McCreevy uses the element of surprise to his advantage

Charlie McCreevy produced some novelty to liven up an otherwisepredictable Budget, writes Mark Brennock , Chief Political Correspondent…

Charlie McCreevy produced some novelty to liven up an otherwisepredictable Budget, writes Mark Brennock, Chief Political Correspondent.

It was a largely conservative Budget but with some policy innovation thrown in. The decentralisation programme is certainly radical: the big unknown is when it will all actually happen.

Politically, it shows signs of Government planning for the short and long term. In the short term, the decentralisation programme will cheer up Government backbenchers throughout the State who will welcome public servants as contributors to the regeneration of their local areas. In relation to income tax, Mr McCreevy has marked time, ensuring taxpayers don't feel poorer next year. In relation to social welfare, he has given increases well above the inflation rate.

But he has shown that he now has the public finances under control, and this is a strong position to be in with two or possibly three budgets before the next general election. Borrowing will be no higher in 2004 than last year, and is likely to come down in 2005. The arrival of the hoped-for global economic recovery will boost tax revenues further. Mr McCreevy may be in a very strong position well before the next election to deliver modestly expansionary budgets that voters appreciate. The strategy of public service cuts and so-called "stealth taxes" for which the Government has been castigated has brought this position about.

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Yesterday Mr McCreevy's speech was conservative in relation to the traditional budget headline-grabber: tax. The employee tax credit has been increased significantly, but the (larger) personal tax credit not at all. The tax bands have not been changed to take account of inflation for the second year running, thus continuing the process of pushing more and more taxpayers into the upper rate. And, of course, the rates themselves remain unchanged.

But when combined with increases in child benefit, and in eligibility for and the rate of Family Income Supplement, every PAYE taxpayer benefits modestly. And in contrast to some of Mr McCreevy's past budgets, the lowest earners, on salaries of €15,000 to €20,000, benefit the most in actual and percentage terms (over 4 per cent for low earners with children), while the highest earners benefit least (under one per cent for those on €120,000).

Middle-income earners will feel aggrieved as they move steadily into the upper tax bracket. In 2002 some 27.9 per cent of earners paid tax at the 42 per cent upper tax rate. This year that figure rose to 30.5 per cent. Next year it will be 33.4 per cent.

In relation to social welfare, the increases are not only ahead of inflation, but generally in line with the increases in take-home pay expected to be enjoyed by those not in receipt of social welfare payments.

Decentralisation was the surprise of the Minister's package. The plan is ambitious indeed: some 10,300 civil and public servants are to be dispersed to 53 centres in all 25 counties outside Dublin. Eight Departmental Headquarters and the OPW will be moved, while 62 individual offices will also be transferred. Mr McCreevy said last night he intended the programme to be completed within three years.

The details of the political decision, however, fly in the face of the Government's own National Spatial Strategy (NSS). That strategy was designed to encourage the development of a small number of alternative centres to Dublin that could achieve "critical mass" in terms of size, thus attracting investment, jobs and population.

However, the Government has opted instead for an extreme scattergun approach. The NSS designated eight "gateways" and nine "hubs" for such treatment. Even that was criticised as too high a number. The suspicion was that some of these were designated to ensure no political criticism in regions that were left out. Mr McCreevy's decentralisation programme, however, will send just a quarter of the designated civil service posts to these gateways and hubs, sending the rest to every part of the State.

Or, as the Opposition noted last night, to almost every local authority ward in the State. Mr McCreevy responded to a question as to whether he expected Fianna Fáil to reap the benefits of his approach in next year's local government elections by remarking: "Politicians are not as cynical as journalists".

Really? He may not have seen the press release last night from PD Longford TD Ms Mae Sexton. "I am delighted I was able to push my constituency to the top of the political agenda," she enthused, in response to the news that the Prison Service HQ is going to Longford and the Land Registry to Roscommon. "When elected I promised to put Longford and Roscommon on the map and today's announcement is further delivery of that promise." Local papers and radio stations covering 53 centres in 25 counties can expect similar press releases from Government backbenchers today, if they have not received them already.

He had some further good news for backbenchers. The introduction of a new "Rural Social Scheme" will provide 2,500 places for small farmers who can work for 20 hours a week on local rural community projects. The scheme, at a cost of €10 million, goes some of the way to meeting backbench demands that some 5,000 extra places be provided on Community Employment Schemes.

Other innovations included measures to control the public service pension bill through ending compulsory retirement at 65. He also had some relief for local authorities facing the prospect of making expensive benchmarking payments to their staff, giving local authorities a one-off extra payment of €30 million.

Decentralisation and the other innovations ensured that what was at its core a predictable Budget was seen as imaginative. Fine Gael's Mr Richard Bruton suggested the decentralisation programme was a smokescreen for the continuation of the policy of using income from "stealth taxation" and additional charges to pay for under-funded public services.

He claimed the total income from increased charges for public services and utilities over the last year was €2 billion - enough to increase the standard rate of tax from 20 per cent to 25 per cent.

Labour's Ms Joan Burton and the Green Party's Mr Dan Boyle said the non-indexation of the tax bands and of the personal PAYE allowance was the biggest stealth tax of all. Sinn Féin's Mr Seán Crowe highlighted the failure to take minimum wage earners out of the tax net.

Their points were valid, but related to well-predicted aspects of the Budget. Mr McCreevy had had the advantage of surprise on his side. In the past he has used this to shoot himself in the foot (tax individualisation, taxing credit union savings).

Yesterday he used it very well.