JIM POWER: Scatter-gun approach likely for Budget 2018

We now have a new Taoiseach and a new top team in place in the Department of Finance and the Department of Public Expenditure and Reform.

Apart from the ongoing public sector pay issues, the next big challenge facing those three parties will be presented by the framing of Budget 2018 over the coming weeks in preparation for its delivery in October.

The economic backdrop against which Budget 2018 is being framed is quite a constructive one at one level, with the economy continuing to deliver good growth.

At another level, it is promising to be a very challenging process. With the economy growing quite strongly, expectations are rising across the board. Public sector workers are screaming out for restitution following the pain imposed since 2008.

Private sector workers are now getting in on the act, as demonstrated by the crane drivers this week.

The need for significant investment in vital public services is acute and the Department of Finance is now being bombarded with pre-budget submissions from every conceivable vested interest group.

The real problem, of course, is that however one looks at it, the fiscal resources are very limited and serious choices will have to be made.

Last year’s budget adopted a very scatter-gun approach to fiscal policy with a significant amount of money thrown at a lot of different areas through taxation and expenditure measures.

The net result is that considerable resources were expended, but they were spread very thinly and nobody was significantly better off at the end of the day. Perhaps it would be wiser just to focus all available resources at a very limited number of areas and make a real and meaningful impact, but that is not how the political economy of policy making operates in this country, unfortunately.

We can be pretty certain that in Budget 2018, a similar scatter-gun approach to fiscal policy will be employed.

The Nevin Economic Research Institute (NERI), which is a body funded by the trade union movement and consequently carries appropriate ideological baggage, argued this week that Government should abandon tax cutting plans in order to fund spending increases in areas that would enhance the long-term growth potential of the economy.

In theory, this might make sense in certain circumstances, but we don’t have a good track record in this country of getting decent returns from public expenditure.

It is a fact that the burden of the fiscal adjustment after 2008 fell very heavily on the shoulders of a limited number of tax payers, whereas social welfare recipients and old age pensioners endured a lot less pain in relative terms.

An interesting survey, the Family Finances Report, conducted by Red C for Aviva was published this week and showed the equivalent of one million adults are finding it difficult to make ends meet and two thirds of these see no prospect of an improvement in their personal circumstances over the next six months. Those with this perspective are typically in the 35- to 54-year-old age segment of the population.

According to the survey this group is likely to be mortgaged, to be paying exorbitant creche fees and have a legacy of debt hanging around their necks.

They pay for everything and get nothing for nothing. This is the squeezed middle that requires financial assistance they badly need help delivered through the tax system.

Big decisions will have to be made by the new Taoiseach and Minister for Finance over the coming months. It will not be an easy task.


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