It’s no giveaway - but Budget 2015 will cost over €1bn

Analysis: For the first time since 2007 there has been no net cut in spending

Following the announcement of Budget 2015, Harry McGee and Michael O'Regan discuss the major outcomes from Finance Minister Michael Noonan's Budget. Video: Daniel O'Connor

 

Compared to some of the budgets delivered by Charlie McCreevy when he was in full pomp, Budget 2015 was not a giveaway or election budget. But compared to the workhouse rations of gruel that were meted out over the past seven years, this was a bonanza budget. There can be no doubt about that.

For the first time since 2007 there has been no net cut. In fact, the overall budgetary package will cost over €1 billion.

All but four of the 33 measures announced by Minister for Finance Michael Noonan are giveaways, including significant changes in income tax.

In all his measures will cost some €583 million.

For Minister for Public Expenditure Brendan Howlin, the tundra since 2011 has given way to a little bit of clover. In his speech to the Dáil this afternoon, he announced an increase of some €429 million in current expenditure, bringing the total to just over €50 billion.

It’s a marginal increase - hardly 1 per cent - but it shows the graph moving in the right direction.

So how will this largesse be funded? The economic winds have changed direction and are now blowing behind the Coalitions’s back. GDP growth is forecast at 4.7 per cent this year with annual growth figures of over 3 per cent predicted until 2018 at least.

That will mean more jobs, more tax revenue and more consumer spending. It will also mean more money in the State’s coffers. And like the advert for Renault, they are telling us that we can “afford to live again”.

The only increase in revenue to the State comes from an increase to one of the old reliables, tobacco, with a higher-than-anticipated 40c being added to a packet of 20 cigarettes.

A technical change to EU rules also means a €100 million windfall for the State and gives Noonan more wiggle room.

The imposition of VAT for cross-border telecoms and broadcasting services means VAT will be charged in the member state of the consumer and not the supplier.

But as Noonan was able to point out: “I am not raising taxes on alcohol. I am not raising taxes on petrol or diesel. I am not raising motor tax. I am not raising the Vehicle Registration Tax. I am not raising any other taxes because I am able to fund the costs of these reforms and incentives through improved tax revenues arising from economic growth and continued expenditure restraint.”

Noonan also butchered Robert Frost’s famous poem The Road not Taken to make a tortured metaphor about the Government taking the less trodden road, the one whose “milestones are prudence and caution”.

That said, it was a political budget. Sure, the Government has said it will improve on the deficit target of 2.9 per cent of GDP set for it under the Stability Mechanism by the end of 2015 (Noonan says the State’s deficit will be 2.7 per cent at the end of next year).

But he knows, to extend the Robert Frost metaphor, that whatever road he takes, he will end up looking “down one as far as I could to where it bent in the undergrowth”. In other words, the Budget is predicated on the State making good on the optimistic forecasts, and also on ignoring the advice of domestic and international bodies to deliver a budget with a bit more austerity than prosperity.

Politically, the Government knows that another hairshirt budget would have brought it perilously close to straining point with the electorate. Thus there is a significant concession on the water charges.

The tax credit will cost €40 million, and no matter how often the Government cavils that it decided this before last weekend’s byelection, it will be seen as a knee-jerk reaction to the poor Coalition performances in both.

The main headline changes are in income tax and USC. The three changes (very well flagged) will cost some €650 million. How progressive will it be though? It seems that despite a new 8 per cent rate of USC for those earning over €70,000, it will favour middle-income earners more than low-income earners.

You can see the Fine Gael agenda at play here, with these measures having an appeal to its core middle class voters. Indeed the net gain for families on lower income is comparatively small, less than €300 per year for a one-income married couple with two children earning €35,000 compared to €777 for a similar family with an income of €70,000.

Another important change - and this is significant for the State’s reputation - is the announcement that the “double Irish” tax arrangement is being ended, with a new requirement on Irish resident companies to be tax resident. However, companies enjoying this benefit at present will have a grace period of six years.

Another measure that will prove popular with private sector employees is the the discontinuation of the 0.6 per cent pension levy, always intended to be a temporary measure.

There was, predictably, a huge emphasis on housing, both social and general. Howlin devoted a lot of his speech to it, and announced a number of Government-backed as well as public-private partnership measures which he promised would deliver some 10,000 housing units over the next three years.

Another small but positive change was a reverse in child benefit, with an additional €5 per child per month next year, with a further monthly increase of €5 from 2016.

The small increase in overall expenditure means the large government departments are in an “as you were” situation. It will remain to be seen whether Leo Varadkar can live with the €13.1 billion that Howlin has allotted for health expenditure in 2015.

For the first time in many years we have not seen swingeing cuts in education and we may see the number of members of the Garda increase to over 13,000.

Was it a real “road less taken” budget, truly unpredictable? No, it was not. It was unsurprising and predictable - what you would expect a Government to do about 18 months out from a general election.