Hysteria cannot be allowed derail the budget

OVER the years I have grown to despise the month or two leading up to the annual charade that is the budget.

We are subjected to a constant flow of rumour and speculation about what the budget might or might not contain.

Such speculation and rumour is not in the least helpful, and is particularly dangerous and damaging at the moment, given how scared Irish consumers already are. Every rumour that percolates just serves to put another nail in the coffin of the already ailing consumer, but it does provide daily headlines for the media and feeds the daily moan on RTÉ’s Liveline programme.

Over the past week the speculation has resolved around a 2% increase in the top rate of VAT; a €10 cut in the monthly child benefit payment; an €8 cut in unemployment assistance; and the reintroduction of third- level fees in some form.

The one thing all of these suggestions have in common is that they have elicited a predictably negative response from the various interest groups. All of the usual arguments are being wheeled out in opposition to the various proposals and if the minister for finance was to take all of it on board, he simply wouldn’t be able to deliver a budget on December 6, full stop.

The reality, of course, is that the Irish public finances are in a totally unsustainable situation, and if it were not for the good graces of the IMF/EU bailout fund, which is approaching its first anniversary, Ireland would today simply not be in a position to fund the day-to- day running of the country.

Consequently, we have no choice other than to get our public finances in order. In other words, we have to balance spending with receipts as quickly as possible.

The problem is that whatever option is chosen, it will undermine economic activity and will impose pain on the whole population.

Employment has to be the key policy target of Government. At the end of the day, most of the social and economic problems we have at the moment are down to the fact that too few people are working in the economy and too many people have lost their jobs since the crisis began in 2008.

The main objective at this stage should be to give employers the incentive to create jobs and give those who are out of work an opportunity and incentive to come back into the labour force as quickly as possible.

Increasing income tax further is not what is required. The usual suspects will argue that as a percentage of GDP, Ireland’s tax take is relatively low compared to the EU or OECD average. However, they should delve a little deeper and examine just what percentage of the working population actually pays the bulk of income tax. It is also a fact that the more you earn in this country, the more tax you actually pay.

The furore over the proposed VAT increase is somewhat over the top. The change will add less than €6 to the price of a TV set for example. It is not a show stopper, so critics need to get a sense of perspective.

It is also hard to understand how the payment of child benefit to all parents regardless of wealth or means can be justified. Such payments should be taxed or means-tested, and the payment should be paid in the form of a voucher rather than a simple cash payment.

I spoke to somebody recently who was using accumulated child benefit payments to send their child abroad for a dancing course. Surely this is not what child benefit is intended for?

If one accepts the public finances have to be corrected, then one has to accept that some pain will result. The over-the-top reaction to every proposal has to be ignored and hopefully will be ignored by the minister for finance. We need to get real about our situation. We need strong political leadership in the worst possible way and vested interest groups cannot be allowed distract Government from what needs to be done.