Martin ManserghPolitics is more diverting than policy. The tribulations of a junior minister create far more excitement in Dáil and media than important Budget initiatives. A feature of politics, with a general election on the horizon, is the crude reductionism applied to more and more decisions. The significance of the Budget is thus not how it affects, say, parents with young families, or care of the elderly, but its impact on the electoral prospects of the Government.
Minister for Finance Brian Cowen, his colleagues, and officials preparing the Budget, while they cannot ignore political realities, might actually be interested in providing good government and addressing problems effectively, in ways that may only have a real impact beyond the next election.Every elected person, whether or not they are ever officeholders, wishes to make a positive difference. The Budget did not go overboard. Its objective is stable and sustainable progress. Government spending remains at about 33 per cent of GDP, and is set to grow at 10 per cent, a similar annual level to previous years.
The public good matters more than the exact fulfilment of programme commitments. If governments find better or more equitable targets than those they have promised, they should not be afraid to substitute them.
Removing those on the minimum wage from the tax net, even if it has to be done repeatedly; ensuring that a third of income earners do not enter the income-tax net; and leaving those on the average industrial wage on the standard rate; all matter more than the exact percentage left in the higher-tax band, many of them only on a marginal portion of their income. The restoration of the standard rate band to its 2002 value meant that little more was heard about stealth taxes.
Insulating hauliers and other road users from world oil price rises would not be a good idea from an environmental point of view. The problem is diminishing for the moment, with prices at the pump falling quite rapidly.
Brian Cowen has a strong but sensible egalitarian streak. He has gone through with phasing out most construction incentive schemes. He has capped the writers' and artists' tax-free status at €250,000, more as a statement of principle than for any revenue likely to be collected. There are 2½ years in which to find a satisfactory replacement to the stallion fee exemption, knocked by Europe after 35 years. The Financial Times noted that one external intention of the Budget is to dissipate any false notion of Ireland as a tax haven.
While all the focus has been on a few wealthy people using such schemes with the help of accountants to avoid paying tax altogether, nonetheless, high earners contribute by far the greatest share of income-tax revenue, the top 1½ per cent providing 25 per cent of the revenue, and the top 4 per cent providing 40 per cent.
Another newspaper asks in an editorial whether tax cuts have been abandoned. We have established a competitive and comparatively low tax régime. So, until the gaps in our public services have been adequately addressed, the blunt answer at the higher levels is "yes" for the moment.
The €17 increase in welfare payments and increases related to earnings rather than inflation show that the Inchydoney agenda is alive and well, and was not just a once-off. Particularly welcome is some freedom for older people to supplement their income and contribute to the community without forfeiting their non-contributory pension.
The Government, department officials, the social partners and others have been grappling with the problem of childcare costs since the late 1990s. Then, the Government decided on large increases in child benefit plus measures to increase the supply of places as the solution. It became increasingly clear that this was not enough. If there were any lingering doubts, the Kildare North and Meath by-elections dispelled them. At the same time, the Government was determined to avoid a divisive approach, that would, for example, have privileged both parents going out to work as opposed to one parent remaining in the home to rear small children.
The €1,000 cash grant for parents of children under six is the equivalent of an old-style €5,000 tax allowance, such as was promised but not implemented in the 1997 Fianna Fáil election manifesto. It is also equivalent for that age category to a 140 per cent increase in the child dependant allowance, frozen since 1996 for the reason that it is not a good idea to build up a child payment that has to be taken away, once the parent goes out to work. Important for encouraging supply and keeping down crèche prices is the pragmatic €10,000 tax exemption in favour of childminders for up to three children from outside the family home.
The responsibility for co-ordinating the whole area of children's welfare is given to Minister for Children Brian Lenihan, partly in recognition of the impact he has made in his existing areas of responsibility.
The budgetary scope here is far greater than in most partner countries, as was evident from Gordon Brown's pre-budget statement in Britain earlier in the week. As other countries grapple with faltering growth, persistent deficits running up against or over the limit, obstinately high unemployment, and the necessity to cut back on long-cherished social entitlements, Ireland is in a uniquely fortunate budgetary position.
The proposition that, nonetheless, the country would be even better off with a change of government will be the battleground for the next election. What is less debatable, however, are the benefits of negotiating a new social partnership agreement, so that challenges can be faced together. The Budget has certainly laid the basis for that, once the Irish Ferries dispute is resolved.