Economic plans from Labour and Fianna Fáil are in keeping with dominant election themes so far. In the headlong drive to cut the universal social charge, there’s no escaping the “fiscal space”. But there are differences nonetheless.
While all campaign proposals are predicated on a continuation of solid economic growth, an outburst of turmoil on the Dublin stock market underscores Ireland’s exposure to uncertainty in the global economy.
Last week Fine Gael assumed €587 million for new tax cuts and spending measures in 2017. Labour goes further in its plan, saying €1.24 billion is in play. Fianna Fáil holds back: it would provide but €500 million in 2017, the same as Department of Finance budget day forecasts from October.
Labour would fund commitments above €500 million with four new measures, the biggest in 2017 being a €350 million rise in the annual bank levy to €500 million. This levy would stay until banks run down tax loss reserves and resume corporate tax payments.
A clawback in tax credits on high incomes would increase in steps to raise €306 million per year after five years. A stepped increase in tobacco taxes would yield €260 million per year after five years. A new tax on sugar-sweetened drinks, at 15 cent per can, would yield €183 million per year from 2017.
Political mettle
New taxes on banks, tobacco and sugary drinks are certain to be heavily resisted by industry, so political mettle would be required. Labour would use the money to bring total “fiscal space” to €11.23 billion, €1.1 billion more than Fine Gael.
Such funding is required so Labour can make good on its promise to boost spending at three times the rate at which it cuts tax, while delivering meaningful USC reductions to workers on low and middle incomes.
In five years Labour would incrementally scrap USC on the first €72,000 of income at a total cost of €2.61 billion. Increases in earned tax credits, PRSI relief for middle earners and capital gains tax relief would cost another €254 million. The phasing-out of credits on high income means people on €120,000 would see no change in take-home pay.
On spending, Labour would increase annual health funding by close to €3 billion over five years, with €2.16 billion for education, €1.72 billion for social protection and €530 million for housing. This includes initiatives to make free GP care available to all while reducing class sizes, increasing the State pension to €260 and increasing child benefit. Labour assumes 150,000 jobs are created in three years.
After the horrors of the crash, Fianna Fáil insists it has learned its lesson. Just as Brendan Howlin of Labour says a balanced budget in headline terms is in prospect this year, Michael McGrath of Fianna Fáil wants to see an early return to a budget surplus “ideally by 2017”.
Sensible approach
Emphasising its “sensible” approach, Fianna Fáil’s “fiscal space” forecast remains at the €8.3 billion set by the Department of Finance as it would not deploy an additional €1.5 billion from the loosening of EU budgetary targets.
Like the Coalition parties, Fianna Fáil stresses adherence to EU and domestic fiscal rules. Its programme would increase spending at twice the rate tax is cut.
The Fianna Fáil tax plan would cost €2.92 billion per year after five years. The centrepiece is the elimination of USC on the first €80,000 of income. Other measures would include cutting capital gains tax for entrepreneurs and providing equal treatment for the self-employed.
Fianna Fáil’s new current spending plans would cost €4.76 billion per year after five years. It also calls for additional capital spending of €2.7 billion over five years, comprising an allocation of €680 million in “fiscal space” spending to be repeated year-by-year.
Instead of using all money raised from bank asset sales to pay down the national debt, Fianna Fáil would consider putting some of the proceeds into a “rainy day fund” for use in a fiscal emergency. All annual corporate tax proceeds above the anticipated €6.6 billion yield this year would go into the fund, which would be deployed if unemployment rose by one percentage point or was forecast to rise by that amount.
