Housing, welfare and health are sticking points as budget haggling goes to 11th hour

Finance Minister Paschal Donohoe

A special 11th hour Cabinet meeting for today has been requested by ministers in a bid to overcome a myriad of outstanding difficulties in agreeing tomorrow’s budget.

Five ministers, speaking to the Irish Examiner, have said they would think it would be prudent to hold a meeting today to overcome “urgent” issues relating to social welfare, health and housing measures.

Finance Minister Paschal Donohoe is facing a race against time to finalise his budget amid strong disagreement within Cabinet as to the make up of the spending increases. He is to meet with Fine Gael ministers Eoghan Murphy and Regina Doherty this morning to resolve outstanding measures as Independent members of Cabinet have revealed substantial work remains to be done.

“Movement is urgently needed,” said Independent Alliance Minister Finian McGrath last night.

Independent Alliance Minister Finian McGrath
Independent Alliance Minister Finian McGrath

Speaking to the Irish Examiner, Mr McGrath said: “Talks will continue Monday after a tough weekend. The blockages are on health, disability, housing, poverty, education, social protection and senior citizen issues.”

It is also believed that Mr McGrath told Mr Donohoe that if he does not get movement on funding the decision to support the UN convention on the rights of the disabled, then he will not be able to support the budget.

Mr Donohoe also has to meet with the Independent Alliance members of government today at 6pm, with alliance members deeply upset at the lack of progress on their priority issues.

“We feel like we are at the back of the queue. Paschal has forced us to wait until Monday night and if we are not happy what do we do? We are hardly going to collapse the Government over it and they probably know that,” said one alliance minister.

Several members of the alliance rejected comments from Mr McGrath in which he said he would resign if he did not get what he wanted from Mr Donohoe.

“That is total bullshit, Finian is going nowhere,” said one alliance minister.

While Ms Doherty is said to be “optimistic” as to her progress, several of her colleagues yesterday spoke of her displeasure as to the lack of progress on her €450m welfare package.

Regina Doherty
Regina Doherty

It has also emerged that a 4% rise in commercial stamp duty, which would raise about €400m in additional taxes in 2018, will be used to pay for income tax and USC cuts as well as spending increases in the budget.

“The rate was 9%, it is now 2%, so if you raise it to 6%, it is still below what it was,” said a government source.

Also, it is felt the Government needs to try and force developers to stop building commercial buildings in major urban areas, and concentrate on home building.

“There is a recognition that we need to incentivise more the building of homes and maybe target the developers who concentrate solely on commercial development. We have a housing crisis and more of the cranes in Dublin need to be for apartment building,” said the source.

While it is virtually certain that the weekly old-age pension will see a €5 increase, disagreement has broken out over the treatment of other welfare payments, like carers grants and payments to lone parents.

It is understood Mr Donohoe suggested staggering the increases to some payments in order to contain costs, but this has proven difficult to finalise given objections from within government and also from Fianna Fáil.

The Irish Examiner has learnt the housing minister and officials are to meet Mr Donohoe at 9am today, while Ms Doherty has to hammer out the details of her €450m welfare package. Mr Murphy was in his office yesterday working through his priorities but it is understood that many of the issues in his department are tied up with the Social welfare package.

Eoghan Murphy
Eoghan Murphy

The Irish Examiner has also confirmed that Health Minister Simon Harris has signed off on his 2018 budget as of Friday, except for potential cuts to prescription charges and changes to the drugs payment scheme.

Budget predictions

Income Tax and USC

It has been apparent for quite some time that there will both movement on income tax and on the Universal Social Charge (USC). Fine Gael are keen to increase the entry point at which people begin to pay the top marginal rate of tax while Fianna Fail have demanded a continued reduction in the USC.

According to sources, the Government could raise the threshold at which the higher rate of income tax is applied by as much as €1,000, at a cost of €175 million in the first year.

