From Santa to Scrooge...

Ghosts of budgets past, present and future make an appearance, says Political Reporter Áine Kerr.

THE ghosts of budgets past, present and yet to come have descended on Brian Cowen.

Having played Santa Cowen for two consecutive years, yesterday he assumed the role of Scrooge Cowen. Hence the routine whereby ecstatic backbenchers clap loudly each time Santa Cowen unveils another present from his sack of budget surprises was not evident in the Dáil.

Instead, the ghost of budgets past — Charlie McCreevy — loomed large. In 2002, McCreevy’s demise was sudden after the post-election fiscal hangover kicked in. Subsequently, the man who brought us decentralisation was himself decentralised to Brussels. Five years later, a period of economic downturn has revisited, the post-election hangover has returned and the Minister for Finance is desperately trying to stave off the turn in fortunes which befell McCreevy.

The ghost of budgets present — Bertie Ahern — having publicly embraced Cowen as his successor, could extinguish the dream and diminish Cowen’s status with a demotion, if backbenchers were to become nervous about the lack of presents in Santa’s sack.

But it is the ghost of budgets yet to come which Cowen may fear most. If pre-election promises on taxes, school buildings, hospital beds and public infrastructure are not delivered before the next election, Cowen faces an insurmountable task of winning the support of backbenchers and public alike.

* Budgets past:

When Fianna Fáil took the reins from the Rainbow Coalition in 1997, the budget had provided for a surplus of £193 million for the first time in the State’s history. Budgeting on the boom continuing, McCreevy began a blitz of tax cuts which would span five years. Targeting of the tax regime commenced in 1998 when the capital gains tax was reduced from 40% to 20%, the standard rate of tax from 26% to 24% and the top rate from 48% to 46%.

With higher-paid workers benefiting most from the measures, the opposition described the budget as “economic madness” combined with “political selfishness”. However, the following year’s budget, which made the first £100 of a single person’s income free from taxation and levies and removed an extra 80,000 people from the tax net, portrayed the more caring side of the Fianna Fáil-led government.

The wrath of the opposition only peaked when the budget for 2000 provoked the most negative reaction since Fine Gael’s John Bruton tried to tax children’s shoes. The provision wherein a single-income family would begin paying the higher tax rate at £28,000 a year, while a family where both partners work would earn IR£34,000 before the higher rate kicked in, prompted a storm of controversy.

While continuing the focus on tax cuts in 2001 with another 2% decrease in the standard and higher rates, McCreevy launched his headline act, the Special Savings Investment Accounts. However, it was the following year’s budget, the fifth chapter in his tax cuts, which was the most politically sensitive because of the imminent general election. Despite the worsening economic climate in the aftermath of the 9/11 attacks, capital and current spending increased by 10.5%, health received an unprecedented boost of more than £400m and the standard rate income bands were increased by 10.26%. However, when the Government slammed the brakes on spending and introduced a range of stealth taxes in 2002, the 2003 and 2004 budgets were McCreevy’s last.

* Budgets Present and To Come:

With McCreevy’s move to Brussels, the succession of Brian Cowen to the position marked a greater focus on pensions, infrastructure, stamp duty and childcare, while also emphasising the need to create a low-tax/pro-business environment.

The changed focus aimed to portray FF as the caring party for all classes and to distance it from the McCreevy era during which the higher-paid workers were seen as gaining most.

In line with those two objectives, Cowen’s first three budgets saw increases in exemptions for first-time buyers, unprecedented health funding, the introduction of an early childcare supplement of €1,000 for children under six and an increase in child benefit.

Having won this year’s election with headline proposals to cut taxes and halve PRSI, yesterday’s budget was supposed to be the first chapter of a €15bn tax giveaway.

However, with a post-election fiscal hangover being nursed again, the days of double-digit spending increases are over, as the Government faces a €1.7bn tax revenue shortfall and Cowen has reverted to the promised measures in the Programme for Government and National Development Plan.

Cowen knows if he can avoid the fate which befell McCreevy, he can earn a reputation for being a wise, competent Scrooge in times of economic downturn. If the economy recovers parallel to the resignation of the Taoiseach, it might prove timely for a reappearance of Santa Cowen.