An election Budget that fails families

If it looks like an election budget, if it sings like an election budget, if Leos’s choir cheers it like an election budget, well then it is an election budget.

As I listened today I couldn’t help feeling a sense of déjà vu.

It was Minister Pascal Donohue who was delivering the speech but it is the voice  of my former College classmate Charlie McCreevy that came through as if we were back to the grand old days that we had foolishly thought to be banished forever.

I wonder how that former Minister is feeling today as he listens to Minister Donohue performing as the lead singer of a McCreevy tribute band blasting out his golden hits notably his Top of the Pops sensation When I have it, I spend it.

Budget prudence goes out the window when there is an election in the air.

Make no mistake :

the echoes of the crash a decade ago can be felt today and it seems that the current crop of Ministers are determined  to pretend that it could not happen again on their watch while all around us there are unmistakeable signs of future turbulence , not least the near certainty that the days of miniscule interest rates are slowly coming to an end.

I wonder do the Minister and the Taoiseach ever even glance over the grim document from late 2010 when the troika arrived to impose its dire programme. The original outline budgets sketched out then contained quite vicious interest rates that would have involved many billions of interest payments on the troika loans. Fortunately, the last Government did manage to secure substantial reductions which enabled an early exit from the troika’s grip and an independent capacity to raise funds at remarkably low rates due to a change of European Bank policy.

But these rates are temporary and it would be illusionary to think that the annual interest burden, already very high, will remain stable. Everything in this budget is built on that illusion that the cost of servicing debt will remain stable when all the evidence points to the opposite.

Surely the primary lesson of the events a decade ago should be to avoid the pretence that sudden windfalls of tax revenue can provide the basis for spending commitments that last far beyond the lifespan of the goose that lays golden eggs for a short period.

So it was a decade ago when low interest rates lured a delusional government to build in property tax shelters into the income tax code with catastrophic results of boom and inevitable bust.

What a price we have had to pay for those delusions.

Lost jobs, lost dreams, lost lives, a lost decade.

Yet it seems that those hard -learned lessons are to be casually ignored for no other reason than to gain political popularity.

Tax

The Comptroller and Auditor General has done us a huge favour by highlighting the startling finding that some of Ireland’s richest residents have a taxable income of less than the average industrial wage, with many paying income tax at a lower rate than the average taxpayer.

I wasn’t surprised at this report.

When I hear lobbyists urge Ministers to have a low tax system I know what they really mean is to have a NO tax system for their clients.

There was a similar outcry over a decade ago when my own research highlighted a scandalous situation where some people with declared income in excess of a million euros managed to reduce their tax bill to zero by the skilful use of the now notorious property tax shelters.

It was impossible for the then Minister Brian Cowan to allow this to continue so reforms were introduced to limit the use of such shelters so that everyone paid a minimum effective tax no matter how many reliefs were available to them.

That reform paid dividends then and still produces excellent results according to recent Revenue reports.

I suggest that the notion of minimum effective taxes has still a lot to offer even in the cases of so called high new worth people who declare remarkably low incomes.

We know the old saying: Justice must be done and be seen to be done.

The same has to be true in the tax code.

Tax Justice must be done.

Tax Justice must be seen to be done.

The doctrine of minimum effective rates of tax is a valuable tool to achieve that end.

So too with Corporate tax.

Again, the C and AG has come up with valuable data on how different companies, foreign and domestic, approach taxation with some effectively paying a zero rate while others pay close to the headline 12,5 % rate.

This special corporate tax rate has proven to be a valuable instrument to attract foreign investment but it should not become a sacred cow in policy making.

Some companies systematically use various mechanisms to reduce their exposure to taxation to the barest minimum even to zero.

We can still retain a competitive edge in the market for foreign direct investment while insisting that companies here pay an effective tax rate perhaps 6 or 8%.

That would offer stability in the assessment of future tax yields rather than the current system of windfalls some years like this year but financial droughts on other years.

The Minister will boast of the extra personal allowances that raise the threshold for the higher tax rate.

Yes: that will be welcome to those on low and middle incomes but he knows as well as I do that wage and salary increases will eat away at the benefit very quickly through the notorious fiscal drag. This happened last year as workers found that the share of their income that went on taxation actually increased despite last year’s similar increase in allowances.

Ministers should be careful in their boasts about lower taxes. When reality bites it leaves a sour taste.

Health

I want to comment on the health Budget, that most voracious user of tax euros, a financial black hole if ever there was one.

I have to confess I gasped with amazement when Minister Donohue casually revealed last week that he had a windfall of a billion euros from corporate taxes this year and that he proposed to devote no less than to cover the Health overspend in 2018.

The Minister for Health is fond of his Instagram and Twitter accounts. ‘Please make it stop’ was one of his gems.

Well now this is exactly what taxpayers want when they observe the annual weary announcements of health overspends which have become a truly farcical feature of Fine Gael’s tenure in that Department.

How did the Taoiseach allow this to happen again though he himself was as much the culprit during his own dismal occupancy of Hawkins House.

