Is the Budget a meaningless set-piece theatre?

1% of what Apple owes is the entire ‘fiscal space’ available, writes Brian Lucey

Is the Budget a meaningless set-piece theatre?

The budget is by now largely meaningless example of set piece theatre. It is a high point of the political year for the finance minister to deliver his plans.

Our political system favours strokes. All of 40 years ago, Fianna Fáil swept into power on the basis of a massive plan of tax cuts.Domestic rates were abolished.

Domestic rates were abolished.

Admittedly, domestic rates were a crude mechanism for taxing property values, but they at least provided the basis for the funding of local council provided services. Forty years on, we are still paying the price, politically socially and economically for that decision.

A first-time buyers grant, or in economic terms a subsidy to property construction, was introduced. Across a wide range of other taxes, from personal to transport, rates were cut and bases were abolished.

Fianna Fáil swept into power. While economically disastrous, the 1977 programme was politically triumphant, changing the landscape forevermore.

We persist in believing our own myth that we are a uniquely highly taxed nation. This is not the case compared with the countries in the northern tier of Europe.

We have no effective wealth tax. Ireland is possibly unique in the western world in that it has hard-left socialists who are against taxing the major form of wealth possessed by most people, mainly residential property.

Council after council has reduced the residential property tax, rendering is a bit player in the extreme.

Nobody likes paying taxes. But we have a political system which is absolutely incapable of telling the people that if they want the kind of services which they consistently demand, they have to pay to provide. They can either pay at the point of use, a private provision; they can pay through deferred consumption in the form of loans, or they can pay through deferred consumption taxation. There is no magic money tree.

The budget will be predictable. The legacy of crisis, and the legacy of the 1977 political earthquake, means that it is unlikely we will see anything bold or exciting.

We should not expect political vision from the Government, which was quite happy to yield up hundreds of millions of euro through not collecting the taxes that are owed to us from multinationals.

Whatever the ultimate outcome of the Apple tax case, right now Apple have a tax bill of €13bn. A large chunk of that no doubt will eventually be paid to other countries, if it is ever collected.

Before that happens, however, we’re engaging in reverse Father Ted-onomics — money is not resting in our account. Some 1% of €13bn is €130m.

That’s about the available ”fiscal space” which the Government has to play with. As of its latest quarterly accounts, Apple had in excess of €65bn in cash and short-term securities. The Government has gone to extraordinary lengths to stay on the side of Apple. As an example, €130m is approximately the same amount spent by local authorities on social housing. It’s good to know that the Government can afford to forego this money in a homelessness crisis.

The Government almost certainly won’t announce it is going to collect this money due to it — that it will instead spend an equivalent amount of money in ensuring that the optics of tax reduction are maintained.

All sides will demand more services but simultaneously demand Government take less resources to pay for it.

Continuing to feed the myth of Ireland as a high tax society, commentators will breathlessly pore over minor adjustments.

The media will provide infographics showing how €3 here or €4 later will be added and subtracted to various hypothetical taxpayers, and the system will sludge on.

Brian Lucey is professor of finance at the School of Business, Trinity College Dublin

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