Brian Keegan: Budget bills won't be landing any time soon
The price of fuel is a political health problem because it is highly visible. Almost every voter has to deal on a regular and recurring basis with diesel and petrol prices at the pumps.
Due to the pandemic, last year's budget was trickier than usual for the Government to frame. As Paschal Donohoe has ruefully observed, pandemics are not routinely built into government planning.
Budget 2022 again has to take account of the pandemic, apparently now in decline in this country. But when one crisis recedes, others crop up to take its place.
Last year's Budget was framed in the context of a public health problem. Budget 2022 must take account of an exchequer health problem prompted by the international corporation tax debate, and a political health problem prompted by the price of fuel.
The moves by the Organisation for Economic and Cooperation Development and the US to impose a minimum effective rate of corporation tax and the worldwide surge in energy costs are largely outside of the Government's control, just like the pandemic is. And just like the pandemic, both are going to cost us.
The price of fuel is a political health problem because it is highly visible. Almost every voter has to deal on a regular and recurring basis with diesel and petrol prices at the pumps, and the cost of heating, be it solid fuel, oil or gas. Fuel prices routinely affect more people than even health care, waiting lists or housing shortages. This is prompting elected representatives to promise improved state pension payments, improved fuel allowances and an indexation of the tax bands to help workers cope with inflation of which fuel prices are a key driver.
It is ironic that in an era of climate change, a shortage of fossil fuels is prompting tax breaks. There has been no increase in the personal income tax bands (the amounts of income at which we pay tax at 20% rather than 40%) for the past three years.
That stagnation is itself a form of additional taxation. When wages increase, no improvement in tax bands means that the Government gets a proportionately higher share of our income.
There will be a reduction in the income tax take following an increase in the bands. That reduction will add to the pressures on the budget calculations because of the ongoing pandemic situation and the prospect of improved social welfare payments. These competing pressures can be met, but only because of timing.
If we have to change the corporation tax regime in a way that we get less tax revenue from multinational companies (which is likely) or have less leverage to attract foreign investors with our low rate tax regime (which looks increasingly likely), the changes will not hurt exchequer receipts immediately. It may take two years or more, making the issue a problem for Budget 2024, not Budget 2022.
On the funding side, the EU supports of direct pandemic subvention and also in terms of permission to borrow in the bond market won't go away anytime soon either. EU Economy Commissioner Paolo Gentiloni spoke in Dublin last week. He was at pains to stress that there will be no repeat of the mistakes from the 2008 financial crisis where supports for EU member countries were too parsimonious, and what little support was there was withdrawn too soon. The Government won’t need to rely on taxes alone for additional public spending in 2022.
Timing is everything. Budget 2022, which will be announced on October 12, will not be a giveaway, but it won't be an austerity budget either. It will cost €4.7bn more to run the country next year with a further €500m in tax cuts. The bill for the extra cost will land, but it won't be landing particularly soon.
- Brian Keegan is director of public policy at Chartered Accountants Ireland
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