Cliff Taylor: Why schemers may be Budget 2017 winners

What do you do when you have hardly any spare cash to play with in the budget? You fill it with “schemes” to make it look like you are doing something useful.

And so it will be in Budget 2017, as the "new politics" demands that there is something if not for everyone in the audience, then for most of them.

So there will be new schemes for childcare, first-time buyers, entrepreneurs, housing, businesses hit by Brexit and a host of smaller targets.

Most schemes won’t amount to much – and many could have damaging unintended consequences. Those with grander ambitions often end up costing vastly more than expected. New tax schemes almost inevitably morph into inventive dodges for the wealthy or investors to avoid tax legally.

It would be better to pick a few targets in the budget and try to make a difference in these areas. But don’t hold your breath.

Whether the variety of schemes in planning for this year can meet the budget bingo game demanded by the so-called new politics remains to be seen.

Can the squeezed middle get a break? Will there be enough for hard-pressed families? What about young first-time buyers? And struggling SMEs hit by sterling’s fall? Add in the smaller groups and the local issues, and you can see the problem. The budgetary loaves and fishes can only be stretched so far, even by the most miraculous of manoeuvres.

Income tax rates

At least one new “scheme” – floated by Minister for Jobs Mary Mitchell O’Connor to attract home emigrants with a special lower tax rate – was quickly ruled out on political grounds. Yet remember there is already a scheme in place called the special assignee relief programme, which offers lower taxes for higher paid executives who move here. Maybe some of this is needed to attract foreign direct investment, but any spreading of different income tax rates for different people is surely politically toxic.

Other wheezes in the frame for Budget 2017 carry fiscal and political dangers. Moves to help first-time buyers could boost house prices.The childcare scheme can only be afforded on a limited basis, it seems, annoying people who don’t qualify and fuelling potentially costly claims for future extensions. And, like child benefit, once schemes become available to all, restricting them in future is near politically impossible.

Calls for complex new tax schemes – dressed up with arguments of post Brexit-vote competitiveness – should be largely ignored. The tax and legal community has mis-used so many previous breaks that they need to be left on the naughty step for a few years.

Most of the recipients are “good” causes. Who can argue that young homeowners don’t deserve a break? Or that less well-off families don’t need a dig out? Or that we should do what we can to protect businesses from the fall-out from Brexit? But the problem is that,this year anyway, we simply don’t have enough money to make a difference in seven or eight different areas. Better to pick two or three.

Spending boosts

The Minister will have €1 billion or a bit more to add to spending and cut from taxes. As the Fiscal Advisory Council has pointed out, when you add spending commitments already made for 2017, the real total increase is €2.4 billion. Much of this is already committed – and there will be limited room for new moves on the day.

We have seen the dawning political recognition of this. The election talk of USC abolition and spending boosts in health, education and elsewhere have been replaced by a much more downbeat message. The budget will be cautious, we are told, and “ Brexit-proofed”.

The best thing to do might be to accept the reality of these constraints, try to address a few key issues and set out a framework for future reform.

Some chance. Irish budgets are largely short-term exercises, focusing on the room to manoeuvre available that year – or during the crisis how much needed to be cut – rather than any suggestions that the much larger sum already being spent might be allocated better, or that there might be better ways of raising the money to pay for it.

Political pressures demand that the Government be seen to “do something”. This is worse than ever this year because we not only have the pressures on Government ministers and TDs, but also the need for Fianna Fáil and and the Independent Alliance to have some of their own budget wins. And so it is going to be something of a “ schemerama”.

Tinkering around

Perhaps most of these will not do much harm and some might even do some good. But you can’t help but be queasy. Remember how the free medical cards for pensioners ended up costing vastly more than expected? Or how the property tax incentives designed to encourage development in disadvantaged areas ended up being expensive tax shelters?

Or how recent measures to help entrepreneurs have left this group still tearing their hair out? Or how a host of healthcare schemes – to cut waiting lists or address other pressures points – have generally lacked any coherent overview and not led to sustained improvement?

The Irish political system is set up to make this kind of messing and tinkering around almost obligatory. If you can’t really help people by providing a pot of money directly or via lower taxes, then you have to pretend to do so. The “scheme” is the obvious compromise. Bring them on!