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Meanwhile the ESRI estimates that it will cost around €700 million a year to effectively index link the tax system with wages rising by around 2.5 per cent. The Irish Fiscal Advisory Council has said that existing official spending forecasts for the years ahead do not take enough account of a rising and ageing population. Remember, too, that it costs a lot of money to stand still, as the supplementary estimates suggested.
HATE IT OR LOVE IT CLIFF PLUS
With much of the froth in tax now coming from corporation tax - which can be volatile as much depends on a few big multinationals - and the economy unlikely to continue growing at 5 per cent plus a year, this looks unlikely.And with the EU rules in place, the game has changed and the link between tax and spending will have to be faced head on by the next government. Planning to cut overall tax levels year on year and still deliver better services would require a continuation of the super-charged growth in tax levels we are now seeing. But they will face a host of questions on how we rebuild our public services – people on trolleys and waiting lists, a vicious crime trend in some areas, a lack of primary school and childcare places, soaring rents,a shortage of housing and on and on. No doubt the electorate will welcome the extra cash. While the Budget has landed well for the Government, I wonder what questions they will face on the doorsteps early next year? The TDs will go on the huistings with their crib sheets on how much better everyone is after the Budget.
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HATE IT OR LOVE IT CLIFF HOW TO
But now the question is how to organise, deliver and pay for better services in future. The vicious cycle of annual increases which was a part in our bankruptcy as a nation has been broken. As Moody’s point out in a note this week, government spending rose by 12 per cent a year between 20, but next year will still only be 2 per cent ahead of its 2014 level. This Government and its predecessor have done a remarkable job in holding down spending growth. Mid year adjustments in one area will have to be paid for by cuts, or extra revenues, elsewhere.Īnd here we come back to our old friend the USC - and to a general approach across the political spectrum that we can somehow turn the clock back to the pre-crisis years, cutting tax revenues, getting rid of unpopular charges, narrowing the tax base and still delivering better public services. Yet from next year, under EU rules, we face a stricter ceiling on spending - linked to potential economic growth - and the inability to do the kind of major supplementary changes we saw this year. The €1.5 billion in additional spending needed this year - and announced just before the Budget – shows that as things stand the system needs more cash just to stand still.
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The bigger issue is how we are going to manage the public finances in future and pay for the improved public services and investment that the country needs. It is not the argument about whether it is too expansionary or not. Hidden under all this is what I think is the key issue of Budget 2016. USC revenue would also pay for all the HSE services in the South and West of the country, or meet two thirds of the cost of servicing the national debt. It is enough to meet the entire budgets of the departments of justice and defence combined, or pay for all the income supports to people of working age, of which the largest is the jobseekers’ allownance. The USC will raise some €4 billion this year, not far off €1 in every€10 of state revenue collection. We are talking about a lot of money here. And Minister for Finance Michael Noonan said towards the end of his speech that, if re-elected, the Government’s policy would be to “ progressively abolish” the charge in the years ahead, presumably over the five year term of the next Government. The vast bulk of the changes in take home pay next year result from USC cuts. It was interesting to see the charge - introduced in 2011 - being made the key focus of Budget 2016. We needs to see posters saying “The Universal Social Charge - It’s progressive.” Or “ The Gardai and the Army - the USC pays for it, with a bit left over.” Or you could try “ What pays all the income supports for the unemployed - the USC does.”