TABLE OF CONTENTS

INTRODUCTION
EXPENDITURE AND TAX ADJUSTMENTS
SOCIAL PROTECTION ADJUSTMENTS
    CHILD BENEFIT
    EXTRA FUEL ALLOWANCE PAYMENT
    HELPING THE UNEMPLOYED
CAPITAL SPENDING
ADJUSTMENTS TO PUBLIC SERVICE PAY
PUBLIC SERVICE PENSIONS
TAXATION
    INCOME TAX
    BROADENING THE TAX BASE
    TAX TREATMENT OF PENSIONS
    BUSINESS AND EMPLOYMENT
    BETTER FOCUSING TAX RELIEFS TO CREATE MORE JOBS
    BRINGING CONFIDENCE TO THE HOUSING MARKET
    FOSTERING COMPLIANCE WITHIN THE ECONOMY
    SUPPORTING TOURISM
    INDIRECT TAX
A NEW START
CONCLUSION

STATEMENT OF THE MINISTER FOR FINANCE

MR. BRIAN LENIHAN, T.D.

7 DECEMBER 2010

INTRODUCTION

A Cheann Comhairle,
This has been a traumatic and worrying time for the citizens of our
country. They are concerned that we had to seek external support to
help us with our economic and financial difficulties. They are worried
about the impact of this momentous and difficult decision on their
lives.

Yet, in fact, even in this most intractable and complex crisis, there are
clear signs of hope.

Amid the turmoil in the financial sector over recent months, it is easy
to lose sight of the fact that economic activity in this country has
stabilised. From a drop of 7.6% in 2009, GDP will record a small
increase this year. Recovery in the real economy is beginning to take
shape.

As anticipated, this recovery is being led by exports. Our exports

increased by nearly 7% in real terms in the first half of this year.
Output in the manufacturing sector was up 12% in the third quarter,
while surveys point to continued strong growth in export orders for
both goods and services.

Agriculture and the agri-food sector has strengthened this expansion.

The growth is broadly based and is being driven not only by a pick-up
in demand in our trading partners but also by the significant
improvements in competitiveness we have achieved over the last two
years.

Yes, domestic demand remains weak, as households and businesses

continue to work off the excesses of the boom. But continued export
growth will protect and expand high-value employment and stimulate
domestically trading sectors of the economy. This, in time, will reduce
unemployment, help build confidence among households and firms and
stimulate renewed growth in consumer spending and investment.
There are signs too that conditions in the labour market are beginning
to stabilise. The Live Register has fallen for the third month in a row,
the first time since early 2007. Redundancies in the last three months
were over 30% lower than in the same period last year.

Our underlying budget deficit has stabilised at 11.6% of GDP. Our tax
revenues are ahead of target despite a weak start to the year and our
spending has been brought under control. So our actions to stabilise
the public finances are making progress.

The balance of payments is expected to record a small surplus next

year, meaning that the economy as a whole will be paying its way in
the world.

These data taken together paint a picture of an economy that is

returning to growth after a deep and prolonged recession. For the
period out to 2014, real GDP is forecast by my Department to increase
by an average of almost 2¾% per annum with real GNP growing by an
average of just over 2% per annum over the same period.

So if the real economy is poised to grow, why do we need the help of

the IMF and the EU?

The answer is: we need their support to break the vicious cycle that
has threatened our national finances and our banking system since the
second quarter of this year. Following the Greek crisis this spring,
funding for the State and our banks became increasingly expensive.
The rising costs of dealing with the banks that became evident during
the autumn and the growing concerns about the prospects for the
global economy reinforced doubts among international investors about
the sustainability of our public finances and our capacity to fix the
financial system unaided.

The Joint Programme of Assistance, involving stand-by resources of up

to €85 billion, provides us with the firepower we need to restore
market confidence, strengthen the financial sector and press ahead
with our plans to reduce the budget deficit and facilitate the economy’s
return to sustainable growth.

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. That is the reality.

Yes, we are in a position to contribute one fifth of the fund ourselves

from the National Pensions Reserve Fund and domestic cash balances.
As I said last week, it is not credible to suggest we could have retained
a sovereign wealth fund while expecting others to make resources
available to us.

The policies set out in the Joint Programme, which closely reflect our
National Recovery Plan, are not a new departure. They are, in fact, a
continuation of the Government’s strategy for recovery which has
remained steadfast since the onset of the crisis.

