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The Budget
Read more about: Economy, Taxation 
We’re still digesting the implications. A few quick impressions. First, a jarring opening –
“The measures that I am bringing forward today will complete this process for 2009″. Given that each month’s exchequer returns have been worse than the last and we’re only one-third through the year, that’s an optimistic statement.
Second, it was a speech whose scope was much broader than its specifics. The policy changes could have been announced in 10 minutes. Much of the rest was trying to show that there is a medium-term plan. But this came at the expense of sounding like there a lot of postponed decisions — all kinds of things he intends to do, but not much that can done for the remainder of 2009. Perhaps as a consequence, they continue to shred the tax system, as a mountain of payroll taxes (income levy, health levy, pension levy, higher PRSI band) is now rising around the income tax system which apparently is no longer fit for purpose.
Third, the promised “bad bank”. Did the Greens ever foresee that they’d be in a government running the country’s largest property developer? Because that’s what the new asset management agency will be. Note: the value of its assets will decline when one of its speculative land assets doesn’t get planning permission! Note also: the government will be paying interest on the bonds that the banks get in exchange for the bad assets.
Fourth: the incoherence of the approach to public sector pay. Lots of talk about declining prices, how the private sector is already making wage cuts, how benchmarking was (implicitly) a mistake, about the need to reduce our cost base. But not a single actual measure aimed at basic pay in the public sector. Perhaps he’s reflecting a judgement that the political scope for cuts is non-existent. But when why keep bringing up the cost issue? One is left with the sense if another shoe is still to drop, it’s the public sector pay scale, but clearly the government views it as a nuclear option.
One final thing: all this huffing and puffing got exactly 2% of GDP for 2009: (the forecast for what the deficit would have been without the supplemental minus the new forecast. A little done, a lot still to do.
This surely is a final nadir for PD politics and barney especially. The hit to the tax rates has been anywhere from 3% to 5% in everyone pay the highest earners are now on over 50% with 150k or so counting u in that bracket. The government spin on tough decisions was just that, spin. TDs are taking a hit but no one heard that magic word leadership.
Am reading that stan greenberg book on his time with Clinton and the comparisons with 91/92 are v interesting. Clinton demanded jobs be put ahead of deficit correction until his economics team got a hold of him. Stimulus was subordinated to a tax and were it not for moments of leadership he was a dead duck. He was forced to get people behind him with leadership on government reform and broad based taxes. In this moment after decades of government that on reflection bred distrust of politics they had to talk to tax payers and bring them along when deficits become priority while people want re political system to focus on jobs.
Government underscored that international pressure on deficits was priority one. They return to the well of Paye and middle earners. They didn’t make the argument over 500,000 people wanted to hear on investment and stimulus and didn’t bring them in behind the governments path 75% tax 25% cuts and no hope.
i haven’t had time to fully digest the full trauma of the budget as of yet but i can tell that a cornered rat doesn’t respond well to further harrassment ,
we are a one income family , my wife is on a career break from the civil service as child care negated the point in her receiving a salary, it now turns out that she cannot return to work from her career break as there are no positions for her, we have two small children ages 4 and 2 , i too am a civil servant with a meagre salary which until october of last year , we were keeping our heads slightly above water. since then , we’ve had an income levy, a hefty pension levy , i lost my overtime , my higher duty allowance as i was doing work above my salary grade and also our mortgage increased as we have a fixed rate mortgage and the TRS was reduced so up went the mortgage repayments so before today we were in trouble.
bear in mind we have no access to any state services of any description. we are afloat in this murky financial state.
so after todays kicking , where we will see our early childcare payment halved , only to see it disappear by the end of the year and our mortgage repayments to rise even further. more income levies , more health levies.
we recently reappeared from a public hospital as public patients after being in there for two weeks with a very sick child only to be handed a bill for 750 euros, we coudln’y afford private health insurance and now as it turns out we can’t even afford public health.
