McCreevy's mind games
FF/PD budget estimates discriminate against Irish business
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Yet again another Dublin Government is set to ignore the need for
wholesale reform of a tax system
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It's budget time again and now with the demise of our rugby and
soccer teams it is time to turn to a more dependable national
pastime, that of predicting the details of the 1998 spending and
taxation plans of the Fianna Fail/Progressive Democrat coalition.
The spending estimates were launched last week by smiling Finance
minister, Charlie McCreevy. Smiling, I suppose, because he is in
the unique situation of having considerable scope for an
imaginative budget where the social and economic inequalities
that permeate the 26 Counties could be tackled both effectively
and comprehensively.
Maybe McCreevy was smiling because he had successfully crossed
the first hurdle that awaits Finance ministers presenting their
inaugural budget. The estimates he published last week account
for Dublin Government spending that will total over £12.5 billion
in 1998. The hurdle he crossed is that he, like his predecessors,
has managed to get the media and a range of usually competent
economic pundits to get hung up on a mere £500 million of this
money.
TAX SOLE ISSUE
The sole budget issue that grips most of the state's economic
commentators is what changes will McCreevy introduce in income
tax. Will he reduce the 48 and 26 percent tax rates? Will he
broaden the 26% band? Will he increase the personal allowances or
perhaps his measures will be a combination of the three measures?
For every £1 invested in Irish companies nearly £3 will be
invested in foreign companies by the Dublin Government.
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There has been almost no comment on whether some taxes should be
raised. For example the question of a wealth tax has been
forgotten. There is some debate on what plans McCreevy has for
corporation tax. Instead, the media are fixated on endlessly
discussing the possibilities of spending the magical £500 million
in tax cuts. We are not even sure if there really will be £500
million of tax cuts announced on 3 December.
On the subject of £500 million what would be the most equitable
way to split up such a cut in income taxes? The answer seems
quite clear. The fair thing to do would be to help those on low
pay. One simple method of doing this would be to increase the
personal tax allowances of single people by £1,000 and married
couples by £2,000.
According to the Department of Finance Ready Reckoner tax
calculation document, this would cost £486 million in a given
year. This leaves the neat figure of £14 million left over from
the mythical £500 million. This could be donated to Celtic to buy
perhaps one or two top of the range players.
WEALTH TAX
On a more serious note, it is must be said that yet again another
Dublin Government is set to ignore the need for wholesale reform
of a tax system which penalises PAYE workers in favour of
business and the top earning elite.
Why are there no plans to introduce wealth taxes, especially on
those whose investments earn them returns without them completing
a day's work for these benefits? The vast bulk of this investment
income is not even put back into the Irish economy. It is
building economies on the other side of the world. When will it
be the right time to cull the tax rats who hide their income in
offshore accounts?
However, getting distracted on the tax issue is perhaps just what
McCreevy and his coalition partners want us to do. Look for
example at the spending proposals in Mary Harney's department of
Enterprise Trade and Employment. Spending plans in this
department are crucial as Harney is responsible for formulating
and implementing the policies that will shape economic
development in the coming years.
IDA INCREASES
Total spending in the department will reach nearly £790 million
in 1998. Much of this money will be spent on IDA Ireland and
Forbairt, the twin industrial development agencies. IDA Ireland
is responsible for encouraging foreign multinational companies to
come to the 26 Counties. Forbairt is responsible for aiding
domestic industries.
The estimates show a 41% increase in IDA Ireland's grant for
administration and general expenses. This will cost £11 million
in 1998. Grants to the IDA for industrial development will
increase 12% to £134 million. Building grants will increase by
15% to £6 million. Part of this increase could be due to the fact
that the IDA proposed this year to offer higher grants to
companies that site in rural areas. The fact that grants are
already higher than necessary seemed lost on IDA management.
Grants to Forbairt for its administration and general expenses
also increased by 15% to almost £19 million. However, grants to
Forbairt for industrial development of Irish companies will fall
by 3% to just over £48 million. This means for every £1 invested
in Irish companies nearly £3 is invested in foreign companies by
the Dublin Government.
This 3% decrease might seem like a small cut in funding but in
1997 Forbairt funding for industry has already been cut by 24%.
We contacted the department to discuss these cuts and they
explained that the decreases were solely due to time changes in
when funding was allocated. In 1996, some development projects
came on line earlier than was anticipated and so more funding was
needed in that year. This though does not explain the imbalance
in funding between the two agencies.
HOUSING PLANS
In some other areas there will be substantial spending increases
by the Coalition Government and they must be welcomed
particularly the 15% increase in funds for buildings, equipment
and furnishing in primary schools. The problem is that this 15%
only adds up to an extra £5 million. The dire situation in many
schools needs a lot more than an extra £5 million to solve. Maybe
this glaring need is another argument for a wealth tax.
Also on the welcome list is the 25% increase in spending on local
authority and social housing programmes to £223 million in 1998.
This is perhaps one of the most positive elements of the
estimates. Again though there are unanswered questions. There is
a dire need for public sector housing, but a return to the huge
unmanageable estates built in Dublin, Cork, Limerick and Galway
in the 1980s and early 1990s would be a failure.
Time will tell if the coalition can put some detail onto these
estimates. For now it seems they have failed the test of moving
towards a more equal society.
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