The age of austerity

IT WAS convenient for Michael Noonan that his Labour party colleague in Government had already done most of the dirty work.

The Finance Minister took to his feet to deliver a well-crafted budget speech that claimed to soften the blow of harsh cuts announced by his coalition partners 24 hours earlier.

The maiden budget speech of a veteran politician managed to avoid mentioning any of the items that will define his first spending plan as Finance Minister: cuts to the disability allowance, reduced children’s allowance and fewer number of fuel payments for the elderly.

Instead, he gave the appearance that he was giving out more than he was taking away.

Income tax would not be increased, young people could go out and buy houses, jobs would be created and 330,000 lower paid workers would no longer have to pay the dreaded Universal Social Charge.

But however well it was dressed up with Mr Noonan’s trademark clever mix of rhetorical flourishes and understated calm, the €1.6 billion in tax hikes will be far from pleasant.

Fine Gael was able to adhere to its main political commitment, which some believed was instrumental in its election success, of not raising income tax. “Wages and salaries in January will be no less than wages and salaries in December,” he said to mutterings of approval from his backbenchers.

In what he described as “another fairness measures”, the level at which earnings will be exempt from the Universal Social Charge has been raised from €4,004 to €10,036. This will “benefit” more than 300,000 people and the minister said he was glad to announce it to “help the low paid, part-time and seasonal workers”.

Any reversal relating to this charge is very clever politically because of the sheer dread and hatred people had of it since it was controversially introduced last year. But in truth, the charge will go a short way to “offset” as was claimed, the budget cuts in previous days.

It will result in no savings whatsoever for the lowest paid working full time and just €4 a week for anyone earning less than €10,000.

Hardly a compensation for the average €1,000 a year which the budget will cost a family with four children.

Announcing the unpopular VAT increase from 21% to 23%, Mr Noonan dismissed the “experts on mental arithmetic” who had calculated it will cost households €500 a year.

The annual €100 household charge had the potential to be one of the most unpopular of new taxes but Mr Noonan will escape any backlash on that particular issue because it had been well flagged over the past year.

Avoiding income tax means that many extra stealth charges will be hidden in the small print to raise €1.6bn in taxes.

And there is a feeling that the Government has simply stored up harsher measures for the years to come.

Mr Noonan ruled out further VAT increases in the coming years but with €1.25bn to be raised in next year’s budget and €1.1bn the year after that, one wonders how he will do that while sticking to its commitment not to touch income or VAT.

There was nothing in Mr Noonan’s tax plans yesterday likely to cause a major headache for backbenchers. That was all delivered in the €2.2bn spending cuts announced on Monday.

Brendan Howlin wanted his day in the sun, to show that his role as Public Expenditure and Reform Minister carried equal weight with the Department of Finance and that Labour were not going to play second fiddle in a coalition of equal partnership.

And Mr Noonan, a canny political operator at the best of times, was happy to play along.

With all the nasty attacks on the vulnerable out of the way, his first budget speech was free to put across his message that he was concentrating on jobs and moving the country onto a more sustainable footing.

Labour may have won the battle of the cuts by ensuring that basic welfare rates and the Croke Park Agreement went untouched.

But Fine Gael thanks to Mr Noonan’s clever delivery, won the communications battle.