EU must be careful not to push us too far
Brussels needs to realise impact austerity is having and that we can now fund ourselves if we default, writes Marc Coleman
Published 08/06/2014 | 02:30
An increase in the cut-off point for the top rate of income tax, a reversal of cuts to tax relief on mortgage interest relief, relief on property tax liabilities for those who paid stamp duty, a substantial reduction in water charges and more besides.
If Wednesday's exchequer figures are anything to go by, months of patchy growth have been replaced by steady growth across most heads of taxation and, if this trend continues, these are just some of the measures October's Budget could afford to implement.
That is predicated, of course, on implementing necessary reductions in those areas of public expenditure that remain excessive.
There is just one problem: Days after voters expressed their exasperation at austerity, the EU Commission wants us to implement more, not less, austerity. From "Labour's way or Frankfurt's way" it's now the Coalition's way or Brussels' way.
Compared to the €2bn budgetary adjustment envisaged in the last stability programme, and endorsed by the Independent Fiscal Advisory Council, a growing number in Government feel a lesser adjustment is warranted. This week's exchequer figures seem to re-inforce that view. The Commission disagrees.
It agrees that in the short-term government forecasts are on track. But given the size of our national debt, 124 per cent of GDP as of 2013, we need to make faster progress on getting this down. It also thinks that government forecasts beyond 2015 are too optimistic. To be prudent it would like us to adjust by even more, €2.5bn to be precise. Who is going to win? Perhaps the Commission is just posturing.
But with Labour leadership contender Alex White warning that he won't stay in government under any circumstances, this debate could do more than shape the Budget. It could bring down the Government.
The stakes are high. And the pressure on government to cut our extraordinarily high tax burden is justifiably intense. Wednesday's exchequer data also seem to back that case up: Compared with €5.3bn in the year to May 2013 the exchequer deficit for that period this year has improved by €1.8bn. Unfortunately most of this relates to a jump in capital receipts due partly to the sale of land, a once-off that – in the absence of a programme of privatisation – is an unreliable future income.
On the other hand, tax growth is strengthening from a patchy start. Up €450m on expectations, the tax take in the year to May suggests that, by October, the Government may have €800m or more to play with.
What about the EU Commission? There are several things it should be told.
Firstly, that capable though it is, it may not be sufficiently apprised of the economic realities it seeks to inflict on others but from which it is largely protected. Secondly, being unelected it needs to appreciate more that politicians are ultimately accountable to voters. Thirdly, implementing further property taxes and higher indirect taxes on a populace that has just expressed a rage over same is likely to be counter-productive. Hostility to the European ideal is already rising. Fourthly, the Commission concern that we need to reduce national debt is – however touching – a stark reminder of the absence as yet of any substantive writedown on our bank debt.
Don't get me wrong: The Commission's recommendations are well-intended. And its calls to reduce government debt, improve SME lending and make taxation more employment-friendly should be implemented. But its calls for further taxation are devoid of any grasp of reality.
There is a final argument in any deliberations with Brussels: the figures show our current deficit to May to be €4.3bn. That's just above the €4.1bn we pay annually servicing our debt. It signals a strong message to Brussels: We are now closer to the point where we could, in theory, default on our bank debts and still fund public services and welfare payments. In other words: Don't push us too far.
Marc Coleman presents 'The Marc Coleman Show' each Sunday, from 9pm, on Newstalk 106-108fm.