22 November 2014
B
UDGET 2015 was inequitable, with the balance
of taxation measures disproportionately
benefiting middle and high earners. Rather
than cutting taxes for higher earners it would have
been fairer to begin reversing some of the cuts from
previous budgets. Reversing cuts in social welfare and
public services, especially in the areas of disability
and mental health could have been prioritised.
Budget 2015 signals the Government’s clear
intention to pursue an economic policy based on a
low-tax and low-spend model. This means continuing
with low levels of taxation and spending compared to
other European countries. Public expenditure and
capital investment could have been used as a key
driver of economic growth rather than tax cuts.
Budget 2015 was trumpeted as bringing an end to
austerity. The reality may be that it is just making it
less visible.
There were few surprises in Budget 2015. The
Government had publicly set out its plans in broad
Budget
should have
announced
borrowing to
fund public
infrastructure
investment
Hiding, not ending, austerity
SINÉAD PENTONY
shortsighted
November 2014 23
terms in the lead up to the budget. The improving
macro-economic context and the fact that this is the
second last budget before the next general election
clearly influenced the decision-making process.
The Department of Finance forecasts a growth rate
of 4.7% in 2014 and 3.9% in 2015. On the basis of
these growth rates, and other positive news on
exports, employment and unemployment, it is
predicted that the deficit target of 3% will be reached
with some comfort. The Government is aiming for a
deficit of 2.7% of GDP, which allowed it to loosen the
purse strings by just over €1bn.
Our debt level is still extremely high and it can only
become sustainable with strong growth and low
interest levels. While both of these indicators are
positive in the short term, the medium-term picture is
much less clear. This means we should be
strengthening public finances and ensuring the
economy can grow sustainably into the medium term.
Our public finances remain fragile. A decision to
expand the economy through tax cuts is very short-
sighted. There is much debate about the level of
taxation, especially income taxes, in Ireland but
considering the overall level of taxation, Ireland
remains a low-tax country. This will be re-enforced by
the taxation decisions in Budget 2015. The Nevin
Economic Research Institute Quarterly Economic
Facts (Autumn, 2014), shows that our overall tax take
in 2013 was 35.9% compared to 45.7% for the EU as
a whole (Chart 1).
The main taxation and charges measures in Budget
2015 are summarised below:
• Acutinincometaxfrom41%to40%andthe
standard-ratethresholdincreasedby€1,000.
Thiswillreducethetaxtakeby€405million(in
afullyear).Thesechangesareregressiveand
disproportionatelybenethighearners.
• ChangesintheUSCincludeincreasingtheentry
pointtotheUniversalSocialChargetojustabove
€12,000;reducingthe2%and4%USCratesby
0.5%,to1.5%and3.5%respectively;
introducinganew8%rateforearnersover
€70,000;andan11%rateofUSCforself-
employedincomeinexcessof€100,000tolimit
thebenetsofthesechangesforthetop10%of
earners.Thesechangeswillreducethetaxtake
by€237millioninafullyearandwillbenet
mostearners.
• Waterchargesarebeingintroducedonthebasis
ofconsumptionwhichisregressive.Budget
2015willgivetaxrelief(€40million),butthis
willonlybenetthoseearningenoughtohavean
incometaxliability.
• Increasesinexciseoncigarettesandan
extensioninbettingdutywillincreaserevenue
by€78million.
• Budget2015introduced€80millioninnewtax
breaksforcorporations.The‘DoubleIrish’will
bephasedoutin6yearstimeanda‘knowledge
box’willbeintroduced.
Government expenditure is the other side of the
budgetary equation. In 2013 our Government
Chart 1: General government revenue as a % of GDP, 2013
Source: Eurostat government statistics, 2014
Source: CSO, ‘Measuring Ireland’s Progress 2012’
Chart 2: Gross xed capital formation (2008-2012)
24 November 2014
expenditure was 42.9% of GDP compared to an EU
(28) average of 49% of GDP. Budget 2015 expenditure
measures include:
• An overall increase in expenditure of almost €640
million which is modest, but a welcome change from
the last six years of cuts in spending.
• Increases in the current spending of €428 million
which includes health, education, environment,
community and local government.
• Partial reinstatement of the Christmas bonus for
social welfare recipients and €5 increase in Child
Benefit.
• Increase in capital spending of €210 million
targeted at education, health, social housing and
other areas.
• The biggest capital spending announcement was a
package of measures worth €2.2 billion for social
housing for the next three years, which includes
Public Private Partnerships and an off-balance
sheet financial vehicle for investment to Approved
Housing Bodies.
• Much of the other spending is aimed at dealing with
increased demand for public services as a result of
demographics – a growing and ageing population.
This means there will be very little by way of
investment in these essential public services.
While increases in public expenditure and
investment are welcome, the detailed Budget 2015
document shows a planned reduction in public
investment (Gross Fixed Capital Formation) between
2014 and 2018. However, the Government plans to
increase public investment ‘off the books’ through the
Ireland Strategic Investment Fund, which will have
almost €7 billion to invest over a number of years.
While this will increase the overall level of public
investment in infrastructure, Ireland will continue to
lag behind EU levels of investment because the current
level of investment is almost half the European
average (see Chart 2).
The opportunity to borrow money for investment at
a time when interest rates have never been lower, and
the rate of return would be significantly higher than
the cost of borrowing, is being missed. It is clear that
the Government’s priority is to ‘balance the books’ by
2018 instead of front-loading investment to address
the infrastructural deficits that may impede
sustainable growth and competitiveness in the
medium term.
This approach to managing the public finances
illustrates the absence of a vision for the economic and
social development of the country in the medium to
long-term. •
OPINION PENTONY
Our public finances
remain fragile. A
decision to expand
the economy through
tax cuts is very short-
sighted
“
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