“We realise the solidarity of demands of all tax payers, but there is too much at stake - we all have too much to lose by not taking action now,” said Minister for Finance Brian Lenihan. “This levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability for the public finances. This will enable Ireland to return as soon as possible to a natural level of economic growth.”

Lenihan confirmed that there was to be a shortfall of EUR3bn in tax revenues this year, but wanted to reassure that not all was lost: "Our economy continues to be strong and dynamic. We have a very low level of public debt; down from 53% of GDP in 1998 to 25% at the end of 2007, 14% in net debt terms. We have very flexible markets. We have a low burden of taxation. And we have over two million at work."

But government expenditure was running 11% ahead of last year, he said, justifying the drastic action he was taking.

Business at least was reassured that the Minister had not attacked the sacred 12.5% corporate income tax rate, and countless UK plcs continued their plans to migrate across the Irish Channel after a brief pause to listen to Lenihan's speech.

Public expenditure is to be hit hard:

• All Departments, State Agencies and Local Authorities – other than Health and Education - will be required to reduce their payroll bill by 3% by the end of 2009 through all appropriate measures identified by local management in the light of local circumstances. The parameters of the exception for the health and education sector are to be agreed by the Departments concerned with the Department of Finance.
• All expenditure by Departments and Agencies on Consultancies, Advertising and Public Relations will be significantly reduced for the remainder of this year and by at least 50% in 2009.
• Further savings in 2008 and in 2009 are to be secured by a range of measures including those identified as a result of the Budget day efficiency review.
• Capital projects will be examined and prioritised to ensure that resources are targeted in the first instance at construction-related investment in core economic infrastructure that adds to productive capacity.
• The Government has also decided, in the light of the current Exchequer position, that further expenditure for the acquisition of accommodation for decentralisation will await detailed consideration of reports from the Decentralisation Implementation Group. Minister of State Martin Mansergh will head up a joint public procurement operation between OPW and the Department of Finance to drive a programme of reform and to produce a business plan for purchasing savings to be achieved by Departments and other public bodies in 2009. Minister Mansergh will report in the Autumn with specific proposals to target at least €50m savings in 2009 on this front.

These savings are estimated to deliver EUR440 million in 2008 and EUR1,000 million in 2009.

Said the ICAI: "Almost no aspect of our tax system was left untouched by the Minister for Finance this evening. While the focus of comment will inevitably be on the Income Levy, which uniquely is a tax on all earners, our disposable income afterwards will not go as far as it did with increases in VAT and Excise. The increase in the Deposit Interest Retention Tax rate to 23% will eat into the returns earned by individuals on bank deposits.

"From a business perspective, the confirmation of the 12.5% rate of Corporation Tax, the reduction in Stamp Duty on commercial transactions by a third, and improvements to Research and Development tax credits will be welcome. In the international context, the Budget business measures will send out a signal to foreign direct investors that Ireland remains open for business. They will however find that Ireland has become a more expensive place than before to recruit and retain workers. It is now essential that the Minister’s indication of further reforms towards developing a high skills economy results in a package of innovative incentive measures for high technology industry.

"The benefits of the business package overall will be tempered by the increase in Capital Gains Tax, earlier Corporation Tax payments and wage inflation pressures from the higher personal tax regime."

“As usual, the devil will be in the detail when we see the Finance Bill” said ICAI Director of Taxation Brian Keegan. “One of the more positive aspects of an early Budget is that we will know the shape of the Finance Bill before the next financial year in 2009”.