Friday 28 October 2016

Coalition has ridden its luck and has made little meaningful change with this giveaway

Published 15/10/2015 | 02:30

Minister for Finance Michael Noonan
Minister for Finance Michael Noonan

Budget 2016 was the last hand of cards to be played by our Economic Management Council. No government has ever devolved such power of decision-making to a small cabinet sub group. Five budgets combined together add up to quite a legacy. Their own narrative gives them credit for saving the country and creating the fastest-growing economy in the OECD. And it would be churlish not to acknowledge their collective cohesion, and resilience in the face of protests and stamina.

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But they refuse to admit their extraordinary good fortune, thanks to external economic circumstances over the past two years. Ireland Inc is an open exporting economy, dependent upon its competitiveness. The halving of oil prices means significant savings, we import 90pc of our energy requirements.

Sustained 0pc ECB interest rates create the perfect investment scenario. A 20pc devaluation of the euro against sterling and US dollar boosts foreign visitors and trade earnings; while Mario Draghi's quantitative easing provides a macro stimulus and cheaper sovereign debt servicing. Having weathered perfect storms, we now enjoy perfect platforms for growth.

The Coalition can't claim credit for these benign factors. If such favourables turn sour beyond next year, no blame attaches to the Government. Kenny & Co aren't modest enough to concede their lucky streak. To assess FG/Labour's legacy fairly requires looking beyond key top-line achievements of: debt reduction from 120pc of GDP to 93pc; reduction of unemployment from 15pc to 9.4pc; achievement of a primary budget surplus and 6pc GNP growth.

Michael Noonan asserts we've moved to a new economic cycle, post-austerity. But we haven't changed the way we're governed. The 'democratic revolution' only delivered a net reduction of eight TDs and an unchanged Senate; but as yet zero electoral reform. The Civil Service shed 30,000 employees and endured pay cuts; but over the next few years, both will be reinstated. Welfare savings are also gradually restored (respite grants and Christmas bonus payments). Slashed public capital programmes now resume. It's all very reminiscent of the days of "now that I have it again, I'll spend it." This makes for a stark contrast with how enterprise now does business differently.

Meanwhile, the big-ticket challenges for Irish society have not been confronted. Despite an endless series of reports, no national pension scheme has been put in place for the 40pc of workers who have nothing to rely on in old age, other than an unfunded state OAP. A refusal to introduce an auto enrolment pension regime amounts to a serious failure. Despite tremendous foreign direct investment success for multinationals through the IDA and clever corporate tax changes, only 10pc of our exports derive from Irish entrepreneurs' activities; so no great evidence of an indigenous entrepreneurial cultural evolution underway.

Five years could be considered an inadequate time to secure structural change. Yet this Budget didn't signal meaningful innovation. Where was the bank levy to raise an additional €200 million to fund the needs of homelessness? What happened to consideration of the sugar tax to address our record levels of one-in-four child obesity? Instead, we got the old solutions of simply throwing borrowed money at perennial problems, with an additional €2.2 billion of current spending. This contrasts sharply with what has happened in the private sector.

Since March 2011, transformation occurred in company workplaces. Take convenience stores: digital scanning technology provides comprehensive analysis of revenue, product sales, margins and inter-store comparisons. This facilitates merchandising to maximise profits by selling fresher deli food, more frequent distribution of deliveries and promoting efficiencies.

Enhanced customer care and quality service is instilled as a corporate ethos through staff training. There is more pressure to retain market share. Take media: production of this newspaper today no longer involves the layers of middle management that existed a mere five years ago. Demarcations of staff have evaporated in broadcast media as individual researchers/producers/editors and presenters carry out tasks which were exclusively done by each category.

Manufacturing constantly eliminates entire work processes through advanced software technology. The crash irrevocably revolutionised commercial work practices, but not in the public services. Net budgetary gain for an average household is calculated to be between €10 and €20 per week. This extra cash is insignificant for a tenant whose monthly rent has risen by €200. This government's Construction 2020 policy has failed to gain traction with a paltry 11,500 new houses to be built this year. Nothing was announced to reduce building accommodation costs to levels of family affordability.

Where are the measures of less regulation, tax reductions, more rapid planning processes or construction finance? Reliance on repeat Nama promises falls well short of an essential sectoral re-start. Housing policy remains the critical shortcoming of this administration; blithely ignoring consequences of the capping of rent supplement payments and a failure to reactivate council social house building, is not acceptable.

The biggest problem of our income tax code is the entry point to the top rate of 50pc. International comparisons reveal one reaches marginal rates in US at €306k, Germany €250k, UK €186, Norway €102, Spain €300k and OECD average of €114k. This dynamic is critical to attracting and retaining the best talent. By spreading USC jam so thinly across all taxpayers, they failed to make a game changer on our lowly threshold of €35k.

The Independent Fiscal Advisory Council's most significant recommendation is a requirement to fund the demographic liabilities of an extra 20,000 pensioners a year. The cost impact of our ageing population across all public services is an extra €500 million annually.

Systemically, irrespective of who is in government, this must be addressed, moving funding away from ad hoc crisis healthcare management in emergency departments.

Then there is the total inertia in resolving residual recessionary problems of personal insolvency. The past three months have seen the Insolvency Service of Ireland handle fewer cases than previous quarters - 661 cases out of 52,000 unsustainable personal debt situations amounts to official abandonment.

There have been no new initiatives or even an acknowledgement of this recurring nightmare. As for the overall legacy? In 15 years, historians may adjudicate that this Coalition was an effective administration, but over the next 15 weeks voters are likely to form a far harsher verdict.

Irish Independent

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