Notes on the Front

This post was originally written for TheJournal.ie

Child Benefit cuts, PRSI rises, respite care cuts, property
tax, pension caps (eventually) – how does the budget look when we stand back
from the individual elements?  What is
the narrative?  How does it fit with what
the Government is projecting over the medium-term? 

There are two elements that stand out.  First, is the impact on employment.  The Government has accepted that its current
employment policy is failing – projecting that unemployment will only fall by
one percentage point during its lifetime. 
And no wonder.  The Nevin Economic
Research Institute has estimated that up to 29,000 jobs could be destroyed as a
result of this budget.  The cuts in
public investment and the continued job losses in the public sector will have a
particularly negative impact.  But the
overall reduction of disposable incomes – through the flat-rate PRSI rise and
property tax, to the cuts in social protection, increases in prescription
charges and reductions in community supports – will mean less spending power in
the economy which, in turn, will postpone private sector investment.  So we shouldn’t be surprised that the
Government is projecting that the domestic-demand recession will continue into
next year – a recession caused by the Government’s own policies.

But what of the 10-point employment plan that the Minister
for Finance led off with?  It’s part of a
trend.  The Government has launched the
Jobs Initiative, the Action Plan for Jobs (which had 77 points), the
‘Investment Stimulus’ – and yet  since
taking office the Government has regularly revised unemployment upwards and
employment creation downwards. 
Micro-initiatives are insufficient when there are 30 unemployed people
for every job vacancy.  The issue remains
one of demand – and the Government’s budget will reduce that demand further.

Second is the hollowing out of social protection.  Social protection goes beyond cash transfers;
it encompasses the provision of services and supports – cash or in-kind – for
people, whether in work or not.  The
budget will drive Ireland’s social protection system into further means-testing
– and we already have the most means-tested social protection system in
Europe.  It will undermine the quality of
public services – with further expenditure cuts.  It will reduce the ability of social
insurance to provide a living income floor – with cuts to Jobseekers’ Benefit
duration. 

A number of factors will work to see yet another rise in
income inequality and further increases in the deprivation rate:  the abolition of the weekly PRSI allowance,
the projection of only marginal employment growth next year, and the real cuts
(i.e. after inflation) in basic social protection payments.

Within these basic elements – the loss of employment and the
hollowing out of social protection – lie further stories of contradictory
policies.  The claim that this budget
will protect/grow employment is at odds with the cuts investment and
demand.  The goal of caring in the
community is at odds with cuts in home-help and respite care (the latter
suffering a 19 percent cut).  The goal of
education, up-skilling and re-skilling is at odds with cuts to the Back-to
Education Allowance grants.  All this
suggests Ministers working in their individual silos trying to meeting
departmental targets without reference to wider policy goals.

All this will lead to what the Government has already projected
– an extended period of stagnation.  The
domestic economy is only expected to grow by 1.6 percent annual average over
the next three years.  On current trends,
we shouldn’t expect the domestic economy to return to pre-recession peak levels
until 2017 or 2018 – representing a lost decade.  Unemployment is still expected to be above 13
percent by 2015, while wages (after inflation) will continue falling for years.

In all this Labour carries a particular burden.  It is only the junior party.  The very math of the coalition means that
they cannot direct economic policy.  But
the problem for Labour is that they carry high expectations – for low-income
earners, for the unemployed, for those reliant on social protection, for those
who see their household income falling in the face of arrears, childcare and
living costs.   To meet those
expectations would seem impossible – especially when they are implementing
austerity policies.  This contradiction
makes it difficult for Labour to explain, never mind justify, a budget largely
not of their making.  This was always
going to be the logic of entering Government with a party opposed to social
democratic values.

However, Labour should still take care in how it explains
their input into this budget.  They have pointed
to ‘a €500 million wealth tax package’ in the budget.  This is hard to credit – especially as they
are not referring to the property tax (which is arguably the only ‘wealth’ tax
– as it is a tax on a capital asset).  
The best revenue estimate of taxes that can be described as ‘targeting’
high income earners (capital taxes, PRSI and USC extensions, smaller measures)
is €114 million in 2013 and €174 million in a full year.  The cap on pension pots – which is a positive
measure – won’t be introduced until 2014 and, so, does not figure in the
budgetary arithmetic for next year.  This
is a long way from half a billion euros. 

In one sense, this budget didn’t do anything different than
what was signalled last year when the broad targets were established.  In that sense, it doesn’t disappoint.  What is disappointing is that the Government didn’t
work the budget to ensure a progressive impact (Department of Finance
comparisons of the impact on different income groups and household types show
that earners between €25,000 and €45,000 will take the biggest hit, whether
single or couples).   Or that it didn’t
work to reduce the extent of cuts in public investment.  But in all other respects, it is what we
expected.

And that is probably the most depressing thing to come out
of Budget 2013.