14 October 2008

Shock and Awe - The 2009 Budget

There have been many speculations over the past few weeks regarding the 2009 Budget and what it - or more precisely Brian Lenihan - might do to us. The fact that the budget date was brought forward to deal with the recession and the major crisis in the financial sector has hyped-up expectations even more.

For days the rumour mills were rattling in Dublin, and along the Liffey many political kites were seen flying about. But no-one knew for sure what to expect in detail, in particular since the new Minister for Finance only took over the department in May, and this is his very first budget. He is also a lawyer - like his predecessor - and thus not necessarily best qualified to deal with finances and the economy.

This afternoon at 3.48 p.m. the waiting was over when Brian Lenihan rose in the Dáil and read out the 2009 Budget. Before I go into details, let me just say one thing about the delivery of the speech as such. We can deduce from the way Lenihan spoke that he is not a natural orator. He sounded tense and uneasy, and one could hear it clearly that he was reading a text someone else had written for him, a conglomerate of information he did not completely understand himself. (To be fair on him, he is a lot better - and more believable - when he speaks freely and without notes, like he usually does on RTÉ Radio.)

Well, the cat is out of the bag now, and we have heard how bad our financial condition is, and that the economy is not only not growing any longer, it is actually shrinking.
I have often wondered - and asked publicly in writing - why Ireland did not create a sovereign wealth fund when we had all those billions in tax surplus lying around. Had we done that - like Norway, for example - we would now have a very nice and welcome nest egg, which could help to restore economic growth and confidence in the banks and financial markets.

But for the past decade our government decided to spend and squander the immense and unexpected wealth that came upon us. It's gone now, and we are left with the begging bowl. (Maybe we should rename it the Bertie bowl..., as he is the main culprit for the dilemma, but now that he has jumped ship - as rats do when a ship is sinking - he is hardly ever mentioned.)

I am no economist or accountant, so I will leave the number-crunching to those who are better qualified for it. They will soon tell you exactly how much worse you will be off next year if your income is this or your situation is that. There will be few people better off, if any at all.

What I want to focus on here are the main political directions of the 2009 Budget. Because as much as a budget is always about money, it also tells a lot about the general political direction the government has in mind for the coming year - and way beyond.

Let's start with the positive elements. I am quite happy with the 1% extra levy on income tax for everyone. Compared with many other European countries we are still paying income tax at very low rates, and that in itself is part of the 'Irish problem'. If you pay peanuts, you get monkeys...
I also warmly welcome the doubling of betting tax from 1% to 2%, which I myself suggested in the discussion with David McWilliams. (see my entry of October 12th) In fact, I think that this is not quite enough. If I had written the budget, betting tax would have gone up to 5%.

Further I applaud Brian Lenihan for introducing another flying tax of € 10 per person and flight, as we are flying way too much and thus ruining the environment in a serious way. So all those who believe that they can destroy the planet in pursuit of their private pleasure should at least pay some compensation for that. Again, I would charge even more, perhaps € 20 or € 25. (The only wrong element in this new tax is that it does not apply to aeroplanes with less than 20 seats, which means that all the rich and super-rich people who own or use private jets will never pay a single cent for their frequent flights.)

The reduction of excise duty on low alcohol beer and cider - "to encourage the safer use of alcohol and to make a contribution over time to reducing death and injury on our roads" - is also a step in the right direction.

Halving stamp duty on ATM cards from € 10 to € 5 is sensible, and so are the proposed increases to mortgage interest relief.

But here end the positive elements of the 2009 Budget.

Unfortunately the negative elements are much more numerous and will have serious impacts on our economy and society. Let us look at those in some detail:
As much as I applaud the 1% income tax levy for all, the levy of only 2% for higher earners with an annual income above € 100,000 is not enough. There should be a system of gradual increase in that levy, with those earning above € 250,000 paying 3%, those above € 400,000 paying 4% and the real fat cats who pocket more than € 500,000 per annum should pay 5% extra. They could well afford this, without feeling any pinches, and the Treasury would receive a lot more money to balance the budget.

The increase of the Standard Rate of VAT by ½% to 21.5% from December 1st is a move in the wrong direction and will only lead to further price rises across the board. Ireland has already the highest and most unfair consumer prices in the EU, and another increase in VAT will make this situation worse. It is clear that shops will not only increase their retail prices by the extra ½%, but will take this golden opportunity to adjust their prices upwards by a lot more, under the excuse of higher VAT.

