Bud­get missed sev­eral promis­ing op­por­tu­ni­ties

The Irish Times - Business - - FRONT PAGE - John FitzGer­ald

Up to the early 1980s, the pro­duc­tion of the bud­get was a ma­jor lo­gis­ti­cal ex­er­cise for the Depart­ment of Fi­nance. Any change in the draft meant that a typ­ist had to re­type the whole bud­get speech from scratch. Given this, it was not phys­i­cally pos­si­ble to pro­duce more than two or three drafts of the speech prior to bud­get day. That con­cen­trated Civil Ser­vice and po­lit­i­cal minds.

Once the speech was agreed, a large num­ber of depart­ment staff had to run around ta­bles to as­sem­ble the hun­dreds of copies that needed to be dis­trib­uted. When word pro­ces­sors ar­rived, some of us work­ing in the depart­ment hoped they would ease the bur­den of pre­par­ing for bud­get day.

How­ever, the ini­tial re­sults were rather dif­fer­ent. New tech­nol­ogy al­lowed end­less draft­ing changes, most of lim­ited sig­nif­i­cance, which meant that there were more likely to be 33 than three drafts of the speech.

To­day, mod­ern tech­nol­ogy has greatly re­duced the bur­den of phys­i­cally pro­duc­ing the bud­get. In­stead, we have be­come used to a full range of well-for­mat­ted doc­u­ments be­ing re­leased on the in­ter­net as soon as the Min­is­ter fin­ishes speak­ing.

This year there are some 30 doc­u­ments pub­lished along­side the bud­get speech, in­clud­ing some use­ful re­views from the Ir­ish Gov­ern­ment Eco­nomic and Eval­u­a­tion Ser­vice. For this year’s bud­get, most of the de­ci­sions were clearly taken well in ad­vance of bud­get day . While, at of­fi­cial level, most is­sues bar mi­nor de­tails were re­solved early on, some po­lit­i­cal dis­cus­sions con­tin­ued right up to the last minute. The po­lit­i­cal process of reach­ing agree­ment has be­come more com­plex un­der our mi­nor­ity Gov­ern­ment ar­range­ments. A cru­cial fac­tor was that the econ­omy is grow­ing very strongly. If any­thing, money should have been taken out of the econ­omy to re­duce pres­sures and make space for more re­sources to be de­voted to hous­ing. The bud­get did not act to re­duce de­mand, but its fis­cal stance was broadly neu­tral. Min­is­ters of fi­nance should adopt the doc­tors’ motto of “do no harm”, and this bud­get largely did that.

Wel­fare pay­ments

The cuts in taxes on in­come were, ap­pro­pri­ately, very lim­ited. Higher wages will mean the av­er­age tax take will rise slightly. By con­trast, wel­fare pay­ments will rise slightly faster than in­fla­tion. Gen­er­ally speak­ing, econ­o­mists are against taxes on eco­nomic trans­ac­tions, as these de­ter the most ef­fi­cient use of re­sources. Nor­mally it would be bet­ter to in­crease prop­erty taxes, such as rates, rather than raise stamp duty on com­mer­cial prop­erty trans­ac­tions.

How­ever, the Depart­ment of Fi­nance has made a strong ar­gu­ment that higher stamp duty is more likely to dis­in­cen­tivise in­vest­ment in com­mer­cial prop­erty, and free con­struc­tion re­sources to build homes.The de­ci­sion not to raise car­bon tax and diesel tax sub­stan­tially, some­thing which would help re­duce Ire­land’s green­house gas emis­sions and move us to a more sus­tain­able growth path, was a missed op­por­tu­nity. If the Gov­ern­ment had done that, it would have sent a clear mes­sage on the need to de­car­bonise our econ­omy. Bet­ter air qual­ity would also re­sult, es­pe­cially in ur­ban ar­eas, bring­ing sig­nif­i­cant health ben­e­fits. In­stead, the Gov­ern­ment is com­mis­sion­ing yet an­other study on car­bon taxes. Since 1991, the ESRI has pub­lished an av­er­age of one such study a year. All have de­liv­ered the same mes­sage: rais­ing the tax on car­bon is a cru­cial pol­icy in­stru­ment to tackle cli­mate change. We need ac­tion, not fur­ther stud­ies.

A sec­ond lost op­por­tu­nity was the fail­ure to raise the 9 per cent VAT rate on tourism ac­com­mo­da­tion and eat­ing out. This sec­tor is boom­ing, in spite of com­plaints about Brexit. The early ef­fects of Brexit are be­ing off­set by growth in the EU and the US. Em­ploy­ment in the first six months of 2017 was up 5.5 per cent on 2016.

Restor­ing the VAT rate would have brought in €500 mil­lion more in rev­enue, which could have been used partly to cool an econ­omy in dan­ger of over­heat­ing, and partly to fund ad­di­tional worth­while pub­lic spend­ing on health or hous­ing.

The one ma­jor in­crease in ex­pen­di­ture in the bud­get is in in­vest­ment – up by more than €800 mil­lion, or 16 per cent. This re­flects the fact that the over­rid­ing bud­getary ob­jec­tive is to tackle the hous­ing cri­sis, a pri­or­ity that has been broadly wel­comed. A tighter bud­get would have been more pru­dent, given the un­cer­tain­ties ahead: by slow­ing the econ­omy, it would have given more head­room to ex­pand our hous­ing out­put with­out over­heat­ing the econ­omy.

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