Labour warns against 'fiscal shock' in Budget

The Labour Party has urged to the Government to adopt a cautious approach to next week's Budget to protect the ecomony from suffering a fiscal shock.

The warning came as the party today published pre-budget proposals that it claims would generate €1.9 billion in gross savings this year.

Party leader Eamon Gilmore said the Government must introduce a budget that is fair, supports jobs and tackles the structural deficit facing the country. However, he warned that a policy that tackles the economic crisis over a period of up to seven years would be more effective than a short, sharp shock approach.

Taoiseach Brian Cowen said yesterday the emergency budget will begin the process of putting a new tax system in place to deal with the €16 billion structural deficit in the economy. The Government aims to restore order to the State¿s finances by 2012.

The party¿s finance spokeswoman Joan Burton said the economy would suffer a fiscal shock if the Government goes ahead with plans to take up to €6 billion out of the economy this year. ¿Fiscal shock is not a silver bullet,¿ she said.

Mr Gilmore said the €2.8 billion in gross savings achievable this year under Labour¿s proposals did not include the Government's plans to save an estimated €990 million through a public sector pay freeze and a further €1 billion in capital spending cuts.

The €1 billion income from the bank guarantee scheme should be used to fund job creation and upskilling initiatives, including a new graduate internship and apprentice scheme to enable college-leavers to enter the workforce.

Labour called for a new National Development Plan which would prioritise vital infrastructural projects, such as school building and broadband and the establishment of a National Development Bank to oversee infrastructure projects.

It also suggests an 18-month PSRI exemption scheme for employers who create a new job for someone who has been out of work for over six months.

Labour proposes to introduce a third tax band of 48 per cent on all earnings over €100,000 and leave the other two bands unchanged. This would raise €435 million per year, it claims.

Asked why Labour was not in favour of increasing all tax rates, Mr Gilmore said: ¿We believe in a progressive taxation system where people who have the most, pay the most.¿ Those on low or middle incomes shouldn¿t have to suffer to get the country out of a crisis that is not of their making, he said.

In the public sector, Labour proposes a €200,000 cap on all salaries, including politicians, the suspension of performance-related pay for senior public servants and a redundancy package for 1,000 HSE managers.

It also calls for the pensions levy criteria to be altered to take the lowest-paid workers out of the net.

Mr Gilmore called for a new range of excise measures that would generate €400 million per year and in the introduction of a carbon tax to raise a further €440 million.

Ms Burton said an end to all property-related tax reliefs, would yield €508 million in a full year, while a targeted reduction in pension relief would generate €300 million.

She said the €91 million generated from a 1 cent levy on text messages would be ringfenced for the reinstatement of the cervical cancer vaccine, the school book grant, special needs teachers and the construction of a cystic fibrosis centre.

Other proposals include the scrapping of the decentralisation programme, which would save €25 million this year and €57 million in 2010; the abolition of ministerial pensions for sitting TDs and Senators; a €75,000 cap on earnings under the Artists¿ Exemption scheme; savings on heritage relief and an end to tax relief for trade union subscriptions.

Mr Gilmore said Labour¿s budget proposal was the most detailed he¿d seen from any opposition party during his 20 years in the Dáil.