Budget’s blend of austerity and stimulus no surprise

Stephen Collins: Good dollop of luck every bit as important as various elements of package

Wed, Oct 16, 2013, 11:02

After an extensive leaking exercise to soften up the public over the past week, there were few surprises left in Budget 2014 - apart from the extent of the stimulus package designed to dull the impact of another round of spending cuts and tax increases.

As with every budget, the big question is whether there is some measure that will jump out from the rest to cause serious embarrassment for the Government.

Lobby groups for the elderly are the most adept at getting any reduction in their entitlements accepted as the most unfair element of recent budgets, despite incontrovertible evidence that they have suffered less in the recession than any other group.

This budget contains some further curtailment in entitlements for the elderly. Among the most significant are abolition of the telephone allowance and reduction in the income threshold for the over-70s medical card to €900 a week for a couple and €500 for an individual.

The elderly are not being singled out for special treatment. Young people claiming job seekers’ allowance suffered a significant reduction in their payments last year, and the age limit for the new €100 weekly payment has now been increased to 24, with some reductions also applying to those aged up to 25.

A further tightening of the entitlement to medical cards, a rise of €1 to €2.50 for prescription charges, an increase in the waiting period for illness benefit from three to six days, a standardising of maternity benefit at €230 a week and the abolition of the bereavement grant are all measures bound to raise some hackles.

The extension of the levy on private pensions, albeit at a lower rate than currently being applied, a squeeze on the tax relief for private health insurance and an increase in Dirt tax to 41 per cent are other elements of the budget that will not be popular with those who will suffer further cuts in their income as a result.

Potential embarrassment

Whether any of these individual items, or some as yet more obscure element of the budget package, has the capacity to become a serious embarrassment for the Coalition will become clear over the next few days.

The extension of free GP care to all children aged five or under provided some counterpoint to the squeeze on the elderly and the unemployed. There is a question, though, as to whether extending GP care for middle-income families will have anything like the political impact that will arise from reducing the entitlements of other groups.

The return to the revenue-raising formula of increasing the excise on beer, spirits and cigarettes, with another hike in the price of a bottle of wine, will hardly be popular, but will not provoke the kind of negative reaction that comes from the reduction in State entitlements.

On the positive side, by contrast with the succession of swingeing budgets since 2008, Michael Noonan and Brendan Howlin have been able to temper the latest round of cuts and tax hikes with measures which should provide a genuine stimulus to job creation next year.

For a start, the special 9 per cent VAT rate for the hospitality sector has been extended for another year. The cost, at €350 million, is significant, but the measure has worked and should provide further dividends in the year ahead.

A range of other stimulus measures, including tax relief for home improvements costing between €5,000 and €30,000, brings the total value of the stimulus package to €500 million - and the Government claims the net effect will be the creation of 50,000 extra jobs.

The announcement that more than 1,000 new teachers will be hired in the next year, as well as a range of relatively modest capital-spending measures, should also boost the economy.

Stimulus measures such as these may very well result in the creation of all the jobs forecast, but they will not have the same public impact as the cuts immediately felt in citizens’ pockets.

Both Noonan and Howlin sought to neutralise the criticism from the main Opposition party, opening their respective speeches by pointing the finger at Fianna Fáil as the source of the country’s travails. “Reckless policies were pursued by the Fianna Fáil-led government,” said Noonan at the start of his speech, while Howlin said “Fianna Fáil in government drove the economy into the ground and led us beholden, like the famine victims of old, to seek relief outside this country.”

Opposition flack

Getting their retaliation in first did not dampen the criticism from the Opposition benches. Fianna Fáil launched attacks on all the significant spending cuts and revenue-raising measures. Sinn Féin and the small parties and Independents also attacked the Coalition on all fronts.

Both Coalition parties can point to achievements in the budget. Fine Gael got a stimulus package for the private sector and avoided raising taxes, at least directly. Labour managed to moderate the social welfare cuts to less than planned for the third year in a row, while the free GP care for children is another of the party’s cherished objectives.

The question for the Coalition is whether they got the balance right in terms of making the budget adjustment strong enough to keep the country on the path back to financial health while easing the pressure enough to give a boost to the economy.

Ultimately, everything hinges on whether the economy begins to grow at a reasonable rate in order to make our massive debt more manageable. That will largely depend on what happens in the outside world, so a good dollop of luck will be every bit as important as the various elements of the package.

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