Roll up for the great Budget day magic trick
How Paschal Donohoe’s sleight of hand on Tuesday will leave us much worse off
The Government will unveil its 2023 Budget on Tuesday like a magician who knows all the tricks in the book. Finance Minister Paschal Donohoe will have plenty of magic illusions and rabbits pulled out of hats at the last minute. But at the end of the day, just like every magic show, it’s all an illusion.
It will leave us no better – and probably worse – off.
Mr Donohoe will pretend to announce the greatest giveaway of all time worth many billions in extra welfare payments and tax breaks.
But all he will probably be doing is giving back some of the many billions that’s pouring out of our pockets into State coffers as inflation runs amok.
If past years are anything to go by, his biggest trick will be to ignore inflation and pretend he’s being generous with increases that probably won’t even match it – and therefore leave us worse off.
Government spending this year is €97bn a year and inflation is 8.7%. Do the maths – splashing out even €8.4bn would just keep pace with inflation, leaving us no better off.
All he will do is give us back some of our own money to partly offset rampant inflation. And unless he pops a truly colossal rabbit out of his hat, we will probably end up worse off.
Many want to see the whole tax and welfare systems automatically linked to inflation so the politicos can’t conduct an annual charade of ‘fake giveaways’ that don’t take inflation into account.
If they do link them, I’d welcome it from the rooftops. But there seems little chance of them changing their lucrative tune.
The ESRI think tank’s director Alan Barrett told The Irish Times recently that the body had long used indexation as the ‘appropriate’ starting point for modelling budgetary processes.
But tellingly, this didn’t go down well with Government ministers.
‘In my years as director of the institute, this was one of the most problematic and contentious issues ever,’ he said.
Politicians ‘used to get extremely frustrated when we talked about indexation’, because it had the capacity to make their budget day largesse
‘look less generous’, Mr Barrett added.
Translation: let’s keep pulling the wool over their eyes. Here are some tricks to watch out for:
TAX
Mr Donohoe might increase the rate at which we pay the top rate of tax – perhaps by €2,500 to €39,300.
That would ostensibly ‘save you’ €500, a nice round sum – but it won’t really with inflation at 8.7%.
Wages are predicted to rise by 5%10% this year. Unless the tax bands also rise in line with inflation or wages – by between €1,840 and €3,680 – workers lose out.
They get pay increases in line with inflation that don’t leave them better off in reality.
Unless the tax band rises in line with it, they might move into a higher tax band anyway despite having earned no more money in real terms.
The Revenue Commissioners tells us exactly what it costs to index the tax system for every 1% rise in prices in its Ready Reckoner for Budget 2023. It shows that if we just want to stand still and have no change in our taxation, the Government has to ‘spend’ €2bn on tax measures.
So even if it spends €1.8bn on tax ‘cuts’ – the biggest figure yet mooted in the run up to the Budget – we’d still end up worse off.
WELFARE
The social welfare spend for 2022 is €23.3bn. So trumpeted the Department of Social Welfare after last year’s budget of ‘fiver’ increases.
It sounded great at the time. An extra fiver in your pocket! A total of €870m extra spent on welfare. Whoohoo! That’s a lot of money. Only it’s not. It’s not nearly enough.
And it never was likely to be.
Because it doesn’t take inflation into account. That €23.3bn welfare spend is really worth just €21.3bn in last year’s money.
So we got over €1bn less than 2021 – and not €870m more as the Government claimed. Let’s say you’re a contributory pensioner who got €248.30 a week last year.
After a fiver increase, you’d get €253.30. But inflation gobbled up 8.7% of your pension’s value compared to the same time last year.
So it’s really worth €232 – €11 less than last year and not a fiver more.
Even after a Christmas bonus, you’d still be worse off.
And remember that bonus is a once-off; it doesn’t permanently boost core welfare rates.
So let’s look ahead to Tuesday’s Budget.
The latest speculation was that we’d get a tenner on social welfare.
Maybe they’ll pull their usual trick and reduce expectations – and then
‘pull a rabbit’ out of the hat and ramp that up to €15 with great fanfare. But even then, they’d still be giving us sub-inflation increases.
EDUCATION
One of the meanest budgetary tricks is the way the State deliberately underfunds schools.
Education is meant to be free. But they get around that inconvenient constitutional blip by forcing teachers and school administrators to hassle parents for a ‘voluntary contribution’ to meet the balance.
And believe me, these contributions’ are anything but voluntary.
School bills are soaring now with inflation and energy costs rampant.
A major increase in the capitation grant was signalled which will ease the burden.
But it won’t go far enough in making up for years of underfunding during which schools were paid as much as a ‘Snickers bar’ per pupil, as one angry teacher memorably noted.
School administrators and parents are united in condemning this despicable trick and want a 50% increase in capital grant per pupil and index linking of future payments to inflation.
They might get the former, but Government will fight tooth and nail not to lose its annual inflation ‘trick’.
ONCE-OFF MEASURES
Another cheap trick that relies on inflation to hoodwink us is the raft of once-off measures that are starting to proliferate.
Once-off energy payments might be okay as long as energy prices fall next year.
But welfare and pension increases should be made to core rates rather than one-off payments and Christmas bonuses.
Once-off payments disappear, while core increases are automatically built in – and built upon – every year.
This is vital to fight inflation, which is not a once off.
This year’s erosion in the value of our money is continuous and will hit us forever more.
STEALTH TAXES
The Government has a raft of stealth taxes. To name but a few, there are levies on insurance, health, energy and no fewer than three on credit unions that are simply passed on to members indirectly.
Right now the Government’s stealth taxes are automatically rocketing in line with rampant inflation, making them handy for taking money surreptitiously from our pockets.