Tax Commission report
There are 230 plus recommendations in the Commission for Taxation Report. Many of them are the kind you would find nested in the Minister for Finance’s speech at Budget time.
A few examples:
Recommendation: Thre rent-a-room relief should be discontinued.
Recommendation: Income tax relief for expenditure on heritage buildings and gardens should be discontinued.
Recommendation: The capital allowance for childcare facilities should be discontinued.
Some of them will be greeted with groans whenever they find themselves into a Budget and a few, including cutbacks in incentives for childcare, will generate political heat.
Some others will be warmly welcomed. Who is against a crackdown on super-rich tax exiles? Nobody except super-rich tax exiles and those who aspire to that station.
A dozen, perhaps 20, of the recommendations have the potential to be deal-breakers.
Many of them have already been identified in the media this morning. Property tax. Carbon tax. Tax on child benefit. Water charges.
But there may be others, the impact of which will not become fully obvious until the ink is just drying in a recently-delivered Budget speech.
There is only one example to cite in that respect: the abolition of medical cards for over 70s.
The Government will have to draw up a savage Budget this December and it will involve pain for all. They can’t afford to include measures that seem patently unfair to a vulnerable or vocal group or which will give the opportunity to opponents to mobilise a populist campaign quickly.
The two big measures that will see early implementation are carbon tax (people will whinge about it but accept it) and a means-test or tax on childcare (this is a potentially explosive issue).
A property tax at this stage of the game would be political hari kari, even though the move from a transactional tax to recurrent tax makes sense. Whenever it’s introduced it’s going to be a nightmare and there are going to be anomalies and injustices everywhere (a widow living in a house for 50 year in an area that has become very expensive; people being charged more by dint of the fact that they live in Dublin rather than in a less expensive area in rural Ireland).
Water charges make sense. The campaign against water charges led by Joe Higgins, the Socialist Party, and others makes no sense. Water charges will punish those who waste a precious resources, once meters are installed. They will also provide a valuable source of income to local authorities.
If water charges wereimplemented, the Government will have to show (in a very clear and transparent way) that taxpayers will make commensurate savings elsewhere. Nobody likes new taxes and charges. But waste charges have been introduced by most local authorities based on usage and there is no logical reason that the same should not be done for water.
But what makes sense logically sometimes makes no sense politically. And any government introducing it will have to tread carefully.
The Government doesn’t want to repeat last year’s medical card fiasco.
But the atmosphere has changed since then. I think a mass protest would still reverse the change if it were introduced in next December’s Budget (because of the emotive nature of the issue) but I don’t think it would have the same mass (almost unanimous) support.
Brian Lenihan has to implement €4 billion or more in cuts for 2010.
It’s going to mean a lot of pain and will take a huge degree of nerve. The solidity of the Government increasingly looks like that of a chair with a doddery leg. Not from the Greens. But from windy Fianna Fail backbenchers and from independent TDs on whom continuing reliance cannot be placed.
More of the same will be needed next year, if the Government survives. That’s why I think we will see water charges making an early appearance.
AR AN LÁIMH EILE: Robert Reich, the former US secretary of Labour, wrote a very interesting column in the Guardian last week arguing for EVEN MORE borrowing and EVEN LARGER deficits as a means of recovery. Read it HERE
We have gone down the hairshirt route? Government says we are hampered when it comes to borrowing. But if we were to greatly increase the debt to GDP ratio and spend the money on big capital projects like school and public transport etc., would it be a better solution that the current parsimony?
That kind of consideration is above my pay level. But are there possibilities beyond the current orthodoxies?