This Budget is politically cute, but economically naive. It is politically cute because it uses the resources available to the Government to massage the greatest number of voters possible, and does so without offending too many people. It is politically naive because it injects additional demand into an economy which is already running at full capacity, without taking any measures to increase that capacity.
One of the Budget's primary objectives is to secure the PPF. I hope it does so and that the input to the Budget by the social partners will prove fruitful. Social partnership has underpinned this phase of economic prosperity, and, until recently, both unions and employers have delivered the industrial peace which was the quid pro quo of successive agreements.
They may continue to do so, but the industrial action by the Association of Secondary Teachers, Ireland, the several disputes in Aer Lingus and CIE and the continuing interruption of public services through strikes does not inspire confidence.
My principal objection to the Budget is the lack of an underpinning fiscal policy. The economy suffers from labour shortages and inadequate infrastructure.
There are three sources of additional labour: the Live Register, immigration and a greater participation of women in the labour force. There are now very few people on long-term welfare who are available for, and capable of, work.
The Budget has no focused training programmes to upscale those on welfare who are unemployable, so no new workers will come from this source. House prices and high rents have stopped the flow of returning emigrants. There is nothing in the Budget that offers any hope that rents will stabilise and that houses will become more affordable, so no new workers are available from this source.
Some of the income tax changes will have a marginal effect on the participation of women in the workforce, but any advantage gained is lost by the absence of a focused policy on childcare.
The lack of affordable childcare is keeping women out of the labour force, is ensuring part-time rather than full-time participation and is forcing some women to opt out. Women must have a free choice on whether to work outside the home or not, and the freedom to move from one role to the other at different times in their lives. The lack of a developed childcare policy is a major flaw in the Budget.
The Government has also failed to speed up the capital programme. The National Plan is well behind schedule, a significant proportion of this year's capital remains unspent, no Public/Private Partnerships have got off the ground, planning offices are choked with applications, and the National Roads Authority is failing to deliver. The Government conducts very few value-for-money audits, and at a time when the quality of the spend is as important as the quantity, chucking more money at the same failed systems and structures will not solve the nation's problems.
When additional demand of almost £4.5 billion is injected into an economy at full employment, with an inadequate infrastructure, there can only be one result: inflation and its twin, congestion.
As a result of this Budget congestion will increase, queues will lengthen, there will be a movement of workers from the public sector to the private sector, and the frustration of public servants, especially those in the health services, in education and in transport, will increase.
It is surely an irony of our times that as prosperity increases d quality of life deteriorates.
The big losers in this Budget are persons on welfare. The basic allowances and benefits have been increased by only £8 per week, just enough to keep pace with rising prices. This politically cute Government has made a cynical calculation: taxpayers tend to vote, persons on basic welfare tend not to and so can be ignored.
A Budget is always about choices. The Government chose to reduce the top rate of tax by 2 per cent. If they had used the money this will cost to raise welfare payments further, the increase would have been £14 per week rather than £8.
Our society becomes progressively more unfair. If we can't lift people from poverty when times are so good, what hope is there when times get bad again? We need a new social contract which guarantees an adequate income and quality public services for all the people.
Fine Gael believes the level of the high rate of tax is less important than the level of income to which it applies. The high rate now applies at too low a level of income. Fine Gael in Government would favour a new rate of tax at 31 per cent, halfway between the standard rate and the higher rate. This would ensure a more gradual movement to higher rates as income increases.
The Government has continued to implement its version of individualisation, although the word is not mentioned even once in the Minister's speech. In the next tax year a family where both spouses earn will pay tax at the higher rate on income in excess of £40,000, while a family where one spouse earns will pay at the higher rate on income in excess of £29,000. This is clearly unfair. In Government, Fine Gael will restore parity between one-income and two-income families, in so far as the tax bands apply to their income.
Michael Noonan is Fine Gael spokesman on finance.
Tomorrow: Ruairi Quinn of Labour.