Labour helps bring in changes it warned against

ANALYSIS:There were no cheers and no jeers in the Dáil chamber as Michael Noonan and Brendan Howlin unveiled their tax and spending measures for next year. Instead of the rumbustious scenes traditional on budget day, an air of resignation permeated the House.

The only item that provoked any kind of noisy response was the announcement that the generous €40,000-a-year tax-free leaders’s allowance paid to each Independent TD would in future be audited. That prompted the Government benches to come to life in a bout of half-hearted jeering.

The muted response to the two Budget speeches was due partly to the fact there were hardly any surprises left, so thoroughly had the package been leaked over the past two weeks. More importantly it was a reflection of the weariness that, for the sixth year in a row, the country was being hit with another bout of austerity.

Noonan tried to cheer up his audience at the end by forecasting that if the 2013 package worked, then the adjustment for 2014 and 2015 might not have to be as severe as outlined in the bailout plan. It was scant comfort given the litany of cuts and tax increases that will hit the people of the country next year.

The property tax had been signalled from a long way back and there is no doubt it makes eminent good sense in terms of putting the tax system on a sustainable footing. However, it is still going to be an enormous imposition, and paying it will be widely resented by an already hard-pressed electorate.

People will be able to pay in instalments through a variety of methods, including having it deducted from their income or their State payments, but it is going to take time to convince people to sign up to seeing the tax as an everyday fact of life.

Ironically, the taxpayers of the country have taken the universal social charge in their stride, despite the fact it has hit them far harder than the property tax ever will, simply because they are used to deductions at source.

The Government will face a battle getting people to pay the property tax but ultimately the range of sanctions outlined by Noonan yesterday will probably see most people complying. It is noteworthy that in spite of all the negative publicity surrounding the introduction of the €100 household charge and the calls for a mass boycott back in January, about 70 per cent of households have paid. It was made clear again yesterday that the remaining non-payers will be pursued.

Noonan made a point of reassuring the majority of tax-compliant citizens that the Revenue Commissioners will strictly enforce the property tax and proceed to collect the household charge arrears. In fact, the outstanding charge will be doubled to €200 for those who have not paid by July 1st next.

There were a number of other talking points. The abolition of the PRSI allowance and the extension of PRSI to other forms of income, both earned and unearned, apart from basic pay, will raise a significant amount of revenue. So will the increase in the rate of Dirt tax on savings to 33 per cent as well as a rise in capital gains tax and capital acquisitions tax to the same rate.

The elderly, who have largely been exempted from the impact of the economic crisis, have taken a bit of a hit this time. Although their pensions have not been touched and they retain higher income tax allowances than apply to the working population, the lower rate of USC for the over-70s has been abolished. They have also been hit with cuts in their homecare package of telephone, electricity and gas allowances.

One of the features of the Budget was a change in the ratio of spending cuts to tax increases, with higher taxes and fewer cuts than originally planned in the programme agreed with the troika.

Both health and social welfare had to come up with €150 million less in cuts than originally planned. That has not saved either department from having to come up with a range of savings in various programmes, but it has lightened their load to some extent.

In terms of the politics of the Budget, there had been much focus on the Labour Party in the run-up to yesterday. This was natural given that the party has lost four TDs from the parliamentary party since taking power early last year.

On the basis of the Budget decisions, as distinct from speculation, there is no great reason for Labour TDs to rebel. The Budget is clearly progressive in that the higher income earners are taking the brunt of the tax increases and cuts. If anybody should feel disgruntled it is Fine Gael TDs, whose constituents will be hit by the property tax and a range of other measures.

The problem for Labour is that the party made so many promises in the run-up to the last election. In particular the party produced a poster suggesting that many of the items in yesterday’s Budget, including a cut in child benefit, higher prescription charges, increased student fees and even a rise in the price of a bottle of wine would come to pass if Fine Gael won an overall majority.

Instead the two parties went into government with the biggest majority in the history of the State, and most of the things Labour accused Fine Gael of wanting to do have now been done by the two parties in government.

That said, yesterday’s Budget continues to protect the most vulnerable from the worst of the cuts. It is always difficult for a party to convince the electorate that worse might have happened if it were not there, but that is a recurring problem for Labour.

Whatever the difficulties, the signs are that the Budget has managed to keep both sets of backbenchers reasonably happy. Both have their difficulties but at this stage the stability of the Coalition is not under threat.

In the longer run a more potent threat will arise if the relatively optimistic growth forecast of 1.5 per cent does not materialise. That would throw the Budget arithmetic off target and require even deeper cuts next year. It is something nobody dares to contemplate.