key recommendations of Food

Harvest 2020 for the future development of the agri-food, fisheries and

forestry sector. This has the potential to create at least 4,000 jobs.

• The abolition of milk quotas in 2015 is an opportunity to greatly expand the

output from this sector. Ireland has the potential to become the New Zealand

of the European milk market. Farmers who are members of co-ops should be

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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. Patrick’s Festival in Dublin by developing

an offering of arts and culture events aimed at attracting tourists from around

the world.

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Arts and Culture 

The positive contribution that a thriving arts and cultural sector makes is valuable to

Irish society as a whole. We also appreciate the economic potential of the arts and

creative industries and their role in supporting enterprise and innovation in the

economy.

• The Government should extend Section 481 Film Investment relief to 2016 to

maintain Ireland’s attractiveness as a location for film production in an

increasingly competitive international environment.

• A range of funding mechanisms should be examined for the capital

development plans for the National Gallery of Ireland, the National Concert

Hall, the Abbey Theatre, the National Museum at Collins Barracks and other

major cultural centres.

Energy Retrofitting 

A comprehensive approach to retrofitting across the country’s 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.

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Tackling Youth Unemployment 

The economic downturn has disproportionately affected young people. Youth

unemployment rates across Europe have reached levels as high as 46% in countries

like Spain. In Ireland, the rate of 26% among 20-24 olds is one of the most worrying

statistics of the Irish recession, given the potential for early unemployment to

severely restrict future labour market opportunities.

In recognition of the need to take urgent action to tackle youth unemployment, we

believe consideration should be given to the abolition of Employer PRSI for staff

earning up to €356 per week for new employees between the age of 17 and 24 for a

period of two years. This is in addition to the reduction in employers’ PRSI already

implemented as part of the Jobs Initiative announced in May. This will have the effect

of reducing the cost of employing somebody working at the minimum wage by €15

per week. Consideration should also be given to extending this measure to the long

term unemployed.

Community Job Creation 

The Government should provide €10m over the next two years for a national

community competition in job creation (similar in spirit to the tidy towns). The €10m

would be for prizes for the most successful communities at creating sustainable jobs

and would have to be used for further job creation. There would be a competition for

each local authority area (County, City Borough and the four Counties in Dublin), a

provincial level competition including Dublin as a province and a nationalcompetition.

3 Supporting Irish Enterprise

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, Ireland’scompetitiveness 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

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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 ratepayer’s economic circumstances have changed. A number offactors 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 Gáis 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

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must examine the full range of funding options including the Strategic

Investment Fund to complete the project.

Credit Availability for Business 

While the lending institutions claim to be open for lending, survey and anecdotal

evidence suggests that many firms struggle to get access to the finance they need tosustain and expand their business.

We recognise that banks face higher administrative costs for lending to smaller firms.

Obtaining information requires more resources as a percentage of the underlying

loan. However, without access to cash flow and credit, many viable businesses will

lose sales, customers and jobs.

A survey in September by the County and City Enterprise Boards suggested that

more than one third of sole traders and small businesses feel that the availability of

credit had deteriorated this year. The number of small businesses who reported that

lack of credit was adversely impacting their activities continues to rise.

One way of bridging the gap between the needs of business and the level of credit

made available by banks is through Credit Guarantee Schemes. These can be a

mechanism of moderating the risk attaching to loans to SMEs. By covering part of

the default risk, the State lowers the lender’s risk while in turn benefiting from the

increased economic activity that flows from the granting of the loan. By allowing

loans to be made to borrowers that otherwise would have been excluded from the

lending market, these firms are able to establish a repayment track record which initself will make it easier for them to access credit in the future.

The Government has dragged its feet in relation to the proposed 'Temporary Partial

Credit Guarantee Scheme'. It needs to urgently bring forward the draft legislation to

underpin this in order to ensure that it meets its target of having the scheme

operational in the first quarter of 2012. In addition, the size of the proposed scheme

at €150m may prove inadequate and consideration should be given to providing

guarantees of up to €300m.

The Government has imposed lending targets on the two domestic pillar banks for

the period 2011 to 2013. Both banks are required to sanction lending of at least €3

billion this year, €3.5 billion next year and €4 billion in 2013 for new or increased

credit facilities to SMEs. However the measurement of this will be of critical

importance. It must not be acceptable for banks to repackage revolving credit as a

new lending facility. The only true measure of lending activity is actual drawdown of

loans and not merely approvals and it is on this basis that the banks’ performance

should be measured. 

