Budget had no coherent strategy

At this stage, the most well-signposted budget in recent history has been dissected ad nauseam and there is now a real sense of analysis paralysis.

However, the real test now will be to see what sort of impact it has on the fortunes of the parties of government in the upcoming general election.

It was an intensely political offering and one gets a strong sense that, as all opposition spokespeople predictably tried to tear it apart, they were secretly regretting the fact that they didn’t have the opportunity to present such a budget themselves.

Despite all the rhetoric from the parties of government, the budget was purely designed to curry favour with a reluctant electorate and did not have anything resembling a coherent economic strategy underlying it.

It was a pure example of a pre-election budget and anybody who has been remotely surprised by this fact doesn’t really understand the Irish political system.

The electorate has a long history of being bought off, as evidenced particularly in 1977 and 2007. There has been quite a bit of criticism from some that it is a recklessly pro-cyclical budget and will inject too much stimulus into an already strongly growing economy.

I even heard one politician arguing that Budget 2016 represented a major opportunity to radically change the shape of Ireland, and not surprisingly, he claimed that the opportunity had been missed.

The fact that such an insignificant event can possibly attract so much hype is truly astounding. I find both of the above assertions difficult to comprehend. The reality is that on budget day, a fiscal stimulus package of €1.5bn was announced.

This amount of money is equivalent to less that 0.7% of projected GDP in 2016.

To suggest that a fiscal injection of such magnitude would be capable of driving the economy wild or fundamentally altering Irish society is ludicrous and typifies what passes for political discourse in this country.

If one believed that the next four budgets adopted a similar stance, then perhaps that would be the case, but it is far from clear that this is the case.

As a once-off budget, it is intended to give as much to as many people as possible and, thereby, garner as many votes as possible. No more and no less!

There was not a lot in terms of economic strategy underlying the offering, and, in fact, aspects of the budget fly in the face of recent strategic direction.

For example, it has been a stated aim of this Government to broaden the tax base and create more certainty in relation to tax collection.

The aim has been to bring as many workers as possible into the tax net; hence the introduction of the USC. The introduction of the local property tax was intended to create a source of revenue that would not be subject to the vagaries of the economic cycle.

Despite this intention to broaden the tax base, 42,500 more workers were removed from the tax base on Tuesday and the Government is highlighting the fact that more than 700,000 workers are now outside the income tax and USC net altogether.

In addition to flying in the face of stated strategy by narrowing the tax base, one wonders if it is a good thing in terms of social solidarity to have so many income earners outside of the tax net.

Another interesting aspect of the fiscal background that has been revealed was the supplementary budget decision to increase the spending ceiling by €1.5bn this year.

The Irish Fiscal Advisory Council is not impressed with this sleight of hand, but Mr Noonan has masterfully deflected criticism by posing the question as to what areas people would like this supplementary spending to be taken from.

He cited health, education, and law and order as three areas where this extra spending is being directed. He makes a very good point. All three areas badly require increased expenditure, provided it is of the correct variety.

At the end of the budget speech, Mr Noonan laid out his medium-term budgetary ambitions if the Government gets back into office. This is a useful exercise and it will now be left to the electorate to decide.

Jim Power is a leading economist


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