THERE’S BEEN ALMOST 24 hours to take in the effects of Budget 2013 since Michael Noonan and Brendan Howlin revealed the main points to the Dáil chamber on Wednesday afternoon.
Some of the biggest changes – such as the property tax and the cut in child benefit – had been flagged and leaked before the official announcement, while others, such as the details on the increases on excise for cigarettes and alcohol, were more unexpected.
We’ve spoken to a range of experts for their take on the property tax, child benefit cuts, and taxes, amongst other things.
Here’s what they had to say.
Poor people: “When you add the cumulative effect together, it was a tough Budget”.
“We weren’t sure what to expect from this Budget but it ended up being harsh on the most vulnerable,” says Jim Walsh of the St Vincent de Paul society. “The rhetoric from the government about looking after the vulnerable was certainly demolished”.
Walsh said that the cumulative effect of the Budget – including the cut in child benefit, the cut in back-to-school allowances, the carbon tax on solid fuel and the prescription charges – would hit people would would be most likely to look to the Vincent de Paul for support.
He pointed out that while there was some additional money put into programmes for education and employment, the figures were minuscule and unlikely to make much difference.
However he said that the fact that social welfare rates were maintained was one positive from the Budget. He noted there were also a number of changes aimed at encouraging employment which could make a difference. “Overall we were quite disappointed,” he said.
Property tax: “It’s the right idea – but the way the government is implementing it is wrong”
(Photograph: Eamonn Farrell/Photocall Ireland)
“People will give out about the new property tax, but if there wasn’t one, revenue would have to come from somewhere else – either income or VAT,” says economist Ronan Lyons.
He praised the government for acknowledging that taxing property is far better for economic recovery than taxing income or consumption but pointed to a number of problems with choosing a full market value approach rather than site value.
They’ve effectively excluded about a quarter of a million hectares of zoned land around the country, which is probably worth around 5 billion – and by not taxing that, the government has effectively raised the burden on households meaning that the property tax bill people will face next year will be between a quarter and a third higher than it needs to be.
He noted the tax may have adverse consequences for anyone who makes improvements to their home – such as making it more energy efficient – which could lead to a higher bill because the house will be worth more. “So it’s good that the government is going away from income tax and consumption tax which hit Ireland’s competitiveness and the poorest people in society – but this is not the best way to go about bringing in a property tax,” he said.
He also pointed to a potential major headache for the Revenue Commissioners, noting there was no mention of the quality of the information that Revenue will be receiving to audit houses. “Without specific information, I have no idea how they’re going to be able to audit houses and work out how much people should be paying”.
Gerry Grimes, auctioneer for propertyforpeople.ie, said that Budget 2013 would not help “to assist the flow of loans from the banks to builders and buyers” and as a result, he doesn’t expect to see the market lift as a whole in 2013. But he added:
However – investors with their own private equity may decide that 2013 is the right time to start buying and building again and the establishment of Real Estate Investment Trusts, along with NAMA providing funding for residential and commercial purchase and property completions will bolster that. Large-scale investors have been buying up good quality property under the radar for the last year or so, this measure should accelerate that behaviour.The measures for FTBs were expected and will incentivise them to purchase, which should be itself be responsible for a modest increase in purchases. On the down side, the Local Property Tax, PRSI on all income (including rental) and possible costs arising from the upcoming Minimum Standards in Rental Accommodation will push up costs for landlords and – conceivably – push up rents. The majority of landlords are small investors with 1-5 properties. Quite a lot of them are paying interest only and about 30 per cent are heavily in arrears already.
He added: “All in all, the impact of the LPT won’t be felt by most until its first full year in 2014 and for those in employment it will be another hardship. For those who are struggling to keep up though, it could well be a burden too far.”
Personal taxes: “Ireland needs to be more imaginative…”
The government parties repeatedly emphasised that they would not increase income tax rates in the Budget, and they kept their promise. Conor O’Brien, tax partner at KPMG, said that the decision was welcomed – but that there were caveats.
“The impact of increases in previous years, together with increases in other personal taxes such as CAT and CGT – both of which went up 3 per cent – makes Ireland less attractive to business owners and higher earners,” he said.
He pointed to a number of international studies and direct evidence which show that high personal taxes are “second only to high corporation taxes in discouraging business and job creation”. He told TheJournal.ie:
We should be more imaginative, as we have been in the past, in having limited, targeted measures focussed on the most mobile and tax sensitive businesses.
Child benefit: “This Budget is very harsh for families…”
(Photograph: Sasko Lazarov/Photocall Ireland)
Irene Gunning, CEO of Early Childhood Ireland, described the decision to cut child benefit across the board as”lazy and harsh” – and added that the would not work as a cost-saving measure, as means-testing was the only way to fairly assess need. “This Budget is very harsh for families,” she said.