Over the last two and a half years, the Government has worked hard
to get its spending back under control. We have made very difficult
decisions and our citizens have demonstrated enormous forbearance in
accepting the need for those decisions. We have secured an overall
adjustment of €14.6 billion. Without this adjustment, our underlying
deficit would already have ballooned to more than 20% of GDP.

The budgetary adjustments we plan for the coming four years are
large. But if we postpone them, even bigger and more wrenching
adjustments will be needed at a later date. Our proposed budgetary
measures have been laid out in considerable detail to give certainty to
households and firms so that they can plan for the future.
It is the Government’s strong view that the economy can continue to
grow while we make the budgetary adjustments outlined in the
National Recovery Plan.

We need to ensure our economic growth is built on solid foundations:

that are sustainable socially, economically and environmentally.

The Government has committed to the introduction of a new national

performance indicator to allow a variety of quality of life
measurements to be assessed and reported on a regular basis,
complementing traditional economic data. This will be used to guide
policy development. It will allow the public to assess the progress
being made across a range of indicators.

The CSO is working on the development of this new national welfare

index. Our attractiveness as a country in which to live is an important
part of our overall competitiveness.

EXPENDITURE AND TAX ADJUSTMENTS

This time last year, it was assumed that an adjustment of €7.5 billion
would lead to a deficit of 3% of GDP by 2014, the target year agreed
with our European partners. Because medium-term growth prospects
have been revised down and our debt interest costs have risen, this
adjustment has had to be revised upwards to €15 billion.

In the National Recovery Plan, we have set out the timetable for
achieving this adjustment over the next four years. These targets are
reflected in the Joint Programme of Assistance. Because the European
Commission has more conservative forecasts for the medium-term, we
have been given an extra year to reach the 3% deficit target required
under the Stability and Growth Pact. But this changes neither our
targets nor our timetable for reaching them.
As outlined in the Plan, €6 billion of the overall adjustment is being
made in today’s Budget. The scale of this adjustment is demanding but
it demonstrates the seriousness of our intent.

In simple terms, the gap between Government receipts and spending

is almost €19 billion this year. This gap must be closed. We got into
this position by seeking, with the full support of those opposite, to
spread the benefits of the boom across every section of the
population. Between 2000 and 2008, public spending increased by
over 140%, while the consumer price index increased by just 35%.
Working-age social welfare rates are now more than twice their rate in
2000. Over the same period, the State Pension almost doubled. These
increases were well ahead of the cost of living.

At the same time, taxation was reduced and the proportion of income
earners exempt from income tax increased from 34% in 2004 to an
estimated 45% this year. All of this was made possible by the very
large property-related tax intake during the boom years. In our
dramatically changed budgetary circumstances, it is clear the State
can no longer afford this level of social provision.

The changes I am announcing today are substantial but it is important

to keep things in perspective. The current spending reductions set out
in the National Recovery Plan out to 2014 will bring total gross voted
current spending back only to 2007/2008 levels. The income tax
measures in the Plan will bring us to levels prevalent as recently as
2006. Those years were not times of hardship. The reductions will
impact on living standards but the fact is social welfare rates are still
high in this country and much higher than our nearest neighbour.

Budget 2011 continues the task of bringing the cost of our public
services back to levels that can be sustained by our economy. I do not
propose to repeat here today the spending reductions that have
already been outlined in the National Recovery Plan and are set out
again in the Estimates published today.

SOCIAL PROTECTION ADJUSTMENTS

The only area of expenditure in which decisions have not yet been
detailed is social welfare. First, I want to confirm that the Government
has decided there will be no reduction in the State Pension this year.
We have significantly increased the State Pension over the last ten
years and it is the Government’s view that the security this has
brought to older people should be preserved.

In the case of working-age rates of payment, there will be a reduction

of about 4%. The Government has maintained these payments at a
rate which far exceeds total inflation since 1997. The 2011 basic
working-age payment will be almost 117% more than it was in 1997.
Cumulative inflation over the same period was around 40%.

Regrettable as they are, the impact of the reductions is lessened by

continued low inflation. The rates in question will still be slightly ahead
of the 2007 working-age rates of payment. The fact is we have built
up a generous level of welfare provision over the last decade and
though they must now be reduced somewhat, our record of
commitment to those in need stands up.

