Pre-Budget submissions
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We are still looking for input on the Irish Election Pre-budget submission. The ESRI’s Budget Perspectives 2008. might be of some use.
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I don’t know if we’ll get all the way to a submission but one issue maybe worth considering is the 1 percent of GNP that Cowen is putting in the National Pension Reserve Fund. They’ve been doing this since 2000 and have done a pretty good job of making it an off-limits part of the budget. Sometimes Cowen gets too clever by half with this money e.g. when he’s trying to signal a tight budget, his preferred borrowing number is the Exchequer balance (which is in deficit), but when he’s trying to show what a good steward of the accounts he is, he refers to the general government balance, which is in surplus. The general government balance takes account of the fact that the transfer to the NPRF is from one government entity to another and therefore shouldn’t count as spending by the government, whereas the exchequer number views the transfer as a payment by the central government so it makes the spending look bigger (and so results in a deficit). There’s another difference arising from the fact that PRSI runs a current surplus but that’s smaller than the pension money.
So why bring it up? Because with the economy slowing down, you could do quite a bit of softening the blow with that NPRF money. There’s an interesting paper in that ESRI thing by Philip Lane — he argues that because we’ve underinvested in infrastructure for so long, there’s still a case for a big capital program even if want to cut current spending (especially the public paybill, which is huge). So perhaps there’s a case that instead of continuing to pay the 1 percent into the pension fund, we should use to maintain or even boost the public capital program, to help ease the slowdown. Not a penny of extra borrowing or tax revenue would be required, the money is already there.
And since a large part of the purpose of the NPRF is to meet future public sector pension liabilities, the argument would be that we’re allowing public sector compensation to chew up too much of the budget — both in paying their current salaries and making provision for their future pensions. An economic slowdown is not the best time to be doing both.
The predicted future pension shortfall among private sector worker should have been tackled over the past 5 years. A percentage of an employee’s salary could be put into a pension fund. Australian employers have to make a contribution on top of the employee’s salary (approx 10%). A system like this could be considered. Alternatively, an opt out system where employers automatically deduct a min contribution to a pension fund , but the employee has the option to stop the deduction after a minimum time frame, eg 2 months. A slight reduction in employers PRSI could start this, with a start up rate of 3.5%, increasing in subsequent budgets. An added bonus would be the opportunity to enhance the value of older employees, by allowing reduced rates for over 50’s. That said, I can’t see any reduction in taxes for 2008. Also the PRSI surplus will be cut back as social welfare payments (employment assist) increase.