Tuesday, 7 April 2009

Budget 2009: further comments

Sli Eile: Some additional – and initial – observations about specific points in the Budget.

Leading by example?

The announced changes to pay and conditions of senior politicians do not go far enough. Too little too late. What is particularly disturbing is the lack of public contrition for the way that the Property-Political-Financial complex has ruined the economy and with it our reputation abroad.

Capital taxes

Ireland is a special case when it comes to taxes on property, land, capital gains and wealth. Some Governments at various stages in the last 30 years meekly attempted innovation in these areas to find stiff opposition and inaction leading to withdrawal. It is a case of Thou shall not tax capital. So the move from 22 to 25% Capital Gains Tax was bordering on risky. But if it was legally and administratively possible to change CGT rates, now why not go further and change the rates up to the original 40%? For an extra €45m in a full year investors might be scared off! How much would have been yielded on a restoration of the 40% CGT rate? Enough to pay a Christmas bonus to welfare recipients?

Overseas Aid cut again

This time the cut was €100m giving a combined reduction of €195m between February and April adjustements. Trócaire has already condemned this cut this evening.The combined effect will be to push Ireland's ODA contribution to under 0.5%. The poor elsewhere, as well as the poor at home, are paying for the Irish banks.

Social Welfare payments

So recipients were spared cuts in basic rates. However, other stealth cuts apply from childcare to reductions in public services more generally and much more to come.

In a post on Irish Left Review, Michael Taft points out that – contrary to popular belief – social welfare payments in Ireland are average to low compared to in the European Union. Using the latest internationally published data from OECD, Taft shows that Irish single unemployed (for example) receive the third smallest benefits in the EU group of 15 countries.

Many commentators assume that falling prices will continue, and will facilitate cuts in social welfare rates. However, there is no guarantee that prices will continue to fall and, in fact, the Department of Finance own estimates allow for some price increases from 2010 onwards. A further point is that low-income households have different expenditure patterns and are much less affected by price falls in areas such as mortgage interest (which enter into CPI calculations).

Free pre-school provision?

This sweetener offers €170m for free universal pre-school education for all children aged 3. In case someone is about to declare a new era for early childhood education, please don't. The true cost of universal provision is likely to be a multiple of this amount, taking into consideration capital spending, adaptation of premises and not to mention training of staff, inspection and costs of staff. Nobody believes that you can provide a quality pre-school system at under €2,500 per child for a full-year, full-session provision adapted to the needs of three year olds in new or existing buildings. It simply will not work. If this offer is being traded for an elimination of the childcare payment by the end of this year, it is a particularly unconvincing move.

Tax Rates

Colm Keena in a recent series in the Irish Times has pointed out that '9,129 people, or 0.3 per cent of earners, between them earned €6.7 billion, or 6.6 per cent of all income'. This is where a top tax-rate of 48% should apply – immediately – not after some Commission report.

Public Capital Programme

This is a very problematic area of the Budget, and one that deserves closer scrutiny. If there was one area of public spending where the Government could have made an immediate and positive impact on saving jobs this was it. Instead the PCP (less contributions to the National Pension Reserve Fund) is being cut by about €500m.

Here, there was little sign of a fundamental shift, so urgently needed in prioritising labour-intensive and socially desirable projects.

Tax Base

Not surprisingly, the Government went for no action on most of those areas where they could have begun to erode the unacceptably large amount of tax lost as a result of various reliefs and exemptions with little relevance to employment or output.

Public Sector

No signs of real reform here. Schemes to encourage people out of the service will – in the presence of an inflexible embargo on filling of vacancies - lead to chaos in critical areas of public service delivery. The centre cannot micro-manage each individual case as is currently proposed.


So €80 billion is the book value of bad debts. Who knows? Who cares? The taxpayer in 2009 and 2059.

No comments: