Thursday, 6 December 2012

Budget Transparency Pledge Weakened by Lack of Detail

Nat O'Connor The issue of budget transparency is so important that it deserves special mention.

With the possible exception of elections, there is no other single most influential event in our democracy than the national budget. The budget is where all is revealed in terms of the values and priorities of the current government and it is often when it comes to spending money that promises made in manifestos are fulfilled or broken.

While the Government is moving towards some important reforms, like the strengthening of the Freedom of Information Act, there were some major surprises in the dilution of the quality and depth of information provided in the Budget 2013 documentation.

The current Programme for Government agreed by Fine Gael and Labour is full of commitments to openness and transparency. Not least, on page 23, the pledge that “We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics.”

Yet, for the first time in years, we were not given a full break down of spending decisions to the level of expenditure programmes and organisational budgets for a number of Departments. What might have been three or more pages of detail in a previous budget for some of the key departmental blocks of voted expenditure was reduced to just one page per vote block in the Budget 2013 Expenditure Report. The votes affected were: Gardaí; Prisons; Courts; Justice and Equality; the local government fund under Environment, Community and Local Government; Education and Skills; and Agriculture and Food. Only Social Protection and Health provided the same break down of sub-heads as last year.

What this means in effect is that some publicly-funded organisations are no wiser after the budget about what level of change has occurred in their individual budgets for next year, which begin in a few weeks’ time. It also means that policy analysts and journalists cannot give people in Ireland as full a picture on what promises and policies are implemented or not through the decisions made by each Minister on how his or her budget allocations will be spent.

For example, we know that in Vote 24 (Justice and Equality) there will be a 20 per cent reduction in programme expenditure to ‘promote equality and integration’ (line item D). That’s a €5.8 million reduction in that programme.

The equivalent information in Budget 2012 was part of item G: ‘equality, integration and disability’. However, in last year’s document the amount of money going to 10 different line items is shown, such as ‘grants to women’s organisations’, ‘equality proofing’, ‘Traveller initiatives’ and so on, with the specific changes to each area open to scrutiny.

Such missing detail means that people in Ireland have far less clarity on what is being done with their money and in their name. This lack of transparency is a retrograde step from the point of view of Ireland’s democracy.


Tomboktu said...

Actually, the detailed figures are available to agencies from their "parent" departments.

My suspeicsion is that it may be designed to allow decisions on that detail to be shifted from the Oireachtas to the minister or secretary general of the department.

A scenario might be:
The minister's pet conference in March runs over budget, then take some of the funding from money internally intended for an agency's conference in October.

Or, if an agency issues a report that is critical or provides evidence for others to criticise government action or inaction, then a form of punishment is could be to reuce their budget in the next quarter.

Unlike last year, no messy vote to revise the estimates would be needed.

Anonymous said...

Generally agree with tasc s synopsis of budget yet I find it hard to agree with the fairness of a property tax. It might do less to damage jobs as you say but it is not progressive at all. To use an example, my parents in law bought their house over thirty years ago for 35000 punts. It's now worth around 200000 euro based on a highly depressed property Market. My father in law was made redundant two years ago and his sole income is from social welfare. My mother in law was self employed and had to retire through ill health and get no social welfare payments. Is it really fair that they should have to pay a property tax at all as opposed to higher earned paying more USC?

The nevin institutes recent quarterly review shows clearly that income inequality has worsened in Ireland since 2009. It also shows that's Irish labour costs are below the e.u. Average in almost all sectors. Add to this an effective corporate tax rate of around 4 percent and there seems ample opportunity to avoid targeting the less well off through non-means tested taxes. We have almost the lowest corporate tax rate in Europe and even then we don't enforce it. These companies are here for the lack of financial regulation in Ireland as much as for the tax rate. I don't think a few percentage points would be a deal breaker for them.

Brian Woods said...

@ NO'C: "While the Government is moving towards some important reforms, like the strengthening of the Freedom of Information Act, there were some major surprises in the dilution of the quality and depth of information provided in the Budget 2013 documentation."

The present government is NOT moving toward any 'reforms'. If anyone thinks or believes otherwise then they are a sleepwalking sheep. Its about 'Office' Nat, not about 'Policy'.

The Claire Byrne Show (RTE Sat) featured the financial representative of the Irish National Socialist Party (aka: Sinn Fein) wittering on about 'broadining' and 'widening' as if he were discussing some new road transport proposal, rather than the means for the Revenue to loot more tax Euros from Irish taxpayers.

Why do you, and your economic supporters, not take this bozo to TASC (pun intended)? He (and other similar commentators) are talking pure, political economy, ideological b*ll*x. And I mean go public, not self-referential commentaries on this centrally-heated, sepulchural site. Please get someone who really (like actually) understands our current economic disaster. Not someone who will vomit up more ideological sh*te.

You get state income from two broad areas: (1) waged-labour income and, (2) non waged-labour income. Would someone like to expand and explain these and describe the known, known outcome of attempting to shift tax gathering to waged-labour incomes, whilst treating the non-waged-labour incomes as a political minefield: DO NOT ENTER.

There is a lot of hard thinging - that TASCer econs are NOT doing (but so are the non-TASCer econs). Ye are two sides of the same fake coin. Ye are individually and collectively hoplessly useless.

@anon: You're correct to suggest that the proposed, so-called Property Tax is another Income Tax. Stamp Duty IS a Property Tax, paid by the purchaser ('cause they thing its is worth it - (I'd insert a Wry Smiley here if I could)). So what part of Stamp Duty do the econ folk not understand. The whole Five Yards it seems.

