Thursday 27 October 2016

Days of the giveaway Budget are over, but where will surplus €1bn be spent?

Money in our pockets might feel nice, but that's not what voters said they wanted in the recent election, writes Kevin Doyle

Published 28/08/2016 | 02:30

MONEY TO PLAY WITH: Michael Noonan has some tough decisions to make. Photo: Tom Burke
MONEY TO PLAY WITH: Michael Noonan has some tough decisions to make. Photo: Tom Burke

What do we want? We're not quite sure. When do we want it? Now. An air of expectation that will lead to disappointment is starting to bubble around Budget 2017.

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After years of fearing Budget Day, voters are now akin to a child in a sweetshop looking at all the different options before realising that 50c doesn't go very far anymore.

Since taking over at the Department of Finance in 2011, Michael Noonan has constructed some of the most diverse budgets in Irish history.

It only takes a quick scan back over the front pages of the Budget Day papers to get a sense of where we've come from - and that explains why we expect the upward curve in the State's finances to find its way into our pockets.

Here are the headlines from the Irish Independent on the mornings after each of Mr Noonan's budgets to date:

2011: The hidden hits

2012: We've no more to give

2013: Unkindest cuts

2014: Give and take

2015: Cash back in our pockets.

Back in 2011 and 2012, Fine Gael and the Labour Party introduced what were described as "savage austerity budgets" that brought property tax, reductions in child and maternity benefits, cuts to PRSI entitlements and savers hit with penal rates of DIRT. By 2013, ministers had run out of all soft options, leading to a budget that included the ill-fated 'probity' of medical cards and cuts to the bereavement grant.

"Even the dead are not safe from this Government," Fianna Fail's Michael McGrath said at the time.

Eventually, in 2014, a much-chastised coalition tried to balance things out by cutting income tax and restoring the Christmas bonus at the same time as announcing water charges and a new eight per cent rate of Universal Social Charge (USC).

One week's extra pay in your pocket was the promise off the back of last year's effort, which, of course, was just months out from the General Election.

Now Mr Noonan and Public Expenditure Minister Paschal Donohoe are in what could be described as a relatively solid position. They have in the region of €1bn to play around with, split 2:1 in favour of spending, as agreed in the formation of government deal with Fianna Fail.

The problem is that €1bn is not nearly enough to fulfil the pent-up demand for 'payback'.

If voters are to be believed, they want more public services and better infrastructure.

But the party in power also promised to phase out the USC, so they expect that too.

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The squeezed middle feel that, after holding the thing together through the tough years, they should be top of the queue for a break.

Pensioners though, thanks to Fianna Fail's Willie O'Dea, are expecting an extra fiver.

First-time buyers anticipate something to help them beat the tight new Central Bank rules that are blocking thousands from getting a mortgage.

The bottomless pit that is the Department of Health needs filling.

New gardaí, teachers, doctors and nurses have been promised.

There's a rainy day fund to be set up, while other notable items already floated include the relaxation of inheritance tax thresholds and more PRSI benefits for the self-employed.

The Government faces the risk of spreading our €1bn too thin, with the result that it has no real impact.

In fact, there are strong arguments for ignoring the clamour coming from the Opposition benches and the public.

These may not be popular things for a politician to say, but cutting the USC will narrow the tax base and a first-time buyers grant risks fuelling property prices again. Out of the €650m for spending, should we really put €150m of it into hiking the pension? Surely the money would be better invested in services for older people.

Similarly, a package that actually brought us closer to having reliable, affordable childcare would surely be better than pumping more money into child benefit.

Money in our pockets might feel nice, but it won't achieve what voters appear to have said they wanted on February 26.

The Programme for Partnership Government acknowledged that "many people have yet to feel the benefit of the upturn in the economy".

It added that "many communities - both rural and urban - have inadequate services and infrastructure".

"The New Partnership Government is committed to a 'Social Economy' model to deliver a strong economy and a fair society," the document said.

That "Social Economy" would be built on sound public finances, a broad tax base, a supportive environment for enterprise, more investment in infrastructure and a more inclusive prosperity.

But it's not all 'giveaway' either. The minister is looking at removing PAYE tax credits for high earners, diesel and petrol are likely to be hit with more excise duty and smokers will feel a hefty hit.

And the controversial sugar tax may come as early as next year.

September is set to be an intense month on Merrion Street as the two ministers try to please all of the people for the first time since the economic crash.

They already know that's an impossible task, so you can expect to hear plenty of mentions of Brexit and the uncertain international situation as they make excuses for not giving us everything on our extensive shopping list.

It will be interesting to see what the headlines read after Budget Day 2016.

Sunday Independent

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