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A tax cut is expected in next week's budget

A tax cut is expected in next week's budget

A tax cut is expected in next week's budget

The Budget, to be announced this Tuesday, will be an excellent measure of this Government - is it truly responsible and thinking of the long-term prosperity of the nation, or is it Fianna Fail by another name, willing to use public monies in a pre-election bid to buy votes?

The signs aren't promising. Due to a well sanctioned series of statements by Government TDs, everyone's expecting a reduction in their taxes. The conversation isn't about whether it'll happen, it's about the form the tax break will take. The obvious rhetoric is being employed liberally by junior ministers giddy with the prospect of good news. It is time, they tell us, "to give something back". It's time, they intone, to help "low- and middle-income earners."

In fairness, who could blame them? Fianna Fail has proven conclusively that this sort of talk before an election, coupled with the requisite cash from a budget, pays off at the ballot box. Sure didn't it win it three consecutive elections. The problem, as Fianna Fail also demonstrated, is that this sort of short-term populist budgetary alchemy also has a tendency to go badly wrong for everyone sooner or later.

The first hitch is that there's nothing to give back. This year we'll borrow about €7bn to run the country. Next year, it'll be another four or five billion, and so the national debt rises and rises. In less than three years, more than €9bn of the taxes we pay each year will be needed just to pay the interest on the national debt. That's about half of all income tax paid.

Think about that - every cent we pay in income tax for the first six months of every year will be needed just to service the interest on this borrowed money.

Lowering taxes on Budget Day would be akin to the Government taking out a new loan in your name, handing you the cash and hoping you're so happy that you'll vote for them. And hoping you forget the fact that you've got to pay back the money they gave you, with interest.

The second hitch is that they seem to be targeting higher earners for this borrowed windfall. There's been a lot of talk about helping low and middle-income earners by increasing the rate at which we start paying 52pc tax. What these same Government TDs are not saying is that only the highest earning sixth of taxpayers end up paying this, after tax credits and rebates are factored in. So it wouldn't help low- or middle-income earners at all (it would help TDs, mind you).

While everyone could do with a break, the fact is that the tax paid on the average industrial wage in Ireland is one of the lowest in the developed world. Of the 34 countries in the OECD, 26 of them have higher tax rates at this wage.

Our total tax take, including corporation tax, VAT and the rest, is far below the average for our peer countries. Which is fine, as long as we're willing to accept the consequences. Which is not enough teachers in our classrooms or beds in our hospitals. Which is a subsistence level of unemployment protection, and universities tumbling down the world rankings. Which is no money being put away to fund future public sector and State pensions - because there aren't going to be enough workers in 2050 to pay for them out of current taxation.

There are better ways of using public money than providing tax breaks while we're still borrowing money. We should be re-investing in our schools and in higher education in a big way. We should be funding a transition to a modern, community-based healthcare system. We should be making childcare affordable (it's the second most expensive on earth here), letting a heap of parents get back to work. We should be protecting our children (one in every two lone parents and their children now live in deprivation in Ireland) and helping our youth find jobs.

We should be re-investing in community-based groups, particularly ones supporting more isolated groups, such as pensioners. While foreign direct investment is incredibly important, we should be improving supports to indigenous SMEs. And we should be getting rid of that pension levy.

And, we can pay for it in smarter ways than we've seen in recent years. For example, a billion euro a year would be saved by achieving the UK's level of spending on pharmaceuticals per person. This could be achieved by mandating (much cheaper) generics where suitable, and forming a joint venture with the NHS in England to buy our drugs for us, using its far greater purchasing power. Just a 3pc reduction in existing tax exemptions would yield near €400m. Getting public sector sick leave rates to those in the private sector would save nearly €200m. Irish Water should be able to knock about €300m a year out of its cost base over the next few years (the same amount that we'll all pay in water charges, incidentally).

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There's also a bunch of policies that don't cost a cent, and help people in all sorts of ways. Maternity leave should become parental leave. The social welfare system should become far more responsive to people returning to work and working part-time. The Local Property Tax should be redesigned so that Dublin and commuter-belt households don't pay more than their fair share.

There are smart and progressive ways of raising revenue that won't harm the recovery. There are inefficiencies in public expenditure that must be targeted in order to fund investment in important public services and protections.

Critically, we must invest heavily in education - it is the single most important thing we need to get right if we're to succeed as genuinely responsible guardians of our island for future generations. For those who are interested, a costed and balanced budget showing how all of this can be done is available on my website. (www.stephendonnelly.ie)

The bind for this Government, and indeed for any Government, is that as citizens we've an awful tendency to reward the short-termist, 'free cake' approach to budgets with our votes. The problem with populism, of course, is that it's so popular.

And with the whiff of the next election growing stronger every day in Leinster House, it may simply be too tempting - don't worry about the future for now, but hike up public sector wages a bit, lower income tax a bit, and start knocking on doors.

On Tuesday morning, we'll see if things really have changed, or, as one Fine Gael TD put it, if we really are just dealing with Fianna Fail lite.

Stephen Donnelly is the Independent TD for Wicklow and Carlow East


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