Friday 22 November 2019

The Budget battles have already begun, but at risk of having no clear winner

Fianna Fáil finance spokesman Michael McGrath. Photo: Stephen Collins/Collins
Fianna Fáil finance spokesman Michael McGrath. Photo: Stephen Collins/Collins
John Downing

John Downing

A bit like Christmas, it seems to start a little earlier every year. This week the first shots have been fired in the conflict over framing the Budget ahead of Tuesday, October 9.

Finance Minister Paschal Donohoe is lined up opposite Fianna Fáil's moneybags, Michael McGrath, whose party must sign off on the third Budget under the Confidence and Supply deal.

Mr Donohoe has told us he is taking a very prudent stance and will have just €800m to play around with. Much of the remaining spare cash is spoken for and he's not for taking up EU leeway to put another €900m into the system lest he takes us back to the bad old days.

Those who closely follow the budgetary process believe Mr Donohoe could drum up an extra €100m or more from a variety of other sources. He will again whack tobacco - but this is no longer a big revenue generator, the more so given the rise of smuggling and counterfeiting.

He might well hit alcohol, which was spared last year and has not been a big target for a long time. The Finance Minister could also hit motor fuel, especially diesel, given the environmental arguments but this could cause a big backlash in rural Ireland. Other options include looking at tweaks to company tax.

A rule change to curtail the banks' tax debt write-offs until doomsday would be a very popular move. Need we recall they were bailed out by taxpayers, yet are now talking about bonuses again.

But whatever devices adopted to drum up extra cash there will be considerable surprise if Mr Donohoe comes up with anything much above that extra €100m.

As Mr McGrath noted, the amount in question is "a very tight envelope" and easily disposed of. Nobody will argue with that, especially given Fianna Fáil's continued insistence that an extra €2 be spent on public services for every €1 given in tax relief.

In an interesting RTÉ interview with Bryan Dobson, Mr McGrath was his usual careful self and in many ways echoed the Finance Minister's talk of prudence.

"We need a 'sensible' Budget," he said at one stage. Later he grandly stated: "We'll enter the discussions in a positive frame of mind, constructively, and with a view to doing the right thing for the country."

It is already accepted around Leinster House that Mr Donohoe will again fiddle with the taxbands to increase the extraordinarily low yearly earning threshold of €34,450 at which a worker hits the higher tax rate of 40pc.

Last time there was a somewhat phoney war between the two big parties over hated USC, with Fianna Fáil wanting to favour lower earners.

In the end the two sides compromised with a medley of tax changes, a bit like having chips and rice with a plate of curry. It does not take a wild amount of imagination to see something similar emerge this autumn.

All talk of abolishing the USC, as promised by Fine Gael in the 2016 General Election, is a distant memory.

Indeed we have heard virtually nothing either of promises by Leo Varadkar during his successful leadership bid in 2017 to merge the USC and PRSI, while increasing social benefits for workers.

The Fine Gael-Fianna Fáil Budget face-off may be a slow burner. One source predicts that it could be mid-September before Messrs Donohoe and McGrath seriously tangle.

We do already have a flavour of that Fianna Fáil shopping list and we must remember that they badly need to show some popular wins for would-be voters.

Michael McGrath has cited a number of things he wants to put his party's name on: an affordable housing scheme; a social care package for elderly people to help them stay in their own homes; an initiative to cut waiting times for special needs children; and an initiative on tackling insurance costs.

That seems to be the opening price in the bidding stakes for Budget number three. The games have begun.

Irish Independent

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