Over the next four years, further reductions in social welfare spending
are unavoidable if we are to reduce the budget deficit. The size, nature
and composition of these reductions will depend on the rate of decline
in unemployment; the effectiveness of anti-fraud and control
measures; and the reform of the benefits system. Our number one
priority for 2011 and onwards must be economic growth and
maximising employment creation. That demands improved
competitiveness which is at the heart of the social welfare and labour
market measures we have proposed.

Child Benefit
There will be a €10 reduction on both lower and higher child benefit
rates with an additional €10 reduction for a third child only. These
reductions will bring rates of payment back to the 2006 rate for the
first and second child and to 2005 rates for the fourth and subsequent
children with the rate for the third child reflecting the 2004 rate. The
new rates are still three times higher than they were in 1997.

Details of the specific social welfare measures are set out in the
Summary of Budget Measures along with a number of other changes
to social welfare schemes and entitlements.

Extra Fuel Allowance Payment

In view of the harsh weather conditions experienced in recent weeks, I
am allocating an additional €14 million to the fuel allowance scheme to
enable a payment of €40 to households that receive the fuel allowance
payment. 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.

Helping the Unemployed

We know from the 1980s the importance of equipping the unemployed
with skills and keeping them close to the labour market. To that end,
we are refocusing the National Employment Action Plan to establish
clearer pathways to employment by ensuring that State agencies
interact early and often with those who have lost their jobs to provide
opportunities for education, training or work experience placements as
appropriate.

Building on the work placements and training places that have already
been introduced, I am providing for an additional 15,000 activation
places and supports for the unemployed at a cost of about €200
million.

 The Skills Development and Internship Programme will

provide up to 5,000 places in the private sector with a
contribution from that sector of an additional €38 million or so to
pay some of the costs of the internships.

 The Work Placement Programme will provide up to 5,000

places in the public service. The Tánaiste announced the scheme
in the Education sector last week and similar announcements for
other sectors will be made by Ministers over the coming months.

 A New Community Work Placement Scheme will provide up

to 5,000 additional places in the community and voluntary
sector.

The labour activation measures will be complemented by the extension

of the Employer Job (PRSI) Incentive Scheme to the end of 2011 and
by the transformation of the Business Expansion Scheme into a new
Employment and Investment Incentive.

The National Recovery Plan provides for reform of the labour market
and the removal of barriers to job creation resulting from the current
level of the minimum wage and inflexible employment agreements.
The aim here is to provide more job opportunities, especially for the
young.

CAPITAL SPENDING

We will continue to spend significant sums on investment to sustain

growth and jobs. The Exchequer capital programme will amount to
some 3.6% of GNP in 2011. This programme will be augmented by the
investment programmes of the commercial State Sponsored bodies.

In addition, the National Pensions Reserve Fund has confirmed it is

willing to invest in Irish infrastructure assets on a commercial basis in
partnership with third party institutional investors. The Government
will help identify opportunities for the NPRF and other private
investors.

ADJUSTMENTS TO PUBLIC SERVICE PAY

I want to acknowledge the substantial contribution made by public

servants to national recovery to-date. In my own Department, I see
day in day out and at weekends the commitment, above and beyond
the call of duty, shown by civil servants who have accepted significant
pay cuts. More work is being done with less staff at lower cost. That is
real public service reform.

To meet our targets, the cost of delivering public services must fall
further. Savings will continue to be made through planned reductions
in the number of public servants and through greater efficiencies in the
way public services are delivered.

Despite the economic constraints, the Government has abided by the

Croke Park Agreement on pay, compulsory redundancies and on
pension terms. Public servants, their unions and their managers for
their part must abide by their commitments to pursue flexibilities and
reforms in every part and level of the public service. We have made
commitments to a continued reduction in the cost of the public service.
If the Government is to be held to its side of the Agreement, those
reductions must be delivered.
The Taoiseach and Ministers have already taken substantial reductions
in their pay. The effect of the pension levy and the pay cuts introduced
earlier this year amount to 28% in the case of the Taoiseach and 23%
in the case of Ministers.

