Gerard Howlin: Before we deliver the ‘change’ we voted for, we must provide for it

Gerard Howlin: Before we deliver the ‘change’ we voted for, we must provide for it

There is feverish talk about who won and who will lead.

We had a ‘change’ election. The people’s priorities are health and housing. There is anger about lingering austerity. More must be done.

Plans to do more are prodigious. The essential point, and it will come shortly, is not what we want to do. It’s what we can do.

The government will change eventually but at least three critical events loom. A budget in October for 2021. Just on the horizon trade talks between the EU and the UK are critical for Ireland. In the interim, there will be much to busy government before it delivers on the ‘change’ it has promised.

Before the summer, the OECD process on something called BEPS will crystallise into definite directions. By year end, it will likely be finalised. The outcome is extremely important for our economic model of foreign direct investment.

BEPS is much spoken of in official Ireland but hardly mentioned among decent people. It is base erosion and profit shifting and will determine what multinational profits are taxed, where and how much. Any change moves Ireland off the sweet spot now, of the best possible place we can be.

Managing the OECD decision-making process, or trying to influence it at all, will be time consuming, and essential for the future minister for finance.

The consequences will impact on our national sums for years to come. The Department of Finance says up to €2bn of our corporation tax is vulnerable.

And that’s an educated guess. So before we deliver the ‘change’ we voted for, we have to provide for it.

And then there’s the additional €11bn over and above business as usual for new current funding over five years to 2025. That’s day to day, recurring spending for public servants and public programmes.

Gerard Howlin: Before we deliver the ‘change’ we voted for, we must provide for it

Any cut in the corporation tax take is a chip off the block. If the rules of engagement change in a way that seriously discommodes Ireland, then the guess might not be so educated. However, this is the fodder we plan to feed off while we ‘change’.

Another engaging item for the new finance minister is local property tax. But first a little parliamentary detail. A finance bill which proposes revenue for the exchequer cannot be amended in its passage through the Oireachtas, although it can be rejected.

Local property tax doesn’t have that protection. A minister embarking on a measure of reform must have an ironclad Dáil majority or risk defeat. That’s a summary for a bad political bruising in return for nothing except diminished reputation.

The local property tax, paltry though it is, is worth over half a billion a year, every year. That’s close to €3bn over five years. If it isn’t reviewed, and its valuations are years out of date, it will be legally challenged and put in jeopardy.

Some will rejoice and cheer on the day. But if it is not secured, that’s close to €3bn off the €11bn we think we have to spend on new initiatives, which will be the ‘change’ we voted for.

How a majority can be found for revaluing local property tax is entirely unclear. I don’t wish to be awkward but it must be pointed out that ‘change’ has to be paid for, and paid for by the people who voted for it.

And then there’s the elephant in the room — public pay. The current pay agreement and its predecessor delivered increases averaging 2.5% over the last few years.

The upward pressure is acute, and the consequences of raising the rate of increase is enormous.

Political parties have either willingly joined in, or unwittingly being sucked in to agreeing to unwind the changes imposed in 2011- 2013. It’s forgotten that outrageously inflated public pay was the single largest component part, of the largest factor which was public spending, that sank the economy into crisis.

Pay equality bears no reference to the reality of those in the private sector who have to pay for it. It’s a Trojan horse for the ultimate aim of reversing 2013 public sector pension changes.

Everyone in the private sector, not in a defined benefits scheme, knows all about it. An upward push on public sector wages is imminent. It must be faced this year and priced into the October budget.

To put it into perspective, every extra 1% in public pay costs another €150m to €200m a year over and above what is provided. That’s close to a €1bn, of the €11bn, based on a further 1% and the unions have no intention of settling for that.

On corporation tax and local property tax, the plug could be pulled out of the tub. On pay, there is a rough hustle up to the trough.

What’s left over, is what we have to make ‘change’.

The Apple case is pending in the Europe Court of Justice. There is a once-off €13bn at stake. But, big as that is, that’s not what’s really important.

Gerard Howlin: Before we deliver the ‘change’ we voted for, we must provide for it

These rulings are seldom all for one, or one for all. There are on the one hand, and on the other, usually. If Ireland wins too much, the Commission will appeal.

If we lose too much, Apple may prove to be the first in a series of Commissioninquiries into special deals. This matters because a lot of money is at stake.

It matters more because just at the moment the UK and France want to eat our FDI lunch, our shop window becomes covered in unsightly droppings.

You may have your opinions about corporation tax. But it’s the cash we plan to spend on ‘change’.

On health, an extra €1bn a year for Sláintecare, every year for five years comes out of the €11bn, leaving €6bn.

And that’s ‘change’? Well, its small change for sure. There is an eerie, giddy unreality abroad. I’d be very wary of it.

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