Budget 2015-Thankful for small mercies?

Pearse Kenney – Senior Tax Manager with HC Financial Advisers Ltd

After 7 years of austerity Budgets it made a welcome change to anticipate last week’s Budget without a sense of dread, as had been the case with Budget day since Ireland’s economic nosedive at the end of the last decade.

In the weeks leading up to the Budget, Government ministers, buoyed by strong economic data and improving Exchequer returns, signalled that Budget 2015 would begin the process of income tax reductions and increased welfare spending over the next few years.

The anticipation then was that, unlike in the last few years, this Budget would give back more than it would take away. And on Budget day, with the Government springing more leaks that the Irish water system, much of how Deputies Noonan and Howlin would deliver this was already known before they took to their feet to deliver their respective speeches.

The 1% reduction in the higher rate of income tax, the widening of the income tax bands to increase the entry level at which the higher rate of tax kicks in and the reduction of the lower USC rates were met in the main in the spirit of that we should be thankful for small mercies.

Opposition parties were of course at pains to point out that the gains made here would be wiped out in many cases by the water charges which will begin to bite next year. But that seems to be the role of opposition parties on Budget day, to snipe at the measures introduced when the probability is that had they been in power their Budget would be of a similar composition. Minister Noonan of course would know the score here, being a dab hand at it himself in the past.

To lessen the benefit of the reduction in the higher rate of income tax and in the lower USC rates for high earners, a new 8% rate of USC was introduced for those earning more than €70,000 and for the self-employed a higher rate of 11% will now be charged on earnings in excess of €100,000. The self-employed rightly feel aggrieved at this measure. Not only at the rate but at how it distinguishes between the self-employed and those in employment.  In addition, it seems at odds with the Government’s aim to promote entrepreneurship. However, sympathy here was in short supply last week.

On the expenditure side, the €2.2bn three year fund to build 6,700 homes was a welcome announcement as was the promise to create 1,700 new full time education posts including teachers, resource staff and special needs assistants. The end of the moratorium on Garda recruitment was also long past due.

Despite the Government’s protestations, last week’s Budget was evidentially an election Budget. And the shoehorning of a tax relief for those paying water charges would point to that. The Government did not heed the calls of the Fiscal Advisory Council and others to push through with a €2bn adjustment despite the improving economy.

Wise counsel this may have been and indeed might prove to be given the real threats facing the global economy which could put the brake on what is still a nascent recovery in our economy.  However, this was never going to happen when faced with a public demanding a slice of the recovery. And for the Government to continue to charter the same austerity course would have meant curtains at election time.

Minister Noonan ended his Budget speech by quoting Robert Frost’s “The road not taken” where he compared the choices faced by Frost at “Two roads diverged in a yellow wood” to the choices we had in progressing Ireland’s recovery.

Unlike previous Governments, where the most oft traveled road was one of “tax and spend” which led to cycles of boom and then bust, Minister Noonan, like Frost, was determined to take the road less traveled.  The road now to take, he said, was one of prudence and caution which would bring with it; investments, jobs and strong economic growth, without a fear of bust.

An admirable ambition though it may be, it remains to be seen how the measures introduced by Budget 2015 will contribute to this lofty aim. For now we would be satisfied if our Government’s budgetary process no longer seemed like, as Frost remarked about banks “a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain”

HC Financial Advisers….we advise

 

 

 

 

 

 

 

 

 

 

 

 

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