The changes in PRSI introduced in this Budget as they affect office

holders will bring about a further cut in their net pay. Nonetheless, the
Government has decided to introduce another reduction in the salaries
of the Taoiseach, Tánaiste and Ministers. The salary of the Taoiseach
will be reduced by over €14,000 per annum and the salary of Ministers
will be reduced by over €10,000 per annum. This brings the overall
reduction in the gross pay of the Taoiseach to over €90,000 and in the
case of Ministers to over €60,000. Details to changes in the
Government’s transportation arrangements and Ministers’ pay and
pensions are set out in the accompanying documentation.

The Government believes there should be a maximum salary rate of

€250,000 in the public sector. Only a few office holder posts have
salaries above this level at present but there is a larger number in the
State Agencies.

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 10% reduction in the pay of new entrants to the public service
contained in the National Recovery Plan will be applied to the salary
rate of those appointed to hold office in the Judiciary in 2011. The
€250,000 maximum will be applied to all such offices.

A reduced maximum rate of pay of €250,000 will apply to the next

President of Ireland. I want to record the significant contribution made
by the current President who, since this downturn began, has waived a
significant portion of her remuneration.

I intend to make provision for these reductions in legislation.

In addition to reduced pay rates, all new recruits to the entry grades of
the public service must start at the first point of the relevant pay scale
without exception. Although recruitment will necessarily be limited
over the next number of years, this measure will ensure a medium-
term reduction in the overall cost of public service pay.

PUBLIC SERVICE PENSIONS

The cost of providing public service pensions has increased

significantly in recent years. Pensioner numbers have grown from
76,000 in 2006 to about 103,500 in 2010, an increase of 36%, while
expenditure has risen by 56% from €1,433 million to €2,235 million in
the same period.

Public service pensioners have so far been unaffected by the

reductions imposed on serving staff. The Government considers it
appropriate that those pensioners who can afford to should now share
the burden of adjustment.

Accordingly, public service pensions above €12,000 a year will be

reduced by an average of 4%. Those on a pension below €12,000 a
year, roughly equivalent to the value of the social welfare pension, will
be exempted. The reduction will be applied fairly: those on higher
pensions will pay most. It will apply to former political office holders,
retired members of the Judiciary, and their survivors or dependants.

Public service pensions have until now been unaffected by the pay
reductions. The grace period, under which previous salary levels are to
be used to calculate pension entitlements, was due to expire by the
end of 2011. This is being extended by two months so as to prevent a
log jam of public service retirements in 2011 and to spread the extra
pension lump sum costs over a more manageable period in both 2011
and 2012.

But I want to make clear that public servants or office holders retiring
during the grace period will be subject to the pension reduction I am
introducing today. Legislation to provide for this reduction will be
brought before the Oireachtas very shortly. Further details are
provided in the Summary of Budget Measures.

Reducing the income of pensioners is an exceptional measure. But

these are exceptional times. The Government has to make savings and
pensions costs are a very significant part of public expenditure. Failure
to reduce the cost of pension provision could undermine the longer-
term viability of the public service pension system. Furthermore, it
would be unfair if highly-paid pensioners remained unaffected while
serving staff on low pay have had their pay reduced.

The new single pension scheme for new entrants, which I announced
in last year’s Budget, will come into effect in 2011. This will bring
future public service pensions more in line with private sector
provision. Pensions will be based on career average earnings rather
than final salary; the pension age will be increased; and post-
retirement increases will be linked to retail price inflation rather than
to pay.

This new scheme is a crucial part of the longer-term reform required to

put the public finances on a sound basis. The legislation will be
published very shortly to ensure that the new scheme can be put into
operation for new entrants in 2011.
TAXATION

A Cheann Comhairle, the primary purpose of the tax system is to

provide the resources to pay for the services the public expect from
the State. Our tax system no longer fulfils that purpose well. The line
of least resistance would be to increase the rates. But revenue is
generated by economic activity: not by increased tax rates. High tax
rates on a narrow base of economic activity may raise far less revenue
than lower rates on a much wider base.

We cannot have a tax system that damages our potential to grow.

That is why the Government has decided in the National Recovery Plan
that two thirds of the required budgetary adjustment over the period
2011-2014 should be through expenditure reductions and one third
should be raised by taxation.

Our income tax system, as it stands today, is no longer fit for purpose.
At one level, too few income earners pay any income tax. This year,
just 8%, earning €75,000 or more, will pay 60% of all income tax
while almost 80%, earning €50,000 or less will contribute just 17%. At
another level, too many high earners have opportunities to shelter
their income from tax. We must address both these structural defects.

