Thursday, December 10, 2009

Budget 2010

I'm going to tackle the budget under a few different headings as there is lots to get through. I'm not going to hit everything, just the bits that jumped out at me while watching the speech yesterday afternoon. Also this is mainly based on the text of the Minister's speech and not on any in depth analysis of the details which I'll leave to cleverer people like Constantin Gurdgiev and Karl Whelan.


The first thing that struck me was the tone of the Minister's language. He was really working hard to sell the idea that his policies were working and that Ireland is on the cusp of another economic upswing. Of course, in explaining how we had come to such a state of chassis, no mention was made of the pro-cyclic policies that had been followed for the previous 10 years by various FF ministers for finance. The presentation was also a far more somber affair than previous budgets with no call to patriotic duty or standing ovation. From the other side of the house, there was little in the way of heckling and considering that most of the details had been leaked over the previous week there was ample time to think up some good Statler and Waldorf routines.

Social Welfare

The minister opened the section on Social Welfare with this gem: "The Government is proud of its unrivalled record in increasing the level of social welfare payments." In other words, we're happy that we've gotten you all addicted to free money that we threw away in a completely unsustainable fashion. Making that statement on the floor of the house takes some balls. He then went on to stiff those who were never going to vote for FF (the under 25s) and protect at all costs those who do (pensioners).

While I accept that the cost of welfare has grown to unmanageable proportions, it is hard to reconcile cutting unemployment for the young to €100 while leaving the OAP and specifically public sector pensions untouched. In fact, public sector pensioners might think they are getting a great deal but now that the link to existing pay rates has been broken, at some point in the future this will come back to haunt them. I would also be interested to see what legal and logistical obstacles there are to means testing or taxing child benefit. This government has no problem in discriminating between young adults with regard to unemployment, 3rd level grants and various other categories so why should child benefit be such a sacred cow?

Public Sector

The wage bill in the public sector has been under sustained attack in the media for the last year, even after the so-called pension levy was introduced. So to see across the board cuts is not entirely unexpected. After the fiasco of the unpaid leave deal last week the cuts became inevitable. But what was not expected was that even the lowest paid in the public sector were going to be hit. Another €1500 from someone on €30k is a huge hit since they will see pretty much all of it disappear from their net pay. For someone paying at the higher rate, being down gross about €5000 will come back to about €2700 after taxes, levies etc. Now where is the equity and protection of the vulnerable?

VAT and Excise

The other main talking point is the reduction in Excise on alcohol and the general reduction in VAT. The first is a handout to the vintners as you can be sure that the price of a pint in central Dublin is not 12c cheaper today. Perhaps it will persuade people to cut down slightly on the Newry exodus but only if they were primarily going up there on a booze trip. If clothing and food was also on the shopping list then the excise reduction will have very little impact.

The VAT decrease will make no difference at all. This time last year retailers absorbed the 0.5% increase and so it is probable that the reduction will not be passed on as it is really a return to the status quo ante. Finally, the increase in excise on fuel, or Carbon Tax as they are spinning it, is again going to hit the less well off most as irrespective of the size of your income, you still have to heat your house in the winter and keep a car on the road.

Good News

The one item of good news was the Irish domicile levy for the super rich who have moved their wealth offshore to avoid taxes. One wonders if that was a last minute addition in response to Newstalk's pontificating on the day before the budget. It does strike me as a bit of a two finger salute to Denis O'Brien and Bono in particular but one to be welcomed if it hits the pair of them in the pocket a little.

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