GERARD HOWLIN: Budget debates are now getting down to the nitty gritty

A woman wears an independence flag, during a rally at the Partido Popular ruling party HQ in Barcelona.

It’s only this week that budget negotiations get seriously political, writes Gerard Howlin.

The vast majority of what will be done is decided. Most departments have signed off on their estimates and know what they have for 2018.

Those still in play are politically problematic. That’s not to mention Fianna Fáil.

The confidence and supply arrangement was of limited use to them last year.

But then that budget was a first under those circumstances. This is a second and to justify the expense politically, they must show that their stamp is clearly on it.

The big picture, I think, is that the current political arrangement worked well. The decision, principally Fianna Fáil’s, not to form a grand collation was right.

The two centre parties would have become less than their constituent parts.

The platform of being the main opposition would have been handed to Sinn Féin. Instead we had one budget which did no obvious harm.

That equalled expectation of what was possible after the last election. If a second is delivered next Tuesday, expectations are exceeded.

There is little credit for the adaptability of some politicians at the centre. Occasionally, some exceed themselves in finding workarounds for our shenanigans.

Incrementally the centre parties have since grown support, and Sinn Féin is in full Homage to Catalonia mode. Last weekend was the most publicised exodus of their personnel since they used to visit with Syriza in Athens and Alexis Tsipras was a hero for the left.

Hoisting the Catalonian flag on Dublin City Hall, so soon after using it for the Palestinian National Authority, brings surrogacy to new levels and turned a perfectly good flagpole into a clothesline.

On the issue of Catalonia, states have interests, not friends. The interests of this state are not aligned to an independent Catalonia or a fractured Spain.

If there is principle at stake; think about it.

If Scotland secedes from the UK, and a border poll advocated by Sinn Féin happens, will the Scots-Irish majority east of the Bann have similar rights to secede?

There is as much precedent for a Scottish-Irish polity, a reborn Dál Riada across the Moyle, as there is for an independent Catalonia.

That principality was united with the Kingdom of Aragon in 1137, which, when united with Castile in a personal union through the marriage of the monarchs in 1469, is the basis of modern Spain.

It’s serious business in Spain, but it’s the politics of diversion and surrogacy here.

The fact of running up other flags, while politically standing like a spailpín on the side of the road, tells its own story. Enough said, for now.

Back in reality, such matters are intended to distract. There is only certainty of two issues arising from the budget, albeit with the possibility of others: Economic and
political.

Economically the issue is whether our tax base is further eroded again.

If the amounts at stake are small, the embedded trend is in shocking obduracy of the fact that we have an inherently out-of-kilter tax base, which will be cruelly exposed in a downturn.

The political issue is, regardless of what is done, which of Fine Gael and Fianna Fáil wins the narrative and ultimately emerges leading the next government.

Other potential budgetary issues are those of unintended consequences. If not filtered out before Tuesday, they can be painfully distracting for government.

Fine Gael and Fianna Fáil are now quarrelling over details of a minutely small tax package.

It’s really about winning the war of words.

Fine Gael’s offering, of widening the tax band versus Fianna Fáil’s of cutting the 5% rate of USC to 4.5%, is arguably a simpler construct for the cohort who might potentially vote for them.

It was Fianna Fáil in 1997 who put Fine Gael out of power for a generation with a pithiness of politics that promised that 80% of taxpayers would pay tax at the standard rate.

It may be time for granny to practise sucking eggs again.

On income tax, those with most here pay more to an extent virtually unknown elsewhere. Irish taxpayers pay personal marginal tax rates of 49% on salaries above €33,800, where they enter the higher rate. From €70,045 they pay 52%.

But at €18,000 you pay a paltry €510, compared to €2,119 in UK or €4,770 in Germany. The taboo is that those earning under €18,000 pay virtually nothing. It ensures that every incremental step above is Himalayan.

Taxes on labour, including the €3.7bn from USC, make up 40% of the entire take, up from 28% a decade ago. Dependency on Vat reduced from 30.7% to 26.5% over the same decade. Comparing like with like, that is partly a healthy rebalancing.

But nothing is like it seems. In an income tax system where 50% pay 97%, and almost a third are exempt and that’s 40% of everything we take in — that’s not policy, it’s roulette. In a downturn those most dependent on public services will be hit hardest, first.

Wholesale tax exemption at the bottom is feeding people on their own seed potato. Corporation tax at 15% of the total take is so skewered that 80% is paid by foreign-owned multinationals, and the top 10 pay almost 40% of that.

As a country we are a single throw of the dice away from deep trouble. The point of our budget debate is not proposed tax cuts, it’s the absolute absence of meaningful proposals to widen the base.

We have no water charge. Our property tax at 0.18% on the first €1m of a home’s value is low by international comparison.

It’s based on out-of-date valuations too. The issue for Fine Gael and Fianna Fáil is, if in government, will either commit to planned revaluations and consequent rises in November 2019. That needs to be asked insistently now.

Yesterday Sinn Féin got out front, promising to abolish property tax. The consequent loss of over €400m would be recouped by an additional third rate of income tax for those earning over €100,000.

That’s the 97% paying the 50% of all income tax, and a further doubling down on a first past the post bet on income tax alone.

The argument against property tax is that it’s unfair, because it’s not based on ability to pay.

Correct.

It’s based on wealth. It’s an essential component of a balanced tax system, to sustain services and survive a shock. Its normal elsewhere, including Catalonia. You see, with most budgets, it’s the dynamic and trend that are important.

The trend again is towards a high-risk narrowing of the tax base. The dynamic is firstly between Fine Gael and Fianna Fáil for dominance of the centre, and of Sinn Féin versus others, for an opportunity to coalesce with some part of that centre on unspecified terms and conditions.


Lifestyle

Liz O’Brien talks to Niall Breslin about his admiration for frontline staff, bereavement in lockdown, his new podcast, and why it's so important for us all just to slow down.Niall Breslin talks about losing his uncle to coronavirus

Podcasts are often seen as a male domain — see the joke, 'What do you call two white men talking? A podcast'.Podcast corner: Three new podcasts from Irish women that you should listen to

Esther McCarthy previews some of the Fleadh’s Irish and international offerings.How to attend the Galway Film Fleadh from the comfort of your own couch

Whether you’re on staycation or risking a trip away, Marjorie Brennan offers suggestions on novels for a wide variety of tastesThe best fiction books for the beach and beyond this summer

More From The Irish Examiner