Our system is also unduly complex. With four separate charges on

income, each rational in its own terms, it contains too many
distortions, steps, and discontinuities. Our goal must be to create a
system that is rational, sustainable and fair, and that delivers the
resources needed for essential public services.

Income Tax
Such a system cannot be created in one Budget. But today we take a
major step forward in the reform process. In this Budget, we will:

 abolish the Income Levy and the Health Levy;

  replace both with a single Universal Social Charge, governed by
one set of rules on a broad base;
 remove the employee PRSI 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, and
 target the remaining reliefs more clearly on employment growth.

By broadening the base at both ends of the income spectrum, the

nominal rates of tax can be kept lower while the effective rate can be
raised in a way that is fair to all.

In the measures I am presenting today, those on the new reduced

minimum wage will not be brought into the tax net. The top marginal
tax rate will be kept at 52% for all taxpayers.

As I said in the 2010 Budget, the Universal Social Charge requires that
everyone makes some contribution, however small, to the provision of
services. This charge is separate from income tax which is levied
proportionately as income increases.

The changes made today generally either maintain or enhance the

incentive to work relative to social welfare. For a married couple with
no children earning €25,000, their net income will fall by 2.8% or €12
per week. For a similar family with two children, net income will fall by
just 1% or €5 a week. We must always ensure an appropriate balance
between the rewards from work and income support from welfare. I
believe that in these most difficult of circumstances we have struck the
right balance in today’s Budget.
Our objective is to move steadily in the direction of an income tax
system that is fair, universal in its application and more easily
understood. This Budget marks a decisive step towards a unified
income tax system with a minimum of tax shelters, the broadest base
and competitive rates. A unified income tax system with appropriate
tax credits will facilitate the closer integration of tax with the welfare
system.

Broadening the Tax Base

In last year’s Budget, I said high earners availing of tax incentive
schemes must contribute more in the current difficult circumstances.
The restriction of reliefs measure, which increased from 20% to 30%
last year, is already having a significant impact. But we can and must
do more.

The National Recovery Plan contains a commitment to the abolition or

the curtailment of tax expenditures and to the phased abolition of
property-based legacy reliefs. The 16 measures identified in the Plan
will be given full legislative effect. Today, I will abolish or restrict a
further nine reliefs bringing the total to 25.

Full details are set out in the Summary of Budget Measures.

Many property-based reliefs have already been abolished, but some

legacy costs remain. Such costs will be further restricted as a result of
today’s changes. Three new measures in particular will be targeted at
passive investors:

 Restrictions on the carry forward capital allowances will start in

2011 and impact progressively over the next few years.
 From 2011, Section 23 relief will be restricted to income from
Section 23 property, and
 A “guillotine” provision will ensure that all unused capital
allowances after 2014 and Section 23 reliefs are lost.
This last provision will effectively terminate all property-based reliefs
in 2014. Again, full details are set out in the Summary of Budget
Measures.

The base for Capital Acquisitions Tax is being broadened by reducing

the tax-free thresholds by 20%. This reduction follows the economy-
wide fall in asset values in recent years and builds on a similar
measure introduced in Supplementary Budget 2009.

Finally, I am increasing the Deposit Interest Retention Tax rate on

ordinary deposit accounts by 2% to 27% and on longer-term deposit
accounts by 2% to 30%.

Tax Treatment of Pensions

The National Recovery Plan contains a commitment to significant
reform of pension tax relief. Today, I am abolishing employee PRSI
and Health Levy relief on pension contributions. I am reducing the
annual earnings cap for tax-relievable pension contributions. The
portion of retirement lump sums above €200,000 will be subject to tax
and the maximum allowable tax-relieved pension fund will be reduced.

Employer PRSI relief on employee pension contributions is being

reduced by 50% from 1 January next.

The effective tax rate on Approved Retirement Funds will be increased

by raising the deemed annual distribution of assets in those Funds
from 3% of end-year assets to 5% per annum with that distribution
subject to full income tax each year. Details of all these measures are
in the Summary of Budget Measures.

Business and Employment

Two weeks ago, all political parties in this House supported a motion
calling for the maintenance of the 12½% corporation tax rate. Our
commitment to the 12½% rate was restated in the National Recovery
Plan. I welcome recent comments by European finance ministers who
understand the importance of this issue to Ireland. There will be no
change to Ireland’s corporation tax rate.

