Wednesday 26 October 2016

Jerome Reilly : The ghosts of budgets past are still haunting us

Published 02/12/2012 | 05:00

It might be masochistic but Jerome Reilly recalls the heady days of McCreevy, Quinn and their surpluses

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Ruairi Quinn was in lighthearted mood and his party colleagues were lapping it up.

As the then Minister for Finance delivered the Budget speech on January 22, 1997, there wasn't a dry seat on the Labour side of the house as Mr Quinn doled out the Budget goodies along with the gags.

"This year is the 75th anniversary of the publication in Paris of Ulysses. This famous literary work celebrates the diversity of Dublin during the course of one day, Bloomsday, 16 June, 1904. Being familiar with James Joyce's definitive work, you may know that a central character Leopold Bloom was also involved in constructing a budget. His careful budget for Bloomsday included the following:

- lunch: 7p

- a copy of the Freeman's Journal: 1p

- a postal order and stamp: two shillings and 8p

- banbury cakes: 1p

- bath and gratification: 1 shilling and 6p

"The total for the entire day's expenditure came to the enormous sum of two pounds, 19 shillings and 3p!

"In recognition of Joyce's tremendous contribution to the world of literature and in particular to mark this anniversary, I am allocating £100,000 to the James Joyce Centre in Dublin to secure the future of this literary heritage centre for generations to come," Mr Quinn intoned to cheers from the government side and pantomime jeers from the Opposition.

Ten years later we were at the harbour mouth of recession and Brian Lenihan and Brian Cowen would have cherished a national budget surplus of €100,000 as the country was hit by quarter after quarter of negative growth.

Remembering budgets of the past is deliciously masochistic. In those days with Mr Quinn and later Charlie McCreevy in charge of the coffers, every budget was a fiscal prizegiving. Like the Late Late Show there really was a treat for everyone in the audience.

Mr Quinn's last budget as Finance Minister was a £650m giveaway – at the time the biggest in the history of this country.

As a result, for those on PAYE and full PRSI:

- A married worker with four children earning £210 per week gained over £14 per week.

- A single worker earning £270 per week gained £8 per week.

- A married couple with four children earning £28,000 per annum gained £888 per annum or £74 per month.

- People receiving social welfare payments got an increase of twice the rate of inflation.

Ironically, given the credit crunch and increases in charges and rates of the last few years, small firms and family businesses benefitted in the 1997 Budget from tax reductions to, in the words of the minister in his Budget day speech, "help them continue the increase in economic growth and in jobs".

"I intend to do this, and more, while at the same time, provide for a significant current budget surplus, for the first time in our history. Moreover, the general government debt ratio will be the lowest since we began calculating this measure back in 1989," said Mr Quinn.

The next year Mr Quinn was twiddling his thumbs on the backbenches as Charlie McCreevy strode across the floor of Leinster House dressed like the father of the bride. For the punters at home the biggest worry was the fate of the tenner wagered with Paddy Power on what colour tie Charlie would wear for the Budget speech.

The Budget, delivered on December 3, 1997, was a tour de force of fiscal largesse. The Budget was brought forward to December. Politically it meant that the populace could look forward to Christmas in the knowledge they would have more money in their pockets when Budget provisions kicked in on January 1.

This was the Budget when Mr McCreevy, speaking after a fourth year of very strong economic growth, confidently predicted that by the year 2000 exchequer borrowing would be eliminated.

But Mr McCreevy did sound the warning that the public service pay and pensions bill of €5.6bn was expected to increase by another 6 per cent on top of a 10.5 per cent increase in 1997 – a hike he described as "totally unacceptable".

"The main problem as far as pay rate increases are concerned has been cost drift under the local bargaining provisions of the PCW (Programme for Competitiveness and Work) such as increases secured by a number of major groups in the health sector."

"The nurses' settlement alone is adding 1.5 per cent to the pay bill in 1997," he warned.

Of course that didn't stop Mr McCreevy spending. All personal rates of weekly welfare payments went up by €3 a week.

And there were special provisions for the elderly.

"Older people should be able to face the years after they retire with confidence," he declared.

The full personal rate of all old age and related pensions was increased by £5 a week – three times the rate of inflation.

Child Benefit rates – sure to be one of the options considered for cuts this time around – was increased by £1.50 per month for the first and second child and by €3 per month for third and subsequent children. Twins' child benefit from the following September would be paid at 150 per cent of the usual rate.

The number of spaces on back-to-work schemes was to be increased by 5,000 to 27,000 and there was additional millions for marriage and child counselling, family mediation and the free travel was extended to include companions to benefit those over 75 years who were unable to travel alone.

And there were generous increases to social inclusion packages aimed at the disabled and community employment initiatives.

Mr McCreevy also looked after the GAA by allocating £20m over a three-year period from surplus National Lottery revenues to help in the development of Croke Park.

Finally, there was the meat and potatoes of a McCreevy Budget – cutting tax.

The standard rate of income tax and the higher rate were cut by 2 per cent with the new rates set at 24 per cent and 46 per cent and there was also generous tinkering with personal allowances for singles and marrieds. In all, he spent £517m in reducing the main personal taxes.

Those were the days.

Three years later in his fourth Budget Mr McCreevy could still afford to be generous with 250,000 extra jobs created in the economy and more than 100,000 people taken off the Live Register. The unemployment rate was a record low of 4 per cent.

During the term of that Fianna Fail-led government Mr McCreevy boasted that overall spending on the health service had increased by 86 per cent (£2.3bn ) and funding for education had increased by 67 per cent (£1.4bn).

The weekly take-home pay of the average single industrial worker had increased by £60.

And Mr McCreevy was able to trumpet in his Budget speech that agreement had been reached between employers, the unions and government on public service pay.

The result? An increase for public service employees of 18 per cent over 33 months.

Unleaded petrol went down 2p per litre and a further VAT reduction to come into force later was worth another penny off a litre of petrol. The bigger your car the more you saved.

And there were more tax cuts through increases in allowances and widening the standard band.

Mr McCreevy cut the standard rate and the higher rate of income tax by two percentage points. The standard rate would now be 20 per cent and the higher rate was down to 42 per cent.

And remember in those days there was no USC. Happy, though foolhardy days.

Sunday Independent

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