Friday 24 October 2014

Brendan Keenan: Hitting the 'old reliables' won't be enough this time

Published 06/12/2012 | 17:00

Government will need the extra 3,000 jobs it is hoping for next year to hit its revenue target

PERHAPS the most significant budgetary announcement was not in the budget speeches at all.

It was the supplementary one introduced by Social Protection Minister Joan Burton.

"Introduction" is perhaps too grand a word. This huge over-run on her department's spending this year was slipped in more like a party gatecrasher, in a brief appearance at the Oireachtas committee.

It would certainly have been a party pooper if highlighted during the main event. The figure represents more than two-thirds of the total tax measures introduced in yesterday's much-lamented budget package. That makes it highly significant.

The Government can claim that the targets for this year have been met, and the ones for next year will be met.

Public Expenditure and Reform Minister Brendan Howlin can say he is over his earlier fears that the country will not get out of the crisis. But the signs were of slippage, not progress.

Business analysts have a phrase, "quality of earnings". It means not looking just at the figures, but assessing how robust they are. On this basis, Budget 2013 lacks the "quality" of its predecessors.

One can rely on the "old reliables", of course, and Mr Noonan has done so. He left fuel alone – even gave a rebate to hauliers – but the rising price of oil must have already contributed to the good returns from VAT this year.

The others – cars, tobacco and, especially, drink – carried the load; with €370m to be collected on these categories in a full year.

The Department of Finance will have allowed for some reduction in consumption in estimating these revenues, and it has a lot of experience in this area. Other sources of taxation may disappoint.

Ms Burton's supplementary estimate was caused largely by weak receipts from PRSI. The Budget relies heavily on PRSI changes, worth €330m, to correct this. The sharp falls in employment may explain the 2012 shortfall, but the Government will need the extra 3,000 jobs it is hoping for next year to hit this revenue target.

It is all about growth. At the start of the year, the Government – or rather the plan drawn up by its predecessor – was looking for an increase in the value of economic output of more than 8pc over the next two years. Now, the forecast is below 6pc, and many economists would fear it will be less.

This has a particular impact on the spending side. Most government spending "cuts" involve reducing payments rather than cutting the cost of Government itself. The difficulty with doing that is illustrated by the pay and pensions bill for the public service.

It is scheduled to fall by €580m, or 3.2pc, next year. That sounds fine but, since it overshot by €110m this year, progress is slower than it might seem. It is a long way from the billions being claimed for the Croke Park deal, but they are more accurately described as the rises, which would have taken place had nothing been done.

There is no doubt about the difficulty in restraining pay costs, especially when automatic increments add 1pc to the total each year, and the Government deserves credit for achieving even what it has, and the unions for acquiescing.

Yesterday showed a Government running out of options on spending. The "quartet" of Taoiseach, Tanaiste and the two financial ministers who now decide things along with the troika decided that the two big-spending departments of Health and Social Protection could not meet the original spending targets.

It is the first official departure from the plan, aided by a deliberate slippage in capital spending. The admirably improved data from Mr Howlin's department (Mr Noonan's has got worse) shows that Social Protection will have to find an additional €440m in 2014 to keep within the new limits, as well as cutting 7pc off this year's spending. Even then, the public finances next year will rely significantly on things like savings by departments, the running down of cash balances in universities, and the payment of more dividends by state bodies.

Hoary old chestnuts like garda overtime were also given an airing. The inescapable conclusion is that something will have to turn up if Ireland is to achieve the cherished aim of returning to the comparative freedom of the bond markets in 2014.

That probably explains the unexpected emphasis on encouraging business and investment in the Budget. The beginning of Mr Noonan's speech sounded like one of the giveaway Budgets in dear old days gone by.

Business welcomed the moves, but regretted that the amounts are so small. That is the dilemma. Everyone would like a stimulus, the country needs one to break free, but we have run out of stimulants.

Mr Noonan's analysis of how improvements in the property market might spin off into the wider economy is plausible, but things may have to improve abroad for that process to begin. And they need to start improving next year.

Irish Independent

Read More

Don't Miss

Editor's Choice