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A budget for the elderly and the middle-class?
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I seem to be missing something about this budget: on doing our sums, my wife and I – still somewhere in the top 10%-15% or so of earners even after the significant hit our income has taken in the recession – are down the €16 a month on the child allowance and not much else. We don’t drive or drink much, so the decrease in the price of wine offsets the increase in diesel.
In fact, the extension of mortgage interest relief looks as if it makes us considerably better off in future years.
Did this budget really protect both the elderly voters whose pensions haven’t been cut and the middle class swing voters while punishing the poor and the public sector workers?
Of course, the deflationary effects of the budget will probably further depress our incomes, but that’s a slightly different thing – which might be something the government is banking on.
Also, since a carbon tax is A Good Thing, I don’t resent it at all. In fact I’m pleased they’ve brought it in, even if they did so for the most cynical reasons.
You that desperate for comments on your own piece
But more or less you are right I think.
Colman,
I take you and your wife are both employed in the private sector? The government can’t do anything about pay in the private sector, which is a matter between employees and their employer.
There’s also an argument used by some economists that goes something like this : if you want to secure an overall increase in competitiveness then you must cut public sector pay rates, which in turn will influence any prospective wage rises in the private sector by making employers less likely to submit to demands for pay increases.
Of course there’s going to be a deflationary effect – you can’t take that much out of public spending without facing up to that consequence. The argument the DoF makes is that the deflationary impact will be less if the cuts are made at a time when there is no inflation and interest rates are still at near zero rates and it would be far more difficult, if not impossible, to make such massive adjustments if inflation was rising and interest rates were also on the rise as they will be from sometime late next year.
As Stephen Collins put it in the IT this morning, the government was completely ‘spooked’ by the reaction to the proposed withdrawal of free medical cards to the over 70s last year. Even in the mid-eighties, when the ‘Christmas Bonus’ double social welfare payment was cancelled (Xmas 1984), the then Coalition government found the money to make the payment to pensioners while the message to the long term unemployed at the time was ‘tough on you’. Since the Xmas payment has been cancelled for everyone this year, this government may have considered it would be a bridge too far for pensioners to cut their basic rates on top of it, especially since pensioners benefit less from deflation in prices than other groups.
Anyway, the big surprise is that they did what they said they were going to do – or what Brian Lenihan said he would do – which seems to have astonished a lot of commentators, who say such action is unprecedented among democratic governments. Now, they may well make up some morning soon and wish they hadn’t …
Anyway, don’t worry – they’ll get you next year with the introduction of water charges, a property tax and the possibly the reform to the tax system.
It’s an interesting question as to whether there will be political impact from the apparent age-based effects of the budget. More striking that the reluctance to change OAP (with the ghost of Ernest Blythe still in Leinster House) was the reluctance to change public sector pensions — even though some of those retirees are on very high incomes. On the other hand, for young people, it looks very much like an “on yer bike” budget. Note also there are going to huge age-based effects within the civil service. Future recruits will be on very different pension terms from incumbents.
Economists say all sorts of nonsense – anyway, we’ve already taken about a 30% drop in income at this stage, one professional, one small business owner. For some reason the government is worried about the deflationary effects of increasing taxes on us but not on reducing income for people who are guaranteed to spend it all, mostly locally. Weird, huh?
I’m forming the view that this is lining up for a much better budget next year which will cater to key groups again. Anyone got a handle on what the electoral effect of this budget, together with one next year that introduces water charges and a property tax but reduces income taxes on the middle class while doing something to cheer up the pensioners a bit? Will the unemployed flock to Fine Gael? Or will they not vote or vote Sinn Fein instead? Maybe even Labour, leaving the prospect (in theory) of an FF-Lab government? It’d be foolish to think that FF aren’t trying to angle for reelection …
My mother’s reaction to the changes in welfare and so on for the young was to ask if they expected all the youngsters to emigrate like she did in the 60s. I suspect this would suit FF nicely.
Colman,
The lesson from the 1980s is that you can’t tax your way out of a recession. Both the October ’08 and April ’09 budgets increased taxes, to no great effect, so the judgement they made was that spending cuts should bear the brunt in this round. I don’t think there’ll be much scope for reducing taxes on middle income earners in next year’s budget.
