Minister for Finance Brian Lenihan has defended his decision to increase the tax burden on wage earners in yesterday's budget, insisting the Government had "no option".
Speaking on RTÉ Radio's Today with Pat Kennyprogramme, the Minister said he "would have preferred not to increase taxes" but he had to face the reality of declining revenue.
The tax take will be down by more than €10 billion this year over 2008, he said. As a result, the Government has been forced to borrow €20 billion this year to cover public spending costs.
Mr Lenihan said there was evidence that personal savings were on the rise, which showed a lot of people expected tax increases.
On the new banking scheme, Mr Lenihan said it had been "very well welcomed by experts". He said the Government was seeking to "clean out" the banks of their high risk loans, a move that was vital to save the economy from paralysis.
He rejected Opposition claims the scheme amounted to a "bailout" for the banks, saying the banks are facing a "tough deal" and "tough negotiations about the valuation of bank assets".
The Minister defended his decision not to reverse last October's VAT increase, saying it would have cost a "substantial amount" of money. "We cannot afford to give away money at the moment," he said.
On the public sector wage bill, Mr Lenihan said the Government has achieved "significant reductions in expenditure in recent months. He said the pensions levy and other adjustments have resulted in greater savings since the start of the year than all the tax measures introduced in yesterday's budget will raise.
He also warned there was more pain to come for taxpayers. "We will have to do a lot more," he said. "We need to broaden the tax base and save money on expenditure in future budgets."
He pointed out that the Government's multi-annual plan submitted to the European Commission contains a far greater emphasis on cutting expenditure than taxation in future years.
Mr Lenihan said he planned to reconfigure the tax system and abolish levies. "There are too many diverse levies," he said. "They have to be brought together and rationalised."
Despite the cost of living falling, business costs and wages in Ireland are "way out of line" with our competitors in Europe , he said. In order to build for the future, we all have to accept some reduction in our standard of living".
He said the early childcare supplement was being cut because it is "something we cannot afford". The new pre-school allowance was a "socially progressive measure which will apply to all children" and would be cheaper to implement.
Mr Lenihan said the excise on diesel was raised yesterday "for the first time in years". He pointed out that the cost of diesel has been falling in recent months and the increase in excise merely brought Ireland's rates up to the EU average. There was no increase in the excise on petrol to prevent motorists from crossing the border to buy their fuel in the North. This was the same reason given for not raising duty on alcohol.
He said people who buy goods in the North take money out of the Exchequer and give the Government no option but to raise income taxes.
The Government will decide in the next few months whether social welfare will be means tested. There is "no question of abolishing" child benefit, he added. "We are trying to ensure it is paid on a sliding scale to those who need it most."
Defending the decision to halve the jobseeker's allowance for those under 20 to €100 per week, Mr Lenihan pointed out that it was still almost double the equivalent benefit paid in the UK . "We are going to have to wake up to social welfare rates," he said.