Better Focusing Tax Reliefs to Create More Jobs

Small and medium sized companies are the wellspring of employment
and innovation in the economy. The Business Expansion Scheme has
helped companies to gain access to capital investments. But given that
job creation and protection is our top priority, it is essential that
schemes like the BES and the 3 year corporation tax exemption for
start-up companies are targeted and evaluated against jobs created or
retained.

Accordingly, the BES is to be revamped and renamed as the

Employment and Investment Incentive. This incentive will come into
operation once the necessary approval from the European Commission
has been received. In the meantime, the existing scheme will continue
to operate.

Under the new incentive, the limit that can be raised by companies will
be increased from €2 million to €10 million, and the amount that can
be raised in any twelve-month period will be increased from €1.5
million to €2.5 million. In addition, the certification requirements will
be simplified. The new incentive will expire on 31 December 2013.

I have decided to extend the three year corporation tax exemption for
start-up companies commencing a new trade in 2011 and to amend it
so that the relief will be linked to the amount of employers’ PRSI paid
by the company. This change will focus the relief on employment
creation, rewarding new companies that create jobs.

I have also decided to extend the accelerated Capital Allowance

Scheme for Energy Efficient Equipment for a further three years.

Further details of the changes are set out in the Summary of Budget
Measures.
Bringing Confidence to the Housing Market
I am undertaking a fundamental reform of Stamp Duty on residential
property transactions with immediate effect. This has three aims: to
stimulate the property market, to provide necessary valuation
information and to increase market transparency for the smooth
operation of the market.

There will be a flat rate of 1% on all residential property transactions

up to a value of €1 million with 2% applying to amounts above €1
million.

In line with the base-broadening approach adopted in this Budget, I

am abolishing all existing reliefs and exemptions for Stamp Duty on
residential property. This means that 1% will be paid on all residential
property sales, new or old. If this system had been in place instead of
the previous volatile one, it would have lessened the effect on tax
revenue of the booms and busts in the market. The information
gathered from this new regime can be used to compile data on house
valuations to inform a valuation database. This data will bring a
greater degree of transparency to the operation of the housing market
that has been previously absent. Markets operate best where buyers
and sellers have reliable information available to them.

The new rates will apply to property transfers on or after 8 December

2010. A transitional provision will be put in place to ensure that
anyone who has entered into a binding contract to purchase a
residential property before 8 December 2010, and who executes the
transfer of that property before 1 July 2011, will not lose out.

The Tenant Purchase Scheme allows local authority tenants to

purchase their homes at a discount. Today, I am announcing a short-
term improvement in this Scheme. This will allow greater access to
tenant purchase by introducing a higher discount for existing tenants.
The details of this enhanced scheme will be set out by the Minister for
Housing.

Fostering Compliance Within the Economy

The construction sector has been at the vortex of this economic
downturn. It will be some time before the sector returns to a
sustainable level of output. In the meantime, the Government wants
to ensure that existing employment levels are protected and allowed
to grow by reducing black economy opportunities in the industry.
Today, I am proposing significant reform of the Relevant Contracts
Withholding Tax regime which applies to contractors in the
construction, meat-processing and forestry sectors of the economy.

To foster compliance, a new withholding rate of 20% will apply to

subcontractors registered for tax with an established compliance
record, with the existing 35% rate retained for subcontractors not
registered for tax. In addition, the system will be strengthened to
enhance its effectiveness and reduce the opportunities for fraud.

The proposed changes provide a cash flow benefit to registered

subcontractors that will enable them to compete for business on a
level playing field.

The recent cold weather conditions, once again, demonstrate the

benefits of ensuring that homes are as energy efficient as possible.
Today, I plan to introduce a new tax incentive in this area which will
support employment while improving energy efficiency in homes.

The new incentive will complement the grant aid that is available
through the Home Energy Savings Scheme currently available from
the Sustainable Energy Authority of Ireland.

Standard rated tax relief will be available on expenditure up to

€10,000 on a list of approved works. The total relief available under
the scheme in any one tax year will be €30 million which would allow
for remedial works to be carried out on a minimum of 15,000 homes.

