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  • irishtimes.com - Posted: April 7, 2009 @ 3:40 pm

    Lenihan Sets Out His Budget Stall

    Deaglán de Bréadún

    He could have been Madonna in that Evita movie. Screw the middle-classes/I will never accept them. Yes, folks, as expected the in-betweens – too well-off for many State benefits, not sufficiently monied to employ whiz-kid accountants – will bear the brunt of Budget measures. So what else is new?lenihan-in-dail.jpg

    Brian Lenihan delivers his Budget speech

    Even before the  Budget speech started we had a row in the Chamber, with Opposition parties complaining bitterly that members of the press were given copies in advance of TDs. Not very edifying and a symptom perhaps of the nervosity afflicting all and sundry in advance of a defining political moment. 

    We had been told ahead of time that the speech from the Minister would be considerably briefer than usual. One could not help thinking of the English philosopher Thomas Hobbes and his description of the life of the masses as “nasty, brutish and short”. Would that be an apt description fo the Speech? But the Budget oration went on for some 45 minutes which is pretty standard, as far as I recall.

    First heckle came with Brian Lenihan noting that the country had become too reliant on the building sector. FF are of course noted for their political proximity to that element in the economy. Then the Minister pointed out that consumer prices had fallen four per cent so one had to wonder what conclusions he was going to draw from that.

    The Government has been widely accused of inept handling in economic matters but, like the guy with boxing gloves trying to thread a needle, had they finally got it right? And would the political fallout be containable?

    “We must lead by example,” he said. Ergo, a ten per cent reduction in expenses for TDs and Senators; no more long-service payments or increments; ministerial pensions for sitting Oireachtas members gone by the board;  payments for Oireachtas committee chairs to be halved from the current €20,000; no more pocketing the difference between your former salary as a teacher and the amount being paid to your substitute.

    As expected, significant increases in wage and salary levies were announced, the Minister getting over that part of the speech at flying speed. There was less emphasis on cuts in public expenditure than some might have anticipated. Like the old communist states we have a five-year plan except ours has been approved by the European Commission.

    A fair proportion of the speech was somewhat vague and pertaining to the category of motherhood and apple pie. The pension levy had save €1.4bn this year and public sector numbers would be controlled. Staff aged 50 or over would be given incentives to retire almost immediately, applications to be open on 1 May, and the Minister gave a heavy hint that retirement lump sums could well be subject to a sizeable tax “hit” for those who don’t take up the offer.

    Welfare payments are the elephant in the room but rates would not be reduced this time around. The December bonus would not be paid (who will be the first Opposition speaker to invoke the shade of Ernest Blythe and his notorious removal of a shilling from the Old Age Pension?)  Child care supplement will be halved and then abolished. Meanwhile, child benefit will be taxed in next year’s Budget.

    Discussions are under way with the pensions industry for investment in infrastructure where private money would be substituted for State funds. This has echoes of the Irish Congress of Trade Unions (ICTU)  proposal for a National Recovery Bond.

     The 12.5 per cent Corporation Tax rate would be retained. This has become the contemporary symbol of our sovereignty. But tax reliefs were in the Minister’s sights, e.g., in the property sector. Tax relief on mortgage interest would be foreshortened (bad news for those on fixed-rate house-loans). Capital Gains Tax would go up to 25 per cent.

    Like a mouse with a block of cheese, the State is nibbling away. The Pay-Related Social Insurance (PRSI) ceiling is to be raised from €52,000 to €75,000. That will take a big bite out of take-home pay.

    Cigarettes and diesel duties are to go up from midnight tonight but alcohol and petrol are to be left alone. There was a veiled hint about other forms of taxation e.g. on property.

    Then there was vexed issue of the banks and the need for proper regulation. Structural changes would be made. A senior figure from the British financial scene, Sir Andrew Large would advise on choosing a new head of financial regulation.

    An asset management agency (“bad bank” to you and me) would take over unhealthy debts and try to sort them out. They would be purchased for considerably less than their initial value by the State. So, a big clean-up in the banking sector – but at what risk?

    So. what about job protection and creation? Mary Coughlan has an enterprise stabilisation fund of some €100m. Retraining and further education would be supported with a further range of measures including a work experience scheme for graduates.

    “A strong message around the world,” was how Lenihan described his Budget. Ireland was open for business. He would be touring capitals around Europe to press the message home during the coming weeks. Oh, and while you’re at it, folks, he wants you to vote for Lisbon next time around.