Nat O`Connor said...

@ Tomboktu

I noted in last year's budget that the sub-heads under Agriculture, Gardai, Prisons and Courts are marked as "for illustrative purposes".

I'm not a constitutional lawyer, so I can't answer the question of whether the traditional sub-division of Votes by 'sub-head' line items (A1, A2, A3, ...) is legally binding (unless marked as 'illustrative'?) and therefore requires Dáil approval to change, or whether the parent department simply has an envelope of money under the higher level heading (A, B, C, ...).

I'm quite sure that departments are in a position of power over the agencies they fund and can threaten future funding implicitly or explicitly. However, I imagine that once an agency gets any kind of written commitment on its funding for a given year, it would be hard to reverse - and potentially illegal (which the Comptroller and Auditor General would be expected to pick up in due course).

Nat O`Connor said...

@ Anonymous

I’m not going to comment on your in-laws’ case specifically, as it would not be appropriate. But I offer you the following rationale for property tax.

20% of households in Ireland are not home owners. Roughly half are in social housing and the rest rent privately. Homeowners pass on a valuable asset to the next generation, often with a large tax relief. A renter may pay as much or more in rent over his or her lifetime as a home owner pays in mortgage payments and maintenance, but the renter doesn’t end up with an asset. Often the reason that renters stay renting is because they don’t have sufficient capital or credit rating for home ownership. So property tax acts as a redistribution of wealth.

The progressivity of property tax is based on the value of the asset, not on the income of its occupants. The more valuable the asset, the more you pay. However, TASC’s proposed a deferral of payment for people on low incomes. And the Government has introduced some deferrals. A deferred property tax becomes in essence a form of inheritance tax on inter-generational transfers of wealth.

I agree with you that high earners and those with other forms of asset should also be asked to pay more tax/USC/PRSI, in order to make the whole tax system more robust and progressive. But a property tax is a necessary part of the mix for Ireland to rebuild our tax system, which is one of the weakest in Europe.

I would have no problem discussing cutting tax breaks on corporation tax or raising it in future, but I am persuaded by the evidence that raising corporation tax during a recession does have a particularly negative effect on jobs, so that’s why I’d be cautious about doing it now, even though we are starting from a low base.

Brian Woods said...

@ NO'C: I note your comments to anon. Here are my echo-comments.

"Homeowners pass on a valuable asset to the next generation, often with a large tax relief."

Homeowners MAY indeed pass on a valuable asset but if Stamp Duty is payable on the transaction value price; there is your tax. And that tax will have to be paid either from income or savings. However the beneficiaries have the option to decline the asset and dispose of it instead. Now the purchaser pays the Stamp Duty; there is your tax. Its so simple it could not possible work. N'est pas?

I have glossed over this particular issue. It is not a simple as I have sketched. Beneficiaries may be elderly or incapacitated or a surviving spouse with a young family. Hence a 'deferral' will have to be put in place. These details do not negate the basic principle.

"The progressivity of property tax is based on the value of the asset, not on the income of its occupants. The more valuable the asset, the more you pay."

Pay with what Nat? Income? Then its a Income tax then! N'est pas?

"TASC’s proposed a deferral of payment for people on low incomes."

You just confirmed that you are discussing the use of an Income Tax, not a Property and Land Tax.

Nat, we already have a most efficient means to gather a property and Land Tax. Its known as Stamp Duty. There is no need - none whatsoever - to design a new, more complicated system. I have heard some excuse-like arguments against the use of Stamp Duty. They just do not wash.

Its the political will that is missing, and it is amply sustained by dopey proposals from people who do know better. If I heard that TASC was organizing public meetings and demonstrations to demand Local Government restructuring, I would pay attention.

As a matter of interest. Do you actually understand why our taxation system is the way it is? And how it might be re-structured. Your comments (so far) suggest that you do not.

@ anon: Apologies for 'butting- in'. BW

Nat O`Connor said...

@ Brian Woods

You are conflating income with money.

Obviously, all taxes have to be paid in money. And most people’s access to money is in their weekly or monthly pay. But that does not mean that differently structured taxes are actually taxes on income.

If someone has a housing asset worth say €200,000 and they are asked to pay an annual property tax of €360, they have to do so out of whatever money they have available. Although some people rent rooms, on the whole residential property doesn’t generate income for most owners. So the asset itself cannot be used to generate the money, unless the person sells it in its entirity. However, our proposed 'ability to pay' deferral system means that no one would have to sell up in order to pay the tax. (The Government's deferral system needs to be seen in more detail, but it is unlikely anyone will ever be forced to sell their principal residence to pay the tax).

Some people will pay using part of their income, but others will use whatever cash savings they have. Others still might liquidate other assets to raise the money to pay the tax.

Stamp duty was inefficient for a number of reasons. (1) It probably helped fuel house price inflation during the boom. As people traded up, they were keen to recoup the stamp duty they paid on their current house as part of the sale price. (2) It provides an uneven flow of tax revenue; high during a boom and low during a bust, whereas annual property tax provides a more steady flows of tax revenue throughout the business cycle. (3) It was unfair on people who had to move a lot for work or family reasons, and who ended up buying and selling more frequently than others.

At the end of the day, Ireland is a low tax country. EU-27 weighted average taxation (including social contributions) was 38.4% of GDP in 2010. Ireland’s tax take was 28.2% of GDP. See Pages 167 and 104 of Tax Trends in the EU respectively.

If we want to improve public services, we also have to follow that up with a willingness to build a stronger tax system. And property tax could provide an important pillar of local government funding.