Speculation is mounting ahead of the Government’s budget day, scheduled to take place in less than two weeks, of which sectors are going to be hit the worst and if the adjustments needed will come from those who are least likely to be able to afford it. Here are just some cuts being proposed:

Child Benefit:

It used to be “untouchable” but now with the country in the state that it finds itself in, nothing is off the table. Last year, the Government was forced to cut €10 from the first and second child, with additional cuts on subsequent children. This year, it looks like a further €10 cut, this time per child, per month. However, it could be smaller than that, in which case people may say that the cut was not as bad as we thought (!).

Ireland compares with the UK very well on this count with a family with four children receiving €624 per month as opposed to £206/€310 across the water. That’s double!

However, the UK does have lower child related expenditure and higher child related tax credits, so it is not a completely like-with-like comparison.

VAT:

The cat is already out of the bag with this one, as the Government will announce a 2% rise in VAT to 23%, as laid out in the EU/’IMF Four Year Plan and will take effect on January 1st.

The VAT hike will predominantly affect so-called “luxury” items and customers will probably hit the shops throughout December to take advantage of lower prices before the hike takes effect.

Tourist related services will remain at 9%.

Social Welfare:

The Government has pledged not to cut the basic rates of welfare but that doesn’t mean that there won’t be cuts. The Department of Social Protection currently spends €21 billion on welfare payments, pensions and benefits, with the majority spent on welfare. With projected savings of €700 million, something’s got to give.

The age of receipt of Lone Parent Allowance could be cut from aged 14 down to little as aged 7 under proposed rule changes.
Rent Allowance is a huge target for cuts while there will be consequences for those receiving welfare that refuse to take a job.

Health:

The Minister for Health has just announced plans to introduce a €50 annual charge on medical card holders as part of cuts to the health budget. The Minister has also indicated a further €1.50 increase on prescription charges.

There are also proposals to close down 40 HSE-run community buildings.

However, many believe that this is a similar situation to Child Benefit, with the reasoning being announce the worst case scenario and then announce slightly less bad news to make the cuts seem more palatable.

Miscellaneous:

There will not be any changes to income tax rates, tax bands or income tax credits for 2012. There will be a €100 household charge/property tax and there will be an increase to the Carbon Tax, details of which to be announced on Budget Day.

The day-to-day expenditure will be cut by just under €1.5 billion in 2012, with €750 million of that to come from cuts in capital investment.

The 2012 Budget will now include €3.8 Billion of savings, €2.2 billion in spending cuts and €1.6 billion in extra taxation.  This is fairly close to the €3.6 billion figure that was expected.

Make no mistake; this is going to be hard to swallow as a nation. But, sometimes what’s good for the country makes the individual’s life a lot tougher, especially when that individual did not contribute to the economic downfall of said country.

We shall see if the country can cope with this new Budget and hope Europe doesn’t fall into a second recession.

Ireland is the perfect bailout model and is the blueprint for all other indebted euro-zone countries, according to Juergan Stark at the European Central Bank (ECB).

Dr. Stark was forced to concede yesterday that the debt contagion had spread to Europe’s core but has maintained that Europe can avoid a double-dip recession. He was also wary of introducing so-called “euro-bonds” and said that the only way to manage debt was to keep reducing it.

"In my personal view, euro bonds, even if they were called stability bonds, will not solve the sovereign debt crisis. Euro bonds do not tackle the structural problems some countries are facing," Dr Stark said.

He was full of praise for how Ireland was able to stay on course with the bailout agreed with the EU/IMF/ECB troika and commended the Irish Government on taking the hard decisions.

"The Irish economy has stabilised, and the EU/ IMF programme has helped it to stabilise," Dr. Stark said.
"Ireland shows it is possible to implement (austerity programmes) as long as there is support in the society and a consensus among political parties.”

Dr. Stark has been one of the most vocal members of the ECB executive board and is vehemently against the use of ECB cash to solve the euro-zone crisis. He was also very publicly against the buying of bonds from heavily indebted countries, believing that austerity was the way forward.

"The sovereign debt crisis has re-intensified and is now spreading to other countries including so-called core countries. This is a new phenomenon," he admitted.

He advocated a dramatic cut in wage costs throughout euro-zone members coupled with creating a workforce that was flexible and willing to go where the work was. Dr. Stark, however, does not believe Europe will sink into a second recession.

Dr Stark said that the global economy faces “strong headwinds” which hamper economic recovery, particularly in advanced economies. However, he was critical of countries talking themselves back into recession.

Ireland has been held up as the poster child for other indebted euro-zone countries, who are encouraged to follow the Irish example, even if it means taking further tough decisions. Interest rates will begin drop as inflation slows down so at least mortgage holders will have some good news.

It is unlikely that Europe will go into a double dip recession but it is by no means a certain call.

Europe must be vigilant if Europe is to survive.

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from Clare MacCarthy at the Financial Times and Lars Wollung, CEO of Intrum Justitia

Q. How badly is the debt crisis affecting accountancy, auditing, legal and other professional services?

A. Lawyers, accountants and recruitment agencies are bearing the brunt of an increasingly weighty load of bad debts and late payments across Europe, according to a study to be released on Monday showing significant sectoral default patterns.

Intrum Justitia, the Stockholm-based credit management agency behind the survey of some 6,000 European companies, said the problem was likely to accelerate next year and spread to other sectors of business.

“Our survey indicates that things will start turning worse before they turn for the better. Professional services are often first hit by client budget cuts which means they serve as a warning of what might lie ahead,” said Lars Wollung, chief executive of Intrum Justitia.

During 2011, write-offs in the professional services sector rose 12.5 per cent while bad debts in the utilities sector remained on a par with the previous year at 1.5 per cent.

Hefty increases in defaults in the transport and health industries were also seen.

But while historic precedent suggests a further increase in 2012 of European bad debt from the record-breaking €312bn ($422bn) logged this year, Mr Wollung said preventive measures could soften the blow.

“Businesses that know their customers and implement efficient credit policies get paid earlier and have to write off a smaller percentage of sales,” he said.

Such policies, which need not necessarily include the involvement of a credit management agency, should address crucial operational functions that are sometimes overlooked – clear agreements, customer address checks, monitoring customer solvency and swift billing reminders.

“These steps are obvious but in recent years money has been so cheap that the need to focus on best management has been neglected,” Mr Wollung said.

Increasingly stringent lending policies by banks to businesses underlined the need for companies to concentrate on their own creditor arrangements, he added.

“In the past if you made a mistake you could always borrow from the banks but people can’t always do this any more,” Mr Wollung said.