On the face of it, this budget should push FF down to single digit figures in the polls; boost Labour’s rating significantly as public sector workers move towards them as the only party that supported their unions’ overall strategy; be good for Sinn Fein too and for Joe Higgin’s chances of topping the poll in Dublin West in the next general election and produce ratings that would put Fine Gael within shouting distance of an overall majority. But that’s all theory, because it will depend on what how things go in the next few months. The 1987 Budget was decried as draconian and unfair – even though it wasn’t anything like as tough as this one and there were other factors at play – and the government of the day experienced a boost in the polls a year later when it was seen to be working. It’s too early to judge.
I wonder if anything would be revealed by an FOI request for the data that supports the notion that older people on pensions have not experienced prices reductions to the same extent as other groups. I would imagine that the biggest item that they would be relatively immune from was mortgage repayments but then so would most of the long term unemployed and those with disabilities.
I suspect Brian Lenihan was telling a porkie on that one.
@Daniel Well, my mother claims she can’t find any of these reductions in the cost of food that pundits are so fond of talking about.
@Veronica this from the the speech: “Next year, almost half of income earners will pay no income tax and 4 per cent will pay almost half of the total yield.” is awfully reminiscent of the rhetoric of the always-cut-taxes-on-the-rich crowd, which makes me worried that that’s who he’s listening to. Thus my expectation of lower taxes on the higher paid in the future. I don’t think this is a good thing.
You can’t tax your way out of a depression but I’m not entirely certain how deflating your way out of one is meant to work.
Colman, my understanding is that other groups in society tend towards the eating of the food on a regular basis too so that element of costs either up or down would be common to all. What I’m interested in is what costs have gone down for those other groups that the elderly haven’t seen.
@Daniel Old people have smaller appetites so they don’t save as much on food?
Colman,
Don’t know where your mother’s doing the shopping, but there’s been a dramatic fall in the price of food and household goods in my local supermarkets over the past 18 months. I know because I do all the shopping in this house.
Dan,
I don’t think you should need an FOI to get the data – CSO figures should have it and maybe the ESRI have some papers too. Definitely the ESRI produced a paper on the impact of social welfare cuts a while back. I don’t remember the details of what the paper was about, but now you’ve sparked my curiosity I’ll have a look if I get time over the next couple of days and post a link on this thread for you if it’s relevant. Anyway, don’t they publish the reports of the Tax Strategy Groups at some stage? They used to, a few years back.
@Veronica
Definitely the ESRI produced a paper on the impact of social welfare cuts a while back.
The impact of the tax & welfare changes in the Oct ’08 & Feb ’09 budgets are considered by Callan, Keane & Walsh, Distributional Impacts of Budget 2009, pp24-26.
However they don’t factor in the deflationary aspect.
Veronica, I will have a look at the monthly ERSI bulletin to see if it’s mentioned. I might also see about getting one of the FG TDs to ask a question of the minister to see if we can get the raw data.
Colman, if “Old people have smaller appetites so they don’t save as much on food?” then surely according to your logic they need less money in the first place to feed themselves? And I’m pretty sure that heating is a big expense for older people (talking to my parents it is at least) and the price of oil/gas has been a significant portion of that deflation we’ve seen in the last 12/18 months.
All I’m saying is I’d like to see the raw data for all the groups affected.
There’s an updated distributional impact analysis from the ERSI’s Callan, Keane & Walsh in today’s Irish Times.
P. Joe,
Thanks for the links; that was the paper I was thinking of and the update is very useful. Politicians, though, can’t be expected to let any ESRI analysis get in the way of rhetoric! Dan’s PQs idea sounds like the right way to go to clarify the facts and the political thinking behind what was done.
It’s inevitable that any budget in which expenditure cuts are the centerpiece will throw up ‘winners’ and ‘losers’. Unless it was designed by the good God Almighty, it could hardly do otherwise. Which prompts a further thought: that maybe because the impact of this Budget is diffused among so many groups, it’s hard to focus public dissaffection and media attention on any one group – unlike the over 70s medical card issue in the October 08 Budget – and this may account for the apparently muted reaction to the cuts thus far?
Veronica, I’ve passed it on and a TD will be looking at framing a PQ to try and elicit the data on this.
As for the broad based cuts I tend to agree with you that the point was to hit as many as possible so that the public mind couldn’t focus on one singular issue. Fact is had they done that last year they wouldn’t have faced the problems they did, instead the almost tentative nature of the roll back of the over 70s medical card was a nail easily hammered at.