How do other Ministers tolerate it as they face tight restrictions while Health gets a free pass?

I recall one year when I had nursed the Social Insurance Fund back from a €2 billion deficit to solvency. It appeared that October that I would have the funds to restore some valuable dental and optical benefits to PRSI contributors.

But Health was in crisis and needed every cent from my Department and from others too to avoid a total services meltdown and all my carefully laid plans bit the dust.

This farce has been repeated year after year.

In just 4 years the cumulative health overspend amounts to a eye watering €2 billion. In 2015 under a certain Minister Varadkar it was €600 million and subsequent years were not much better.

One could forgive it if there was a tangible benefit to be observed in better health outcomes, more operations, less trollies, expanded health promotion.

But not a bit of it.

Slaintecare is the joint project of all sides in this House. How can it proceed if financial projections in Health can’t even be accurate for months ahead let alone years?

The danger here is that a culture of indifference to financial controls sets in and managers shrug because no one, least of all the responsible Minister, is held to account.

If a Minister cannot do the job and deliver targets he or she should be shown the door and that goes for the current incumbent too no matter how many admirers he has on Instagram.

Climate Change

While today’ debate is focussed on the specific measures announced today, they actually only involve a rather small, even tiny, percentage of the total income and expenditure of the State for 2019.

The full picture is about €70 billion or more and you only get a true view of public spending priorities by digging deep into aspects of the Budget that get no attention at all in the Minister’s speech.

One feature of policy that ought to command attention is the continuing challenge of climate change because there can be no doubt now that that is a fundamental matter that will affect every aspect of economic and social life for decades to come.

You wouldn’t believe that from all the attention this gets today from the Minister.

He has cravenly given into the vested interests that object to carbon taxes.

This a is an entirely spineless capitulation that will mar his reputation for a long time to come.

Irish households create astonishing amounts of carbon emissions, way higher than most other European households.

Carbon taxes are a form of nudge incentive, well established means of coaxing a change in behaviour and attitudes.

The plastic bag levy worked and was widely imitated.

We should know what Ministers kiboshed the well flagged idea that carbon taxes would be a key ingredient in the campaign to reduce domestic emissions.

Name them and shame them because any procrastination will cost this State a pretty penny in years to come. 

June 2018 was the driest month in the Phoenix Park for well over 100 years.

We have just experienced a remarkable and memorable Summer following an eventful winter of storms and snow.

Long established weather records have been broken in a very short period of time and inevitably this gives rise to difficult questions about our level of preparation for the kind of tumultuous climate change that has been predicted by scientists for many years.

The plain truth is that Ireland has been way behind the curve in recognising weather and climate challenges. Even the Taoiseach has candidly admitted that our country is, by international standards, a ‘laggard’ when it comes to meeting agreed targets to reduce the kind of emissions that contribute to extreme weather events.

Future budgets will have to set aside many hundreds of millions to pay inevitable fines for non -compliance.

It is true that the National Plan does commit substantial resources to dealing with this matter in future years but I remain sceptical that any genuine sense of urgency exists to drive the necessary changes in all kinds of areas from farming practices to transport.

For example, we urgently need to fast track the upgrade of water infrastructure both to guarantee supply and to eliminate the shameful contamination of our beaches and rivers.

Have 2018’s dramatic events influenced the investment decisions in today’s Budget?

I was glad that the Nobel Committee decided yesterday to recognise the ground- breaking work of 2 economists who have analysed the impact of climate matters on the world economy.

By coincidence the prizes have been awarded on the same day as the International UN panel of climate delivered its starkest forecast to date. With brutal clarity it pinpoints the areas where remedial action can be taken by Governments acting both collectively and separately.

Unfortunately, the gap between the work of scientists and economists on the one hand and politics and policy making on the other has widened.

The latest forecasts will fall on deaf ears in the current White House but that should not hinder other countries and the EU in particular from pursuing policies on energy, food production and weather protection measures that recognise the importance of policy changes in this area.

If anyone has doubts of the long -term impact of dramatic weather events they should go to any coastal county in Ireland to see already at first -hand what could be in store for this and- future generations.

My own constituency is not coastal but it is part of Fingal County which is most definitely coastal. Any development plans for these districts have to recognise how events like Storm Ophelia this time last year can produce a lasting impact on the local environment.

A brief visit to Portrane will bring some home truths to even the most hardened sceptics.

I know the National Plan has loads of flowery paragraphs about this challenge and umpteen billions are allegedly earmarked to deal with it.

Remember this: Fine words butter no parsnips.

If there were to be a Nobel Prize for climate procrastination I guess Donald Trump would win easily but this particular Government would give him a run for his money.

Child Benefit

For yet another budget Child Benefit is ignored. I find this incomprehensible.

For most families in Ireland child benefit has long been a valued addition to the family budget helping to pay for food, clothes, shoes, and all the costs that come with babies and teenagers.