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Labour Market reform 

Employment peaked at 2.15 million in Q3 2007 and has fallen to 1.82 million by Q2

2011 - a drop of nearly 330,000. Over the same period, unemployment rose from

103,300 to 304,000, a rise of just over 200,000, according to the official CSO figures.

The figures demonstrate the urgent need to ensure that we have a flexible labour

market that protects employment and assists those who are out of work to attain thenecessary skills to allow them to return to employment.

• The Department of Jobs, Enterprise and Innovation should initiate an

information campaign to highlight the benefits to employers of the Revenue

Job Assist scheme.

• Consideration should be given to extend on a pilot basis access to training

and education support for those not eligible for inclusion on the live register

but who wish to return to the Labour market.

• The Family Income Supplement payment should be reviewed to give

consideration to allowing mortgage payments as a deductible expense

(similar to PAYE, PSRI, USC, union fees, etc.). This would mean that those

in low paid work would have the cost of their mortgage taken into account in

calculating their FIS making it more attractive to take up work and rewarding

those who do. Since FIS is family focused and takes the number of children in

a family into account, this would focus assistance to those who need it most.

Such an approach would help those who had a significant fall in income butare not eligible for the mortgage interest supplement as they are in

employment.

• The Government must act on its commitment to reform the Registered

Employment Agreement and Employment Regulation Orders which may

present an obstacle competitiveness adjustment needed in certain sectors.

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4 A Fair Adjustment of the Tax Burden

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 oftheir 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 Government’s 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 Government’s 

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. Themarginal 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.

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• 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. Thismeasure 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.

Levy on alcohol sales in Off Licence premises 

Ireland is currently seeing an increase in alcohol consumption within the home as

alcohol purchased in off-licenses accounted for 33% of total alcohol sales in 2010 up

from 29% in 2009. One of the reasons often cited for this trend is the significant

price differentiation of alcohol products between on-trade and off-trade

establishments. Not only has this discrepancy affected social behaviour by

discouraging people from consuming at public houses, but it has also been cited as

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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 thealcohol 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.

Tax on High Sugar Content Products 

Considerable evidence exists the consumption of high sugar content drinks and

sweets / cakes contribute to obesity which in turn raises the risk of heart disease,

diabetes and other ailments.

We propose that a levy on such products be introduced with an estimated yield of€20m in the first year.

Household Charge 

The Minister for the Environment Phil Hogan announced details on 26 July 2011 of

the Government’s 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 issuessuch as the high level of mortgage arrears, negative equity, welfare dependency and

persons who paid stamp duty on a house purchase in recent times.

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Illegal Sale of Diesel 

Ireland currently faces a significant problem with the illegal sale of diesel with recent

figures suggesting that 12% of all diesel in Ireland is sold illegally. The illegal

laundering of diesel is damaging to public finances, public safety, and to the

environment. With the rise in fuel costs only encouraging such activity, it isimperative that measures be taken to address the matter.

• The duty rates between agricultural fuels and motor fuels should be equalised

with a reclaim system for agricultural fuel users. This would save the

exchequer approximately €160m, according to a report prepared by Deloitte

for the Irish Road Haulage Association.

• In addition a 10c rebate for licensed road hauliers similar to the system that

operates in Belgium, France and Spain has the potential to boost exchequerrevenue by encouraging domestic hauliers to purchase fuel requirements in

the State rather than when overseas.

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 Groupwhich will result in savings of €25m.

Capital Acquisitions Tax 

We recognise the desire of parents to be able to make provision for the financial well

being of family members. In the case of gifts and inheritance from parent to child, the

existence of a generous threshold level allows this to be done without incurring a

significant tax liability.

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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.

Capital Gains Tax 

Low rates of capital gains tax may be desirable in encouraging entrepreneurship.

However, the extent to which income can be converted to capital gains there is a

potential significant loss of revenue to the State from a significant variation between

capital gains tax and income tax rates. We propose an increase in the capital gains

tax rate to 30% which will yield €83m.

The Government should investigate a significant overhaul of the CGT system to re-

design it in a way that distinguishes more effectively between gains from long term

productive investment and short term speculative gains.

Reforming Tax on Gambling 

The licensed betting office industry employs over 6,000 people throughout Ireland.

Under the current taxation system, online, exchanges, telephone and mobile

operators are not within the betting taxation net with the tax burden falling on betting

shops and on course bookmakers.

New betting platforms have grown very considerably in recent years, leading to a

decline in betting being transacted at licensed betting shops and a consequent fall in

the amount being raised by betting taxation.

