Tuesday 22 January 2019

Dan White: Mini Budget priority should be to cut tax for modest earners

SQUEEMIDS: Looking after money is key
SQUEEMIDS: Looking after money is key

Tomorrow the Government will unveil its first Spring Economic Statement, which will give an idea of the likely shape of next October's budget.

With a general election less than 12 months away and the Government parties, Labour in particular, struggling in the opinion polls, the pressure is mounting for a pre-election giveaway package.

On the basis of what has already been leaked, it is clear that a public sector pay increase of between 2pc and 3pc will form the centrepiece of the so-called mini-budget.

Such an increase, which will cost between €300m and €500m-a-year, will no doubt be justified on the grounds of the "pay cuts" that public sector workers have supposedly been subject to since 2008.

The fact that the Labour Party's main paymasters are the public sector trade unions is, of course, purely coincidental.

Hang on a minute. The main element of the public sector pay cuts has been the pension levy, which ranges between 5pc and 10.5pc on all earnings over €15,000.

This is for gold-plated, inflation-proofed pensions that are beyond the wildest dreams of most private sector workers.

It has been estimated that private sector workers would have to make contributions equivalent to at least 50pc of their incomes to buy similar post-retirement incomes.

In others words, most of the public sector "pay cuts" have been no such thing, merely obliging a uniquely privileged group of workers to make a modest contribution to their lavish pensions - by comparison, half of all private sector workers have made no provision for their pensions.

Just how privileged public sector workers remain can be seen from the latest CSO earnings data that shows average public sector pay at €911-a-week - almost 42pc higher than average private sector pay of €643-a-week.

The real victims of the crash were not public but private sector workers, 300,000 of whom lost their jobs and tens of thousands of whom were forced to emigrate.

Now that the economy is finally beginning to recover, giving the exchequer some wriggle room for the first time in eight years, it is private sector workers who deserve to be looked after first.

This means that the fiscal bonanza from renewed economic growth, with Goodbody Stockbrokers now expecting 2015 tax revenue to come in up to €2bn ahead of target, should be used to cut taxes for all workers, not to further feather the nests of those in the public sector.

The priority should be to reduce the very high marginal tax rates that even workers on modest incomes must now pay.

Given that the Government's first response is likely to be to jack up public sector pay, it's difficult not be cynical about the entire Spring Economic Statement shenanigans.

While it is ostensibly modelled on the UK Chancellor's autumn statement, the reality is far grubbier. In fact, this week's announcement will be no more than a politically sexed-up version of a budgetary document that the Government must submit to our European masters in any case.

This means we should take all the guff about the Government having "created" tens of thousands of jobs and its plans to "create" tens of thousands more with a healthy pinch of salt.


The brutal truth of the matter is that, far from having been "created" by the Government, most of these new jobs came into being in spite of it.

If the Government was serious about creating jobs, the best thing it could do is get out of the way and let the private sector get on with it.

But will we be told any of these home truths tomorrow? Of course we won't. We will be treated to more of the usual platitudes while the Government, less than five years after the country effectively went bust, reverts to the bad old habits that brought us to such a sorry pass in the autumn of 2010.

The public sector, which of course includes our extremely well-paid ministers and TDs, are still stuck in la-la land.

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