However, sources have warned that should numbers come under pressure at the 11th hour, a €500 increase could be likely at a cost of €102 million. A reduction in the middle 5% USC rate by half of a per cent is now expected, at a cost of about €170 million in the first year. Such increases could see people between €2 and €4 better off a week

Revenue Raisers

In order to pay for a host of additional spending and tax cuts, Paschal Donohoe and Leo Varadkar have agreed that substantial amounts of money will need to be raised in other tax areas.

The big hope for Budget 2018 is increases in commercial stamp duty, which had been slashed from 9% to 2% during the crash. This will definitely increase with each percent increase amounting to about €100 million. One senior Government minister said an increase of up to 6%, which would deliver €400 million, was very possible.

Elsewhere, a new controversial sugar tax is due to come in from April, raising about €40 million, while excise on alcohol and diesel are virtually certain to increase.

The extent to which they increase will be determined by what sort of shortfall Donohoe is facing later on this evening.

Changes to corporation tax is also likely which will limit the amount companies can ‘write off’ to 80% of the income arising from valuable intellectual property, down from 100%.

Health

Health Minister Simon Harris signed off on his budget on Friday and is said to be “happy” with his allocation. The health budget, at over €14bn will increase again by 3% in 2018.

Mr Harris had been arguing that much of the costs overrun this year were caused by events out of his control like the Lansdowne Road pay deal.

But both Independent ministers and Fianna Fail have called for services to be extended, particularly in respite and speech and language.

Medical card holders earning less than €60,000 were due to lose out on a USC exemption at the end of the year, but that is due to be continued, sources say.

The Government is also considering reducing the prescription charge by 50c to €2 per item and decreasing the maximum for the drugs payment scheme by €10 to €134.

Therefore, no family should pay more than €100 a month for medicine. It would mean a saving of €180 a year to hundreds of thousands of people who are on regular medication.

Pension and Welfare

By last night, the negotiations on a welfare package totalling €450m were “no where near concluded” with Minister Regina Doherty said to be “very unhappy”.

The trickiest package of the budget has yet to be finalised but there are a number of items we do know.

Firstly, it is virtually certain that the old-age pension will be increased by €5 despite concerns from economists that it is not merited. That increase of €5 a week on the pension will cost €150m, but the row has centred on increases to other benefits. Doherty has made a virtue about wanting to help lone parents and it is believed about €75 million has been earmarked for this group, who he singled out as the most vulnerable in society. The reintroduction of the €850 bereavement grant is also expected.

Paschal Donohoe has also rejected an Independent Alliance demand for a payment for grandparents who mind their grandchildren whose parents are at work, much to Shane Ross’ annoyance.

Housing

Described yesterday by Minister Richard Bruton as the Government’s top priority, measures dealing with the housing crisis will form a centrepiece of Donohoe’s budget.

With the 10-year capital plan to be unveiled later in the year, tomorrow’s budget will focus in on short term interventions like the Housing Assistance Payment (HAP) likely to be extended. At present, payments of up to €1,300 per month are allowed depending on your location and number of dependents. One of the key demands of the Independent Alliance has been the giving of more discretionary powers to city and county councils to intervene and stop people being made homeless and this appears to have been accepted.

The controversial Help to Buy scheme, which provides a tax rebate of up to €20,000 to first-time buyers looks set to be in store for some “minor tweaking” instead of being abolished, as previously hinted at by Housing Minister Eoghan Murphy.

There is also likely to be an increase in the €1.2bn spent on the building on social housing.

Schools, hospitals, roads

With Paschal Donohoe setting out three-year spending commitments on Budget day, there is expected to be a major emphasis on investment on infrastructure.

In English, that means more spending on schools, roads and hospitals.

This will obviously be a precursor to the 10-year capital plan to be announced next month, but within the €1.8bn of additional spending in 2018 is a large chunk of money to deal with our growing population.

Sources have said the spend on such projects will be significant, potentially in excess of €4bn over the three-year period. While specific individual projects are not expected to be mentioned, Donohoe is preparing to “set out the direction” of what the government intends on investing in.

Meanwhile, after heavy lobbying, the special 9% Vat rate for tourism and hospitality industry is likely to remain untouched, despite speculation and pressure on Donohoe to end the tax break. The break which also benefits newspapers is seen as outliving its purpose.

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