The Finance Act 2011 contained measures to allow for the extension of the 1%

betting duty to remote bookmakers and for a 15% gross profit tax on betting

exchanges. The taxation provisions are subject to a Ministerial Commencement

order which can only be introduced when the Betting (Amendment) Bill is enacted.

The legislation must be sufficiently robust to ensure that domestic and non domesticproviders operate on an equal footing in order to protect Irish jobs. Should the

Minister not be in position to ensure adequate enforcement measures, alternatives

including a license based system for online operators should be considered.

In addition, the opening hours of betting shops should be reformed to allow extended

trading hours in the winter months. This would allow betting shops to compete with

other betting platforms, would create employment and would also enhance the

contribution made by the sector to the exchequer.

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Tax Relief for Pension Contributions 

An optimal pension policy should allow individuals to spread the income they earn

(and the tax paid) over their entire lifetime rather than just their working life.

A number of measures have been implemented in recent years to limit theaccumulation of excessive pension pots. In this budget we propose that the

Government reduce the annual earnings limit (along with age-related percentage

limits) for maximum tax relievable contributions for pension purposes from €115,000

to €80,000 while maintaining marginal rate relief for employees.

In addition, the maximum tax free retirement lump sum should be reduced from

€200,000 to €150,000. We believe that this strikes a balance between the need to

encourage employees to make provision for their future income needs without

unduly depriving the State of income tax revenue at the current time.

We propose a reform in relation to the Standard Fund Threshold (SFT) provision. For

those whose pension fund exceeds the Standard Funds Threshold of €2.3m, we

suggest consideration be given to allowing for the immediate drawdown of the

excess subject to income tax at the marginal rate.

If an employee exceeds their SFT, the excess is taxed at an effective rate of over

70% on retirement. We propose that where the SFT is exceeded at the end of the

tax year, the beneficiary of the pension scheme would, if they so wish, have a period

of six months within which to withdraw the excess and have it taxed at their marginalrate. The benefit to the Exchequer would be an immediate revenue boost while also

releasing a potential stimulus to the economy.

We outline a number of other proposals in relation to pensions in section 5 “Investing

in our Future” and Section 9 “Providing Flexible Pension Options”.

5 Investing in our Future

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.

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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.

Ireland’s population continues to grow rapidly. Census 2011 showed an increase of341,000 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 focusedprimarily on labour intensive projects.

Funding the Public Capital Programme 

The Government must be ambitious in availing of external sources, particularly

Public Private Partnerships (PPPs), to fund additional infrastructure delivery under

the Public Capital Programme. New innovations in terms of financing PPPs should

be examined such as the European Investment Bank.

Strategic Investment Fund 

In September, the Government announced the establishment of a Strategic

Investment Fund. While the merit of maximising non exchequer capital investment is

universally recognised, the Government’s plans lack ambition and are likely to be of

limited impact as currently devised.

We propose a much larger Fund based on a mandatory total investment of 4% by

private pension funds over 4 years (average 1% per annum) and a matching

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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 GeneralGovernment Deficit. 

The Government’s 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 prudentpension provision by citizens.

6 Reducing Expenditure and Eliminating Waste

Implementation of the Croke Park Agreement 

The first annual report of the implementation body, published in June 2011, indicated

that agreement had directly led to annual savings of over €680 million in its first year.This was made up of:

•  €289 million in payroll savings (compared to a target of €223 million) arising

from reduced staffing, cuts in overtime costs, and various efficiencies.

•  €308 million in non-payroll savings arising from greater efficiencies, work

reorganisation and better use of resources including property rationalisation,

improved procurement practices, and reduced purchasing costs.

• Almost €86 million savings from cost-avoidance initiatives.

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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 Government’s 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 cost-

saving 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 letup 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.

Social Protection Control Measures 

The existence of fraud within the social protection system diverts resources from

those in most need of assistance while undermining public confidence in the system

as a whole. Fraud should not be tolerated at any level and the Government must

prioritise efforts to reduce and where possible eliminate illegal claims.

Technological advances and more detailed case examination can assist significantly

in detecting and eliminating fraudulent claims. The Comptroller and AuditorGeneral’s report for 2011 notes that data matching needs to be more timely and

include more information to increase its effectiveness. Attention should also be given

to more clearly communicating to claimants their rights and responsibilities and the

consequences of fraudulent activity. Consideration should be given to graduated

penalties for successive fraudulent claims and removing the restriction on the

recovery of debt from current social protection entitlements and other State

payments.

It is also important to note that as large a proportion of social protection funding is

lost through administrative and customer error as fraud. Complexity within the

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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.

