Friday, 26 September 2014

Budget 2015 Warmups

Nat O'Connor: Interesting remarks by Minister Noonan reported in The Irish Times.

On tax breaks, he is quoted as saying “I use tax breaks to get a particular economic or social response in the short term but I will not have it bedded in as a permanent feature of the tax code.” TASC has pointed to the problems of tax breaks for years, so keeping such tax breaks on a short time horizon represents a progressive move. However, tax breaks are still problematic because they disproportionately benefit high earners and distort business decision making.

“Because of the buoyancy in taxation from the growing economy” there will be no new austerity measures in the budget, Mr Noonan is quoted as saying. However, the devil is in the detail in this one. Presumably, the Minister is still banking on the €500 million from water charges and the €300 million efficiency savings due under the Haddington Road Agreement and other carry-overs from previous budgets. That means despite a genuine easing from higher tax yields and the IMF loan repayment deal there will still be a contraction of €800 million, which will dent GDP.

But the most illuminating quote was the following: The Government’s approach to the upcoming budget was simple, he said, “if we can continue to control expenditure and grow the economy, all things are possible. If the crazy spending starts again, not only will you use up the resources on the spending side but the signal will go out that the discipline has been removed from Irish economic management.”

This reinforces the message that this Government is fixated on cutting spending rather than striking a balance between tax and spending. To be clear, spending on health, education, housing and social protection needs to be funded by adequate tax and social insurance. However, if this Government is fixated on capping taxation at its current level, which is three-quarters of the EU average, it is clear that there will not be extra funding for a serious social housing policy nor extra funds needed for pre-school education nor increased provision for Ireland's growing number of pensioners in terms of State Pensions and health care, and so on.

Adequately and sensibly funding public spending is not "crazy spending". On the contrary, it is crazy not to invest in quality public services as an investment in people working and living in Ireland. Tax cuts represent just as much loss of "discipline".

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