Republican News · Thursday 5 December 2002

Broken promises

BY ROBBIE MacGABHANN

We knew there would be no more cuts in income tax in this Budget. We hoped that this would be the Budget where the government would wake up and start the process of introducing some equity into the tax code.

It would be a simple matter to end the tax exile status and announce a review of the €8.5 billion in tax reliefs allowed by the government to certain tax payers every year. We hoped that Fianna Fáil and the Progressive Democrats would fulfil just one election promise and take the low paid out of the tax net. None of this happened. In fact, it got worse.

Corporation tax on business profits was cut from 16% to 12.5%. Mortgage relief was increased for first time buyers, which makes some amends for the loss of the first time buyers grant, but it would take a new home owner ten years to realise the benefits.

So as workers saw their income tax demands virtually unchanged, businesses saw their profit margins rise. Then, McCreevy announced an increase in the basic rate of VAT from 12.5% to 13.5%. This VAT increase will make all home heating fuels more expensive and will drive up house prices, as the tax applies to building materials, especially concrete and concrete blocks.

McCreevy announced some cuts in the tax reliefs, but the promised review has not materialised. So, it's another year of property reliefs and still time to invest in racehorses, or move to sunnier climes and become a tax exile.

For those buying the second or third home, it's also another year of mortgage relief on your investment. McCreevy claimed in his budget that one of his key budget objectives was "investing in the future". It seems that this only means the future wealth of the already rich, while the vast majority of taxpayers are actually worse off this year. Now, wasn't that a surprise.

Protecting the weakest?

Over the lifetime of the past government the gap between the high and low earners widened to the point that now the top 10% of earners have a disposable income 13 times that of the lowest earners.

McCreevy hyped up the €530 million increase in social welfare spending. However the €6 a week increase in the basic social welfare payment was way below the €14 rise recommended by Combat Poverty. This increase would keep the government on target to meet their inflation linked target of €150 a week payment by 2007. The truth of McCreevy's €6 a week payment is that the poorest section of society is falling further and further behind the wealthy.

One promise McCreevy did admit that he had broken was that on child benefit. What was a promise to increase child benefit by €1.27 billion over three years will now be stretched to five years. What McCreevy completely forgot to mention was what has happened to the once promised childcare strategy.

So it will be another year where hundreds of thousands of workers, putting in long hours to meet high mortgage prices, will have no respite in the thousands of euro they spend annually on childcare costs. Another promise broken.

Business benefits

Apart from the slashing of corporation tax to 12.5% from 16%, business did well. Yes they will have to absorb the VAT increase but no doubt this increase will be passed quickly on to the final consumer, leaving the PAYE worker paying for the VAT increase twice.

However, the low rates of employers' PRSI will continue, giving business another year of one of the lowest payroll taxes in the world. McCreevy could have kept corporation tax at 16% and then allowed tax relief to businesses that invested in research and development or education and training for workers. This was not to be, as he handed another giveaway to business.

Infrastructure crisis

With road traffic gridlock, a creaking public transport system, hospital waiting lists, 54,000 households waiting for housing, hundreds of substandard school buildings and a electricity network desperately needing new power stations, we clearly have an infrastructural deficit in the 26 Counties.

McCreevy's budget speech spoke of "our vision for the development of the infrastructure required by a modern dynamic society". He then hyped up the €9 billion spent so far on the National Development plan. There was no mention that even though he had spent €1 billion more than originally budgeted for, there was still massive cost overruns and delays in projects. In short, the plan is in a mess.

McCreevy didn't mention the millions wasted on the now defunct national stadium plan that are part of the €9 billion. He did find another €209 million for road spending just a week after a National Economic and Social Council (NESC) report recommended that the government re-evaluate the road building projects.

It is clear to everyone that new roads will not solve the traffic gridlock all over the 26 Counties. We need to invest in public transport, yet McCreevy is willing to push back the LUAS in Dublin and the much need rail investment projects.

What McCreevy forgot

While Charlie McCreevy might have sought to be brazen in his claims that he was a prudent economic manager, there were some things he forgot. He forgot to mention housing in this Budget.

There has been amnesia about the housing crisis. With house prices still rising and some estimates putting the elimination of housing lists as taking another 40 years, the coalition government has actually cut spending on local authority and social housing.

There was, though, a mention of the need for environmental taxes. However that's all it was - a mention. We have to wait until 2004 for the government to pull out this particular finger.

Also forgotten is how McCreevy will develop business, given that the grant budgets for Enterprise Ireland, Shannon Development and the County Enterprise boards have all been cut. Again, silence from McCreevy.

McCreevy said that this Budget has "been developed within a three-year framework". If this was chapter one, it can only get worse.