And, with the cut in child benefit and the tax on maternity pay, it’s especially hard on families who are already hard-pressed to put food on the table.
Gunning said the moments spent between mother and child were very important to childhood development, and expressed concern that maternity benefit would now be treated as taxable income.
Gunning said that, at first glance, the allocation of €14 million for after-school childcare provision seemed “a very small amount”. She added the Government has “missed an opportunity” by failing to extend the preschool scheme from one year to two.
Retail: “There was no talk at all about any kind of stimulus for the domestic economy”.
“The one thing that stood out from this Budget was that nothing stood out,” says David Fitzsimons of Retail Excellence Ireland. ”Many of the bigger interventions in terms of taxation and cuts had been previously announced so it all felt like much ado about nothing”.
He said that there was nothing at all for the retail sector in the Budget.
Ireland seems to use the same template for budgets every year – we talk a bit about tourism, a bit about agri, a bit about construction – but the largest industry in Ireland doesn’t get a word.
He pointed to the VAT retention and the fact that fuel excise didn’t increase as two of the main positive announcements for retailers. “However there was no talk at all about any kind of stimulus for the domestic economy,” he said.
“One of the biggest issues for retailers is consumer sentiment,” he said. “Michael Noonan said sentiment is up and sales are improving – but he’s talking nonsense. The government is undermining sentiment and sales by two things: firstly, scheduling the Budget for December scares people off spending right before Christmas. And secondly, the communications around the Budget are awful. There’s so much kite-flying. This year, more so than previous years, all groups across society were worried. Families, OAPS, anyone in a job, and social welfare recipients all had six to eight weeks of fear – only for nothing to change.”
The motor industry: “The increase in VRT is devastating for an already-fragile industry”
(Photo: Eamonn Farrell/Photocall Ireland)
“It is a very bad day for the motor industry and drivers,” car dealer George Mordaunt told TheJournal.ie, despite stating that his initial reaction was that Budget 2013 wasn’t as bad as he feared it would be.
“Motorists have been burdened once again to plug their piece of the Exchequer, despite the bone they threw us with the non-change in the excise duty charged on petrol.
VRT is essentially an excise duty on motor cars in disguise – which is illegal under European law. The increase in VRT is devastating for an already-fragile industry. There are many legends of the sector fighting hard to hang on and today’s announcements may have been the straw that broke the camel’s back.
He said the average increase of 7.5 per cent on Road Tax is going to prove “very difficult” for people who already can’t afford to service their cars.
Mordaunt, who deals with used cars in his family-owned business, added that he was disappointed at the lack of stimulus packages for SMEs. “I don’t believe what they announced will make any great difference to indigenous business in rural Ireland,” he said.
Children: “The costs of going back to school are significant and children do not like to be different”
Senator Jillian Van Turnhout is concerned about many aspects of the Budget which will impact on children. A high-profile campaigner for the Yes campaign in the recent Children’s Rights Referendum, the Oireachtas member said she was disappointed with the cuts to youth work services which look like they will hit closer to the 10 per cent mark. The changes were announced in a five to 10 per cent bracket.
She also expressed her worry about the “significant” cuts to child benefit and the back-to-school allowance, which was reduced by one-third to €100.
Although the €10 per month cut to child benefit was flagged before yesterday’s announcement, Van Turnhout said the €18 and €20 reductions to the payments for third and fourth children went largely under the radar.
“The cut to the back-to-school allowance is most concerning,” she told TheJournal.ie.
The costs of going back to school are significant and children do not like to be different. If they don’t have the correct books, shoes or uniforms it can increase the pressure already on them and make it difficult. These allowances are directed at people with low incomes and they do not apply for it for no reason. We need to get education in the early years right.
Van Turnhout also said the Government had fallen short of its promise to deliver a Scandanavian-style system of childcare.
The markets: “The markets will be impressed by the Government’s commitment to the Troika programme…”
(Image: photofriday/Shutterstock)
Senior strategist at Danske Bank Markets, Owen Callan, said the Government’s rebalancing was the biggest adjustment in the Eurozone with the exception of Greece.
“While Budget 2013 encompasses reductions equivalent to 2.1 per cent of GDP, the reality is that it is far smaller in scale than previous years,” he said.
The Irish Government has to date implemented severe rebalancing, equivalent to €25.3 billion in combined fiscal adjustments or approximately 15.5 per cent of GDP.
Callan said the fact there had not been a total collapse in economic activity during this period was “a testament to the strength and flexibility inherent within Irish economy”. Overall, he predicted the markets would be impressed by the Government’s firm commitment to the Troika programme and its continued adoption of measures that “while politically divisive and socially unpopular, many other countries have thus far refused to countenance.”
- Additional reporting by Jen Wade and Sinead O’Carroll
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