Government talk of ‘toughest budget yet’ undermines consumer confidence

The Government is undermining consumer confidence by consistently peddling the line that the upcoming budget will be the toughest one yet.

“Throughout my professional life, I have heard that every budget is going to be the hardest one yet and that was even during the good times,” said Ibec director general Danny McCoy.

“It is wrong to say this is going to be the hardest budget. The context is the economy is reflating because disposable income is increasing through the lower interest rate environment.”

Mr McCoy says the budgets introduced by previous finance minister Brian Lenihan, over 2008 and 2009, were much harder because the economy was in freefall. By comparison, the economy is much more stable, he said.

“If the Government keeps saying this, it has behavioural responses,” said Mr McCoy. “It is a tough programme, but the idea of calling it the hardest budget yet is killing consumer confidence.”

Moreover, the Government should introduce a more transparent process for setting the budget.

“This incessant kite-flying coming up to December has very damaging consequences,” said Mr McCoy arguing that any changes should be well flagged, which would have the least impact on consumer confidence.

The Nevin Economic Research Institute (Neri) unveiled its alternative budget yesterday, calling on the Government to maintain expenditure at 2012 levels. This would be paid for by raising an extra 1% of GDP in revenue through higher taxes on those who earners over €100,000.

Mr McCoy said Neri’s figures to not stack up. “I am very sceptical how Neri would achieve this. The notion that there is some pot of gold out there just doesn’t add up. The marginal tax rates in Ireland are among the highest in the OECD.”

Ibec chief economist Fergal O’Brien said it is impossible to make the budget adjustment without expenditure cuts. “There is a case for broadening the tax base,” he adds.

He said the decision by Minister for Public Expenditure Brendan Howlin to row back on removing a series of public sector allowances was “a major blow to intent”.

“What we will be saying is show us some real intent by scrapping pay increments [for public sector workers under the Croke Park deal],” he said.

Public sector workers on €40,000 a year have to be compared with their counterparts in the private sector, who have endured a lot of pain over the past few years and will not be in line for pay increments anytime soon, he added.

But the Croke Park deal has to stay because it offers the most effective framework to maintain peaceful industrial relations. “It definitely serves a purpose,” said Mr O’Brien.