After the political holiday season – where events such as the London Olympics provided a welcome diversion from all things political and economic – the onset of autumn and the return of the Dáil has brought us all crashing back to reality.
Unpalatable choices
While a myriad of issues have been making the headlines, the common thread linking the bulk of them is December’s Budget. For instance, many of the controversies dogging the Department of Health recently can be attributed to efforts to balance the Department’s budget. The Government is faced with some unpalatable choices in chasing this goal and the choices it has taken have led to some serious controversy and some embarrassment - the furore over the recent decision to reduce services such as home help and the subsequent U-turn.
Leaving aside the role played by allegations of ‘stroke politics’, it is these choices which have led to much of the tension between Health Minister James Reilly and former junior minister Róisín Shortall, a point emphasised by her in the aftermath of her resignation.
In a more general sense, one of the big decisions facing the Government across the various departments is whether the Croke Park Agreement can or should be honoured without impacting negatively on front-line services. Expect to hear some vigorous debate on this in the coming weeks.
We can also expect further questions asked about the justification for the very high salaries of some public servants – such as hospital consultants – at a time when the health service is facing significant cuts.
Some issues such as the future of small schools – an especially hot topic across County Galway – will continue to make the agenda and have the potential to make life very uncomfortable for Government TDs.
Poor political management
On a political level, the Government has not fared well from the recent debacle of not delivering on its promise of significant savings arising from a review of allowances paid to some public servants.
The PR management was poor – as Insider heard one observer remark, the Government over-promised and under-delivered, which was a bad case of doing things the wrong way around. Also, Brendan Howlin’s credibility in carrying out his role of ensuring that other Government ministers deliver cost savings is significantly undermined by being the Minister at fault for this.
Clearly the Government has made what is already a difficult task – the need to bridge the yawning gap in the public finance by raising revenues and cutting costs – even more difficult with this haphazard start to the political season. The question on many people’s lips right now however is – ‘What can we expect in this Budget?’
What can we expect?
It is still two months away but already many of the large revenue-raising measures have been well flagged.
Property Tax: The big ticket item on which the Government will be pinning much of its hopes in raising finance will be the new property tax. This is an item that has not only been well flagged for a number of months, but in fact for a number of years now.
Yet, just two months out from its likely introduction, the matter is still riddled with uncertainties, again illustrating poor political management on the part of the Government, eg, Will it be based on property values, property sizes, or will it be a site valuation tax? Will anyone be exempt from it? Will the existing taxes on second homes be amalgamated with it? Who will collect it? How will it be paid and can it be paid in instalments? Ultimately the question really being asked is – how much am I likely to pay?
One warning Insider would make is that most of the valuation techniques that may be used are likely to lead to properties in certain areas facing a higher annual charge – and Galway city is one area which comes into that category.
Much as the Residential Property Tax that was abolished in the mid-1990s was a hot topic in the Dublin area, so this tax promises to be especially controversial in places such as Galway city.
It will therefore prove to be an especially tough challenge for Galway Government TDs and they will hope the Government’s PR campaign on this is better than the household charge, or indeed the other matters referred to above.
When coupled with the likely introduction of domestic water rates in 2014, households are likely to face a significant increase in costs over the next 18 months or so, which will be a considerable threat to Government popularity.
Increases in Income Tax: At the outset, this Government promised it would not increase income taxes. This was a rather lavish promise when the state of the public finances is borne in mind. It is even more so when we consider that the draft programme agreed – admittedly by the previous government – with the Troika included proposals to increase the income tax take by reducing tax credits, bands, and various allowances. The Government was able to pretty much keep its promise in last year’s Budget but Insider doubts it can do so over the next few years.
Increasing income tax is nevertheless not so easily achieved. With marginal tax rates (including PRSI and USC ) exceeding 50 per cent, there is not as much scope to increase the tax yield by increasing rates. On the flip side, reducing tax credits may prove more lucrative for the Government but it will result in lower paid workers being adversely impacted and may lead to concerns about poverty traps catching many families.
It will also lead to the situation where it will not be worthwhile for some low paid workers to stay in work, a point that will lead to pressure on another of the Government’s key promises.
Social Welfare cuts: The second blanket proposal the Government made was not to cut headline rates of social welfare. Again Insider wonders how likely it is this promise may be kept. The Government allowed itself some wriggle room here by pledging not to cut headline rates – so, issues such as eligibility, means testing, and even taxation of benefits may be considered.
Among the more controversial measures being discussed – across the airwaves at least, whatever about across the cabinet table – are the means testing or even reduction in child benefit and possibly the taxation of maternity benefit.
Pensions: Nobody can ever forget the scenes from October 2008 when angry pensioners packed out trains across the country en-route to Dublin to protest against the curtailment of medical cards for over-70s. While Fianna Fáil support would have imploded in the face of the economic crisis, this more than any other controversy caused the single biggest drop in party support and the party still has not recovered from it.
Truly as each pensioner settled into his/her seat on the train, FF TDs and councillors could feel their own seats being pulled from under them. Since then, not surprisingly, pensioners have not been directed targeted for such cuts.
Nevertheless the question must be asked if they should be exempt from making some form of contribution when other sectors of society are being asked to bear significant pain. It is a complicated question on which people have diverging views. Perhaps the challenge for Government is to identify a method of getting some better off pensioners to make a contribution without impacting on most pensioners. However the Government should tread carefully because if it gets this wrong, not alone will it suffer immediate political damage but it will also effectively rule out having a second attempt at this as it will be too toxic.
Coherence and co-ordination
Many people will criticise the focus on PR and spin at the expense of the substance of policy making and its impact on ordinary people. This is perfectly understandable and difficult to disagree with – yet the importance of political management must be emphasised.
The Government, in selling this Budget, must emphasise that it has a clear plan and a clearly thought out strategy, designed not merely to close the Budget deficit, but also to introduce reforms that will be of long term benefit to the economy and society.
The danger for the Government is that it is seen as simply looking in hope for anything that may raise some extra funds for the exchequer.
Also, the impression has been created that the Fine Gael-Labour administration will opt ultimately for the choices that will cause the least short-term offence and that the Government is not driven by a desire to implement a strategy in which it believes.
Recent events have done nothing to dispel these feelings and the Government will have to significantly up its game in the face of what will be a very difficult few months.
