Day 2 - Budget 2012

Sinéad Pentony07/12/2011

Sinéad Pentony: Day two of the budget focused primarily on revenue raising measures and the introduction of measures aimed at stimulating economic growth. Let’s see how some of the big announcements on day two perform against the principles of fairness, jobs and reform.

A big part of yesterday’s announcements related to measures aimed at resuscitating the property market. Although every successful advanced economy has a functioning property market that makes an important contribution to economic activity, this Budget seems to be relying on new property-based tax breaks rather than a programme of strategic investment to support economic activity.

Budgetary measures in this context included changes to Stamp Duty, Capital Gains Tax and Mortgage-Interest Relief (MIR) aimed at incentivising transactions in the commercial and private property markets. The changes in MIR include an increase to 30 per cent for first-time buyers who bought at the peak of the boom (2004-2008) along with increases to MIR for new first-time buyers and non-first time buyers in 2012. These measures fail the test of fairness for a number of reasons:

• If you bought a house during the boom you are likely to be in negative equity, but if you are still able to make repayments and have not lost your job, the changes to MIR are an added bonus and will reduce your mortgage repayments.
• If you bought a house during the boom and are in negative equity and you are in mortgage arrears, the reduction in MIR may improve your prospects of meeting your mortgage commitments, but many will never be in a position to repay the mortgage. Changes to MIR should have targeted this group along with the introduction of personal insolvency resolution mechanisms whereby personal and mortgage debts are restructured and/or written down. An announcement on the latter is due shortly.
• Many low income families were never in a position to buy their own home during the boom and will never be in a position to benefit from state subsidies for home ownership. For these groups social housing, housing associations and/or private renting are the only options.

Another measure relates to Section 23 property reliefs, the abolition of which was announced in last year’s budget but was later reversed pending an economic impact assessment. Yesterday’s measures included the introduction of a property relief surcharge of 5 per cent on annual gross incomes over €100,000.

Reforms to the budgetary process include a commitment to greater transparency, so the economic impact assessment should be published so that it can be subject to public scrutiny.

The main taxation measures include changes to the Universal Social Charge (USC), increases in VAT, carbon tax, motor tax, CGT, CAT along with the introduction of the household charge. The changes to the USC are welcome and certainly pass the fairness test on the grounds of equity on their own terms. The increases in CGT and CAT are also to be welcomed as these are taxes on the sale and transfer of assets. The application of the PRSI to other forms of income along with increases in DIRT is also good news, although the former will only come into effect in 2013.

Ireland is a poor performer when it comes to taxing assets and wealth compared to other European countries, so these increases are a step in the right direction but much more could have been done in this budget to spread the burden of the adjustment more equally.

An example of where more could have been done relates to the taxation of Irish people who are non-resident for tax purposes. The domicile levy can only be described as a failed attempt to ensure that this group of people are made to pay their fair share. Plans to abolish the “citizenship” condition for payment is unlikely to make any difference to the amount of revenue generated through this measure. The introduction of a “citizenship-based” tax or a tax on global assets are measures used to generate revenue from non-residents in other countries.

The bad news on taxation is that when you combine the changes to the USC with the decision to base the jobseekers’ benefit payment week on a 5-day week rather than a 6-day week, the likely outcome is that people earning less than €10,000 – who are probably working on a part-time basis and likely to be women - will actually lose more of their income, especially when the increases in VAT and carbon tax is included, not to mention the household charge.

Indirect flat taxation measures are blunt instruments for collecting revenue. They are regressive and take proportionately more from low income families. Such measures are also counter-productive because they reduce the spending power of such households which will further depress consumer demand and ultimately lead to more jobs losses and job insecurity. So this group of measures fails both the fairness and jobs tests.

The household charge is a good example of how not to introduce a property tax and fails the fairness test because it is going to apply to all houses (with a few exceptions) regardless of location, house size and income. While the introduction of a Site Valuation Tax has been flagged for 2014, the household charge will cause alot of pain in the meantime. TASC has developed an equality-proofed residential property tax model that could have been introduced relatively easily and used on an interim basis.

As organisations start quantifying the effects of the overall Budget,the picture that seems to be emerging is one where everyone will be affected by the budgetary measures, but once again, low income families will lose proportionately more through reductions in their income, spending power and access to essential public services.

This budget also contains cuts to areas that are not going to save the Exchequer a significant amount of money but will have a disproportionate impact on the provision of locally-delivered services and advocacy work that provides a voice for marginalised groups. These cuts include the disproportionate cut to the budget of the National Womens’ Council, cuts to the Local and Community Development Programme, Rural Transport Programme and Community Employment.

This budget is a very bad budget for women and children in particular, both of whom are at the coal face of this recession.

The latest poverty statistics illustrate the impact that responses to the economic crisis are having on women and children. Unfortunately, this budget is likely to result in a continuation in this trend, so it is more important than ever that the effects of budgetary measures are quantified and alternatives policy options put forward.

At the end of the day the budget represents a set of choices and the political priorities of the Government. Once again the wrong set of choices appear to have been made for the economy and a large part of the population.

Posted in: Economics

Tagged with: budget

Sinéad Pentony

Sinead Pentony

Sinéad Pentony is Associate Director with the Trinity Foundation, Trinity College Dublin working towards securing private funding and other support for a range of projects - primarily from individuals, companies and foundations.

Her fundraising portfolio includes supporting the Schools of Computer Science and Statistics; Mathematics; and Pharmacy and Pharmaceutical Sciences to deliver on their strategic priorities with the help of philanthropy support and sponsorship.

She has been working in the not-for-profit sector since the mid-1990s and generating income and fundraising has been a key part of her roles. She develops strategic relationships with a view to delivering mutually beneficial outcomes.

Her previous roles have involved undertaking research and policy work across a variety of public policy areas, policy influencing and advocacy work with a wide variety of stakeholders, public communications, lecturing, and leading or supported strategic planning and review processes aimed at refocusing the work of programmes and organisations in a changing context.

Sinéad was previously head of policy with TASC.



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