Tax and cut now or later? British and Irish contrasts, as NI edges out of recession

Let’s cover the local angle first – somebody has to. The Northern Ireland MSM’s sparse coverage on line of the implications of both Budget statements suggests that money talk is beyond their ken and that of their audiences. This is a bad mistake and lazy journalism. So it’s thanks to Henry in the Guardian for making the obvious phone calls and passing on the Northern Bank’s assessment that for NI the recession is over – thanks to southern shopping. We can expect a Christmas border boom but will it survive the rise in UK Vat in January? The Indy thought so in a piece last night, given the low pound and rock bottom booze pricing. But this has since been replaced on its website by a more optimistic message from Irish booze sellers. At Stormont, Sammy, who these days seems more subdued under the weight of the finance portfolio is grateful that the axe hasn’t fallen on devolution spending – yet he got no joy out of Darling for post- 2011. We now desperately need an assessment of the scene after both Budgets for the whole island and the north-south implications. On the bigger picture, the Torygraph in austere mode praises Irish realism in dealing with a similar crisis very differently from the UK. In a Telegraph blog, right wing Europhobe MEP Daniel Hannan offers condescending praise to the Dublin government at London’s expense.

I have been disobliging about Biffo Cowen in the past, but the fellow is at least trying to do the right thing..

Reading the eye-watering list of key cuts and taxes in the Irish budget ( see below), I marvel at the news of TDs trooping obediently through the lobby this morning to approve it all in a rush. Will the Unions come to heel? Living the Budget presents a huge test for Irish society. I really doubt if a British government could survive such an onslaught. Can the Irish system hold up? Perhaps. Even after the Budget, Irish welfare scales remain up to a third higher than the UK’s, Stephen Collins in a sober assessment believes that may blunt the impact of the inevitable protest. But it’s a mighty swallow in one lump. Brendan Keenan cautiously endorses Brian Lenihan’s belief that it’s better now than later to do the heavy lifting. But then, he’s not the finance minister certain to face an election in six months.KEY CUTS €16

Child benefit cut by 10 per cent to €150 a month.

€8

Unemployment benefit cut by 4.1% – to under €200.

5-8%

Public sector workers on salaries of up to €125,000 will have wages cut by between 5-8 per cent. Workers on salaries of up to €200,000 face further cuts of between 8-15 per cent

€8.20

Weekly carer’s benefit

50 cent charge on every item on prescription

KEY TAXES

4.9 cent

Carbon tax – diesel up 4.9 cent a litre and petrol up 4.2 cent

€200,000

Domicile levy on all Irish nationals whose income exceeds €1m

  • kensei

    Appearing with his latest budget on the steps of Government Buildings after the Cabinet met to discuss the radical reforms, he admitted: “It is going to be a very difficult budget, but it’s the last of the very difficult budgets.

    “It’s important the public understand this. If we take the medicine now we will bring this economy out of its difficulties.”

    This is a gamble, surely? It’s not clear at all that more won’t be needed next year. Particuarly if Ireland is in a deflation spiral.

  • Dave

    Kensei, the cuts won’t even cover the extra (but unbudgeted) costs of guaranteeing the banks for the first six months of next year.

  • george

    gamble maybe, but the will is there now among a large section of the populace to implement the cuts so obviously Lenihan will do it now.

    Extending mortgage interest relief to those in negative equity until 2017 is a smart populist move. True, it means these people are stuck in their homes but the repossession waters just receded slightly.

    Announcing that mortgage interest relief will be abolished entirely in 2017 is also a smart move. This would have been unthinkable 18 months ago as it would have been a certain election loser.

    Now, it barely merits a footnote. Times have certainly changed.

    Whether it’s moving chairs on the Titanic, we’ll find out soon enough,

  • Mack

    Irish welfare scales remain up to a third higher than the UK’s

    Nope, they remain up to three times higher.
    Massive difference..

  • Mack

    Here are some more –

    Effective tax rate for high earners availing of reliefs to increase to 30% (plus PRSI and levies) for the tax year 2010.

    Preparation for the introduction of a property tax and water charges in 2011

    Preparation for the introduction of a property tax and water charges in the future.

    The reduction in the public sector pay bill will be nowhere near as severe as reported, particularly at the lower levels. Annual increments have been left in place, but the payscales adjusted downwards. This means that PS workers will move up a notch on the payscale (even those at the top get long term service increments). Within 13 months, the effects of the cut on lower paid workers will be undone.

  • Mack

    Missed this – tackling of tax exiles.


    Non-resident Irish nationals or Irish domiciled individuals with worldwide income in excess of EUR1m and Irish located capital in excess of EUR5m will be subject to an Irish domicile levy of EUR200k per annum.

    http://www.pwc.com/ie/en/budget/budget-2010_highlights.jhtml

  • kensei

    George

    gamble maybe, but the will is there now among a large section of the populace to implement the cuts so obviously Lenihan will do it now.

    I didn’t mean the cuts, which could worsen matters by hitting demand, I meant selling this one as the last bad one. It isn’t at all clear that’s the case at this point.

    What do they say next year if they need another 5%?

  • Mack

    Kensei –

    meant selling this one as the last bad one

    Yep, that perplexed me too. It was terrible local politicking but I think his real audience was the international money markets.

  • Mack

    Brendan Keenan gives an explanation of why subsequent budgets may not have to be as severe as this one

    http://www.independent.ie/opinion/columnists/brendan-keenan/brendan-keenan-brians-brutal-budget-means-hard-part-is-over-1969464.html

    So the deficit on government activities in 2011 is now planned at 10pc of economic output (GDP), instead of the 8.5pc pencilled in last April. That alone is a difference of €2.5bn.

    An even neater trick is using the assets of the pension funds of universities and some semi-state bodies. These are so hopelessly bust that they had to be transferred to the Government via the National Pensions Reserve Fund (NPRF).

    They will cost future taxpayers a not insignificant sum. But they are saving the present taxpayers because Mr Lenihan has decided the transfer of their investments means he does not have to put the normal 1pc of national income into the fund in 2011 or 2012. He will save €2.3bn that way.

  • george

    Kensei,
    I get you now and like you amn’t sure this is the last of hairshirt budgets either although next time around I would assume it will be the introduction of general water and property taxes rather than targeting the Public Sector in particular as has occurred here.

    Keenan’s explanation highlighted by Mack is very interesting.

    Also, apart from the mortgage interest relief issue, another major point is the flagging up the property tax by Lenihan.

    In my view, this means people will most likely hold off on buying a house in 2010 too as this will likely involve a restructuring of the whole stamp duty process.

    Nobody is going to stump up tens of thousands in stamp duty if they think it could be abolished by 2011.

    Lenihan is going to have to give clarity on that sooner rather than later.

  • 6countyprod

    condescending praise – Biffo … trying to do the right thing

    Maybe I’m wrong, but do I detect similar condescension from Mick when he references Ian Paisley jnr? I know the belittling term that Mick employs really irritated Indiana Jones!