BUDGET 2018 – Much Ado About Nothing

Introduction

The Minister might well have looked to Shakespeare’s plays to provide him with a title for his address today.

‘As You Like It’ would, I guess, be his first choice, a nice romantic tale to please the punters, something, however small, for everyone in the audience.

Now that a few hours have passed my own judgement would lean towards Much Ado about Nothing as a more apt title for today’s less than dramatic offering.

Last Saturday’s White Paper reveals a total spend, current and capital, of close to €60 billion.

Today we devote a whole day to dissecting plans to add about another billion to this. Today, the discussion is about 1 billion out of €60 billion, all this fuss and argument over not much more than 1% of the total.

We have been stuffed to the gills with rhetoric today and bloated promises about jam tomorrow based on optimistic scenarios of perpetual growth that could blow up in everybody’s face if Brexit goes horribly wrong.

The big boast today is we have a balanced budget for the first time in a decade. I’m not as enamoured of this as the Minister and Taoiseach are.

First it is an obligation of current European rules rather than a specific decision of an Irish Government. Secondly the incorporation of capital investment spending in the total distorts the picture and we should join with other States in having this policy adjusted to enable specific investment projects to be outside the deficit calculation.

This Budget is framed by the past, and seems set on repeating some of the mistakes

We are now ten years on from the eve of the financial crisis

It started in September 2007 with a run on Northern Bank. In his budget of that year when Brian Cowen was Minister for Finance and defiantly proclaimed that “the fundamentals are sound”

The previous Minister for Finance who relied on stamp duty revenue

He used it to pay for tax cuts and permanent spending increases.

His name was Charlie McCreevy.

Those policies of unsustainable tax revenues laid the foundations of Ireland’s ruin.

Today unfortunately the Minister for Finance has been tempted to travel down the same path.

He has raised €400 million from a 4% increase in non-residential stamp duty to pay for tax cuts and spending increases

Have we learned nothing from the past?

A budget framed on transactions in the volatile Irish property market.

Laying the foundations of future crisis

One of the central lessons for Ireland from the crash was not to rely on transaction taxes on property to fund tax cuts and increases in current expenditure.

I understand the context of the Minister’s actions but here we are today as history repeats itself

The Charles Dickens character Mr Micawber viewed a balanced family budget to define total happiness while even a trifling deficit was the cause of total misery.

A homeowner could be thrilled if he or she balanced income and expenditure.

But what if the roof of the family home was leaking or the house needed spending on better windows to retain warmth.

I don’t cheer a balanced budget as a great virtue at all at a time when there are such yawning gaps in our nation’s roads, railways and communications not to mention the blatant failures to meet basic targets for climate change and renewable energy.

Last week the NTMA was able to sell bonds at a negative interest rate. These low rates will not last forever and sometime in the future we will look back and wonder why we didn’t fix the roof when funds could be borrowed for sensible capital works at very modest rates.

I was pleased that the Minister did a sensible thing by paying back funds borrowed from the IMF and other sources during the bail out and replacing expensive debt with cheaper bonds.

Personally, I think he should have gone further and cleared as much of high rate legacy debt as possible at an accelerated rate

I know the accumulated cost of debt service is a heavy annual charge but an antiquated infrastructure imposes an equally heavy burden on the people and indeed on the economy and limits our capacity as a nation to solve our housing and health needs.

Wage Stagnation

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 close to 5 percent — low by historical standards.

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.

The big question, however, is: Why isn’t the public mood more upbeat about the economy?

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.

Christine Lagarde, the leader of the IMF had these words to say in Brussels last year

“You do not have to be an altruist to support policies that lift the incomes of the poor and the middle class. Everybody will benefit from these policies, because they are essential to generate higher, more inclusive, and more sustainable growth

“In other words, if you want to see more durable growth, you need to generate more equitable growth.”

She went on to cite IMF research which shows that if you lift the income share of the poor and middle class by1 percentage point, then GDP growth increases by as much as 0.38 percentage points in a country over five years.

By contrast, if you lift the income share of the rich by 1 percentage point, then GDP growth decreases by 0.08 percentage points.

“Our findings suggest that—contrary to conventional wisdom—the benefits of higher income are trickling up, not down.

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.

His critique identified a root cause of familiar troubles: wage stagnation and skyrocketing health and education costs, against a backdrop of runaway income growth for the one percent and record corporate profits.

One of the most disappointing features in budget was the failure to address child benefit for second year in row

First of all let me say while welcome the increase of €5 is in fact €3.85 due to the postponement of the increased payment for 12 weeks

What has the Minister and this government got against children over 5 and Child Benefit?

This is second year in row

In the tables in the budget 2 of the case studies

Pamela the plumber

Sorsha & Ann Marie

See a miserable 0.9% increase in their income in the budget because they have children

Now I understand government logic they are targeting pre school but children over 5 are expensive too particularly teenagers as we all know

Children and cost of children are not recognised in our tax code

Child benefit is the only recognition and that is paid directly to the caring parent usually the mother

This is second year in row government fail to increase child benefit which is enormously important to people of low & middle incomes

I welcome increase €2 in child dependent allowance to people on social welfare I am hugely angry that people with children in work are ignored yet again in failing to raise child benefit

Financial Transaction Tax

One disquieting feature of the budget arithmetic is the inbuilt reliance on temporary windfalls that regularly flatter the exchequer returns even though there is no security that they will continue.