The additional excise duties of 50 cents on a packet of 20 cigarettes, 50 cents on a standard bottle of wine, and 8 cent on a litre of petrol are certainly bad news and a big mistake.
They also show that the government - and in particular the Department of Finance - have very little imagination. For decades the people of Ireland have paid extremely unfair prices for tobacco products, alcoholic drinks and fuel. It is the ever tighter turned screw that provides the State with money from these three sectors, which is in fact a punishment for all who smoke, drink wine and have to use a car.

It is interesting to notice that only Britain follows the same pattern, while the majority of EU countries manage to balance their budgets without flogging the same long dead horse of the "old reliables", as they are called in Ireland.
I also notice that this year's increases are especially unfair. Brian Lenihan puts 50 cents extra on each bottle of wine, while he leaves beer, cider and spirits untouched. This is a scandalous and very stupid decision, which can only be explained with the strong influence the vintners' and publicans' lobby has over Fianna Fáil. (And the current Taoiseach is the son of a publican.)

Most of the alcohol-related problems we have in Ireland - from health problems over domestic violence and drink-driving to vandalism and serious crimes - originate not from overindulgence in wine, but from drinking too much beer, cider and strong spirits.
So where is the logic in Lenihan's thinking here? He leaves all the really dangerous drinks, which are used for binge drinking in pubs and clubs, untouched and punishes instead ordinary decent citizens who enjoy a glass of wine with their meal.
In fact, one glass of red wine is highly recommended by medical researchers as a means to decrease the chance of heart diseases. (No such benefit is recorded for beer, cider and spirits.)

Another big mistake is the increase of DIRT (a most befitting name for a tax if there ever was one) to 23% on ordinary deposit accounts and 26% on certain other savings products.
This is in fact another slap in the face of the decent and prudent people of Ireland. A tax on normal savings is a very stupid thing in the first place. (There should be taxes on savings above a certain threshold, but not for normal amounts of money ordinary people put away for their old age or for a rainy day.)
Taxing people for saving will reduce saving activity. If one is punished by the State for saving money, especially when the interest rates offered by banks are extremely low, then people will save less, and many will not bother saving at all. It is no surprise that Ireland has the lowest rate of private savings in the whole of Europe!
In many other countries saving is encouraged by the State, with extra tax incentives and tax relief for savers, as well as decent interest rates from the banks. We had this only once and for a limited time in Ireland, when Charlie McCreevy introduced the SSIA scheme. This was the best thing any government has done for the Irish people. It should be re-introduced, and this time as a permanent feature, without a time limit. Similar schemes exist in several European countries for decades and have created huge financial cushions, as well as a reduced need for government spending in certain areas of social welfare.
In the current time of financial crisis and recession the Irish government should reduce or better even abolish DIRT, to stimulate saving and encourage people to be prudent. By increasing DIRT Brian Lenihan does exactly the opposite, and of all the measures announced in the 2009 Budget, this one is in my opinion the most stupid, ignorant and counter-productive of them all.

I also think that the increase of stamp duty for cheques from 30 cents to 50 cents per cheque is a bad and unnecessary move. Lenihan said this was to "pay for the reduction of stamp duty on ATM cards". That argument does not wash. ATM cards are used by almost everyone these days. But cheques are not. Their use has already decreased massively over recent years, and that will continue naturally with ever more payments being made electronically. But there is a certain amount of areas, especially in business, where cheques still play an important role and are used frequently. These are mostly small and medium-size businesses in certain industries, and they are now punished and made to pay extra for what is after all a very normal and very safe transaction (in fact a lot safer than many forms of the new electronic transfers). Once again Brian Lenihan hits a group of people he should be supporting.

Another area where the wrong people are asked to come up with ever more money is Lenihans new tax for rented accommodation and company car parks. € 200 will be charged per annum for every house or flat, as well as for each parking space.
This sort of taxation is Dickensian and makes no sense in the 21st century. Furthermore, the bureaucracy needed to collect these new taxes - and make sure that they are paid by the right people - will be so cumbersome that its costs probably outweigh the extra revenue gained from them. (It is the same daft concept that is also responsible for the idiotic fact that we still have 'TV licence inspectors' in this country.)
So, who will pay the extra € 200 per year and flat? The landlords? You must be joking. They will pass it on straight away and raise the weekly rent by € 5, or perhaps even more, using the tax as a very convenient excuse. Thus the most vulnerable and least well-off are targeted, while the minister makes it look like a tax on the rich. Pull the other one, Brian. It still has a bell or two left on it...
With regards to car parks, the new tax is a punishment for caring employers who provide decent facilities for their staff. Those who don't give a hoot where their employees park their car while they are at work will be laughing their faces off.

