Innovative Noonan draws attention to plight of the long-term jobless

Were it not for the European Union’s insistence that member states publish their tax and expenditure plans earlier, our budget day this year would again have been in early December rather than mid-October. We had become accustomed over the last 15 years to our budgets being in the lead into Christmas, accompanied, inevitably, by headlines and cartoons depicting the minister for finance as Santa Claus or Scrooge.

While Michael Noonan’s Churchillian physique would have made him easier to caricature as the former, history determined that he finally got to be Minister for Finance during a time of economic crisis when there could be no giveaway budgets.

Notwithstanding this, Noonan has retained his natural jovial demeanour. Last Thursday night he was guest of honour at a dinner in Dublin Castle for international delegates to the Global Tax Policy Conference co-hosted by the Irish Taxation Institute and the Harvard Kennedy School.

Speaking to the conference before dinner, Noonan set aside the supplied script and engaged directly with the assembled tax experts on some of the revenue-side dimensions to this week’s budget. It was a 20-minute tour de force. Noonan is a man comfortable in his skin, deeply absorbed in the details of his brief and happy to be playing his part in the gradual improvement of his country’s fortunes.

He spoke of how it was regrettable that the majority of the budget coverage, this year and every year, tended to focus on the expenditure side. Almost all of the coverage deals, he said, with expenditure cuts or expenditure-type incentives and not enough on what had and could be done on the taxation side.

He quipped about how he wasn’t sure whether it had something to do with the Keynesian bent in academia or otherwise but Irish economists seemed, he said, to prefer governments to spend money to incentivise policy objectives and they had less regard for how taxation policy could be used as an instrument of economic policy.

Psychological effect
He cited, as an example of how government could achieve policy objective by tax changes rather than those on the expenditure side, the reduced VAT rate he had introduced for the tourism and hospitality industry. There is no doubt, he said, that the reduced rate had had not only a multiplier effect but also a psychological effect in helping lift tourism and hospitality out of the doldrums into which they had fallen when the crisis began. The reduced VAT rate had worked so well that he had decided to retain it in this week's budget.

Noonan then spoke at some length about two tax-related initiatives, which he had announced this week in the construction sector. The first of these was the home renovation incentive, which will give up to €4,050 in a rebate to those who spend between €5,000 and €30,000 on renovations or home improvements. The second is a provision that allows those on the live register for more than 18 months to set up a business and earn up to €40,000 free of income tax in the first two years.

It was clear from talking to some of those at the conference who were involved in the pre-budget process that these two ideas were very much driven by Noonan and that it took some effort on his part to convince some in officialdom of their merits.

The Minister, speaking on Thursday night, was also conscious perhaps of scepticism among some commentators about incentives aimed at the construction sector and of concerns already being expressed that the Government might be starting to fan another construction boom.

Bogeymen
He took some time to set out the rationale behind these proposals. The construction industry and the banking sector were the bogeymen of the current economic crisis. However, in the same way we need a functioning banking sector to provide the lending necessary for economic recovery we also needed revival in the construction sector. The problem with our Celtic Tiger construction sector, he pointed out, was that it had got too big. We should now aim for a recovery in the sector, he said, perhaps to a level where it could contribute about 10 to 12 per cent of GDP.

Noonan spoke with genuine concern about a cohort of the unemployed for whom a revitalisation in the construction industry was particularly necessary. There are, he pointed out, about 80,000 former construction workers on the live register and, as he put it “there are not many of them who are going to become electronics engineers”.

It was the first time I had heard any senior Minister acknowledge the particular challenge the large number of now long-term unemployed former construction workers presents for our economy. Most of them are too old to emigrate, too young to be left idle until retirement age and unlikely to be capable of retraining as knowledge workers.

A moderate recovery in the construction industry offers the best hope – perhaps the only hope – of a return to employment for this group. Of course, strategically our economy must never return to a reliance on this sector but in the medium terms these workers need it to recover.

It remains to be seen whether these tax measures announced in the budget will work – the consensus among the Irish tax experts at the event was that they probably would – but it good to know that some serious and innovative thinking about this challenge and these long-term unemployed is going on where it matters most.