Monday 24 October 2016

This fiver a week for everyone in the audience screams 'general election'

Published 12/10/2016 | 02:30

The decision to give €5 per week to old age pensioners is admirable but it is questionable what it will achieve. Will it be enough? What is the going rate for a pensioner's vote these days? (Stock picture)
The decision to give €5 per week to old age pensioners is admirable but it is questionable what it will achieve. Will it be enough? What is the going rate for a pensioner's vote these days? (Stock picture)

The jam on Budget 2017 has been spread so thinly, it tastes a little bland. This fiver-a-week Budget is about delivering something minuscule for everyone to the point of being nearly meaningless.

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This is actually a one-hit Budget rather than part one of three budgets, as flagged by the Government. It is worthy but vague on where it wants to go and what policy achievements it wants to make.

The overriding philosophy is about not over-spending while giving something modest to everyone. Too many cooks have spoiled this broth.

Imagine if Bill Gates decided that he was going to give away $1bn of his fortune for good causes. (In fact he plans to giveaway multiples of that.) So he decides to find 500m people on the planet most in need and he gives them $2 each.

It would not take away from the good intent of giving away so much money and trying to help so many, but it would achieve virtually nothing.

In this Budget, Fine Gael has one eye on the mistakes it made in the last general election and the other eye firmly on the next election.

The only really new idea in the whole thing is the childcare package. This is long overdue but could prove controversial and difficult to implement.

The decision to give €5 per week to old age pensioners is admirable but it is questionable what it will achieve. Will it be enough? What is the going rate for a pensioner's vote these days?

The 0.5pc cut to the USC throws up some interesting examples. A person on €55,000 per year will gain by €23 per month, or about €5.75 per week. The Department of Finance's own family examples talk about a fictional Alan and Ray, a married couple with two children, earning a combined income of €36,000. After the Budget, they will be €283 per year better off, or €5.44 per week.

This really is the fiver-a-week Budget.

If the Exchequer was going to take a financial hit of €335m per year, as it will on these tax measures, surely it would have been more constructive to have spent the money in a more focused way, or not at all.

The so-called 'new politics' was supposed to deliver greater transparency and deliberation about policy formation. We were supposed to learn more about how policy decisions were made and see greater assessment of their likely impact.

In this Budget, it looks like a decision was made that everybody should be around €5 per week better off and simply worked backwards from there.

The help-to-buy housing scheme for first-time buyers appears on paper to present a valuable solution for those struggling to save the deposit to get a mortgage within the confines of the Central Bank rules.

In reality, it is a mechanism to deliver a better price for developers on new builds to encourage them to build. Michael Noonan didn't bother in his speech going through the façade of pretending it was to help hard-pressed couples.

He introduced the measure by saying: "There is an acute shortage of new houses being built in Ireland and I am introducing a help-to-buy scheme to address this problem."

He didn't say there is an acute shortage of people who are capable of saving the full deposit on a mortgage because of "these draconian Central Bank rules". No, at least he said it like it was.

The measure is estimated to cost €50m in a full year, which shouldn't break the bank, but it once again sets the Exchequer on the road of subsidising its way through the vagaries of the housing market.

The examples given in the Budget documentation of how the scheme will work paint an interesting picture. Firstly, it is back-dated to all those who signed a contract to buy after July 19. Presumably, if they signed a contract then they didn't need the scheme to raise the deposit but managed to do it themselves and secure a mortgage.

It seems a little strange that they will now get up to €20,000 lobbed into their bank account from the taxman. Handy for buying furniture, I suppose.

Example one in the department's literature shows a first-time buyer acquiring a €300,000 house. They paid a €38,000 deposit as required under the Central Bank rules. The help-to-buy scheme will see them receive a €15,000 tax rebate, which means they only had to save up €23,000, or 7.6pc, of the purchase price of the house.

The Government's aim is to encourage developers to build more new homes by providing them with a higher price and therefore a better margin. If the minister had incentivised developers through a Vat concession or other direct assistance, there would have been an outcry. This way, it appears to be going to the consumer.

On the spending side, the Budget claims to be Brexit-proofed. Yet the commitments on future spending, while largely very worthy, will continue indefinitely even when the wheels really start to come off the British economy.

Public Expenditure Minister Paschal Donohoe talked about the need to confine Budget commitments to "sustainable spending". He said any measures introduced had to be affordable in 2017, 2018 and beyond.

So it is a little ironic that the €5 increase to the old age pension isn't affordable for the full year of 2017, as it only begins in March, but will be affordable for ever more after that. The Government is pencilling in modest cuts to GDP growth because of Brexit, when in fact the UK treasury has said in a severe scenario, UK GDP could fall by 8pc or 9pc.

The impact of such an implosion on us would not be modest. Our Brexit-proofing is as much about hoping that won't happen. Yet Michael Noonan is assembling a "rainy day fund" by putting €1bn per year into a new fund, partially with Brexit in mind.

We already had a rainy day fund, called the National Pensions Reserve Fund. A chunk of it was raided to bail out the banks, but around another €7bn was diverted under Mr Noonan's instructions into investing in Irish companies to stimulate job growth during the recession.

It doesn't seem to make sense to scrap a multi-billion-euro rainy day fund by turning it into something else and then start a new one from scratch.

This Budget has 'election' written all over it. But it is different to the election budget of old. The kitty was small and there were too many political groupings looking to claim credit for it.

Irish Independent

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