In a country that still has not enough public transport and a widely 19th century infrastructure, the use of a car is often the only way to get from home to work, or from point A to point B. It is thus another onslaught on the ordinary people to increase motor taxes by 4% and 5% respectively (depending on the size and classification of the car). Government ministers will of course not be affected by this, as they enjoy the luxury of chauffeur-driven limousines, paid for by you and me, the taxpayers.

Not surprisingly, all the tax relief and supplementary payments for the farmers have remained untouched and are even partly extended. This is Fianna Fáil's pay-back to the Irish Farmers' Union (IFA), which earlier this year - during the debate on the Lisbon Treaty - defected from the NO camp and joined the government in the eleventh hour. The very generous treatment of farmers also reflects the fact that the present Taoiseach comes from a rural constituency. Brian Cowen (above) is only the third Prime Minister (out of 12) in the history of the State who represents a rural area, and that count includes Eamon de Valera, who was really a Dubliner and spent most of his time in the capital, although in the Dáil he represented the constituency of Clare in the west of Ireland. While de Valera's career lasted for many decades, the other countryside man at the top - Albert Reynolds from Longford - was Taoiseach for only two years (1992-94).

The most outrageous measure announced in the budget speech is the decision to revoke the right of all citizens over the age of 70 to a full medical card. This welcome gift for the elderly was introduced by the government - apparently without proper planning and costing - seven years ago, in order to win over the votes of the old-age pensioners. The ploy worked and Fianna Fáil is still in government, but now - in the face of the greatest crisis in living memory - they are turning around and taking the valuable card away again from the people who are most in need of it.
This is not just cruel and shows no signs of care and concern, it is an outright scandal and probably even illegal, as medical cards have an expiry date and most of those given to the elderly are valid until 2010 or even later.

It appears that the government is preparing for an all-out war against the elderly people of Ireland. The withdrawal of the medical cards that Brian Lenihan defended with "savings of about € 100 million a year" is only the latest attack against those of us who are no longer 20 or 30 years old.
Only recently it came to light that the Health Service Executive (HSE) plans to exclude all people aged between 50 and 65 from the national flu vaccination. (see my entry of September 27th "HSE endangers the Lives of 200,000 People")

Some might think I am exaggerating, but for many people who are affected by these cruel measures it seems as if the government wants them to die quickly and quietly, in order to relief the pressure on pension payments, hospitals and care homes.

And for what? € 100 million a year? Any reckless banker or gambling stock broker could win or lose more than that in an hour! It is about time that the government wakes up to the realities. This country might be full of ignorant and complacent people, not least thanks to our education system, but even the most lazy and docile citizens have a pain threshold. Over the past ten years the government has crossed the borderline of tolerance many times, but always got away with it. This time it is a question of survival for all, and I anticipate very angry reactions from all sides, reactions the cosy slobs in Fianna Fáil are not used to.

Overall the 2009 Budget is a great disappointment. Brian Lenihan (left) had the chance to make a difference, to inspire and motivate the people, and to stimulate the shrinking economy. Unfortunately he did none of that and carries on where Brian Cowen left off. Just like every Irish Minister for Finance in living memory he is wielding a big stick and hitting the most vulnerable in the country, while making sure that the rich and powerful are not inconvenienced in their cosy lives of corruption and luxury.

Brian Lenihan and Brian Cowen - who is after all the Taoiseach and was Minister for Finance until May of this year - could have given us a budget of hope and encouragement. Instead they took a leaf out of the book of the Bush administration in the USA and presented us with a budget of 'Shock and Awe'. I expect that the shock part of it will be outweighing the element of awe, and that people will have rather long memories this time. Well, they better have, if they want to survive in this cruel country of ours, governed by a weird bunch of self-serving, arrogant and ignorant gombeenmen (and gombeenwomen).

The Emerald Islander


Grandad said...

Very nice summary of an unmitigated disaster. I am baffled as to how the country keeps electing these crooks, liars and pocket-liners into office.

To give an indication of how bad the budget was, one FFer has already resigned from the party, and a couple of others are going to vote against the government. When FF starts turning against itself, you things are really bad.

Jordan McClements said...

Hello form up north.

You have a *very* comprehensive and informative blog here.

(But living up north it is not quite so relevant to me :-)

Good luck with it!

Buy Cool & Novely Belt Buckles Cheap said...

well this is real shocker

Hugh O'Connor said...

"We can deduct from the way Lenihan spoke that he is not a natural orator."

I agree with you on this, but the verb is "deduce", and it would help if you didn't yourself damage the Enlgish language while criticizing another in the same breath.

Overall though, I agree with the article.

Hugh O'Connor said...

And, Grandad, when FF starts turning against itself, you know things are great!

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