FF/PD budget estimates discriminate against Irish business

     
Yet again another Dublin Government is set to ignore the need for wholesale reform of a tax system
It's budget time again and now with the demise of our rugby and soccer teams it is time to turn to a more dependable national pastime, that of predicting the details of the 1998 spending and taxation plans of the Fianna Fail/Progressive Democrat coalition.

The spending estimates were launched last week by smiling Finance minister, Charlie McCreevy. Smiling, I suppose, because he is in the unique situation of having considerable scope for an imaginative budget where the social and economic inequalities that permeate the 26 Counties could be tackled both effectively and comprehensively.

Maybe McCreevy was smiling because he had successfully crossed the first hurdle that awaits Finance ministers presenting their inaugural budget. The estimates he published last week account for Dublin Government spending that will total over £12.5 billion in 1998. The hurdle he crossed is that he, like his predecessors, has managed to get the media and a range of usually competent economic pundits to get hung up on a mere £500 million of this money.

TAX SOLE ISSUE


The sole budget issue that grips most of the state's economic commentators is what changes will McCreevy introduce in income tax. Will he reduce the 48 and 26 percent tax rates? Will he broaden the 26% band? Will he increase the personal allowances or perhaps his measures will be a combination of the three measures?
For every £1 invested in Irish companies nearly £3 will be invested in foreign companies by the Dublin Government.

 

There has been almost no comment on whether some taxes should be raised. For example the question of a wealth tax has been forgotten. There is some debate on what plans McCreevy has for corporation tax. Instead, the media are fixated on endlessly discussing the possibilities of spending the magical £500 million in tax cuts. We are not even sure if there really will be £500 million of tax cuts announced on 3 December.

On the subject of £500 million what would be the most equitable way to split up such a cut in income taxes? The answer seems quite clear. The fair thing to do would be to help those on low pay. One simple method of doing this would be to increase the personal tax allowances of single people by £1,000 and married couples by £2,000.

According to the Department of Finance Ready Reckoner tax calculation document, this would cost £486 million in a given year. This leaves the neat figure of £14 million left over from the mythical £500 million. This could be donated to Celtic to buy perhaps one or two top of the range players.

WEALTH TAX


On a more serious note, it is must be said that yet again another Dublin Government is set to ignore the need for wholesale reform of a tax system which penalises PAYE workers in favour of business and the top earning elite.

Why are there no plans to introduce wealth taxes, especially on those whose investments earn them returns without them completing a day's work for these benefits? The vast bulk of this investment income is not even put back into the Irish economy. It is building economies on the other side of the world. When will it be the right time to cull the tax rats who hide their income in offshore accounts?

However, getting distracted on the tax issue is perhaps just what McCreevy and his coalition partners want us to do. Look for example at the spending proposals in Mary Harney's department of Enterprise Trade and Employment. Spending plans in this department are crucial as Harney is responsible for formulating and implementing the policies that will shape economic development in the coming years.

IDA INCREASES


Total spending in the department will reach nearly £790 million in 1998. Much of this money will be spent on IDA Ireland and Forbairt, the twin industrial development agencies. IDA Ireland is responsible for encouraging foreign multinational companies to come to the 26 Counties. Forbairt is responsible for aiding domestic industries.

The estimates show a 41% increase in IDA Ireland's grant for administration and general expenses. This will cost £11 million in 1998. Grants to the IDA for industrial development will increase 12% to £134 million. Building grants will increase by 15% to £6 million. Part of this increase could be due to the fact that the IDA proposed this year to offer higher grants to companies that site in rural areas. The fact that grants are already higher than necessary seemed lost on IDA management.

Grants to Forbairt for its administration and general expenses also increased by 15% to almost £19 million. However, grants to Forbairt for industrial development of Irish companies will fall by 3% to just over £48 million. This means for every £1 invested in Irish companies nearly £3 is invested in foreign companies by the Dublin Government.

This 3% decrease might seem like a small cut in funding but in 1997 Forbairt funding for industry has already been cut by 24%. We contacted the department to discuss these cuts and they explained that the decreases were solely due to time changes in when funding was allocated. In 1996, some development projects came on line earlier than was anticipated and so more funding was needed in that year. This though does not explain the imbalance in funding between the two agencies.

HOUSING PLANS


In some other areas there will be substantial spending increases by the Coalition Government and they must be welcomed particularly the 15% increase in funds for buildings, equipment and furnishing in primary schools. The problem is that this 15% only adds up to an extra £5 million. The dire situation in many schools needs a lot more than an extra £5 million to solve. Maybe this glaring need is another argument for a wealth tax.

Also on the welcome list is the 25% increase in spending on local authority and social housing programmes to £223 million in 1998. This is perhaps one of the most positive elements of the estimates. Again though there are unanswered questions. There is a dire need for public sector housing, but a return to the huge unmanageable estates built in Dublin, Cork, Limerick and Galway in the 1980s and early 1990s would be a failure.

Time will tell if the coalition can put some detail onto these estimates. For now it seems they have failed the test of moving towards a more equal society.