Noonan’s lower budget target still leaves Ministers trying to square the circle
The task of finding extra savings is a difficult one for some Ministers
Minister for Finance Michael Noonan: His decision to delay the introduction of property tax until July 2013 has resulted in him being placed in a much easier position when drafting this year’s budget. Photograph: Gareth Chaney Collins
The lowering of the adjustment for this year’s budget has made the task for some Ministers much easier but for others – especially those for whom pay takes up over 80 per cent of their department’s expenditure – the task of finding extra savings has been difficult.
The split between cuts and revenue in the budget is roughly two to one. The €600 million reduction in target to €2.5 billion has also been shared along the same ratios, with €200 million less needed in revenue, and €400 million in cuts across the 15 Government departments.
While Minister for Finance Michael Noonan’s target is €900 million, most of the heavy lifting for this year’s budget was done in December 2012. His decision to delay the introduction of property tax until July 2013 has resulted in him being placed in a much easier position when drafting this year’s budget.
The full-year effect of revenues for the property tax will only become apparent in 2014. It was earmarked to raise €250 million in 2013 for six months. That’s €500 million for 12 months, giving Noonan a €250 million head-start for 2014.
The second knock-on from last year’s budget is what Labour got as a quid pro quo when it failed to convince Fine Gael to introduce a new USC rate for those earning over €100,000. It was a completely impossible sell last year, primarily because it could not be introduced until 2014. The proposal was for a substantial cut in tax relief for pension pots that delivered pensions over €60,000 in income. The net effect for the exchequer is a total of €250 million in extra income next year on foot of a budgetary decision taken a year ago. Other carry-overs amount to a further €100 million.
So those two items have already secured €600 million of Noonan’s target, leaving him only €300 million to go. It’s not a straight equation though. He may have to introduce some incentives in sectors that need stimulus, particularly construction, IT, finance and agriculture. There is a philanthropy proposal that will give extra residence rights to rich tax exiles that will be very unpopular with Labour but which Noonan likes.
Notwithstanding that, Noonan will not have to announce any big new tax like property tax or the 2 per cent hike in VAT this year. The budget will be made up of a string of smaller adjustments, perhaps on the capital gains and acquisitions side, on excises, on duties and on other indirect measures.
The 9 per cent VAT rate for tourism may be retained but there will be no lowering of the rate for the construction sector.