The Budget: thumbs up and thumbs down

Thumbs up: Housing.

FOLLOWING the abolition of the first-time buyers’ grant last year, it was widely anticipated that new Finance Minister Brian Cowen would make some allowance for those seeking to buy their first home in his inaugural Budget.

Before yesterday’s Budget, first-time purchasers of second-hand properties incurred stamp duty of 3% on properties priced between €190,501 and €254,000; now first-time buyers of second-hand properties will incur no duty on purchases priced up to €317,500.

Young property buyers will undoubtedly welcome this financial relief, but it is possible that the reduction in stamp duty will simply lead to higher prices.

Those in rented accommodation will also benefit from increased rental allowances.

Inflation and Competitiveness:

MOST observers will be pleased that the minister decided to leave excise duties unchanged on alcohol, cigarettes and fuel, although health lobbies might take a different view. Nevertheless, his decision to keep excise duties on hold will help control inflation next year (last year’s excise increases added an estimated 0.4% to the annual rate of inflation).

Income tax:

THE income tax headline from yesterday’s Budget concerns minimum wage earners.

By raising tax credits, the minister has exempted all minimum wage earners from the tax system.

But changes in tax credits don’t only affect lower earners; personal tax credits have been increased by e60 and the standard rate band has been increased by €1,400, to €29,400.

A single person on the average industrial wage of €29,800 will now pay 14% less in tax per year.

Social Welfare and Disability:

MR COWEN announced increases across the board: old-age pensioners will receive an extra €12 per week, and unemployment assistance is to increase by €14.

Those with disabilities will also benefit. Mr Cowen announced a funding package for those with intellectual and physical difficulties that will run until 2010. Steps were also taken to reverse some of the other unpopular social welfare cuts announced in last year’s Budget; for example the Family Income Supplement was increased as was the carer’s respite allowance.

Competition:

BUSINESSES will welcome the fact that corporate tax rates were left unchanged, and the reduction in companies capital duty (a tax levied on businesses raising cash through the stock market) from 1% to 0.5% should also enhance competitiveness.

Individuals will now also be able to change banks without incurring double stamp duty charges on credit cards and ATM cards, which should make it easier to change bank in the future.

Thumbs down:

Economy:

THE Budget was not as stimulatory as it could have been. This is so for two reasons, one economic and one political. On the economic front, the last thing Mr Cowen would have wanted to do was provide too much stimulus to an economy already growing quite strongly as this would just fuel wage and price pressures in the economy and undermine competitiveness.

From a political perspective, this budget should be viewed as the first of three budgets that will be presented ahead of the next scheduled general election. Consequently, it would be politically naive to present a totally populist vote-winning budget at this early stage in the electoral cycle.

The Government will hope that the economic and fiscal background to the next two budgets will be conducive to the delivery of even greater largesse to the electorate.

Income Tax:

WAGES will rise in the year ahead, even if our inflation rate remains controlled. Therefore, many of the tax payers who fall below the revised €29,400 standard rate threshold as a result of yesterday’s budget will probably find themselves again paying tax at the higher marginal rate in the New Year, assuming their salaries rise in 2005.

The Government still has some way to go before it achieves its 1997 goal of reducing the proportion of the workforce paying tax at the higher rate to 20%. The Department of Finance estimates that 32.6% of the country’s workforce will pay tax at the higher marginal rate this year; thanks to the indexation of the standard rate threshold in yesterday’s budget, that percentage shouldn’t rise in 2005.

However, we can expect more indexation in next year’s budget, as we draw nearer to the election. The increase in tax credits is also of more value to PAYE workers than the self-employed.

Childcare:

MANY parents will also be disappointed that childcare was overlooked by the budget. Prior to the budget, parents of young children had lobbied for tax relief on crèche fees; however the budget failed to include any such allowance. The child dependent allowance was also left unchanged, to the disappointment of lower-income families.

Excise Duty:

THE minister left duty on cigarettes and alcohol unchanged in the budget yesterday, but depending on your point of view, this isn’t necessarily good news. Health campaigners will be disappointed that duty did not rise on cigarettes, while vintners will argue that duty should have been cut on alcohol, since excise duty on alcohol in Ireland is currently the highest in the EU.

Social Welfare:

THE minister failed to raise some social welfare payments sufficiently to meet commitments outlined in previous agreements, such as Sustaining Progress.

For example, in yesterday’s Budget, child benefit was increased by €10 for the first and second child and €12 for the third and fourth children. This takes the monthly payment for first and second children to €141.60, and the payment for subsequent children to €177.30.

However, both these payments fall short of previous Government commitments, which stated that the respective child benefits would rise to €150 and €185 by 2005. Capital investment set aside for social housing has also been criticised as inadequate given the numbers waiting on local authority housing lists.