i hope the minister recognises that there are families out there who need assistance at this time and not furter savages attacks on our mere existence, we’re not talking about our lifestyles anymore , we’re talking existence. and there is no light at the end of this tunnel. regardless of how we’re viewed internationally , there has to be some level of concern about how we view ourselves as a nation. these unfathomable and unprovoked attacks on the citizens of our nation to facilitate the glaringly obvious financial corruption that was presided over this country over the supposed celitc tiger years is nothing short of treason. we never fully woke from the nightmare of the haughey years , we just rolled over , hit the snooze button and the nightmare continued.
how did anyone in their right mind think that house prices could continue on their path without there being a price to pay, the reality came to late due to it being ignored , and now the attacks are taking place and they are unmerciless in their savagery.
and all the time we hear that its getting cheaper to live , so social welfare is next for an attack.
i don’t know about anyone out there , but what exactly is cheaper.
On points two and four: Listening to Mary Harney on TodayFM I got the impression – though I could be wrong of course – that she acknowledged the income levies are just temporary hacks in the income tax system. Perhaps in December after the Commission has reported we’ll see a more considered tax reform – ie increasing of rates and lowering of thresholds etc
On four – it was the real unmentioned. Feck all on public sector pay. Are they waiting for new talks? Harney described a situation in health where a nurse can’t be moved to another ward even if she’s not busy and the other ward needs her. We are completely screwed until this sort of thing changes. Social welfare payments are basically being sacrificed to pay public servants. The balance will have to shift. What will the unions say? They still hold our economic future in the palm of their hands.
“decades of government that on reflection bred distrust of politics”
Quite so. That was the deal. We’ll take care of the the politics and you kids can enjoy your miniature semi-D’s in the midlands. That’s why there are so few people under 40 with any prominence in the national debate. Many were not interested, few were welcome.
Then, when it turned out that nobody was acrtually taking care of anything, Brian Cowen says that “our children will not have as high a standard of life as we enjoyed”. What is this man doing in politics at all if that’s where he’s coing from? It would be less infuriating if he and the rest of the living dead populating the higer perches of Irish society would shuffle off to enjoy their pensions and say “Well, we had out fun, you kids can clean up the mess”, but perversely, they will neither perform nor get off the stage. Leadership is usually an over-stressed element in politics – it’s as much about management – but this is a moment when leadership is needed. The current government have no strategy, and no intention of developing one. They are remaining in power not because they have any intention of governing, but because not being in power is unthinkable to them after all this time. They are digging in, adopting a defensive crouch, and hoping to endure this recession rather than combat it. Cowen is talking about a possible upturn in a few years time, as if it the state of the country had nothing to do with him. He will no doubt endure the coming years (though perhaps not politically), but many won’t.
Sarah,
When the levies are converted to rates and bands for next year there may be some evening out. In particular some of the ‘step’ function nature might be evened a bit. But make no mistake – the percentage of its income that each income group pays now will not change dramatically for the better. The tax burden on each income cohort is likely to increase further. The bottom line is that the bulk of income tax is going to have to be taken from middle to high earners. In terms of standard of living it will hit the middle earner hardest – those on say a say 60k household income or say 80k, will from now and over the next few years have their disposable income decreased very substantially. True, those on 200k will also have a high proportion taken out – but the kind of ‘luxuries’ you have to cut back on when your take home income decreases from 110k to 95k after tax are less hurtful on your overall standard of living than if your take home income drops from say 40k to 32k. Basically the cut is getting nearer the bone. As for families on smaller incomes still – say 30k or 45k – they really are in for a tough time and many will be pushed into pure survival mode.
But here is the reality: in most countries, even the wealthy ones, those in the bottom quartile are permanently in survival mode. That is how income is distributed in modern capitalist societies. No budget can fix that. Something far deeper and fundamental would be required.
On pay for public servants. There is no panacea there either. Most public servants are not on extraordinary salaries. The issue for me is twofold: overlap and waste in agencies and state bodies. (recall that the number of agencies increased from 400 to 800 under Ahern’s watch.). The second issue is the salaries and low accountability of the senior staff in this proliferation of agencies. It’s 150k here and 200k there for senior managers in even the most trivial agencies. The big thing was that these had to ‘compete’ for talent with the private sector. This was entirely a sham and is a massive waste of money. This is where I see time for root and branch stuff. But alas, I cannot set it happening.
