Michael McGrath (Cork South Central, Fianna Fail)

The Government is not asking the very high earners in the economy to make any contribution bar a token gesture of 5% for those who are sheltering income with tax relief.

On the broader economic picture, the detail of today's document again reveals that the Government has downgraded its growth forecast for 2012. It has only been approximately three weeks since it came out with the medium-term fiscal statement proclaiming that growth in the economy would be 1.6%. The Minister's speech and the accompanying detailed document now state that growth is forecast to be 1.3%, which does not inspire much confidence. Three weeks after coming out with the much heralded four-year plan, the medium-term fiscal statement, the Government has already downgraded the growth forecast for 2012 to 1.3%. It is correct that 1.6% was almost certainly too optimistic and I sincerely hope the 1.3% growth it has now forecast is achieved and exceeded.

With each passing day since that announcement in November the Government's forecast for growth looked increasingly optimistic and out of line with the views of a range of independent commentators. We all know that consumption in the domestic economy continues to contract - the Government's stability and growth update forecasts that to continue in 2012. Consumer sentiment is weak and the extra money the budget will take out of people's pockets will make matters worse. While we hope the ECB will further reduce interest rates later this week - which the Government should demand be passed on to personal and business customers - on all other fronts the omens for consumer confidence have deteriorated in recent months and 2012 will, at best, be another fragile year for the domestic economy.

Our exports reached record levels this year and have the potential to bring us back to significant economic growth. Multinational companies operating in Ireland and many Irish businesses have performed remarkably well in the export sector. However, the risks we face are stark. Our ambitions for an export-led recovery are now under serious threat from the ongoing eurozone debt and financial crisis and its impact across the globe. Our main trading partner, the UK, has dramatically downgraded its growth forecast for 2012 from 2.5% of GDP to 0.7%. The European Commission has downgraded its forecast for the eurozone economy for next year from 1.8% to 0.5%. Others predict that the eurozone could slip back into recession. In simple terms, if there is less demand among our main trading partners for the goods and services we produce, our exports will suffer and it will act as a drag on economic growth.

In its quarterly economic commentary, published last week the ESRI downgraded Ireland's growth forecast to just 0.9% for next year and forecast a contraction in GNP. The OECD took a similar outlook at just 1%. I am glad the Minister has come to the realisation that 1.6% was an outlier and has come back into line somewhat with other forecasts for the Irish economy for 2012. It may still prove to be too optimistic, but I hope it does not.

The 9% increase in income tax receipts the Minister forecast for 2012 before he even stood up in the House today appears ambitious even taking into account the carry-over effect from last year's budget on which he relies. As the Minister is well aware, the last three months' Exchequer returns have shown a significant deterioration in tax receipts. In November alone those receipts were €337 million off target and the White Paper on expenditure and receipt shows that the full-year tax take is estimated to be €700 million below target. This is even after it is flattered by the mid-year raid on private pensions yielding approximately €460 million. The Minister has pointed out many times that for every 1% of economic growth that is not achieved, the impact on the Exchequer is approximately €800 million. If 1% is taken off the growth for next year, the impact on the Exchequer finances and the targets in this budget will be very clear indeed.

When the political commitments made by Fine Gael and Labour, and the 2012 budget strategy outlined yesterday and today are taken into account, it is clear the Government has left itself very little room for manoeuvre for its remaining four years in office. On the main four income headings, it has used all its headroom in VAT in the first year by front-loading the 2% increase and capping the rate at 23%. It has committed to no income tax increases over the lifetime of the Government, although I note that is somewhat diluted in the text of the Minister's speech in which he commits to no income tax increases in 2012. However, we can only take him at his word that there will be no income tax increases over the lifetime of the Government. We all agree that the corporation tax rate should not be increased and we can also agree that there is a limit to the amount of excise that can be put on a litre of petrol or a pint of beer.

On the expenditure side, the Government has ruled out any reductions in welfare rates in the next four years' budgets as well as yesterday's even though it has slipped in a few by the backdoor. It appears to be committed to the Croke Park Agreement to 2014. Therefore it has left very little room on either the revenue or expenditure side should its growth forecasts prove to be too optimistic. Without question it has made the easier political choices in this budget. However, I am not so sure it will have the same luxury in the coming years. The sobering news for all the Government backbenchers is that far from this being the hardest budget the Government will need to introduce, it may well prove to have been the easiest.

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