Child benefit is currently paid at a rate of €140 per month per child. It is paid in respect of nearly 1.2 million children to over 620,000 families

It is paid regardless of whether parents are in work or out of work, whether we are talking about a couple parenting together, or one parent looking after their children on their own.
In Ireland the cost of rearing children is not recognised in the tax code.
So, Child Benefit is our unique way for the State recognise some of the cost of rearing children.

I hope this Government has not set its face on a policy to erode the value of this benefit. There are many working parents of modest incomes who greatly value its role in managing a family budget. They should not be ignored

Living Wage

A Budget Debate offers a rare opportunity to look under the bonnet, so to speak , and see some features of the economy that can often be hidden from view but have a significant impact on the lives of people.

We talk here a lot about taxes.

I think we need to talk just as much about wages.

Recently we have thankfully witnessed many consecutive months of net jobs growth, an exceptionally long such streak of reduced unemployment.

That, in itself, is undoubtedly good news and is a vindication of the relentless focus on jobs that my party pursued in Government.

The growth has brought the official unemployment rate down month by month.

And labour force participation, which counts the number of people working or actively seeking work, is also ticking upward.

That indicates that people who may have given up on finding a job are starting to return to the workforce.

Despite the sustained job growth there remains a deep dissatisfaction that the recovery has not been adequate to meaningfully boost the fortunes of ordinary families.

One reason for such deep public scepticism is that wages have yet to grow substantially in line with the growth in jobs and indeed in line with growing productivity.

So, people are deeply disappointed with the sluggish wage growth, because their expectations have risen after years of consistent job growth.

Now, in the 4th or 5th year into the official recovery, working people are justifiably less patient and no miniscule tinkering with tax rates will alter that until the longstanding stagnation of wage rates is tackled.

It seems that we have gone a long way to deal with the job quantity issue but we have lagged too far behind on the quality issue.

The gender pay gap has finally and belatedly come to the fore and needs a sustained sector by sector effort to close off this running sore.

In more general terms we should recognise that workers are fully entitled to obtain a greater share of the fruits of quite dramatic levels of economic growth.

To ignore this is to tolerate every greater and wider inequality and all the social disruption and strains such inequality brings.

Interestingly the IMF itself has come to recognise how inequality in incomes is now a serious barrier to economic progress in advanced economies.

The evidence is stark:  excessive income inequality actually drags down the economic growth rate and makes growth less sustainable over time.

We need to take this evidence on board and recognise its profound significance for wage policies and tax policies.

I want to make the additional point that a sustainable wage boost can encourage workers to make better provision for their pension pots. I am a strong advocate of auto enrolment in private pension schemes but that can be realistic only when workers have the capacity through better wages to save adequately for pensions.

There are now annual reviews of the minimum wage but I now feel this is inadequate.

It is the living wage that should be the focus in all policy making. It is a well -researched concept based on firm evidence and it properly incorporates all the elements that enable an acceptable standard of living.

Development Aid

I want to refer briefly to the budget allocation for International Development Aid.

The Taoiseach has been eloquent on his travels about Ireland’s Global Footprint.

It is a worthy ambition and has wide political support as does the decision to campaign aggressively to secure a UN Security Council seat.

It has to mean a lot more than Irish embassies and consulates in Tuvalu and Timbuctoo.

It also must involve a critical look at the commitment to reaching the UN Development Aid target of 0.7 % of GDP each year and also to ensure that Tax treaties cannot be abused to enable widespread corporate or individual tax evasion.

The gradual move towards the 0.7% did have to be postponed during our painful retrenchment period though many hundreds of millions were allocated annually even in the worst of years. Last year the cash allocation amounted to over €700 million.

Now is the time to set out a clear and obligatory timetable lest our diplomats have to embark on their vote seeking travels with one arm as long as the other.

War, conflict and climate change have caused immense suffering famine, drought and population displacement. Over 128 million people in 33 countries are currently in need of urgent humanitarian assistance, and over 65 million people have been displaced from their homes by war and conflict.

I worked myself in Tanzania for some years and I went back there last year on a private visit. I had the opportunity to spend some time visiting some very innovative and interesting projects financed by Irish Aid.

Some of these involve very modest financial contributions but do produce excellent results in health care and other fields.

There is, for example, a marked improvement in the treatment and prevention of malaria in Africa. So too with childhood TB and polio.

As GDP increases at a steady clip so too must Ireland’s aid budget. If Ireland boasts of some eye- catching economic growth figures then it follows automatically that the Aid Budget must increase correspondingly both in cash terms and in the percentage of GDP also.

It will mean that the Aid Budget will hit €1 billion quite quickly.

I recognise that this is no easy task and will require careful planning and financial management to secure value for money and good outcomes for the people and communities most in need. Good governance and independent oversight are always important especially when budgets increase rapidly. Apart from the moral issues involved there are definite practical and political advantages for this country in a more active role in this area.

Conclusion

All budgets to some extent are political statements.

This one takes the biscuit as one of the most nakedly political and election budgets I have experienced in my time here.

Every sentence is designed to secure party advantage more than any other purpose.

Those who don’t learn from History are doomed to repeat it.

But it is the people who will pay the price.