FINANCE Minister Brian Lenihan has called on taxpayers to rediscover their "optimism and self-belief" after delivering one of the toughest Budgets in living memory.

In his 46-minute Dail speech, he announced €1bn of cuts to public sector workers' salaries and €760m in cuts to the dole, child benefit and other social welfare payments.

Mr Lenihan said he had tried to be as fair as possible, despite having to make some "very difficult choices" in the Budget.

"But by taking the difficult but necessary measures now, we will rebuild our nation's self-confidence here at home and our reputation abroad," he said.

Justifying the €4bn in cutbacks -- the highest in living memory -- he said additional borrowing or more taxation was not an option. "Borrowing hundreds of millions a week to pay for day-to-day spending is just not on. Stabilising the deficit is the next key milestone in our plan to deliver economic recovery," he said.

Pledged

Mr Lenihan pledged that a property tax and water charges (with a free allocation) would be introduced in the future to broaden the tax base. He said a carbon tax on petrol and diesel would be introduced immediately, with one to follow on home-heating oils in May.

But he also said he would increase the minimum level of tax paid by the rich from 20pc to 30pc and require millionaire tax exiles to pay an annual charge of €200,000.

"We must ensure that every wealthy Irish domiciliary who pays little or no income tax makes a contribution to the State," he said.

Mr Lenihan moved to the subject of pay to politicians and higher level public servants.

He outlined a reduction in salary of 20pc for Taoiseach Brian Cowen, 15pc for himself, other ministers and hospital consultants (although this included a voluntary cut of 10pc they had taken last year).

The Dail heard that there would be no pay cut for the country's judges because this was forbidden under the Constitution.

But then Mr Lenihan outlined the cuts to the pay of the State's 300,000-plus public servants, ranging from 5pc to 8pc. He acknowledged that they had already lost 7pc of their salary through the pension levy but said that "unfortunately more is required".

"The reductions we must now make do not reflect any lack of recognition of public servants or of the quality of the work they do for all of us. They are simply a matter of budgetary necessity in these extraordinarily difficult times," he said.

Mr Lenihan pointed out that these pay cuts would also apply to TDs and senators.

He also announced major changes to the pension arrangements for future public sector workers, with a new scheme due to be introduced next year.

The minimum retirement age would be raised from 65 to 66, he said. "The new scheme will bring public service pension terms more in line with private sector norms. Among other things, it will change the calculation of benefits so that pensions are based on 'career average' earnings rather than final salary on retirement, as at present," he said.

Mr Lenihan said the overall changes would reduce the cost of public sector pensions from €108bn to €87bn. But his speech would have brought relief to public sector pensioners (and those due to retire next year) by confirming that the pay cuts would not affect the value of their pensions.

Mr Lenihan harked back to previous Fianna Fail Budgets before outlining his social welfare cuts. He said the party had increased pension rates by 120pc, unemployment benefits by almost 130pc and child benefit payments by over 330pc in the past 12 years.

However, he said he had signalled in his emergency Budget last April that the rates might be cut if the cost of living fell.

Necessities

"As the House will know, the overall cost of living has fallen by about 6.5pc over the past 12 months, including very sharp declines in the prices of the basic necessities of food, clothing and accommodation," he said.

Mr Lenihan announced there would be a cut of 4.1pc in most social welfare payments, with only pensioners escaping the axe. He focused in particularly on unemployed young people, saying the rate of jobseekers' allowance was being reduced from €204.30 weekly to €100 for those aged 20 to 21, and €130.10 for those 22 to 24.

"Unemployment among the young is a particular concern to the Government. We know from the bitter experience of the 1980s how a welfare system out of step with labour costs in the rest of the economy can trap people inprotracted jobless-ness," he said.

Mr Lenihan's said there would be child benefit cuts of €16 per month, although he softened the blow by saying that families on social welfare would be fully compensated by increases to the qualified-child allowance and the family income supplement.

That prompted the first major shouts of protest from opposition TDs, but Mr Lenihan continued his speech.

"Cutting public spending in the abstract is easy; deciding where cuts will fall in reality is an entirely different matter. Those opposite have the luxury of the former. We have the duty of the latter," he said.

The Dail heard the budget for capital projects such as schools, motorways and rail lines would be cut back by €960m. But Mr Lenihan said it would still be at €6.4bn next year and that falling tender prices would ensure the State got better value for money. He also announced he would set up a National Solidarity Bond to "enable ordinary citizens to provide money to the State to stimulate economic recovery and create employment".

Other initiatives to boost the economy included the provision of 26,000 new training places for unemployed workers -- funded through a €56m grant to the troubled state-training agency FAS. The mention of FAS prompted jeers from the opposition. But Mr Lenihan went on to say a further €20m would be provided to fund innovative training proposals and €56m to a scheme to exempt employers from PRSI if they took workers off the dole.

Mr Lenihan announced that the six-month ban on banks repossessing houses from those who had fallen into arrears on their mortgages would be extended for six months.

He also confirmed changes to the system of mortgage interest relief in an apparent attempt to restart the moribund property market.

If potential homebuyers make their move before July 2011, they will get full mortgage interest relief until 2017, but only reduced relief if they wait till the end of 2012.

The Government had been put under pressure by former PD TD Noel Grealish for increased funding support for flood victims and Mr Lenihan announced that €70m would be provided.

Flood

"The review of investment priorities which will shortly be published will also provide for continued substantial invest-ment in flood relief," he said. There was good news for drinkers, with a 12c cut in the price of a pint of beer and a pint of cider, a 14c cut per half glass of spirits and a 60c cut on the price of a bottle of wine.

And Mr Lenihan provided a boost for the struggling motor industry by announcing a long-awaited car scrappage scheme.

But in a nod to the Green Party, he pointed out that the €1,500 payment would only be made where the old car was being replaced with a more environmentally friendly one.

The Finance Minister also said there would be a €116m scheme to plant 7,000 trees next year and a €130m fund for retro-fitting houses to make them more energy efficient.

He moved to the final section of his speech by promising a new visitor attraction at the Kennedy Homstead in Dunganstown, Co Wexford, which then allowed him to invoke the memory of JFK.

"The inauguration of John F Kennedy as President of the United States in 1961 gave a powerful sense of hope, possibility and self-belief to Irish people all over the world," he said. Mr Lenihan spoke about how Irish people wanted the country to start believing in itself again.

He had earlier declared that the "worst is over" and that "we are now on the road to economic recovery".

"As we begin to emerge from the unrelenting economic gloom of the last 18 months, we need to rediscover our optimism and our self-belief."

He concluded by stating: "Our plan is working. We have turned the corner."

But despite his optimistic conclusion, there was no traditional standing ovation from the ranks of the Fianna Fail backbenches and government-supporting TDs, who remained in their seats as Mr Lenihan delivered his Budget to polite applause.

Irish Independent