Abstract
The economic and financial pressures facing Ireland are intense. The banking sector is at the fulcrum of Ireland’s problems. The program, therefore, aims to restore the banking system. It will address structural problems and restore confidence. A leaner and more robust banking sector is the major objective. The program provides support in the transition through additional capital to banks. The credibility of the banking system will be bolstered by stringent stress and diagnostic tests. The substantial risks to the program will need to be actively managed.
1. This statement provides information that has become available since the Staff Report was circulated to the Executive Board on December 4, 2010. The information does not alter the thrust of the staff appraisal.
2. The 2011 Budget was presented to the Parliament on December 7 and the budget-related financial resolutions were passed the same day with a comfortable majority, thus meeting the prior action. The 2011 Budget is broadly in line with the authorities’ four-year National Recovery Plan (NRP) and the proposed measures are consistent with the policies agreed under the Fund-supported program.
The expenditure package specifies the welfare cuts underpinning the €0.9 billion savings for 2011 indicated in the NRP. The reductions principally apply to universal and hence non-progressive benefit schemes, and benefits to working-age individuals and families.
On the revenue side, Budget 2011 implements the major reforms identified in the NRP, but provides greater specificity on income tax policy changes. A 10 percent reduction in personal income tax bands and credits will be supplemented by the abolition of the income ceiling up to which the Pay Related Social Insurance (PRSI) is payable, an increase in the PRSI contribution rate for the self-employed, and a merger of the income and health levies into a graduated universal social charge.
The package also includes a sharp reduction in the stamp duty rate to 1 percent, while removing various exemptions, with a view to resuscitating the property market.