John FitzGerald: Populism set to trump bravery in Budget 2017

Intensive lobbying means short-term moves eclipse daring options to reallocate funding

Minister for Finance  Michael Noonan. “In recent years, budget submissions have grown into a cottage industry.” Photograph: Alan Betson

Minister for Finance Michael Noonan. “In recent years, budget submissions have grown into a cottage industry.” Photograph: Alan Betson

 

Up to now, Government and the Civil Service were the key decision-makers in framing the budget but this year the Government’s minority position gives unprecedented influence to the Opposition over budget choices.

In recent years, budget submissions have grown into a cottage industry where organisations seek to influence the budget measures as well as publicly reassuring their supporters of their diligence on their behalf.

However, often the most influential submissions were those made with less fanfare, in particular those made after budget decisions had been announced. Civil servants have often commented that getting measures into the budget speech was the easy part – sustaining the proposed changes through the Finance Bill process was the real test.

The Regulation of Lobbying Act 2015 should ensure greater transparency, not only about those seeking to influence Ministers, their advisers and top civil servants but also about those who are lobbying Opposition TDs who now have such a key input.

Government economic service

A significant amount of research has been undertaken by the Government economic service to inform the budget process. However, it remains the role of Government and the Oireachtas to use this research to help decide between many competing priorities, such as growth and jobs, equity, health and social inclusion.

While the focus of public discussion has been on the “fiscal space” – the scope for additional spending or tax giveaways – which has broadly been agreed, the Government has additional freedom of action to raise resources to improve services, either through increasing taxation or through reallocating how funding is currently being applied.

But the current signals are that, in the present political climate, there will be no “brave” decisions to reallocate existing funding, while some populist new measures of dubious benefit are likely to be introduced.

In the health, education and welfare areas, which cover the bulk of public expenditure, there are some schemes or services that have not worked well or that have outlasted their sell-by date. Terminating ineffective programmes could free up significant resources to improve those services that do make a difference.

Mary Harney’s strategy to concentrate cancer treatment in centres of excellence met initial resistance but it has improved patient outcomes and saved lives. Extending the centre-of-excellence approach to other specialities could undoubtedly reconfigure existing resources to produce better health outcomes. However, the current Dáil arithmetic suggests we will see little action along these lines.

The VAT concession for hotels – worth about €500 million in revenue forgone – is probably a good example of a measure that has reached its sell-by date. However, strong lobbying means it is unlikely to be touched in the budget.

Research published by Department of Finance suggests that, under current market conditions, the main effect of reversing the reduced VAT rate for hotels and restaurants would be lower profits for hotel owners. There would be very limited effects on prices faced by consumers, and thus on tourist numbers.

First-time buyers

One scheme of dubious merit which has been well signalled is a “help-to-buy” programme of tax relief for first-time home-buyers. As Economic and Social Research Institute director Alan Barrett has reminded the Dáil budget oversight committee, there is extensive evidence that, under current market conditions, providing tax support for first-time buyers will largely benefit property developers and landowners. Putting more money in the hands of prospective buyers, in the face of scarce supply, won’t solve the housing shortage, but will bid up the price of new homes by roughly the amount of the new concession.

However, just as in the housing bubble years when there was strong political support for tax concessions for property, there is currently support among many politicians for a measure that goes in the teeth of the economic evidence.

Short-term populism seems to be the order of the day, not only with a fragile minority government but also at local-government level. Politicians at local level could play a key role in helping unblock barriers to housing supply but getting agreement to infill schemes in well-located sites in built-up areas is proving particularly challenging.

Raising local revenue to support expanded housing supply is another lost opportunity. Local authorities have the discretion to vary the rate of local property tax. Most, including the Dublin councils, have opted to hold property taxes down rather than raise more than €100 million in additional revenue to fund additional social housing or other services. Among those to benefit from this tax restraint are landlords who are enjoying unprecedented rent levels.

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