ANALYSIS:Lack of costing makes it difficult to analyse what measures will be implemented
THE MOST important element of the Renewed Programme for Government is that it is contingent on last April's budget and its five-year fiscal correction programme. This sets targets for the annual deficits and means slippage in one area must be compensated by measures elsewhere.
The programme thus commits to the €4 billion fiscal "correction" required in each of the next three years and adds that this will take account of the findings of An Bord Snip and the Commission on Taxation. This seems to be a step back from recent leaks that one or, indeed, both these reports would be sidelined. It also commits to restoring the banking system and regaining competitiveness, though there is little new in this respect. Programmes for government are rarely fully implemented and this will be no different. None of the specific measures in it are costed which makes it difficult to analyse but this is, no doubt, deliberate.
However, the latest programme firms up on some items likely to be contained in coming budgets.
These include the abolition of the PRSI ceiling on employee contributions (an additional 4 per cent on earnings over €75,000), a 30 per cent tax relief on pension contributions (previously the marginal rate of 20 per cent or 41 per cent, as appropriate applied), a carbon tax, a site valuation tax, incentives for "smart capital" start-ups, a new system of local government financing and water charges. However, only the carbon tax will definitely be introduced in 2010.
Whereas the Commission on Taxation recommended that all new taxes should be offset by reductions elsewhere, the programme is silent on this.
Many of the proposed taxes are unobjectionable or have been signalled already. The raising of the PRSI ceiling is an exception, coming as it does on top of earlier swingeing tax increases on the higher paid. Its implementation should be conditional on reductions in the levies as proposed by the Commission on Taxation.
On the spending side, the most notable commitment is to revise the Capital Investment Programme to take into account new budget realities. This seems to be code for cuts in capital spending. If so, then it is a retrograde step. However, it does commit to prioritising the Dart interconnector and Metro North so that they are completed by 2016. The Eastern Bypass will not proceed but a Bray to Balbriggan cycle and walk route will.
The principles of the combined code of corporate governance will be put on a legislative footing for all banks, public companies and State-sponsored bodies. However, companies on the Stock Exchange, eg the first two categories with a few exceptions, are already subject to the code, which is part of the exchange's listing requirements. Moreover, the code operates on a "comply or explain" basis and some of the explanations have been perfunctory. Presumably, they will not get away with this in the future.
A potentially far-reaching change to the draft Nama legislation is signalled. From the outset, the Government has said that, should Nama make a loss over time, a levy would be imposed on the banks to recoup the cost to the taxpayer.
They resisted putting this into the legislation because it would mean there would be no risk transfer to the taxpayer, eg there would be no bail out, no one would invest in banks that are effectively bankrupt and we would be back where we were last February faced with the prospect of having to nationalise the whole banking system but without the resources to do so.
It appears that they have now found a way to do so without triggering the nightmare scenario outlined above. I understand that a mechanism has been developed so the levy can be put into law to satisfy political considerations while still keeping the rating agencies and the investors happy.
This will be done "having regard to the importance of maintaining the sustainability and stability of financial institutions".
The programme is lopsided in its emphasis on education which, of all the spending programmes, will have some recent cuts reversed. An additional 500 primary and secondary teachers will be provided; the pupil-teacher ratio frozen and standard capitation grants maintained. This was done for political reasons - the consequence will be bigger cuts and/or higher tax increases elsewhere.