Thursday, December 8, 2011

08/12/2011: Budget 2012: Irish Daily Mail

Here is an unedited version of my article in the Irish Daily Mail covering Budget 2012.

Budget 2012 was billed as a path-breaking departure from the previous budgets. Quoting Minister Brendan Howlin, “Our budgetary process, …is about to change fundamentally.” The Government has been quick to stress the key concepts, that, in its view, were signaling a departure from previous 3 years of failed policy of capital cuts and tax increases, that yielded stillborn recovery we allegedly enjoy today.

Yet, in the end, Budget 2012 came down to a familiar hodgepodge of picking the proverbial low hanging fruit and covering up painful hit-and-run measures with platitudes. Once again, the nation is left with neither a long-term’, nor a ‘strategic’ model for fiscal sustainability.

We knew who were to be hit the hardest by this budget before our value-for-money busting duo of overpaid ministers set out to speak this week. The budget came down hard on the marginal groups across the less well-off: single parents, students, those reliant on public health. Old story by now. A well-tested strategy of Brian Cowen’s cowardly ‘leadership’: hit the smaller minorities as a token of ‘reforms’ and then decimate the silent majority of the middle class at will. At any cost, avoid taking on directly large vested interests.

And so, Budget 2012 cut into what effectively constitutes the largest tax rebate for the middle class – child benefit. And then it raised taxation on ordinary households. Healthcare costs – public and private went up - dressed up as 'savings' in the ministerial  speeches. Fuel taxes, VAT, DIRT, tobacco prices, household charge – you name it. Old story, once again: there is no change, no strategic approach, no long-term thinking.

Middle class that will see cuts to child benefits are ‘the new rich’, who also pay extortionary childcare costs and health insurance and after-school costs, all linked to having a real family. They finance mortgages that sustain the zombie zoo that is our banking sector. Although we did get some long overdue tax relief increases for mortgage interest for properties bought in 2004-2008, the measure is too little and too late to help the younger families pushed against the wall by the other budgetary measures.

Even adjustments in USC threshold came at a cost of applying cumulative basis to the levy on ordinary earners, implying higher tax clawback for the middle classes.

The new household charge, like the USC charge before it is not ring-fenced to cover any specific services the state might provide to the households. It is a pure tax, designed to finance pay increments to the public sector, pensions schemes rewarding early retirements in the civil service, dosh for advisers who help devise these policies of systematic impoverishment the middle class, the wasteful quangoes that the coalition is afraid to tackle.

The reductions of 6,000 via voluntary early retirement are both excessively costly and absurd from the point of view of improving public sector productivity. There are no reforms paths and no value-for-money benchmarks. The reduction target falls on those with more seniority on the job, not on those with lower ability or willingness to perform it. Good workers can be incentivised to leave their jobs, while bad workers can be encouraged to stay put.

And there is not change to the very source of our serial failures to reform Public Sector – the Croke Park agreement. Having delivered no change in the operations of the sector in two years of its existence, this deal has shown itself to be the core obstacle to reforms. But the Government continues to drone on about the inviolability of this compact with the largest vested interest group in the economy.

In the end, the only ‘fundamental change’ in the pages of the first FG/LP Budget is the clear departure from the numerous pre-election promises the coalition showered upon the gullible electorate.

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