The money raised this year from the AIB sell off is a case in point. Another is the annual transfer of Central Bank profits to Finance which has been quite a tidy sum for the past number of years largely due to the sale of the Anglo promissory notes.

The amount of cash that will come from that source will inevitably fall in future years and could give rise to a gaping hole in the national balance sheet.

All this points to the need to look for future flows of income that are not dependent on windfall returns.

Ireland’s tax base is altogether too narrow to deliver the revenue a modern society with a socially progressive purpose requires.

Like many citizens I was disturbed by the boastful claim of the AIB boss that his bank would not have any tax liability for decades due to the loss offset rule that enables companies to reduce and even eliminate all taxes if they have accumulated losses carried forward.

That is a legitimate use of a long- established tax rule but it cannot mean that a profitable bank has no contribution to make for many years into the future.

I want the forthcoming Finance Bill to set out clearly that all financial institutions will have to pay their proper share by whatever means necessary through levies or otherwise.

I want to argue too that now is the time for proper consideration be given to joining other European states who wish to impose a Financial Transaction Tax.

I was hesitant beforehand of proposing this while London was a major financial centre which could draw business away from Dublin.

Sweden’s previous experience of a go it alone transaction tax was a salutary reminder of how mobile finance capital is.

But now London has diminished in importance as a world finance centre because of Brexit.

A group of EU countries including Germany and France have indicated support for this measure and I think we should join them now to advance the proposal as a common tax measure.

I emphasise that a financial transaction tax is a very low tax of, for example, 0.01 per cent, on each financial transaction that is 1 percent of 1 percent.

Any purchase or sale of shares and bonds, any trading in a derivative or currency should be taxed at this exceptionally low rate.

A financial transaction tax would be a deterrent to highly speculative transactions, with very rapid trading and only minimal profits.

This speculation would be less attractive with such a tax.

There is also a need to pursue other regulatory measures such as the restructuring of the banking sector and the prohibition of speculative products.

At the same time, however, a financial transaction tax also strengthens tax records.

Employees and the general public are still contributing more to tax revenues than the wealthy, corporations or financial firms. With the financial transaction tax, major revenues could be generated to combat climate change and global poverty.

The debate about the tax in the EU is an unending story. When Attac, social movements and civil society began to call for the tax, the political establishment declared us as being “crazy”. With the financial crisis in 2008, the need to regulate the financial markets finally became clear again and public pressure increased. The European Commission supported a financial transaction tax, and in 2012 some Member States decided to work together to introduce it. Since then, Belgium, Germany, France, Greece, Italy, Slovakia, Slovenia, Spain, Austria and Portugal have been negotiating under the so called “enhanced cooperation procedure”.

Sadly after four years without results, there is a need to push the agenda ahead.

What is the obstacle?

Although the ten governments have extensive support from the population, the negotiations have stagnated for years.

From the very beginning, the financial sector was lobbying heavily to prevent the tax at any cost. They painted shock scenarios about the future of banks and pension funds on the line and threatened emigration.

They also put pressure on the individual governments to implement at least an exemption for their own important financial institutions.

It is now clear that accommodating the financial sector is more important than making them safer and securing fiscal justice.

Brexit offers a valuable opportunity to breathe life into these inter Government talks.

The European financial transaction tax has to be finally introduced, and the overdue regulation of the financial markets must be tackled.

Overseas Aid

The Government has decided to seek a UN security Council seat for Ireland in 2021 and has already marshalled a substantial diplomatic effort to achieve this purpose.

That’s all fine and dandy and would represent an important reputational boost for this country but I do feel that that must involve a critical look at the commitment to reaching the UN Development Aid target of 0.7 % of GDP each year.

That commitment had to take a back seat during the retrenchment period but it now needs to be revisited if our diplomats are to embark on a world -wide canvass for UN votes.

You can’t send them out hunting for votes in some very remote corners of the glove with one arm as long as the other.

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 was on a private visit to Tanzania last January and spent some time looking at some really valuable projects sponsored by Irish Aid . Some of these involve very modest financial contributions but do produce excellent results in health care and other fields

AS GDP and GNI * increase at a steady clip so too must Ireland’s aid budget.

At the moment, we are quite far behind while the actual demand for aid has sharply increased due to political conflicts and dramatic climate change effects.

I questioned the Taoiseach on this last week here but I was disappointed in his tepid response. On the one hand he proposes to substantially increase Ireland’s so called global footprint by having more embassies and trade offices all over the world.

Still he doesn’t seem to recognise that a greater global footprint brings a corresponding expectation of higher contributions to international development.

Apart from the moral issues involved there are definite practical and political advantages for this country in a more active role in this area.

Climate change knows no borders and the impact of climate events is already causing immense population movements that are heart breaking to watch.

Conclusion

All budgets to some extent are primarily political statements.

This one is one of the most nakedly political I have experienced since the McCreevy days.

Its primary purpose is to keep the show on the road for another year.

I detect very few elements in it that put national needs front and centre.

Instead it is designed to secure party advantage more than anything other purpose.

I classify it as confused and remarkably devoid of vision at a time of exceptional uncertainty for our country.

In that way it is a perfect reflection of the Government that produced it.

The sole purpose is survival and ability to limp along from month to month.

We were promised a Brave new World .

We sure as hell didn’t get it today.