Inside Politics: Opposition criticised Budget for not representing a bigger giveaway

The vapid nature of so much of the Dáil debate on the budget must provoke doubt as to whether the political system has learned anything at all from the traumatic experience of boom and bust that came close to destroying the Irish economy.

Budget 2015 was politically clever and put a little more money in the pockets of everybody in society, but there is no disguising that it represents a calculated gamble that could go spectacularly wrong.

While the Opposition pounced on the fact that the budget was clearly designed as the opening salvo in the next general election campaign, much of the criticism in the Dáil was based on the fact that it did not amount to an even bigger giveaway.

There were eerie echoes of budget debates during the boom years, when public spending was roaring out of control and the then opposition attacked the Fianna Fáil-led government for not spending even more.

After seven belt-tightening budgets in a row, it was not within the realm of practical politics to expect the Coalition to deliver another one of the same, given the dramatic shift in the growth that suddenly gave it far more room for manoeuvre than was expected even a few months ago.

After the drubbing Fine Gael and Labour received in the local elections, repeated again in last week’s byelections, it would have been political suicide for the Coalition to follow the advice of the European Commission and the fiscal council to take another €2 billion out of the economy.

Losing touch

Politics as well as economics has to play a part in budget construction and the Coalition was in danger of losing touch completely with the electorate if it produced yet another “austerity” budget.

Ministers in both Coalition parties were acutely conscious that the last time they were in government they produced prudent budgets that provided a solid foundation for growth, but they paid a heavy political price in 1997, which left them in Opposition for 14 years.

With little more than a year to the next election, the Government decided it was time to give some money back to the voters, in line with the improving state of the public finances.

The problem, though, is that the strategy depends on predicted growth of 3.6 per cent next year coming to pass. Given the tendency of the Department of Finance to err on the side of caution, there probably is some room for manoeuvre, but the storm clouds gathering over the global economy could undermine the assumptions on which the budget is based.

The days following the budget witnessed jitters on the international money markets, with borrowing costs for Greece and Spain suddenly shooting up and a threatened renewal of the euro zone crisis.

In the Dáil, however, the focus of attack on the budget was not that the €1 billion giveaway had the potential to put the economic recovery at risk but that it was not generous enough.

Fianna Fáil finance spokesman Michael McGrath made one of the more sensible speeches, suggesting that the budget “is all about using borrowed money to buy votes” , but the main thrust of his criticism was that the budget was taking from the poor and giving to the well-off.

Yet, as Michael Noonan pointed out in his speech, the top 1 per cent of income earners will pay 21 per cent of all income tax, while the bottom 76 per cent will pay 20 per cent of the total, following the changes he announced on Tuesday.

The outstanding feature of the Irish income tax system that differentiates it from most others is that the lower paid are required to pay very little tax.

Ireland actually has one of the most progressive income tax systems in the developed world. The wide pretence that this is not the case simply leads to a phoney political debate in which the public is misled about the real options facing government.

The independent public policy think tank PublicPolicy.ie recently pointed to the progressive nature of the Irish tax system and looked at the argument that we should aspire to the “Nordic model” of high taxes and high public spending.

“To reach Nordic levels of income taxation (including PRSI), everybody in Ireland would have to pay more, but the increase would bear most heavily on the bottom half of the income distribution. For example, if the tax rates in Ireland were at the average of the five Nordic countries, a single person on half average earnings would pay an additional €3,200 per year and a single individual on 2½ times average earnings would pay about €2,000 more.”

Potential dangers

Hard facts like this were absent from most of the budget debate in the Dáil, while the very real potential dangers to the recovery did not feature at all.

Budget day was enlivened by the arrival in the chamber of the two new TDs elected in the two byelections and in a welcome development both were given an opportunity to speak on their first day.

The new Dublin South West TD Paul Murphy, who has added to the strength of the Trotskyite factions in the current Dáil, made a trenchant attack on water charges. That was hardly surprising given that his election campaign was focused on the issue.

The new Independent TD for Roscommon Michael Fitzmaurice adopted a more nuanced approach, delivering a speech in which he found things to praise as well as criticise in the budget. He promises to be a genuinely thoughtful independent voice, like Dublin Central TD Maureen O’Sullivan, rather than a mere rabble-rouser.