Cliff Taylor: USC bazooka just part of re-election armoury

‘There is no doubt in anyone’s mind what Budget 2016 is really about’

Minister for Finance Michael Noonan at a press conference for Budget 2016. Photograph: Alan Betson

Minister for Finance Michael Noonan at a press conference for Budget 2016. Photograph: Alan Betson

 

Last October the electorate seemed to hardly notice when the Budget delivered a €10 a week increase in take-home pay to many. The calculation for Budget 2016 is that they have a better chance of being impressed with an extra €20, or in some cases €30 a week. It is being sold as the “€1,000 a year” Budget, even if the gains range from a couple of hundred for some to €1,500 or more for others.

Budgets are always delivered with a polish of a grand strategy. And so we are told that the tax reductions are being delivered to encourage work and enterprise and attract back emigrants. And they may well help to achieve this goals. However there is no doubt in anyone’s mind what this is all really about – it is trying to set the ground for the general election .

Among the biggest gainers next year will be the self-employed, considered a Fine Gael stronghold, public servants, traditionally a Labour Party base, and that group beloved of all politicians - the hard-pressed family with young children.

There were two simple priorities behind all the Budget detail. One is that it all be kept as simple as possible. Previous governments have failed to impress the electorate with complex changes in tax credits and bands. By far the most significant change this time around is a plain and straightforward cut in the main USC rate from 7 per cent to 5.5 per cent. And in a clear pre-election finish to his speech, Minister for Finance Michael Noonan promised, if re-elected, to “progressively abolish the USC to reward work.” Jam today and more tomorrow if you re-elect us is the message.

While simple tax changes like the USC cuts are easy to understand, they spread the gains in a particular way. In this case the biggest cash gainers are generally those earning at least €70,000 - they earn enough to take full advantage of the cut in the main USC rate. So a single employee - or a married couple with one earner - on an income of €70,000 gains over €900 a year, while if they earn €35,000 the gain is €377.

There are measures to help the lowest earners, those of €17,500 or less, but here the Budget calculations rest of them getting the full promised increase in the minimum wage. And those on €25,000 do not do well – not earning enough to benefit much from the USC cut, but earning too much to gain from the minimum wage rise. Such are the ups and downs of the Budgetary arithmetic.

While the USC was the budget bazooka, there was sniper fire to hit a couple of other targets - and this will increase the gains for many. The self-employed, who have long felt discriminated against, will get a straight €550 income boost from a new tax credit. Again, there is promise of more to come and an equalisation with the PAYE credit of €1,650 if the Government is re-elected.

The other obvious target was families – and particularly those with smaller children who will benefit from the new childcare package. When you add the child benefit increases to USC changes, many families will be €1,000 a year or more ahead and for some increases will come to almost €1,500. If they happen to be self-employed, the numbers can climb yet further.

Many families will also save on childcare costs. And the Government was also keen to highlight that public servants benefiting from the reduction in the pension deduction agreed as part of the Landsdowne Road agreement - which will boost take home pay signicantly – would gain even more in cash terms. There will thus be significantly more cash in many households, which should underpin consumer spending.

The pre-election nature of the package was also highlighted by the budgetary dogs that did not bark. Usually, even in good years, there is some “ bad” news, whether it be on the price of a pint, motor tax, hospital visiting charges or whatever. This year the only obvious bit of bad news was for smokers, facing a 50 cent hike in the price of a package of cigarettes. With the water charge controversy still raging, this was as close to a “no risk” Budget as you could get, with the Minister for Finance also saying that he would recommend to Government that there would be no changes to property tax bills until 2019.

Last year, when many people added up the sums, they realised that when the water charges were added in – at the level then planned – they would not be really better off because of the USC and tax cuts. Now the net cost of water is a lot lower and there is nothing else on the negative side of the ledger.

For people’s living standards, tax is only a part of the equation. The quality of public services is also vital. The Budget tried to hit a few targets in childcare, education and gardaí numbers. It is notable that the two most costly spending additions in the Budget itself are things which put cash into people’s pockets - a hike in social protection spending and cash to pay for the higher public pay bill from the Lansdowne Road deal.

Other spending pressures were, of course, met through the €1.5 billion supplementary spending estimates announced last weekend. These are increases in the planned level of spending for 2015, but will also feed through in to the base for 2016. How to deliver better public services while staying within EU rules will be a key issue of the general election campaign to come.

But for the moment the budget strategy is straightforward. It is to put some money back in to people’s pockets in clearly explainable ways and hope that, whenever, the general election is called, they will have noticed.

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