Labour Force Activation Measures 

The recent OECD report on the Irish economy suggested that Labour Force

activation measures need to be enhanced considerably.

We propose the introduction of a more radical activation programme.

Private sector recruitment firms should be used to assist in finding employment

opportunities for long term unemployment claimants. The incentive structure should

be structured such that payment to the agency should be made following a

successful six month placement.

To further improve the flexibility of the social protection system, claimants should be

allowed to freeze their payments for a set period of time to allow them to take up

short term employment opportunities. It should be possible for individuals to view

their full social protection record online as they can currently do with tax credits and

Revenue correspondence.

We also suggest an increase of up to 20,000 in the number of places across local

employment schemes, including the Tús scheme. This can cover a wide range of

ventures including community centres, rural recreation, child care, the warmerhomes scheme, community enterprise, city, town and village maintenance and

renewal.

The ultimate goal should be to provide all people in receipt of jobseeker’s payments

an opportunity to carry out valuable in the community.

The Commission on Taxation and Social Welfare should examine the interaction of

welfare benefits and a return to employment to ensure that no financial disincentive

is in place.

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

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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 themaximum 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.

Household Benefits Package 

The changes the Government announced to the Household Benefits Package will

have an effect of €47m in a full year. We support the principle of maintaining the

universality of the package for older citizens and on a targeted basis for other

welfare recipients.

The Government should aim to reduce the cost of the delivery of the package in

negotiation with the utility companies (electricity and gas) and RTE. As the single

biggest customer for each of these entities, the State should be in a position to

achieve a significant discount on the cost it incurs while maintaining the current level

of benefit.

We also recommend that the Minister give consideration to expanding the HomeBenefits Package to Widows and Widowers.

Rationalisation of State Boards and Agencies 

The Government’s announcement of a number of measures to rationalise State

Boards and agencies is welcome. This process has the potential to reduce

duplication and bring about a more stream-lined delivery of services to citizens.

In total, the Government intends rationalising 48 bodies by the end of 2012 andnominating a further 46 bodies for critical review by the end of June 2012. The

Department of Public Expenditure and Reform has estimated savings of €20 million

from the process. This is a relatively modest sum given the range of State agencies

in existence and the Government should be in a position to bring forward a second

wave of proposals in 2012 to accelerate the rationalisation process.

We believe that Departments should regularly review the effectiveness of all State

bodies. The maintenance and review of Service Level Agreements with each of the

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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.

Exchequer Contribution to Local Government Fund 

We propose to reduce the Exchequer contribution to the Local Government Fund by

€150m. The report on local government efficiencies (McLoughlin report) published in

June 2010 identified potential savings of up to €511m and the Minister for the

Environment should instruct each of the City and County Managers to bring forward

proposals to achieve savings of €200m in 2012 based on the report.

A national co-ordinator should be appointed to assist the achievement of savings

across local authorities from greater sharing of resources. The Minister should

present an interim report on the progress made by September 2012.

Health Care Provision 

Healthcare is a demand led service and we want to ensure that the treatment needs

of the population are met while taking account of the financial constraints on the

service. The Health Care service is very much to the forefront of the implementation

of the Croke Park agreement and will benefit significantly from the delivery of targets.

The Government needs to ensure that there is an adequate number of frontline staff,

including nursing staff, following the expected wave of retirements by February 2012.

We do not support the levying of an annual flat charge for medical card holders as

has been suggested by the Minister for Health.

In order to mitigate a proportion of the cost of provision of healthcare within the

General Medical Scheme and in view of the inconsistent roll out of generic drug

substitution to date, we believe the Minister should be in a position to targetincremental savings of €50m.

Education 

The provision of educational opportunity as a means of advancement has always

been and will remain a core value of Fianna Fáil. 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

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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.

7 Protecting the Family Home 

The level of owner-occupier mortgage arrears is deeply worrying and is a source ofgreat 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 ofSeptember 2011, 62,970 or 8.1% of residential mortgages were in arrears of 90 daysor more. A further 36,376 mortgages have been restructured and have not fallen intoarrears.

The situation has been deteriorating steadily over the last year.

% of residential mortgages in arrears 

value of residential mortgage book in arrears 

Dec 2010 5.7% 7.4%

Mar 2011 6.3% 8.3%

June 2011 7.2% 9.4%

Sept 2011 8.1% 10.8%

In addition to the official figures, information supplied to the Oireachtas Financecommittee in November following questioning by Fianna Fáil, provided furtherevidence of the scale of the underlying mortgage crisis. The Central Bank hasinformed the committee that, at end June 2011, some 46,634 mortgages were inarrears of up to 90 days.

