SO THIS is what the far side of austerity looks like.
Give a little here, take some more back there. Tax water, and offer tax relief from the water tax. Cut the income tax rate, and increase the rate of the income tax known as the USC. Pump up the smoke, install the mirrors, and off we go. You’ve never had it so good, people. Sit back and enjoy the view here on the far side of austerity.
Hints of the future could be glimpsed on the approach to Leinster House in the hour before Michael Noonan got to his feet. Where once Moles-worth St was heaving with protesters at this time, now there was an eerie silence down the cordoned-off thoroughfare. Knots of yellow-jacketed gardaí stood around, prepared for anything but apathy.
The numbers were such that the only element capable of starting a riot were the gardaí themselves. Those who protested cut lonely figures, carrying posters that looked like leftovers from last Saturday’s national anti-water charge rally.
And maybe therein lies the answer. In the current climate, the only real protest with purchase among a serious cohort is the anti-water charge element. They had their day in the sun last Saturday, the clarion call to the disaffected having pulled in tens of thousands, well in excess of all estimates. After such a turnout, any gathering three days down the line to mark the budget would have been an anti-climax.
Inside the big house, the disaffected were close to Noonan’s heart. One of the early measures he introduced was tax relief on the water charge at the standard rate up to a bill of €500. Pundits immediately did their sums and declared this amounted to a reduction in the charge of €100. That would only apply if the charge was the full €500, nearly double what we are told the average charge will be next year.
Is this measure going to give the green light to the big brains in charge of Irish Water that the way is clear to hike charges at the first opportunity? It has about it the whiff of a top-of-the-head idea to placate opposition in a manner that can be rowed back on in the coming years. In designing the relief, Noonan’s people forgot one cohort — those who are not working but have yet to join the ranks of the long-term unemployed. The latter category will get the €100 relief through the household benefits package, but those who don’t qualify for it will have to whistle Dixie. Like much to do with the water charge regime, this was a sloppy oversight.
Elsewhere, we were fin-ally told where exactly lies the ceiling for the beloved “lower and middle-income earners”. This cohort are repeatedly cited by politicians, although they have habitually been reluctant to put figures on the rhetoric.
This budget deigns that €70,000 represents the ceiling for that cohort. So it is that this budget manages to dance through the income tax regime by reducing the top rate of tax from 41% to 40% but neutralises the advantage to high earners by increasing the USC for those on over €70k. It’s difficult to disagree with what is to some extent at least an attempt to be progressive about the changes.
This may well be progressive, but the decision to raise the threshold at which the higher rate kicks in by just €1,000 appears to be little more than just a gesture. Here, politics is trumping either economic sense or social justice. Noonan will remember from his time in government in the 1990s that the electorate does not give the same credit for increasing bands, even when the outcome is just as positive as lowering rates.
Still, Noonan maintains that progressive taxation remains a core focus of the Government. “These changes enhance the progressivity of our income tax system, with the top 1% of income earners now paying 21% of all income tax and USC collected. In contrast, the bottom 76% of income earners pay 20% of the total.”
There is much to welcome on the spending side, particularly the €1.7bn capital investment in social housing. The partial restoration of the Christmas bonus for social welfare recipients at least allows those in that category to look forward to the festive season again. An increase in the household benefits package is also a positive development.
But questions must arise about another crowd-pleasing measure, an increase of €5 in child benefit, a hike to be doubled the following year.
Is this the most prudent manner to use resources in a state that is still borrowing €5bn a year? What happened the plans to means-test benefit to ensure that it went to those most in need of assistance in raising children? This appears to be a perfect example of spin over substance. In a political culture where populism is the default ideology, nobody is going to dispute the increase, despite its highly regressive nature.
Concluding with a pat on his own back, Noonan referenced Robert Frost’s poem The Road Not Taken.
“The road ahead of us diverges and we have a choice to make. Do we take the road frequently trodden by Irish governments in the past, a road whose signposts are tax and spend and where one’s journey is through boom or bust? “Or do we, like Frost, take the road ‘less travelled by’.”
Of course, Noonan had the answer to that — the minister says he’s going to take a new road paved with dynamism and prudence. He’s talking the talk all right. The budget has opened up a new vista on the far side of austerity. The signposts, however, are somewhat confusing. He giveth here and taketh away there. He offers hints that social justice informs his politics, but he also shows that he can outbid all comers with a touch of auction politics. Too early to say yet whether he’s taking a road that leads anywhere but back to where we’ve come from.
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