I was interested to note Sarah Carey’s about Mary Harney.
Nurse A is idle while Nurse B is overloaded.
Trade Union Leader, Liam Doran, serves an Edict that they cannot share their time. He wants more money for Nurse B to compensate for her extra work load, whilst paying Nurse A the full whack.
I feel that this says it all in the context of Union interference in the Public Sector; Benchmarking; Social Partnership etc.
First off: Protect the job
Second off: Maximise potential overtime:
Third off: Threaten a Strike if there is non-compliance to this blackmail by Management.
Mary Harney, as always, was right on the money.
The Trade Unions, aided and abetted by Bertie Ahern, brought this once vibrant economy to its knees, by wilfully ignoring the necessity to be competitive in the export market place; by increasing wages to bloated levels in the support services – ESB; Bord Gais; Waste Removal; Public Transport etc…
As a consequence, Industry, whilst trying to Export their goods and services, found themselves crippled by Public Service overhead costs.
Factor in an explosion in property prices – which leads, inevitably, to an increse in Rents – and you find your company unable to win any further contracts against countries with sensible controls on Land Prices; Wages and the cost of Public Services.
As the manufacturing base shrank – from 2003 onwards – the economy moved into a fantasy illusion of prosperity, driven by vast Inter-Bank Borrowing – and Lending on against fictitious Balance Sheet values of Property.
Exactly the same as happened in Japan, when their economy went into freefall, when it was discovered that the Emperor had no clothes.
One can only feel desperately sorry for Declan.
As always, in Fianna Fail’s Ireland, the Meek Inherit the Shite.
Sarah,
As for the unions holding our future in the palm of their hands, I think they rather shot their bolt in January when they walked out of Government Buildings and collapsed Social Partnership. More like the Government hold the unions in the palm of their hands.
What many of those braying for immediate further cuts in public sector costs don’t seem prepared to admit is that already this year there have been cuts of up to 7.5% in public service pay (via the Pension Levy) with some added pain now courtesy of yesterday’s budget. Cuts in public service numbers at this time translates directly into cuts in public services. And there’s plenty of anecdotal evidence of that already going on around the country, from the health services to the court services to education centres and so on.
The report of Bord Snip Nua is awaited with interest and that’s when we’ll most likely get a clearer idea of the shape of things to come in terms of public sector reform. Similarly, the report of the Commission on Taxation inthe Autumn will be helpful in the complete redesign of our tax system to take account of the new reality of the world we have to survive in throughout the current gloal recession. By July, we’re also promised a benchmarking review of politicians’ and top public servants’ salaries that will peg them to those in comparably sized countries instead of private sector pay rates of the boomtown fairyland of the past.
The next Budget will be in December – if not earlier. There are so many elements to the Budget announced yesterday that it’s difficult to just focus on any one aspect as indicative of whether the entire package represents wisdom or ultimate folly on the part of the Government in the management of our affairs. Also, we have to keep in mind that it’s just stage one of a comprehensive programme of austerity measures that will continue over the next three years or more. That’s pretty far removed from our approach to fiscal and economic management in the past. So is the linkage and balancing act between the key elements of our economic infrastructure that is now being attempted – the banks and financial institutions and the hole in the public finances. We can’t get the economy moving without a functioning banking system and we won’t have an independent country for much longer if we can’t borrow and pay our bills on time and no-one will continue to lend to us if we can’t demonstrate that we’re getting the banks back on track, the public finances under reasonable control and thus the economy functioning somewhat normally. One is inextricably bound up with the other.
There was a very interesting and well-informed discussion on the key issues on Vincent Browne’s TV Three programme last night, a far better treatment of what’s real and what isn’t than was offered up by RTE’s Primetime, I’m afraid to say. We’ve become so used to media packaged hysteria and one political economic ignoramous shouting down another as passing for rational debate on what is undeniably the most appalling financial crisis ever faced in this country since the Famine it’s refreshing, and almost surprising, to find an alternative way of approaching debate on the issues exists that can prove both useful and informative. But there you go!