Business Analysis & Overview

Tuesday 2 September 2014

There are two tough years still to come

Fiach Kelly Political Correspondent

Published 06/12/2012 | 05:00

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Much was made of the fact that income tax and basic welfare rates were left untouched in the Budget, giving succour to the Fine Gael and Labour backbenchers respectively.

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The tune will be very different next December.

The Programme for Government commits the Coalition to maintaining welfare and income-tax rates, although they are now stretching that pledge to its outer limits.

Changes to PRSI amount to a increase in income tax, while Labour's pre-election promise to protect child benefit from the Fine Gael knife has been broken.

There is surely a limit on how long the Programme for Government promises can last. Budget 2013 made a €3.5bn adjustment. There were serious tensions over Labour demands to increase the Universal Social Charge by 3pc for anyone earning over €100,000.

Fine Gael met this head-on by pressing the nuclear button.

Labour ministers and advisors did not heed the warning flares shot when the party warned that such a hike would be a breach of the Programme for Government, and would thus bring welfare cuts on the table.

Hence the dramatic demand at the weekend, when Fine Gael said an across-the-board cut on welfare payments would be its named price.

And that dust-up came only on the Coalition's second Budget. A €3.1bn adjustment is on the cards for Budget 2014 and after years of austerity, there is only so much more dancing around taxes and welfare that can be done.

Labour has been twice denied on USC increases for higher earners, and it will not be denied again next year if it is to have a shred of credibility.

The compromise mansion tax has been revealed as a joke, with the higher rate – 0.25pc – only applying to the value of a huge house in excess of €1m, with the lower 0.18pc applying on anything under €1m.

It is impossible to see how Labour cannot demand some tax increases next year, especially if its opinion poll ratings continue to drop.

There is no way Fine Gael will take that lightly. The reality is a lot of its core vote – squeezed middle-income earners – are not happy with what they see as generous welfare payments.

Texters and callers to radio phone-in shows constantly question working and paying taxes when they perceive welfare recipients to have as much disposable income as they do.

While Budget 2013 has succeeded in bringing out the ideological difference between Labour and Fine Gael, the next year will see those differences sharpen.

These skirmishes are only a taster of what's to come, and it is almost impossible to see how the Government will make it to Christmas 2014 with income tax and welfare rates untouched.

Irish Independent Supplement

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