Friday 24 November 2017

Brendan Keenan: A lot done in this Budget -- but an awful lot more to do

Brendan Keenan

Brendan Keenan

BERTIE Ahern's Ireland is dead and gone, said Michael Noonan. He stopped short of saying it was with O'Leary in the grave -- which might have upset older people with nationalist leanings -- and confused younger ones that he was talking about the airport tax.

The symbolic finish to Bertie's Ireland was the final end to property tax reliefs. Their annual extension from 2004 onwards probably doubled the size of the construction boom, with the fatal consequences that we now know.

But still, they are not dead. On the assumption that there will be no further extensions, the last Revenue cheque for people who wanted to invest in property but thought the taxpayer should join in will be written in 2014. This is a good 10 years after the last cheque should have been written.

But it is still only an assumption. The promise of an end by 2014 is based on a 'guillotine' for unclaimed and unused capital allowances. Yet the Budget contains the sort of weasel words which accompanied all those disastrous extensions.

"An impact assessment will be undertaken into the effects of the phased abolition of the property-based measures and the 'guillotine' provisions." Uh-oh.

There is not much mention of impact assessments on the main measures of the Budget. But the Government is obliged to produce a poverty impact assessment.

These have become rather more cursory in recent Budgets and the ESRI will do its own calculations, but the Department of Finance figures suggest that while the Budget hits everyone, it does so on a sliding scale.

One might have assumed otherwise, given that more low-income workers will become taxpayers and everyone must pay some of the new Universal Social Charge (USC).

Instead, a one-income family with two children will lose less than 1pc of their income on €15,000 a year and 3pc if they earn €150,000.

A canny Irish citizen would choose their lifestyle carefully, especially if they are an average earner.

A single person on €20,000 a year would gain 3pc by getting married and having two children.

Best thing of all is to make sure you earn €30,000 a year. The oddities of the tax system mean they always seem to do better than anyone else.

In fact, while Bertie's Ireland may have gone the way of the New York shopping trips, the Budget is redolent of an even older Ireland -- predictable and cautious. It is a very large Budget, taking a total 4pc out of citizens pockets, business tills and public spending. But the way it does it is fairly familiar.

The USC is a major exceptiion. The PRSI ceiling -- whereby those earning more than €75,000 a year paid a smaller percentage than those earning less -- is gone. It applies to all income, which is a neat way of extending the tax base. PRSI was supposed to be insurance, which is why it had these oddities, but it has been a tax in all but name for many years.

Other than that, it is business as usual. Tax bands and credits are cut, along with social welfare. Tax rates, that great sacred cow, are unchanged. Taxes on savings and capital gains -- two pets of the Department of Finance -- go up.

NEWRY off-licences and cigarette smugglers may have saved the drinkers and smokers. But the Government needs more consumer spending to meet its targets, so it can claim that there is logic to taxing saving and leaving spending alone.

VAT, however, is scheduled to rise to 23pc by 2014 and perhaps on a wider range of goods.

There is also to be an increase in the carbon tax and water charges. And of course, a property tax. Fianna Fail is leaving its successor more than just one small government jet.

The financial adjustment has been "front-loaded," with almost half falling due next year, but the radical -- and so difficult -- measures have been backloaded. The new government might want to accelerate these aspects of the four-year plan if it is not to find itself wrestling with them uncomfortably close to the 2016 election.

The same is true of the spending cuts, most of which come from reductions in public sector numbers. Only 7,000 jobs will go next year, but somehow it will be more than 12,000 a year for the following two years.

The budget figures show how difficult all this is. There will be a €496m cut in the pay and pension bill in the health service. But the pay bill in the rest of the public service will increase by €30m, thanks to a rise of €72m in education costs.

Even over the four-year plan, education pay costs will rise 2pc, while non-pay costs will shrink 16pc. One shudders to think what that means for the already dilapidated infrastructure of Irish education.

Achieving these nebulous savings, along with the optimistic growth forecasts, is essential if the EU-IMF targets are to be met.

Who was that guy who said "A lot done, a lot more to do"?

Irish Independent

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