The last thing we need now is a populist budget

Economist Jim Power hopes Irish politics will not revert to type next month and offer up a populist budget lacking in any real long-term strategic perspective.

Budget 2017 has now been confirmed for October 11. This year’s budget will be the most unusual one for many years, given that it will basically have to be approved by the main opposition party, Fianna Fáil, in advance and it will be presented by the most fractured and unstable government since the early 1980s.

The danger is that Irish politics will revert to type and the offering we will get next month will be a populist one lacking in any real long-term strategic perspective.

Given that the possibility of an election any day is so real, all parties to the process will be more interested in delivering populist gifts rather than an offering that would be good for the long-term stability and resilience of the country.

The global backdrop against which the budget will be presented is quite challenging. The global economy has been growing too slowly for too long and the policy backdrop is both bizarre and unprecedented.

Policymakers are still struggling to lift the global economy out of the morass that resulted from the immense shock of 2008. Ireland will also have to deal with the immense uncertainty generated by Brexit.

Once the UK invokes Article 50, Ireland’s future trading relationship with the UK will be totally up in the air.

There is little that Ireland can do to influence these external risk factors. However, there is a lot we can do to make sure the economy is as resilient as possible and that the ability to deal with negative external developments is as strong as possible.

Controlling wages and all aspects of competitiveness is essential. In that context, the ongoing dispute at Dublin Bus is of concern.

A free-for-all on the wage front is exactly what the Irish economy does not need at the moment. Sound public finances are also essential and populist fiscal measures that do nothing to enhance the growth potential of the economy should be avoided.

The Minister for Finance has made it clear that there will be €1bn to play with on Budget day. He has made it quite clear that the focus on the personal taxation front will be on reducing the burden of the USC for low and middle income workers.

There is a lot of debate about — and opposition to — reducing the personal tax burden. It would be nice to see some of those opponents admitting that the personal tax burden on those who pay tax is pretty punitive in this country.

Back in 2006, when we had a level of employment in the economy that is quite similar to employment levels in 2016, income tax totalled €12.4bn and accounted for 27.2% of the total tax take.

This year, income tax is expected to total €19bn and will account for over 40% of the total tax take. This shows just how much the burden of taxation on those who work and pay income tax has increased since 2006.

An excellent report from the Irish Tax Institute, this week, shows just how progressive the Irish income tax system is.

The report shows how the personal tax burden is higher than in most of our competitors. We endure the high marginal tax rate at very low levels of income and we are one of only 13 OECD countries that has a marginal tax rate in the 50s.

Despite these facts, the left still believes that the solution to every problem is to slap more tax on those who get up out of bed and work.

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