    I didn’t hear any reference to tax exiles and ways of tackling the wealthier, more evasive members of that group. “We are now facing the challenge of this nation’s life,” the Minister said, appealing for people to set aside sectional interests. That was it, but no standing ovation this time from the FF benches. The jury will be out on this Budget for some time.

    • Paul says:

      Protect jobs and invest in retraining no. 4 in six-point plan? Alteration to export-led economy. Bar skilled workers, exporting what exactly? A National Asset Management Agency which rids those responsible (such a cliché) of their bad debts? Redeployment of civil servants with geographic constraints taken into consideration (what’s the size, about 500km x 300 km)?

      BL referred to governments across the world intervening to bolster their economies, propping up a system that imploded.

      That’s it, I’m off to live in a non-governed banana republic. No, not Ireland…

    • Siobhán says:

      I fall into that “in-betweenie” category, but can’t say there are any big surprises here. ( I think I’ve been far more surprised today by the level of anger from the so-called “liberal” Irish Times readers on your earlier blog about Pamela Izevbekhai.)

      Anyway I didn’t have the energy to listen to the opposition response once he’d finished, so will just have to wait and see if any of it works.

    • Deaglán says:

      Yes, it was a Budget without any obvious surprises. And I agree with you about the response to my other blog.

    • Peter B says:

      I cannot understand how or why the Irish people seem willing to endure this abuse. However difficult the economic measures may be, the fact that FF are still in Government, says very little about the Irish people.

    • Alex 'The Weaver' MacThomais says:

      While part of me wants to maintain an open mind regarding the potential merit of measures such as the introduction of work placement for (2,000) University students, it’s difficult to do so in light of the financial mismanagement and deplorable narrow-mindedness perpetrated by the government during Das Boom.

      Some minimal allusion to culpability early in the speech was briefly refreshing.

    • Joanna Tuffy T.D. says:

      As for the risk that you mention in the new National Asset Management Agency taking on “unhealthy debts”, Joan Burton pointed out that a FAQ on the new agency supplied to Deputies suggested that toxic debts held by our banks outside this State will be eligible for transfer to the Agency.

      Here is what Joan had to say about that aspect of NAMA’s brief:

      “It is scandalous and outrageous that taxpayers – hard-working PAYE earners – will be burdened with the cost of property speculation in the United Kingdom. How can the Government stand over this? Who will be responsible for the valuation of these United Kingdom assets? In addition, I am aware of the existence of smaller portfolios in the United States, Spain, Dubai and elsewhere. Is the taxpayer to pick up the tab for property portfolios throughout the world? From 1 May, Lorraine and Colm, the fictional couple used by the Department for illustrative purposes, will be liable for an additional €100 per month in health levies and an additional €50 per month in other levies in order to pay for the global speculation of some of the greediest people on the planet, those who have also shown themselves to be some of the most stupid people on the planet. Why should we pay for their greed and stupidity? It is truly scandalous and outrageous that we should be presented with a scheme such as this without being offered any costings. I understand the development in Dubai to which I referred relates to the purchase of the island of Ireland in the world of islands complex. We are not just paying for speculation in places such as the fringe around the M50. We are not just paying for unsold apartment blocks on the banks of the Shannon or in Cork and Kerry. Rather, we are paying for speculation in London, Dubai, Chicago and New York. The website of the former Taoiseach, Deputy Bertie Ahern, details his travels to various locations around the world to deliver lectures, for a fee, on how he built the Celtic Tiger. Perhaps he is dropping in to these construction developments in foreign lands, the cost of which has been loaded on the backs of another generation of young people, their children and grandchildren”.

      And all of this follows on from the original guarantee for the banks.

      Joanna

    • Deaglán says:

      Thanks Joanna but I don’t see how you can discriminate between domestic and foreign-based assets in this case. Surely that would get us into trouble with Europe? Can you really discriminate between debts owed locally and extra-national ones in this day and age. I put a question to John Gormley about this earlier and he responded that the decision was along the lines of the advice given by the National Treasury Management Agency. Are the critics in danger of lapsing into an outmoded economic nationalism here?

    • Joanna Tuffy T.D. says:

      But what were the banks concerned doing giving these loans and why did we guarantee the banks that had these types of debt? Not that we knew at the time and in any case Labour voted against the guarantee on the basis of lack of information and protections.

    • Joanna Tuffy T.D. says:

      Just had our last vote there and before I head home there is reaction to the budget from our more left wing economists at on the Tasc blog at http://www.progressive-economy.ie that might be of interest to you.

      Joanna


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