Coveney, Varadkar both want to cut tax, raise spending, but it doesn’t add up

FG contest: Due to EU fiscal rules and economic crisis there’s little room for error on Budget

The two Fine Gael leadership candidates are both promising to reduce the tax burden, but they both also want to increase spending. They won’t have much scope to pursue this agenda in the Budget because the numbers just won’t add up. Fle photograph: Getty Images

The two Fine Gael leadership candidates are both promising to reduce the tax burden, but they both also want to increase spending. They won’t have much scope to pursue this agenda in the Budget because the numbers just won’t add up. Fle photograph: Getty Images

 

It is perhaps ironic that Leo Varadkar should publish his policy plan on the same day the Department of Public Spending and Reform outlined to trade unions the constraints facing the public finances and the European Commission warned of the need to keep things tight in the next Budget.

The economy is growing strongly, but because of the EU fiscal rules and the financial fallout from the economic crisis there is limited room for manoeuvre, especially in next October’s Budget.

FG leadership tracker: Track the contest and check who your local TD, Senator, MEP and councillor is supporting.

The two candidates are both promising to reduce the tax burden, but they both also want to increase spending. They won’t have much scope to pursue this agenda in the Budget because the numbers just won’t add up.

Both want to reduce the highest marginal income tax rate to below 50 per cent - it is currently 52 per cent, and applies at relatively low income levels.

Both want to reduce high tax on low incomes, which is where Ireland’s tax system really stands out as unusual. This suggests a move away from putting the sole focus on reducing USC we have seen in recent years.

Widened entitlements

Varadkar proposes to merge USC and PRSI into a wider social charge, with the emphasis on people paying for widened entitlements.

On current projections, while cash will be tight for 2018 there might be some more resources to cut tax and boost spending in future years.This may still happen, but Brexit looms as the big uncertainty.

Both men set much of their policies in the context of Brexit - increasing investment and reforming tax are important for competitiveness, attracting talent and building the economy, they both say.

Key to Varadkar’s Brexit plan is for the North to remain in the single market, removing the need for a hard Border.

However, with the rest of the UK leaving the customs union, the North’s businesspeople may prefer to keep free trade and no customs barriers with the UK - their key market - rather than the Republic.

Both Varadkar and Coveney identify the need for more capital investment spending . A key issue is finding the resources to do this within EU rules - or getting agreement for the rules to be eased.

Varadkar has said he will aim to reduce the national debt to GDP ratio to 55 per cent, and not 45 per cent as Michael Noonan announced, with a flourish, as the new long-term target in the last Budget.

Looser target

The looser target would leave more scope to spend.

Either way, a key issue will be delivering on projects in a country where planning and implementation take an age, as shown by the national children’s hospital project in Dublin.

Both candidates’ policy programmes are short on ideas for actually getting things done. Coveney says he would appoint a new chief of staff, an implementation unit in the Taoiseach’s office and a Minister for Infrastructure.

Varadkar promises to drive more value from public services. He also promises to allow Ministers to bring in more external expertise from outside the public service.

Both are trying to address a key issue - the failure of “the system” to get things done quickly. It will not be the area of debate which grabs the headlines, but at a time of tight resources and public disenchantment, delivery will be vital.

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