BILL TYSON
There wasn’t a lot to give away – but Noonan did a good job making it count
MICHAEL Noonan pulled off a tricky balancing act with Budget 2016. He gave the appearance of distributing a wide range of goodies – yet didn’t break the bank on spending.
Next year, the Finance Minister will borrow over €1billion to fund tax cuts and spending worth 1.2 per cent of our GDP.
That sounds a l ot, and it is borrowed, but it’s lower than the expected figure of 1.4 per cent, which would have bought a bigger bag of goodies. This seemed to wrong-foot some of the Opposition. Should they criticise Noonan for spending too much – or too little?
There wasn’t a lot of money to give away and the minister did a good job in making it count. He targeted the self-employed and the monster that is USC.
PAYE workers have been getting a hefty form of tax relief that up to now was denied to the self- employed: a €1,650 tax credit that’s worth that much into their pocket. PAYE workers also get jobseeker’s benefit and allowance – which are generally denied to the self-employed too.
Now, at least, there is the beginning of equitable treatment for the selfemployed with the gradual provision of a new tax credit – starting at €550 – even if they don’t get equal social welfare treatment this year.
USC is a brutal tax instrument. It was perfect for grabbing as much money as possible during the years of austerity by cutting through all the fairness built into the tax system through allowances to grab money from your gross income.
It accounts for 25 per cent of all income tax – and almost as much as corporation tax, so it will be hard to dismantle. But with the USC cuts amounting to nearly €750million in a full year, this is a good start with meaningful cuts to the main rates.
Mr Noonan dipped into the usual bag of tricks used by finance ministers to fool us into thinking they are better magicians than they really are:
Tax credits and allowances weren’t increased in line with wages, which is a hidden cost to taxpayers that offsets gains.
The biggest tax increase – more than 50c on fags – was €75 million targeted to come from extra compliance. This is a bit insulting to the Revenue Commissioners, implying that they weren’t doing their job before but will do so now just because the finance minister says so!
The Budget tax tables show increases of €700-€900 to the annual incomes of the very low paid. This is almost entirely due to the increase in the minimum wage from the pockets of sundry employers.
Finance Minister Michael Noonan may have crafted a Budget that treads a fine line between prudence and throwing borrowed money around like confetti. But his throwaway remark that everyone will gain ‘a week’s wages’ must have been a spur-of-the-moment flyer as it doesn’t quite ring true. Half a week is closer to the mark.
The near €1,000 increase in the USC threshold to €13,000 does take more than 40,000 very low-paid workers out of the tax net.
But as these earn around the same as they would get on jobseeker’s benefit, they should never have been in any tax net anyway. A little further up the pay scale, and Budget benefits get more paltry.
A single PAYE worker earning €25,000 a year benefits least from the tax changes in this category, and is just €227 a year better off.
The gain gradually increases up to €900 a year for a single person on €70,000 who will be €902 better off, a figure that also applies to all incomes after that.
So the Budget, due to percentages, favours the better- off in real-money terms and the tax changes in themselves don’t help the lower paid by much, although the minimum wage increase does.
Will this get people who are better off on the dole back to work? It certainly helps, but there’s further work to be done here.
On social welfare, the Government has got away without increasing basic social welfare rates yet again.
Fictional Dublin 4 icon Ross O’CarrollKelly’s father once approvingly referred to the Lotto as a great way to get back dole money. Mr O’Carroll-Kelly would also approve of the new system pioneered by this Government of awarding social welfare increases.
Instead of giving meaningful perma nent rises, the Government awards a ‘Christmas bonus’ instead.
It can therefore clap itself on the back for bringing families festive cheer, while not actually giving that much money away.
The 75 per cent Christmas bonus in
social welfare means recipients effectively get three quarters of a very meagre weekly income as their reward for putting up with austerity.
The Christmas bonus for someone on jobseeker’s allowance is worth €164 – or an income increase of 1.4 per cent a year.
Peggy, a fictional retired 71-year-old in the Department of Finance’s case studies, gets a bit more thanks to a €3 weekly pension increase. Her budgetary gain is €221.
Ross O’Carroll-Kelly’s dad won’t be the only one who would approve of reining in welfare increases in this way.
When you include all of the other benefits available through welfare, such as housing and medical cards, the Irish welfare system ranks among the world’s most generous.
It’s seen as a key disincentive to people returning to work on low incomes, who were one of the main targets of this Budget, so I suppose this tactic is in line with Government policy.