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10/07/2018 Comments are off Patrick Cole

Don’t believe the hype on Budget day

Despite all the talk of prudence and the need to be cautious, expect to see plenty of banners on Budget day proclaiming the €3.9bn budget for 2019.

The key issue is that there is very little in this Budget – approximately €800m – that has not already been committed.

To put in context, this equates to less than 0.4% of expected output in Ireland in 2019.

Expect to see some small increase in social welfare rates, fuel allowance and the state pension, a small increase in the Affordable Childcare Scheme and some additional boost to housing.

Last July, the Low Pay Commission recommended a pay increase to €9.80 for 2019 so we expect that to feature in the budget speech.

On the tax side, the lifting of the 9% VAT rate of some parts of the hospitality sector will generate income to allow the Government to increase the standard rate threshold from €34,550; the point at which a worker pays the higher tax rate of 40%.

The long-promised process of merging USC and PRSI may well commence and, if not, USC is likely to be further reduced.

Last year’s budget announced income tax changes worth €333m. Expect to see changes costing marginally less in Budget 2019.

Ultimately, the elephant in the room in Budget 2019 is the €900m in fiscal space available, that the Government is choosing not to spend in order to further reduce Ireland’s negligible general government deficit.

In effect, the debate about Budget 2019 pits those who worry about the long-term economic and social impact of failing to invest now versus those whose only focus is the here and now.

For many of us in the trade union movement, we realise the long-term economic and social impact of a range of issues – failing to build a sufficient number of houses and the implications of too little funding of childcare supports on mothers’ wages.

Also, workplace opportunity, pension income and the wider issue of pensions for all if there are not enough women at work.

For those who work in the health service and for all of us who at some stage in our lives or our family’s lives depend on the health service, we realise that the current system of excessive waiting lists and delays in affordable access to GP services imposes a greater long-term cost on the health system.

For the ‘here and now’ brigade, in the face of such uncertainty about Brexit, Trump and future international tax changes, it is logical to maintain a very conservative approach to the public finances.

The Department of Finance and the Fiscal Advisory Council argue that ‘primary’ government spending (not including debt servicing payments) has increased at the same pace as tax revenues since 2015. This is what ‘prudent’ management of the public finances is about – increasing spending at the same rate as tax revenues.

However, the exit of a major multinational in the wake of Brexit, for example, or Trump or international tax changes would dent our corporate tax revenues.

This latter approach is severely short-sighted. This ‘steady state’ economic policy that Minister Donohoe and others promote assumes that, outside of infrastructural provision, our existing levels of public spending are sufficient.

We know that in many sectors it is not. Even more alarming about the ‘steady state’ perspective is that it allows no room to talk about significant increases in future demand.

This is of particular concern with regard to future health demand, pension provision and childcare.

This isn’t a generalised argument to increase funding for all areas of public spending. No, it is about ensuring that we have a funding model in health, in child- care and in other sectors that is sufficient to meet unmet demand.

And we know that structural changes to public service provision cost money. However, we also know from other EU member state health systems, that greatly expanded access to healthcare need not cost a lot more over the long term compared with what Ireland is currently spending.

Over the past 24 months, one of the key recommendations from the EU Commission and the OECD to our Government has been that they need to do more about “social inclusion.”

These recommendations were not motivated by any deep-seated sense of social justice, rather these international organisations have drawn the link between public spending and the long-term prospects of an economy.

It’s high time we cut through all the talk about “prudence” and highlight that the truly prudent and long-term, cost-effective way of managing the public finances is to address these major issues in the areas of housing, childcare and health.

Because when the downturn comes, ní hé lá na gaoithe lá na scolb.

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