They’ve thrown big money – but few ideas – at crisis-hit health and housing
IT WAS billed as a housing and health Budget, yet there was an acute shortage of new ideas on how to really deal with the problems in either crisis-hit area.
Finance Minister Paschal Donohoe has used the State coffers, brimming with USC, income tax and corporation tax receipts, to throw more money at both problems, but little else.
On housing, he allocated €2.3bn to the housing programme for next year, an increase of €470m. He has allocated €1.25bn for the delivery of 10,000 new social homes next year, through a combination of buying existing houses, leasing existing houses and building new ones.
The State is already spending €500m a year on various rent and housing supplement payments which mainly go to private landlords. Housing Assistance Payments paid to private landlords will increase by another €121m next year.
So the State is subsidising the payment of record rents to private landlords while also entering the market to buy houses at what are very high prices.
The minister failed to catch the mood and anger around housing when he summed up this social calamity by saying it is “not where we want to be”. The real underlying problems of developer land hoarding, bureaucracy and higher building costs all remain.
The plan – which has now been scrapped – by one of the country’s biggest private landlords, IRES, to hit tenants with 25pc rent hikes in a so-called rent control zone, showed how shambolic those measures have been.
Yet, there was nothing in this €1.5bn budget package for the hundreds of thousands of working people paying the highest unsubsidised rents on record.
The €310m spending commitment to help local authorities get sites serviced and ready for affordable housing is welcome, but only if the bureaucracy and inertia around projects recedes and these houses actually get built quickly.
Before looking at health spending in 2019, what about health spending in 2018? A €700m budget overspend this year can be plugged by a one-off €700m corporation tax windfall. It seems changes in international accounting rules may have helped Simon Harris keep his job.
Without this business tax lift, a supplemental health budget bailout would have come out of somewhere else.
The Department of Finance and the Revenue knew these accounting changes were coming and could have guessed some time ago how much the windfall was going to be.
Next year, the health budget will go up by more than €1bn, bringing the increase in just two years to €2.25bn or 15pc.
Perhaps such spending levels are needed. Perhaps they won’t be enough to fix the problems in health. Perhaps the problem isn’t money at all but how it is spent and the need to pursue value for money. Throwing that level of new cash at the health service without real reform is highly questionable.
Mr Donohoe has prided himself on fiscal prudence. He has always insisted on maintaining discipline and not letting spending get out of control. He pointed out how the 20pc increase in current spending between 2014 and 2019 will be a lot lower than the 57pc increase between 2004 and 2009.
It was a cut at Fianna Fáil but hardly a useful comparison given that 20042009 marked a period of unprecedented recklessness in Government spending.
The big question is whether we can afford the
spending increases and whether the additional money spent will deliver solutions to some of the key problems facing people in this country.
As things stand with corporation taxes due to hit €9.5bn this year, very low unemployment and solid growth, we can.
But how long will it last. Bear in mind the State will still borrow some money in 2018, a year of nearly full employment, the highest growth rate in the EU and an unexpected €1.1bn extra corporation tax take.
If the Government overspends on its health budget next year, there won’t be a one-off €700m windfall.
The Government has insisted that international corporation tax changes will not undermine our foreign direct investment successes. Yet in his budget speech, the minister moved to close off further loopholes in our tax system as a way of keeping pace with the growing intolerance internationally towards corporate tax avoidance.
He announced an obscure exit tax mechanism on companies planning to shift assets or companies abroad. Perhaps more importantly, he announced a review on how transfer pricing operates here.
Transfer pricing is a very complicated system which can be used for the tax benefit of multinationals on a grand scale. A review could prompt further concessions that can chip away at our investment offering.
Throw other factors into the mix – such as the IMF’s conclusion that global economic growth is starting to plateau, oil prices are on the rise again, Brexit is coming, the era of low interest rates is winding down and cheap Government debt may be ending.
To some extent, Mr Donohoe and his predecessor, Michael Noonan, were lucky generals in the finance portfolio. External economic forces outside their control have continued to go in their and our favour.
They may not for much longer.