Five 'wise men' give their view of the Budget

FERGAL O’BRIEN, IBEC CHIEF ECONOMIST

THE SPENDING and taxation announcements show little in the way of innovative thinking on how to allocate scarce resources. The budgetary adjustment has primarily been delivered through reductions in service provision and increases in indirect tax.

There is never a painless way to deliver necessary austerity but Budget 2012 should have been calibrated differently if the primary objective was to protect economic growth and jobs.

We have not seen the substantive reform of public spending promised by the comprehensive review of expenditure, but have been left with a whole raft of service reductions. Over the next three years it is likely that Ireland will end up with a quality of public service provision near the bottom of the EU league table, but with a unit cost base for public services that remains close to the top. Such a scenario cannot be in the best interests of the public or businesses.

BRIAN KEEGAN, DIRECTOR OF TAXATION, CHARTERED ACCOUNTANTS IRELAND

WHILE THE Minister hasn’t changed the amount of money most of us will bring home, he has certainly changed how far it will go for us. Unlike budgets in recent years, where the enormity of the changes hit home in the first payslips in January, extra tax costs will come through the year as we fuel our cars, heat our homes and meet our new household charge obligations.

On the other hand, the Minister has not made it any more difficult for most businesses to sustain employment, a critical factor if our economy is to grow. Since 2007, the budget arithmetic has been centred around the employee. Up to now, that meant taxing what he or she earned. In 2012, its all about taxing what he or she will spend. Few positive aspects stand out. The raising of the universal social charge threshold for the lower-paid is an honourable exception.

SIMON BARRY, CHIEF ECONOMIST ULSTER BANK

ONE MAJOR difficulty facing Ministers Howlin and Noonan this week was that, following the €21 billion in corrective measures already implemented over the past 3.5 years, no easy targets remained, on either the tax or spending sides.

Mr Noonan achieved more than half of his package of new tax measures via a two-point hike in the top rate of VAT, while Mr Howlin provided some protection, in a relative sense at least, to the social welfare budget, partly at the expense of a disproportionate reduction in health spending. These measures represented a departure from the previous administration’s published plans.

However, it would be wrong to describe what we witnessed this week as a material shift in Irish fiscal policy. This is the first instalment in a planned total correction of €10.4 billion over 2012-14, a bit more than, but very close to, the €9.8 billion outlined in last year’s National Recovery Plan.

PAUL SWEENEY,ICTU CHIEF ECONOMIST

THIS IS not a time for economic orthodoxy. Yet that is what we are enduring in Ireland and Europe. Paralysed by the deepest recession since the 1930s, the response of governments has been deeply conservative. And it is failing badly.

Domestic demand has fallen for 14 consecutive quarters, by a staggering 23 per cent. This tells us that austerity is killing the patient. A few recent small rises in GNP – after a fall of almost 16 per cent – do not represent “green shoots”.

The level of budgetary “adjustment” will cost us jobs. This is particularly damaging as it is now clear that exports cannot do the “heavy lifting” on job creation. The balance of cuts to taxes is deflationary, as is the focus of those taxes. The rise in VAT will push inflation up by 1 per cent and kill many jobs. Far better to have progressive taxes on high incomes and on soaring corporate profits – SP companies saw profits rise 13 per cent in the last quarter.

BERNARD DOHERTY, IRISH TAX INSTITUTE PRESIDENT

DESPITE THE constraints under which the Minister framed his budget, he took some new and indeed innovative steps to support job creation and expansion in the indigenous and multinational sectors.

The single biggest job protection and creation decision yesterday was to not touch income tax. In doing so, the Minister ensured that the cost of employment has not risen – a critical factor when it comes to maintaining and creating jobs in the indigenous and foreign direct investment sectors.

The new tax initiative to support Irish sales efforts in high-growth Brics countries – Brazil, India, Russia, China and South Africa – is innovative and was one of the export-related measures the institute had called for in its recent Tax Strategy for Irish Exports Growth. With 85 per cent of our exports coming from foreign-owned companies, it was an important move for the indigenous sector.