by Frank Schnittger
Tue Dec 7th, 2010 at 09:28:14 AM EST
The draconian budget due to be implemented as part of the ECB/IMF bail-out is due to be delivered at 3.45 pm today. The media is full of speculation as to what it will contain and its broad outline was in any case published as part of the four year plan agreed with the IMF/ECB. In round figures this provided for a 2011 Budget reduction of €2 Billion in current expenditure, a €2 Billion reduction in Capital expenditure, and a €2 Billion increase in taxes. These figures may seem small by European standards but must be seen in proportion to Irish GNP as a whole which is already down to c. €130 Billion. In other words the total €6 Billion "adjustment" amounts to c. 5% of GNP with the cumulative impact of the 4 year plan is estimated as being equivalent to 18% of GNP.
The Capital expenditure reductions will have a direct impact on employment levels and both the current expenditure reductions and tax increases are overwhelming targeted at the poorer sections of society. Few will be fooled by a very few token reductions aimed at high earners - in practice only a very few high earners - by a cap on public sector pay at €250k and token reductions for senior politicians. The vast bulk of the expenditure reductions will come from a reduction in social welfare payments, pensions, child benefits, minimum wage, and public sector numbers and pay generally. Most of the tax increases are targeted at low earners ("a widening of the income tax base"), students (fee increases), and pensioners (abolition of tax allowances).
It is looking increasingly likely that the Budget will be passed by a narrow majority thanks to the Government buying off a couple of right-wing independents with promises of largesse for their local constituencies (funding for a casino, a local hospital and a ring-road etc.). The dysfunctionality of an electoral system based on small constituencies rewarding candidates for the delivery of local largesse (earmarks in US parlance) as opposed to their ability as national legislators and leaders has never been more glaring. Their support also makes it unnecessary for Fine Gael to abstain on the budget and thus enables them to avoid being tarnished by its more glaring inequalities.
Fine Gael will probably now lead the next Government and give us a minor variation of the same - with Labour performing their usual role of propping up a Fine Gael Government much like the Greens propped up the current Fianna Fail administration. The Catholic tradition of self-mortification seems to be alive and well.
I will add further details of the budget below the fold as they emerge.
Key points:
1. 4% reduction in social welfare rates
2. €10 per week per child reduction in child benefits
3. Public service job loses to be ameliorated by "work placement schemes" for the unemployed presumably on minimum wage.
4. 4% reduction in public service pensions above 12k p.a.
5. Future public service pensions based on average rather than final salaries, retirement age to be raised, and increases to be based on retail prices rather than public sector pay.
5. €250K p.a. ceiling for all public servants - top Judges etc. - for NEW appointees only.
6. Property based tax reliefs to be phased out
7. Some tax reliefs on pensions to be phased out.
8. No change to 12.5% Corporate tax rate
9. Temporary reduction in air travel tax and incentives for airlines adding routes
10. Online betting to be taxed at same rates as phone and retail betting. (How will this be enforced on betting sites outside Ireland?).
11. Minor increases in tax on petrol and diesel (why is this very efficient and progressive form of taxing so underused?
12. No increases tax on drink? Well done to the drinks industry lobbyists...
13. Car scrappage scheme retained. - described by one economist as being about as economically useful as a Gucci handbag scrappage scheme
"We will defend our 12.5% corporate tax rate against all comers..."
'nuff said...
