U-turn stamps Cowen’s card
“Over recent months the dynamics of the housing market have fundamentally changed… The conditions then (before the election) would have destabilised the market. (The Mullingar Alliance’s) so-called solution would have harmed the market. I have always said that stamp duty could only be looked at within the budgetary cycle.”
It looks tricky doesn’t it at first glance? But the translation is very simple. It can be boiled down to one phrase: “A perfectly executed 180 degree U-turn.”
If Cowen had turned up looking tanned and well five years after his smashed-up canoe was found on a shore in northern England he would have caused less of a stir than his move on stamp duty.
Six months after he accused Fine Gael and Labour of attempting to destabilise the market, Cowen yesterday announced stamp duty changes that were broadly similar.
Twelve months ago, Cowen was portraying stamp duty as a non-issue and talking about a “soft landing” in the housing market. A year later the landing experienced by the construction industry could be described more as “crash” than “soft”. And forced by a collapse in revenue from property taxes, especially stamp duty, the Tánaiste has being forced into what he describes as a “step change” in the system.
During his 50-minute budget speech he argued: “The housing market is an important aspect of our overall economy and the sustainability of economic activity can be assisted or impeded by the efficiency of that market.”
It does make for fundamental change. The scheme is not all that different from that announced by the opposition parties and by the PDs (though a little simpler).
The net effect is that the two stamp duty initiatives announced by the Government this year will cost €271 million (€81m announced after the election and €190m announced yesterday).
It will be welcomed by everybody from home owners (those purchasing a €650,000 house will spend a whopping €21,750 less in stamp duty) to the construction industry but also leaves the Government vulnerable to charges of gross political misjudgment.
“He waited for the housing market to collapse before he address the need for reform in stamp duty,” said FG deputy leader Richard Bruton.
The debate between Government and opposition on this is a simple if polar one. One says the measures should have been introduced while the price curve was going up, the other says that it could only be introduced when it was going down.
Cowen’s fourth budget was unusual in that it veered away from his usual low-key approach and had a bit of the ghost of Charlie McCreevy about it. For one, there was the stamp duty stunt. And secondly, it was a much more expansive budget than anybody expected from the usually conservative Cowen.
He had a difficult hand to play with after the economy’s most torrid six months, certainly since 2002, and possibly since 1995.
“It is right and appropriate that we should run budget surpluses when the economy is performing very well. It is equally right that we borrow when the growth outlook is less favourable,” argued Cowen.
The borrowing was certainly not as modest as he claimed in the run-up. The exchequer will borrow €4.9 billion. Bruton pointed out that the turnaround since 2006 has been “the biggest in the history of the State”. Then Ireland was €2.3bn in the black.
Next year, it will be close to €5bn in the red, a turnaround of a stunning €7bn in two years.
COWEN’S thinking yesterday was clear. By borrowing to invest in the National Development Plan, he was spending wisely to reap plenty in the long term. The GDP increase will be much more modest next year at 3% but it is still better than many other EU countries.
If the decline corrects itself, perhaps that will be prudent. But it means that with increased borrowing, the national debt will increase by a significant 50% by 2010.
The net effect of such a dip into the red is that nobody really loses and there aren’t any major cutbacks.
Capital spending will increase by 12% while current spending will rise a more modest 8.2%. It means overall spending will be €53bn, a relatively modest increase of €1.7bn.
But there are what the opposition will portray as stealth taxes. The drug refund threshold increases to €90 per month, there are rises in bed and A&E charges, and making the medical cards available to more families has been kicked into touch for another year to allow another review to take place.
Oh yes, and motor tax will be increased between 9% and 11% from February (raising €83m per annum).
Ah, motor tax. The stamp duty furore almost completely eclipsed the fact that yesterday witnessed the world’s first Carbon Budget. A lot of the thunder was stolen from the Green Party’s biggest gain by the fact details of the vehicle registration tax were leaked a fortnight ago.
Still, the announcement that this year’s CO2 equivalent emission of 70m tonnes will be 63m tonnes, while hardly headline-grabbing, is very significant.
Because estimates were included there were dozens of minor sub-plots, all of them affecting citizens of one hue or another. The €35m increase in cancer care was a huge disappointment. There were a couple of eye-catching initiatives though like the tripling of income thresholds for families with a child under 18 with intellectual disabilities.
Cowen has looked after the lowest earners and those on social welfare, though many of the increases were at a rate just above inflation.
Cigarettes went up more than expected by 30c a packet, while there was some vague prose about measures that would favour low-alcohol drinks over high-alcohol ones.
And of course, the Government also had to take (fully deserved) swipes on the grandiose pay rises they awarded themselves and the top brass of the public service. Oh sorry, there is an efficiency review of the public service promised for 2008 but it has all the woolly imprecise language we have come to expect from FF.
Richard Bruton found the best dismissal for it: “Cowen joins the solemn chorus, calling for restraint and reform. But like the armchair general ordering his troops over the to into the teeth of enemy machine guns, Mr Cowen and his pampered colleagues will be a safe distance away. When it comes to their own interests there is no demand for reform or frugality.”
No danger of a U-turn there, was there?
THE Dubliner is renting out his home while living in a wooden cabin in his garden because he cannot pay his mortgage.
“The budget doesn’t help anybody who is self-employed. It’s a smokescreen. We pay through the nose for everything. I get tax credits at the end of the year but it never amounts to anything. And the price of property is going to drop again next year.
“I believe there are hundreds of houses on the cards for repossession next year, so what is Mr Cowen doing about it? Young people are losing their homes or putting them back on the market owing more on them that they’re worth. I’m thinking of leaving for Australia next year. The cost of everything has gone through the roof, it’s unbelievable.”
INTERNATIONALLY renowned director, living in Ireland, whose recent movie, Tiger’s Tail, explored the downside of the Celtic Tiger economy.
“One welcomes these measures (the extension of Film Relief scheme until 2012 and an extra €2 million granted to the Irish Film Board), but I’m afraid they won’t reverse the severe decline in film-making activity in Ireland.
“It’s a simple fact that other places like eastern Europe are still cheaper to make movies.
“It will require more imaginative incentives to lure foreign film productions to Ireland.
“However I believe quality Irish films can still be made in the country.”
NIGERIAN-BORN writer/director, who reinterpreted The Playboy of the Western World with Roddy Doyle for the Abbey Theatre.
“It is hard for me to say whether the (€12.5 million) increase in arts and culture funding is enough, because I would need to look at the bigger picture. But I suppose the fact that there is an increase at all is good news for me as an artist and for someone running a small theatre company.
“Overall, there is not enough government money for the arts. The cultural well-being of society is as important as the health well-being.
“The €4m funding towards the recently-established Minister of Integration’s office is also a good step. Ireland has the chance now to do things right when it comes to integration.”
THE 41-year-old mother of three at the centre of the crisis in breast cancer care, who revealed she was diagnosed with the disease despite earlier being given the all-clear.
“When the dust settles after today’s announcement those of us hoping for a new dawn in the provision of cancer care services in this country will be left wondering how limiting the increase of health spending by 50% over the coming year will help kick-start the development of world-class, safe and much-needed cancer services.”
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