Budget 2018- Exposing the shallowness of the current Government

This article appeared in the October, 2017 edition of Liberty.

For all the talk about providing for future generations and prudence in the face of Brexit and other risks, Budget 2018 was about “keeping the recovery going”- a crude stimulus that saw small amounts given to most people at the expense of bringing about real change in those areas that need it the most. Budget Day is the main opportunity in the legislative calendar for Government to signal how it intends to tackle the major problems of the day. Faced with a housing emergency and an interminable funding crisis in health, by and large, the FG, FF and Independent coalition opted to do more of the same.

With a budget of just over €1.2bn, Budget 2018 brought the prospect of real progress in health, housing and childcare no closer- in the main, it was a case of more sticking tape to temporarily alleviate ongoing problems. Despite all the hype, housing received less than 10% of new expenditure funding available in the Budget. Almost all of the €610m increase in Housing expenditure had already been provided for and pre-announced. In Health, there was no mention of the cross party Slaintecare 10 year plan and funding to outsource the waiting list backlog to the National Treatment purchase fund was more than doubled. The Childcare sector is in the midst of a recruitment and retention crisis due to unsustainably low pay and yet capitation barely increased by 7%.

At best, Budget 2018 reflected a big failure to understand the needs of the Irish economy and society at this point in time.  At worst, it showed up the hands off, non interventionist instincts of Fine Gael and their acolytes. Minor concerns about the economy overheating and the level of national debt were trumped up to justify smaller than necessarily investment into infrastructure and housing. There was window dressing with regard to fiscal prudence by shifting €1.5bn out of the potentially productive Irish Strategic Infrastructure Fund into the Rainy Day Fund. Claims that Ireland’s public investment will reach international norms by 2019 rang hollow when put in the context of the catch up that is required.

In effect, the role of the capital expenditure budget is entirely different to the current expenditure budget. It must meet pent up demand; significant in 2018 given that capital funding was filleted to about less than half of boomtime spending by 2012. It must be sufficient to maintain existing stock; the Fiscal Advisory Council (June, 2017) estimate that about half of what is planned between now and 2021 will go to covering depreciation and thirdly, it must meet future demands. The Irish population is expected to grow by 1.1m people over the next two decades. Despite all this, the capital budget is expected to grow by less than half that of the current budget in 2018.

This Budget was supposed to be about improving people’s living standards. Yet Government committed over a fifth of its additional resources to ensuring that a single person on €20,000 would get an extra €1 per week. Those who are self employed and on double average earnings will get 10 times that per week.

Ireland’s income tax system does have a problem in terms of fairness and simplicity. Amongst OECD and EU countries, higher income tax rates are typically paid by higher income earners. Wage growth has meant that those on average earnings in Ireland have experienced a fiscal drag- tax thresholds have not moved in line with wages. What gets lost in the debate is that Ireland currently has the lowest tax wedge for a worker on average earnings amongst the 21 EU countries in the OECD- it is the gap between what the employer pays out (pay & PRSI) and what employees receive in terms of take home pay. This matters in the context of “giving something” back to workers.  Living standards cannot be solely defined in terms of what is in people’s pockets- if the Government are really interested in prudent management of the public finances, then allocative efficiency must be a priority and that means targeting resources at public services, not people’s pockets.