By Michael Taft.
Tax cuts and tax increases, spending cuts and spending increases, a little taken off here, a little bit added there: what is the story of Budget 2015? What is the narrative arc? Is there one? Like in a pointillist painting, if we concentrate on the particular dots we can’t see the image. Let’s take a step back in order to get a better view.
First, don’t mind the commentary: austerity hasn’t left us; it has morphed into a new shape. Previously, Ministers announced spending cuts and tax increases. After seven years we know the look of that.
Now it has changed form. We still have austerity but it is below the radar. Public spending won’t keep pace with inflation – which means it will be cut in what is called real terms. And these real cuts will be severe enough.
Up to 2018, government spending will fall by nearly €4 billion in real terms (ie allowing for the general level of inflation) or 10 percent for each woman, man and child. Public services will be cut by nearly eight percent in real terms per capita. That’s less money on hospital, schools home-helps, SNA, pension supports, and a range of services and income supports. Austerity remains quartered in the house, whatever we call it.
Second, the living standard for most is likely to fall next year when we take inflation into account. Social-protection rates have been frozen and inflation is rising, albeit, slowly. The Christmas bonus and increased Child Benefit will do little to ameliorate the thrust of this decline.
For those in work there are cuts in the Universal Social Charge and income tax. However, 70 percent of those in work earn too little to benefit from the cut in the top rate of tax or the extension of the standard-rate tax band.
And then there are those water charges. The extra charge will in effect wipe out most gains from USC and income-tax cuts. And in a strange quirk, hundreds of thousands of low-paid workers will get neither the €100 social protection top-up nor the water-tax credit because their income is too low. They are stuck in no-support land.
The Government ‘spent’ over €600 million in tax giveaways and still managed to reduce people’s living standards. Quite a feat.
But there’s a larger issue here. Most believe the Government can only increase living standards by cutting tax. In other European countries they do things differently. Take childcare: in Ireland, households can pay up to €800 or more a month for a childcare place. In continental Europe, households can pay as little as €200 per month and even less if low-paid. That’s because childcare is treated as a public service provided by the local authority.
Imagine if your childcare care costs fell by €600 a month by adopting the European public service model. This is far more than any tax cut could ever deliver.
We could run through a whole list – free schoolbooks and school transport, lower bus and rail fares, heavily subsidised prescription medicine, free or low-cost GP care, free higher education. Boosting people’s living standards requires investment in public services and income supports. Ironically, tax cuts can undermine the Government’s ability to gather the revenue to make this investment.
Third, investment is the key to driving economic growth. Imagine how we could improve Irish business performance if a next generation broadband network was connected to every enterprise in the country. Or a state-of-the-art water and waste system that didn’t leak. Or the best possible educational facilities from pre-primary to university. We would be a far wealthier country.
Instead, we have an investment crisis with the lowest investment rates in the Eurozone. And the Government intends to cut its own investment over by over 15 percent in real terms up to 2018.
Like austerity, this investment crisis will go unseen. We don’t miss a bridge we don’t have. It will be a drag on long-term, sustainable growth but there will be no current affairs programme dedicated to this subject and little commentary in the Sunday papers.
When we step back to take in this budget the image remains blurry. It is hard to know what picture the Government was trying to compose. Whatever the intent, this is not an expansionary budget that boosts living standards or drives productive growth. What a waste of the universal appetite for change. •
Michael Taft is Research Officer with Unite the Union