Contractors employed to complete the work must be registered with

the Revenue Commissioners. This incentive, together with the
proposed changes in Relevant Contracts Tax will support construction
businesses operating in the legitimate economy.

Full details of the new incentive will be provided in the Finance Bill.

Supporting Tourism
An air travel tax on passengers departing Irish airports was introduced
on 30 March 2009. The tax is expected to yield €105 million in 2010
despite the impact of volcanic ash on air travel earlier this year.

Similar taxes apply in the UK, France, Australia, New Zealand and the
US. An air travel tax will apply in Germany and Austria from January
2011.

There have been calls for the abolition of the tax which is blamed for
the reduction in our visitor numbers. Having examined the issue in
detail, I have decided to introduce a single revised rate of air travel tax
of €3 to come into effect on 1 March 2011. But let me be clear: this
reduced rate is being applied on a temporary basis until the end of
2011. The position will be reviewed next year and the rate will be
increased unless there is evidence of an appropriate response from the
airlines. I do not want to see the reduction in the tax being used by
airlines as an opportunity to raise their fees and charges.

In conjunction with this initiative, the Dublin Airport Authority is

prepared to introduce an incentive scheme for 2011, to provide,
subject to certain conditions, a full rebate of airport charges for any
additional traffic above the current levels. The DAA will provide further
details of the scheme.
Indirect Tax
Excise will be increased by 4 cent per litre on petrol and 2 cent per
litre on auto-diesel, both increases inclusive of VAT, from midnight
tonight.

In the light of its success, the car scrappage scheme introduced last
year will be extended for a further six months to 30 June 2011. The
VRT relief provided in that period will be up to a reduced maximum of
€1,250.

I have also decided to extend the VRT relief for series production
hybrid and flexible fuel vehicles for two years to end-2012. The rate of
relief provided will be up to €1,500. The VRT relief for plug-in hybrid
electric vehicles will continue at up to €2,500 until 31 December 2012.

A review will be undertaken of the excise duty payable for licences for
on-trade and off-licence sales of alcohol products during 2011 to
ensure that the system is both transparent and fair.

I am making the necessary arrangements to ensure that bets placed

on the internet by domestic punters are subject to the same level of
betting duty as applies in high street betting shops. Details are set out
in an annex in the accompanying documentation.

Full details of these measures and related measures are contained in

the Summary of Budget Measures.

A NEW START

Public debate of our current difficulties is focused, almost exclusively

on our banks. Much of what is said is plain wrong. For example, it is
regularly claimed that the taxpayer will end up bearing most or all of
the cost of the banks’ bad loans. This is not the case. As the Governor
of the Central Bank has previously indicated, over the period 2008 to
2012, the total loan losses of the domestically-owned banks are
expected to reach €70-80 billion, equivalent to about half of this year’s
GDP. Loan losses on this scale are unforgivable. They reflect the
recklessness of lending decisions during the bubble years and the
weakness of the previous regulatory framework. We must ensure they
never happen again.

What is almost entirely overlooked, however, is the fact that tens of

billions of these losses have been absorbed by the private
shareholders in the banks. It is clear there has been no taxpayer
bailout for bank shareholders.

Neither has there been a bailout for holders of banks’ subordinated

bonds. These bonds have absorbed losses of about €7 billion to date,
and legislation to facilitate further burden-sharing by subordinated
bondholders will be submitted to the Oireachtas next week.

There is a limit to burden-sharing. As I said in this House last week,

there is simply no way this country, whose banks are so dependent on
international investors, can unilaterally renege on senior bondholders
against the wishes of the our European partners and the European
institutions. That course of action has never been an option during this
crisis.

It’s true the State has had to inject large amounts of capital into the
banks. In return, the State will own the bulk of the banking system.
The use of funds in the National Pensions Reserve Fund to recapitalise
the viable banks is necessary to ensure that these institutions can
serve the needs of the economy.

The approach to fixing the banks agreed under the Joint Programme
will not reverse any of the Government’s banking policies. In fact, the
very opposite is true. The Programme builds upon and intensifies the
measures introduced to date. The most senior members of the
international team negotiating the Programme have endorsed our
policies.

