Budget offers a little something for nearly everyone

Analysis: Series of small cuts means language of stability, hope and recovery may be met with scepticism

Brendan Howlin and Michael Noonan who have crafted a budget that contains a little something for almost everyone

Brendan Howlin and Michael Noonan who have crafted a budget that contains a little something for almost everyone

 

This Budget will take €2.5 billion from the economy but it was still cast to provide something for everyone, or at least a little something for nearly everyone. While the plan is not without pain for the older and younger generations, there is no such thing as pain-free austerity.

What is being given here costs far less than what is being taken away.

The bottom line is that the Coalition is making a defiant play for the affections of the troika and the all-important market investors in sovereign debt.

The package also seeks to deliver for both Fine Gael and Labour, with its emphasis on a boost for the construction industry and on free GP care for children aged five and under.

This is no easy task for Michael Noonan and Brendan Howlin, given the huge scale of the retrenchment under way. Even as the Government gives to young parents, it takes by way of a standardised rate of maternity benefit.

Older people will see the telephone allowance scrapped. All of this - and more - means the language of stability, hope and recovery may well be met with scepticism.

At the same time, the focus is firmly on the push for job creation and to protect employment. This helps explain the retention of the 9 per cent VAT for the tourism and hospitality sectors, at a total cost of €350 million.

This will gobble up the proceeds of the new bank levy (€150 million) and the one-year rise in the pension fund levy (€135 million) and a lot more besides. As such, the VAT measure stands as one of the biggest bets in the budget.

The €2.5 billion is well below the €3.1 billion sought by the troika but the targeting of a primary budget surplus - in which the State pays its way when interest on the national debt is excluded - is designed to instil confidence in the strategy for exiting the bailout.

“This will give the financial markets the confidence to continue lending to us,” Mr Noonan told the Dáil.

“The reality, as this country is now all too familiar with, is that if a state cannot borrow funds at sustainable rates then it cannot provide a definitive level of public services.”

If that is the most brutal lesson learned in the crash, Noonan made the predictable point that austerity has its limits.

Although he cited WB Yeats’ line that “too long a sacrifice can make a stone of the heart”, the essential justification for choosing the €2.5 billion target instead of €3.1 billion is that it nudge economic growth to 2 per cent from the 1.8 per cent forecast with the higher figure.

If the truth of that calculation won’t be tested until next year, the real test in 2014 is whether the Coalition can maintain the confidence of markets to continue borrowing at rates below Italy, Spain and other laggards like Portugal. While that may be largely dependent on the absence of international shocks, the Government is powerless to prevent any.

What is within its power, however, is the capacity to foster some kind of confidence on the home front. Hence the Coalition has made the calculation that it is better to ease the rate of retrenchment now than to strike on with a more severe plan.

The political logic is clear. Local and European elections loom next May, the deal is long done to scrap the Anglo Irish Bank promissory notes and the end of the bailout is in sight. The sense must be that the Government cannot convincingly make the argument for recovery if it cannot demonstrate the fruits of that recovery.

Thus we have - for example - free GP young children and infants, deliberately aimed at hard-pressed working families. But there is still a catch.

While this will be done at a cost of €37 million, the Government still aims to save no less than €113 million a drive to remove ineligible and redundant medical cards and another €25 million from a lowering of the income threshold on the medical card for over-70s.

This is, of course, in keeping with the practice of taking more away than is given back.

The same goes for the resumption Garda recruitment and the recruitment of nurses and teachers.

The opportunities this creates will be welcome, not least by Alan Shatter, Ruairi Quinn and James Reilly. But the outwork of hard-won public sector reforms is that new entrants will receive less than their older colleagues. The reduction of jobseekers’ benefit claimants under 25 can be seen in similar light.

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