Cowen Budget menu cooks up very few surprises

Finance Minister Brian Cowen stuck close to the predicted script despite the fanfare of the biggest-ever giveaway Budget, writes Political Editor Harry McGee.

IN THE spirit of Delia Smith or Darina Allen, here’s a bit of Budget analysis I prepared earlier. It was whipped up a full 24 hours before Brian Cowen’s Budget speech. But you will have to agree it remains as fresh as the recipe for economic prosperity cooked up by Cowen in the Dáil yesterday afternoon.

“Social welfare increases will be over €1 billion for the first time, with generous measures. He will do for childcare and older people what he did for disability last year, with generous packages in both areas. However, true to his generally cautious approach, they will not go as far as some want.

“By jettisoning a host of tax reliefs (which largely benefit the richest in society) and by imposing new restrictions and caps on pension schemes for the highest earners, Cowen will be sending out a powerful message that the very rich must pay their fair share. By corollary, those with lower income will benefit a little more than others by increases in tax credits and bands. He will also reluctantly give up the ghost on that stallion tax exemption.”

There is no amazing cleverness in any of that. Most of the measures introduced by Cowen have been flagged for weeks, in substance if not in actual detail:

The childcare package that wouldn’t discriminate against stay-home parents. Check.

The €10,000 tax disregard for childminders. Check.

The elderly care package that would help older people remain at home. Check.

The abolition of lucrative property tax breaks and the stallion tax. Check.

Chunky increases in pensions and social welfare. Check.

Uppage on winter fuel allowance. Check.

Measures that would help lower earners. Check.

Cowen’s approach has always been evolutionary rather than revolutionary, unlike his cavalier predecessor, Charlie McCreevy who seemed to pull a rabbit out of the hat at every budget (tax individualisation; the pre-2002 election splurge; decentralisation).

The really strange thing about yesterday’s Budget is that it was the biggest giveaway of all time. State expenditure will top €50bn for the first time, with an Exchequer borrowing requirement of almost €3bn despite that fact that growth is predicted at circa 4.5% and employment will continue to grow.

But Cowen’s instincts are not Big Bang ones. In the Estimates he said he would concentrate on young parents, older people, social welfare and lower earners while preventing the richest from paying zero taxes by availing of reliefs. And that is more or less what he delivered. There were substantial packages in childcare, elderly care, social welfare and tax but none of them were beacons.

In fact, the only big surprise yesterday came from another quarter - as the sorry saga of Ivor Callely’s latest misfortunes threatened to rain on his parade.

The old maxim that begins “you can please some of the people all of the time” would apply to the childcare package. At the outset of this portion of his speech in the Dáil yesterday, he admitted that a complete solution would take time.

Cowen was never going to rerun the big bother over tax individualisation in 1999. So his package incorporated elements that tilted a little towards working parents, but made sure not to alienate stay-at-home parents.

There are five elements. There will be more capital to provide extra childcare places, an increase of paid maternity leave to 26 weeks, and unpaid leave to 28 weeks by 2007; an increase in child benefit; the PD-prompted measure of a tax disregard of €10,000 for childminders (who must now register).

The most eye-catching element of the package though is the early childcare supplement of €1,000 per child under the age of six, regardless of work status.

Immediately, there was reaction. Working parents with young children said there was not enough. There were mutterings of an arbitrary discrimination for parents of children over six, whose needs often don’t disappear. The package didn’t deliver the bucks in this direction that many expected - €315m in 2005, though it will rise to a total of €610m by 2008.

The elderly care and social welfare packages were substantial. A new package worth €150m per year will allow home care, home help and palliative care packages that will allow elderly people stay at home.

The increases in pension (€14) and social welfare (€17) were near the target levels sought by Fr Sean Healy of CORI and by the St Vincent de Paul. However, there was mixed reaction of the €5 increase in fuel allowance (from €9 to €14). The overall package was €1.12 billion (compared to a rise of €847 last year).

The €900m tax adjustments were also geared towards lower earners, in keeping with the spirit of Inchydoney. Cowen claimed that an additional 52,000 would be removed from the tax net, and that 90,000 more would be taken from the higher 42% tax band. However, this merry-go-round happens every year. A lot of these will slip back up next April and the Government still falls some 14% short of its commitment to remove 80% of taxpayers from the higher band. And middle income earners won’t be seeing too many changes, unless their children are still of pre-school age.

The neatest demonstration of the political nature of this budget was its moves to get the richest to pay some tax. In a key passage, Cowen said: “My basic aim is to see that everybody pays an appropriate amount of tax relative to their ability to do so.”

A little later, he spoke of measures to “eliminate the phenomenon of tax free millionaires and increase the effective rate of tax on those with high income towards a minimum of 20%.”

However, this is not going to happen overnight. The property tax reliefs will go on a staggered basis - Cowen says this is to prevent any shock effect in the construction trade. And the Government was told by the EU to get rid of the stallion tax. It is gone - but not until mid-2008.

Pat Rabbitte characterised this phasing-out approach best. “It’s in the spirit of St Augustine - God make me chaste but not yet.”

In there too, a few innovative but slightly tentative measures. A new €900 million fund for so-called fourth level education over five years; a carbon fund, and money to allow 2% of energy needs to be provided by biofuels by 2008.

Politically, it was the second of three budgets by Cowen that the Government hopes will win them the next election. It was giveaway, yes, but not dramatically so and stayed close to the script that came out of Inchydoney, and that was demanded by the importance of childcare.

Cowen sets as his goal “the establishment of a better society for all.” There was a little for everybody (perhaps excepting the super rich). Timid, was Richard Bruton’s description of many of the initiatives. You have to go along some of the way with him. In a prosperous country, and with so much cash at his disposal, you might have expected Cowen to have used all those fine ingredients more imaginatively.

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