Ireland: Irish government approves 2011 Budget
December 7, 2010
On 7 December, Finance Minister Brian Lenihan proposed an austere budget for 2011, only ten days after the joint EU-IMF bailout plan was laid out in an effort to help stabilise Irish macroeconomic system. The new budget includes massive spending cuts that aim to achieve EUR 15 billion of savings and to cut the fiscal deficit to below 3% of GDP by 2014. The budget is based primarily on spending cuts, as no major tax hikes were introduced. The top rate of income tax will remain at 52%. However, the government lowered the income tax bands and credits, which will increase the tax take. The corporation tax will remain at 12.5% despite opposition from some countries of the EU, which consider the low tax as unfair competition. The majority of austerity measures will involve expenditure cuts in social welfare and health benefits, which will be reduced by 4% on average. While the salaries of public sector workers have been spared from cuts, it was agreed that the earnings of members of parliament will be trimmed and a new salary cap will be introduced. The measures taken by Ireland's government to curb the high fiscal deficit have only soothed nervous investors temporarily, as the interest rate on Irish 10-year government bonds rose, pushing up the yield spread between Irish and German bonds to -.-% on 22 December. The government aims to reduce the budget deficit to between 9.25% and 9.5% of GDP in 2011.