Combining the number of mortgages in arrears of 90 days or more with those thathave had to be restructured and those that area in arrears of less than 90 days, theconclusion 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 Fáil.

The Code of Conduct for Mortgage Arrears  (CCMA) was introduced and revisedduring the lifetime of the previous Government and has been of significant benefit topeople struggling with their mortgage.

We believe that a greater public awareness of the code needs to be put in place. Inaddition, we are not satisfied that the banks are honouring the code in all respects. Itis our experience that many of the distressed mortgage holders who contact

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individual Fianna Fáil Oireachtas members seem to have little or no knowledge ofthe code. This situation must change through a proper public information campaign.

The mortgage arrears problem is clearly accelerating and the situation is not helpedby the indecision and lack of action on the part of Government. The Keane reportwas 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 actionplan for dealing with the urgent problem of mortgage arrears. Regrettably, there is adistinct 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 missedthe fact that there is little speculation that the Government will make good on itspledge to give up to an extra €166 per month of mortgage interest relief.

Over the past number of months, Fianna Fáil has published a number of proposalsto 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 moreaccessible for families in need of support

  Debt Settlement and Mortgage Resolution Office Bill – to establish a non- judicial debt settlement system in Ireland which can deal with personal debt

and mortgage debt. The Government allowed this Bill to pass second stage inthe Dáil and it has been referred to the Oireachtas Justice committee.

Banks’ Interest Rate Policies:  

In addition to the above initiatives, Fianna Fáil is presently preparing legislationwhich would give the Central Bank the power to intervene in the interest rate-settingpolicy of the financial institutions. There was a great deal of controversy in recentweeks when certain banks failed to pass on the ECB interest rate reduction.

In our view, the real issue is not restricted to whether or not the lenders pass on an

ECB interest rate reduction to mortgage-holders, but rather the spread of rates beingcharged by lenders, even among banks availing of the Eligible Liabilities Guaranteescheme. At present, the standard variable interest rate charged by guaranteed bankscan vary from 3% to over 5%. This situation must be examined.

While much of the media focus was rightly on the plight of mortgage holders, thesituation with excessive interest rates being charged to commercial customers mustalso be dealt with. There are various models internationally which restrict the extentto which lenders can hike interest rates. In many cases, the maximum rate is set byreference to the average APR charged in the market. We will shortly bring forwardproposals in this area. 

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8 Ensuring the Banks Serve the Needs of Society

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 Ireland’s 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 withthe 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 tosubstantially 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.

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9 Providing Flexible Pension Options

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 arequirement 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.

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Appendix One: Taxation Measures

Taxation Measure € million

Reduce the annual earnings limit (along with age-related percentage limits) formaximum tax relievable contributions for pension purposes from €115,000 to€80,000. 95

Equalise duty for agricultural and motor fuel with rebate system for approvedusers 160

Ban below cost selling of alcohol 20

5% Levy on off license sales 100

Increase USC by 2% for incomes over €115,000 65

Increase the carbon tax to €20 per tonne of CO2 100

Increase motor tax by average 5% 50

Tax on high sugar contents food and drink 20

€100 household charge 120

Reduce the CAT thresholds by 10%17

Increase CAT rate to 30% (from 25%) 55

Increase CGT rate to 30% (from 25%) 83

Increase the excise duty on wine by 50c per bottle 35

Increase the excise duty on cigarettes by 10c per pack 17

Raise DIRT tax from 27% to 30% 50

Phase out rent relief over two years 40

Full year impact of measures announced in Budget 2011 600Total  1,627

Increase threshold for universal social charge to €8,000 (25)

Net Taxation Measures 1,602

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Appendix Two: Expenditure Savings

Expenditure Changes €million

Accelerated implementation of Croke Park Agreement 500

Increased control measures within Social Protection Department 200

Intensify labour force activation measures 200

Full year impact of changes to Household benefits package announced byMinister Burton in 2011

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Changes to Rental Schemes 50

Lower Exchequer contribution to Local Government Fund (Local authoritiesto recoup through implementation of McLaughlin report)

200

End off the road facility for motor tax 25

Rationalisation of State Boards and agencies as announced by MinisterHowlin

20

Savings to Social Insurance Fund from closing PRSI exemptions / loopholes 170

Increased use of Generic drugs 50

Departmental Non Pay Savings 295

Total Current expenditure reduction 1,757

Additional places on local employment schemes (20)

National community job creation initiative (10)

Increase budget for City and County Enterprise Boards (25)

Reduction in capital expenditure 500

Net Expenditure Reductions  2,202

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