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in the mire
Fire and fury: Ireland’s first post-Tiger austerity budget
Brian Lenihan delivered his first Budget 10 years ago, just when Ireland was on the brink of economic ruin.
IRELAND WAS AT the beginning of the calamitous economic downturn when Brian Lenihan gave his first Budget as Minister for Finance on 14 October 2008, which had been brought forward from its usual December slot.
This was a world away from previous “giveaway budgets” during the Celtic Tiger years – although those kind of budgets are becoming familiar again as the economy begins to improve.
In October 2008, this was an Irish government pressing the panic button just a few weeks after the infamous bank guarantee.
Just two years prior, Budget 2007 was increasing the old age pension and social welfare payments while dropping the top tax rate.
Budget 2009 was far different. 10 years on, let’s look back at an Ireland on the brink of an economic meltdown.
Budget 2009
As with every other year, the Irish public usually has a good idea of what to expect in the Budget, as much of the measures leak out in the press beforehand.
A report in The Irish Times prior to Budget 2009 quoted a government spokesperson who said that ministers were preparing for the toughest Budget in many years.
It was clear from the beginning of Brian Lenihan’s speech that the situation had become a grave one.
Since Brian Cowen had delivered Budget 2008 before going on to become Taoiseach, Lehman Brothers had collapsed and the Irish government had decided to issue a blanket €440 billion guarantee of all liabilities in the Irish banking system.
The banks were in turmoil, construction was grinding to a halt, and the Irish economy was teetering on the brink.
Lenihan began his speech by saying the country was facing “the most challenging fiscal and economic position in a generation”.
This Budget, he said, set out a “plan to deal with this most unfavourable set of circumstances”.
There was talk of “difficult choices”, a “historical task” and “significant uncertainty” in the beginning of his speech.
It was clear that what was about to follow would not be pretty.
Income hits
“The time for corrective action is now,” Lenihan said, before announcing the hits to people’s incomes.
Prefacing it with a 10% cut to the salaries of government ministers, the Minister for Finance said:
The government has also decided to introduce an income levy at the rate of 1% on all incomes up to €1,925 per week or just over €100,000 per annum, and at the rate of 2% on the balance of all income above that level.
That wasn’t all. Excise duties on cigarettes, wine and petrol went up, as did motor tax. Rates of VAT and DIRT also increased.
Other provisions in the Budget would incite fury.
While the government increased the old age pension by €7, it said it would abolish automatic entitlement to a medical card for the over-70s.
An alarm bell was sounded for third-level students, with Lenihan saying the Minister for Education would be “undertaking a review on the appropriate student contribution to the substantial cost of third level education”.
This would translate into a €600 increase to the annual college registration fee.
Other controversial measures included a travel tax of €10 per passenger to all departures from Irish airports, and a limit on the the entitlement to child benefit.
Lenihan concluded that the government had “dealt decisively with the rapid and sharp downturn in our economy”.
“It is, a Cheann Comhairle, no less than a call to patriotic action,” he concluded.
Reaction
The provisions in the Budget drew anger from a variety of places, including during the speech itself as Lenihan was derided from other parts of the chamber.
Then-Labour TD Róisín Shortall said “shame” when Lenihan was outlining the cessation of child benefit payments for 18-year-olds. Fine Gael’s Paul Kehoe said “bring back Charlie”.
Given what was to come, this exchange is worth noting:
Lenihan: “The government has decided to broaden the revenue base of local authorities by introducing a charge on all non-principal private residences… The new charge will be set at €200 per dwelling and will come into effect in 2009. It will be payable by the owners of private rented accommodation, holiday homes and other non-principal residences.”
Alan Shatter: “Property Tax is back again.”
Fine Gael’s finance spokesperson Richard Bruton said: “Over four reckless budgets, the Minister for Finance’s predecessor (Taoiseach Brian Cowen) dragged this economy to the very edge of a cliff. Today, with this budget, the Minister has pushed us over the edge.”
Labour’s Joan Burton said that this Budget, “for Fianna Fáil, it is really Nightmare on Merrion Street with mood music from the shower scene in Psycho”, adding the Budget “reeks of panic measures”.
Anger wasn’t confined to the Dáil chamber, however, and soon spilled onto the streets.
Pensioners protested en masse outside Leinster House at the removal of the automatic entitlement for a medical card for over-70s.
This led to the government quickly rolling back somewhat, promising that higher income thresholds would allow 95% of over-70s to retain their cards.
Students also took to the streets over controversial raises to the registration fee for third level universities, as well as fears over the reintroduction of tuition fees.
That registration fee of €900 in the 2008/9 academic year rose to €1,500 the following year, and stands at €3,000 today.
Unions were also outraged at the income levies put on workers, but worse was to come.
What came next
Around six months later, Minister Brian Lenihan was back in the Dáil chamber delivering another Budget.
The emergency Budget of April 2009 made it clear that the situation – that had already looked bad in October 2008 – had deteriorated very, very quickly.
The rates of the income levy went up, early childcare supplement was reduced and jobseekers under 20 had their allowance cut.
This was the first Budget to mention a “national asset management agency” that would be set up later that year.
It is notable that Lenihan was notably more bullish about Ireland’s prospects in the April emergency Budget.
He said in his conclusion: “As I said at the outset, a Cheann Comhairle, we can work our way through this time of economic distress. More than that, we can be strengthened by it.”
The recession had yet to fully hit but the government was scrambling to salvage an Irish economy in freefall. Budget 2010 later that year would be far more severe.
In October 2008, Budget 2009 set the tone for what was to come.
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