Budget dogs did not bark ‘due to lack of money’
Multitude of measures flagged earlier in the year did not materialise this time
Minister for Finance Paschal Donohoe addressing members of the media after appearing on RTÉ Radio 1’s ‘Today with Sean O’Rourke’ programme on Wednesday. Photograph: Dara Mac Dónaill
They were the dogs that did not bark. A multitude of measures flagged for the budget earlier this year did not materialise.
They included changes to inheritance tax; carbon taxes; child benefit; alcohol duties; removing VAT breaks for tourism; and the beginning of a merger of the universal social charge (USC) and pay-related social insurance (PRSI).
The Department of Finance said the simple explanation for most of these omissions was that the Government did not have the money this year.
“We couldn’t do everything in a single budget, unsurprisingly,” said a spokeswoman indicating that Minister Paschal Donohoe will make good on some of those promises next year.
Merging of PRSI and USC
This is a tricky proposition for the Government. The Fine Gael manifesto for the 2016 election stated categorically that the party would abolish USC if returned to power. Indeed, in the confidence-and-supply agreement with Fianna Fáil, there is a specific commitment to gradually reduce the charge.
However, Taoiseach Leo Varadkar asserted very early in the Fine Gael leadership campaign that he favoured the retention of USC, which he described as a progressive tax. It is a view that is shared by Mr Donohoe, who is a strong advocate for broadening the tax base. More latterly, both have argued for a merger of USC and PRSI.
There were some expectations that moves towards a merger would begin in the budget. But Mr Donohoe announced that he was setting up a working group to plan amalgamating USC and PRSI. The group will do its work next year but the change is over the “medium term”, meaning a few years at least.
This universal provision was slashed severely during the recession but there was some restoration in the last government’s term.
Before the summer break, in a paper to Fine Gael representatives, the Taoiseach included an increase in child benefit as one of the options he was considering for the budget.
It currently stands at €140 a month. A €5-a-month increase would cost the exchequer €70 million.
It fell off the ledge weeks before the budget. Minister for Children Katherine Zappone has prioritised childcare and early education, as well as universal childcare payment for under-3s. In social protection, the available funds were directed towards pensions and welfare recipients.
Diesel and carbon taxes
Earlier this summer, the tax strategy group within the Department of Finance devoted a paper to carbon taxes, particularly diesel. It was stated that diesel could no longer be considered less environmentally harmful.
The group even charted out a five-year path to equalise the prices of diesel and petrol – the former is currently about 10 cent a litre cheaper.
“Dieselisation continues to be a growing issue and, if left unaddressed, will result in negative environmental and health outcomes,” it stated.
But it did not materialise. In fact, Mr Donohoe adopted the same tacit approach to climate change as his predecessors. There were no increases in carbon tax or in diesel.
Increases in duty on alcohol have been modest and have not kept pace with cigarettes. There was no mention of this “old reliables” at all in this year’s budget, although the price of a pack of cigarettes rose 50 cent.
The register of lobbying shows a fair degree of activity around this issue. Mr Donohoe himself seemed to agree. He said in respect of excise on alcohol that the “gain may have been illusory” – that is, people may have gone elsewhere, over the Border, to buy.
This was also considered by the tax strategy group. The levy now stands at 1 per cent and the horseracing industry has consistently called for increases to 2.5 per cent. Unsurprisingly, the betting industry is opposed to any change.
There were strong representations to the Minister to increase it. That included a submission from Government partners, the Independent Alliance, for a marginal increase by 0.1 per cent.
The Minister ultimately rejected the proposal because it would have “had implications for smaller businesses”, said a spokeswoman.
This was a big Fine Gael issue with its own TDs, especially in Dublin where property prices have spiralled, expecting changes. In last year’s budget, the threshold point, where inheriting children started paying tax, was raised to €310,000 from €280,000 with the Government committing to it being raised to €500,000 in the medium term. The tax is charged at a rate of 33 per cent when it kicks in. However, a further increase in the threshold did not happen. There was no explanation other than a lack of resources this year.