CONCLUSION

This Budget is the first instalment of the National Recovery Plan. The
Plan plots a course to sustainability for our country: sustainable public
finances, sustainable public services, sustainable growth, and
sustainable employment. It is a sensible, rational plan that is
proportionate and equitable in the circumstances in which we find
ourselves. Everybody pays and those who can pay most will pay most.
The Plan calls on us all to take more responsibility for ourselves: to
contribute to the support of local services and to pay more towards the
support of college education. This Budget is not captured by any
sectional interest. The focus in the distribution of the tax burden, in
the reductions in public spending, and in the reforms it introduces is
the common good.

I believe that politics in this country must put the common good at the
centre of the stage in all that it does. The job of the Government on
behalf of the State is to ensure that the common good is served: that
requires saying “No” at least as often as saying “Yes”.

There has been much public debate about political reform during the
current crisis: some of it has been the stuff of cheap headlines; some
of it has been constructive and innovative. Any reform proposals,
whether they relate to the Dáil electoral system, the future of the
Seanad, the composition of Government Departments or the size of
Government, must have as their objective, the pursuit of the common
good.

Since I was appointed as Minister for Finance in May 2008, I have

been dealing with the worst crisis in our history and one that has few
international parallels. This is my fourth Budget in that period. In
every measure I have introduced, on behalf of the Government, we
have sought to stabilise our public finances. In doing so, we have
sought to protect those most in need. Analysis using the ESRI model
has shown that the measures I have introduced on the Government’s
behalf, have been progressive and have distributed the burden of
adjustment fairly.

It is clear to us all what went wrong in our economy. In the period

leading up to the crisis, the construction sector and property prices
grew to unsustainable levels. The appetite of a rampant building
industry for labour and other resources put upward pressure on our
cost structure. As a result, our competitiveness was damaged and we
lost market share for our goods and services. Excessive public
spending on the back of the enviable but transient taxes of the boom
added to the overheating of the economy. A huge expansion in bank
borrowing for property and construction-related investment was the
final and most lethal domestic ingredient in the causes of our crisis.
The international financial crisis added pace and severity.

The Government has accepted that analysis: more should have been
done to counter imbalances in our economy. I do not know if any
alternative government would have done better.

We have taken steps to ensure that the mistakes that led to this crisis
will never be made again. We have broken with precedent in key
appointments: Professor Patrick Honohan, our foremost academic
expert on banking, is a widely regarded Governor of the Central Bank.
Mr. Matthew Elderfield, a highly qualified and experienced professional
is our new Financial Regulator. We have introduced new legislation to
reform the regulatory framework for our banks and the Central Bank
has greatly increased its resources.
We have set out a programme of budgetary reform in the National
Recovery Plan and legislation providing for a Fiscal Responsibility Law
is in preparation. This will ensure that the principle of keeping the
public finances on a sustainable footing is binding in law.

In other words: this Government has faced up to its responsibilities;

we have acknowledged our mistakes; worked might and main to
rectify them and we have put in place the measures to ensure that
these mistakes can never be made again.

Our country must now move forward with confidence and purpose. The
underlying strengths of our economy, built up over many years by our
citizens and by the actions of successive Governments, have survived
this crisis.

 We continue to have a highly skilled, flexible labour force with

one of the highest levels of formal education in the OECD.
 During the boom, we built a world class road network; we
invested in our public transport, our education and social
infrastructure. Continued capital investment over the next four
years will ensure that the economy is well equipped for recovery.
 We have developed a highly competitive, pro-enterprise taxation
system which incentivises innovation and high-value economic
activity. The measures I have introduced today will benefit our
domestic sectors that have been particularly badly hit by this
downturn. We will defend our 12½% corporation tax rate against
all comers.
 The actions we have taken in Government over the last two years
have helped us to regain competitiveness. Wages have adjusted
and costs have fallen. More needs to be done but we are pricing
ourselves back into global markets and the performance of our
export sector is the proof of our success.
We know we can have sustained, balanced, export-led growth in this
economy. We had it in the 1990’s and we have what it takes to win it
back if we pursue the correct policies.

We have been through a tumultuous two years culminating in our

application for external assistance. Today’s Budget is our first step in
ensuring that we can get back firmly on our own feet. It is a
substantial down payment on the journey back to economic health. We
can emerge from this dark time as a stronger and fitter economy to
provide sustainable jobs and decent public services for all our citizens.

A Cheann Comhairle, there is every reason to be confident about the

future of this economy and this country if we only have confidence in
ourselves.

I commend this Budget to the House.