SOCIAL welfare, education and health will take most of the pain in December's budget, with €1.1bn in cutbacks already pencilled in for these three areas, the Sunday Tribune has learned.
The Department of Social Protection has already come up with savings of €150m-€200m. But, with the live register still rising, the cuts may have to go even deeper, with government sources admitting that a repeat of last year's across-the-board reduction in welfare rates – include child benefit and dole payments – "can't be ruled out".
There will also be a heavy emphasis on welfare reform – the current system whereby social welfare is paid on a six-day week "may be looked at".
For political reasons, the old-age pension will once again escape untouched but the very generous tax treatment of pensioners – high tax credits and exemption from Dirt tax – could be targeted.
Despite the government's commitment to maintain pupil-teacher ratios, there will be major cutbacks in education. Savings of €250m-€300m have already been identified by the Department of Education, with third-level in particular likely to feel the impact.
Health, meanwhile, is facing cuts of €600m. This is certain to impact on frontline services because 70% of the health budget is pay related and, under the Croke Park agreement, the government cannot repeat last year's public-sector pay cut. There is serious scepticism in government circles as to whether the changes in work practices agreed as part of the Croke Park deal will deliver any meaningful savings.
Ministers, who meet tomorrow for the final cabinet session before the summer break, accept that the cuts in December's budget are going to be even more severe than last year because the €3bn in savings will be coming from a smaller base. The three big spending departments of Health, Education and Social Protection will account for as much as 85% of the cutbacks in current spending, with the other 12 departments looking at a combined reduction in spending of between €200m and €500m.
Some of this will come from reining in government funding of state companies and agencies, which could face budget cuts of between 7.5% and 10%. This could impact on the likes of CIE, which gets a large subvention from the state for providing socially desirable services, and more particularly the hundreds of agencies fully dependent on the state for funding.
Although both Taoiseach Brian Cowen and finance minister Brian Lenihan stressed last week that the emphasis in the budget would be on spending cuts rather than tax increases, €500m-€700m is likely to come from additional tax revenue.
A chunk of the 50% of workers currently paying no tax will be brought into the tax net by reducing credits and/or the introduction of a new universal social contribution, which will replace PRSI, health and income levies. Tax-relief schemes will also be further targeted.
As part of this restructuring of the tax system, the possibility of a €200 flat-rate household services charge – which would ultimately be replaced in a few years by property tax and water charges – cannot be ruled out. Ministers have, however, ruled out any chance of tolls being introduced on national roads despite it being recommended in the Local Government Efficiency Review.