Cliff Taylor: Government will find enough cash for €1bn budget

Brexit has complicated the search for revenue, but there will be enough for some key tax and spending changes

 Raising new money will allow some things to be done. A way will be found to put say €6 to €8 extra a week in people’s pockets from tax cuts

Raising new money will allow some things to be done. A way will be found to put say €6 to €8 extra a week in people’s pockets from tax cuts

 

We have all been beaten over the head with the message that there isn’t a lot to be given away in the budget. And there isn’t. But Minister for Finance Paschal Donohoe simply has to find some cash to make any kind of a show on Tuesday. And he will.

The narrative has been clear ahead of the budget. The sums only provide €350 million for new tax and spending measures, a pittance in terms of a budget which deals with over €55 billion in taxes and revenues. And there has been no late surge in tax revenue to allow forecasts for next year to be increased.

But enough will be raised, I expect, to pay for new spending and tax measures of around €900 million to €1 billion, sufficient to make a modest budget day splash, but also create a few rows about areas that are hit.

Because EU borrowing rules have to be met – obliging the Government to more or less balance the books next year – the Minister is constrained. The budget can only add about €350 million to borrowing – the figure might change a bit in the final calculations but not massively. So to fund key spending and tax moves Donohoe has to find new sources of cash.

Environmental grounds

This won’t be easy. Look at the obvious places to raise money and the same constraint applies in a lot of cases – Brexit. This doesn’t mean nothing will be done in any of these areas, but it makes it a lot trickier politically. The Brexit jink has made Budget 2018 a lot more difficult.

Take a few examples. Excise duty on diesel could be raised over a few years to equate with the tax on petrol, a move entirely supportable on environmental grounds. Yet the haulage and logistics sector is in the front line if there is any kind of a “hard” Brexit, with questions over a hit to exports and potential delays from new customs procedures between Ireland and the UK. An alternative might be a rise in carbon tax, hitting all fuels.

Next up comes the proposal to raise the 9 per cent VAT rate. But this would hit the tourism sector, already suffering a fall-off in UK visitors due to sterling’s weakness. There are other complications too. Under EU rules a country can only have two reduced VAT rates – in Ireland’s case currently the 9 per cent rate and one at 13.5 per cent.

Bloodstock

Consideration had been given to increasing the 9 per cent rate to 10 or 11 per cent – and this still can’t be ruled out. But to maintain just two lower rates this would require all the sectors on the 9 per cent rate to move upwards, including VAT on newspaper sales. Bloodstock is also taxed at 9 per cent, and here is a sector with considerable lobbying power and another one threatened by Brexit.

And it goes on. The programme for government proposed the withdrawal of the benefit of the €1,650 personal tax credit from higher earners, probably defined for the purpose as those earning over €100,000 per annum. This could earn a considerable sum for the exchequer. But this would not sit well with the battle to attract bank and financial industry jobs to Ireland after Brexit or with comments from Taoiseach Leo Varadkar about high marginal tax rates.

Some of these areas may still be targeted – to some extent anyway. But Donohoe

will certainly have to fall back on more traditional sources of revenue.

Tobacco will get hit again – probably quite hard – and a rise in alcohol excise is also possible. A rise in stamp duty on commercial property transactions, cut to 2 per cent after the crash to try to encourage activity, is also on the cards and looks set to be one of the big fundraising moves. Another likely measure is an increase in the national training levy - which is part of the social insurance payment made by employers.

Intellectual property

Big multinationals are also going to pay more under a change in the rules governing the way they claim capital allowances in relation to the move of intellectual property assets like copyrights and patents to Ireland. It is as yet unclear what exactly will be announced in the budget, but the move could yield significant new revenues over coming years.

The bottom line for 2018 – even after new money is raised it will still not allow for massive spending increases or tax reductions.

But raising new money will allow some things to be done. A way will be found to put say €6-€8 extra a week in the average earner’s pockets from tax cuts and to fund some key spending priorities.

And then there will be the promises of “jam tomorrow”, offering the prospect of a lot more gains in 2019 and 2020.

A lot of this will focus on promises of new capital investment in transport, housing and so on, which is due to be detailed by the end of the year in a new plan. And there will also be talk of further plans to improve public services and cut the tax burden, with the potential – if growth remains – of more budget leeway in subsequent years.

With little enough room for manoeuvre the tactic this year has been to play down expectations in the hope that we will be grateful for what finally emerges.

It will be a tricky enough sell for the new Taoiseach and Minister for Finance, and a lot will be said about balancing the books and setting the groundwork for the years ahead.

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