Public finances - Optimistic budget pulls no punches

Finance Minister Brian Cowen produced a positive budget reflecting optimism rather than gloom, despite the apparent slowing of the economy in recent months.

There were distinct elements of restraint, but at the same time he still suggested measures that will help the vulnerable, first-time buyers and the parents of young children, without losing sight of our need to retain competitiveness.

In line with the trend of his previous budget addresses, the minister has protected the more vulnerable segments of society, with modest increases in child benefits and the early childcare supplement for children under six years of age.

Similar increases — again somewhat above the cost of inflation — were announced in social welfare payments and pensions. At the same time, income tax concessions are essentially in line with inflation.

Of course, all of those seem paltry in relation to the recent ministerial pay rises. The Government has already given the opposition a stick with which to flog it, and opposition duly gave the Government a deserved spanking on this issue yesterday. But that was not really about the budget.

The health budget has been increased by 9% to €16.2 billion, and an extra €35 million has been allocated for cancer services. This is more than inflation, but it would seem to be quite modest in relation to the extent of the cancer problems. Of course, there is huge room for savings in relation to the greater efficiency that has been promised for so long.

Mr Cowen had stoutly resisted pressure to lower the stamp duty on the sale of houses in the past, repeatedly arguing that such a move would destabilise the property market. Yesterday’s changes do not amount to a climbdown so much as a recognition that circumstances have changed. The move should be warmly welcomed. It will hopefully reinvigorate the construction industry, which had been suffering a distinct downturn in recent months.

Stamp duty will not apply to the first €125,000 of the price of a house, and it will be charged at 7% on the next €875,000, and at 9% thereafter. As a result, the stamp duty on the first €1m will be 6.1% and 9% thereafter.

The exemption for first-time buyers is being retained, but henceforth the rule requiring those benefiting from the first-time exemption will only have to live in the house for two years, instead of the existing five years. This sensibly takes into account the vibrancy of the current economy in which people are now more inclined to move.

The budget unveiled a new system of vehicle registration tax, which the minister said was not about penalising people so much as helping the environment. The new system will see the introduction of a seven-band system based on carbon dioxide emissions. In effect, size will no longer count; it will be about CO2 emissions.

Raising the excise duty on drink and cigarettes, long described as the “old reliables,” has already reached saturation point. The minister has not touched the excise duty on alcohol or fuel, but he has raised the price of cigarettes by 30 cent for a packet of 20. In the long run this is unlikely to provide extra revenue, but it could help to further discourage the use of tobacco, thereby reinforcing the social implications of the budget.