No-one will feel poorer after budget - that’s the point
Analysis: Strategy is to spread the largesse as widely among the populace as possible
Michael Noonan and Brendan Howlin sought to deliver a little something for a lot of people this afternoon, but no-one will feel wealthy after their fourth Budget. After years of painstaking cuts, however, the essential point is that no-one should feel any poorer.
But we are in the realm of modest gain. If relentless retrenchment since the crash took close on €30 billion from the economy in the space of a few years, the goodies doled out today are counted in millions.
This Budget comes as the Coalition angles for re-election within 18 months. In defiance of those who say it would be far better to continue cutting or use extra money to pay down debt, hard political reality demands some kind of a recovery dividend in the here and now. As the domestic economy stirs into life, the objective to is provide a further spur to growth.
So will it be enough? The basic conundrum is that there simply isn’t enough fiscal “leeway” to go around. Thus the Budget is cast to spread the available largesse as widely as possible in the hope to maximising visibility of the turnaround. If the tart response is to say that a microscope may be required to see some of the benefits, the counter-argument will inevitably be made that this could have been a whole lot worse.
So who gains? A complex package of income tax concessions includes a reduction in the top rate to 40 per cent from 41 per cent, long a priority for Taoiseach Enda Kenny.
There is also a sliding scale of unanticipated reductions in USC rates and a widening of thresholds. This comes with a promise of more along similar lines in 2016 and 2017. But special manoeuvres - via a new elevated USC rate - are included to avoid inordinate advantage at income levels exceeding €70,000. The core objective is to direct the benefit of recovery towards low- and middle-earners, although many paying new higher USC would not consider themselves particularly wealthy. An increase in the entry point threshold for the lower universal social charge will take 80,000 workers off the levy altogether.
On welfare, this is the first Budget in five years in which no benefit is cut. What is more, the Christmas bonus will be partially restored to welfare recipients. There will be a €5 increase in monthly child benefit rates in 2015 and 2016, something which benefit every young family in the land.
Deposit income retention tax will be scrapped for young couples saving to buy their first home, but that might seem like small fare to people saving for a 20 per cent deposit. The aim in a big social housing programme is to provide an additional 10,000 homes by 2018. There is no such thing as an overnight solution here, but the amount of money in play should be enough to make appreciable progress.
Mr Noonan made a point of saying there will be no increase in excise on alcohol, petrol and diesel, nor in motor tax or vehicle registration tax. As might be expected, however, Opposition TDs promptly retorted that the water charge will still be imposed. This prompted a wry smile from Noonan. In a response of a kind to public disaffection over the charge, the Budget includes a measure of income tax in respect of water.
A further response to pressure of a different kind comes in the elimination of the contentious “double Irish” corporate tax mechanism in the course of the next six years. Although moves to close down the scheme met resistance from international business, Noonan has resolved that it is preferable to move now than to be forced into change by the international community.
A wider package of measures is designed to underpin the investment regime. To those who would say there is nothing going on here but aggressive tax planning, Noonan made the point that 1,106 multinationals based in Ireland employ 166,000 people.
Both Noonan and Howlin reiterated the mantra that the economic turnaround will not be sacrificed at the altar of political expediency. As foreseen, the budget deficit is targeted to go to 2.7 per cent next year. In response to the argument that he should use “windfall” gains to pay down debt, Noonan said some of the surplus from the Central Bank will be used for that very purpose.
The deficit would go to 2.5 per cent next year in the absence of such measures, he said. It might also be said that the Government has left itself headroom. The Budget is predicated on 4.7 per cent GDP growth this year and 3.6 per cent growth in 2015, both of which are lower than foreseen by external analysts.
One year earlier than foreseen, this is the Budget in which the Coalition brings down the shutters on ever-increasing austerity. While it marks the beginning of the process of handing some of their own money back to the people, it is but the beginning. Public expectation will only intensify if the recovery continues. If the key point remains that nothing must be done to jeopardise that, this Budget does not appear overly indulgent.