I heard a Fianna Fail TD saying on the radio that the decision to tie the household charge and the property tax to the funding of local councils was an attack on local democracy. As central funding through general taxation has been removed a failure to collect adequate amounts of the property tax means that funding of local services will be smaller.
Allowing local authorities to increase that charge puts the negative political feedback, particularly in areas where compliance is less, like Donegal, on to the local councils and protects the central government. It was an odd sensation, shouting at the radio (not unusual) in agreement with someone in Fianna Fail (which very much is).
However, I would add that with a smaller budget because of the problems of collecting the Household Charge and the property tax – and the structure of the property tax is almost exactly the same as the household charge and its associated problems, with good reason – means that it would require additional cuts to services.
This will follow the now established pattern of replacing publicly funded publicly owned services with private operations. Again, as has been well established, the private operation will be less efficient, more costly to the public purse in the medium term and the tendering process will be corrupt or suspect, with small operators losing out to larger conglomerates leading to a monopoly situation for the provision of these services after an initial flurry of 'competition'. It’s also been well established that Public Private Projects have been seen for over a decade as a growth opportunity for financial institutions in the IFSC, and the present government has recently provided them with a very specific kitty just for this.
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Whatever about the leaks, the underlying thinking in much commentary and policy analysis shows why some people will get hit very hard. Yes, those on social protection should look out –especially around secondary benefits and eligibility. And pensioners – many of their programmes will be sliced if not totally jettisoned. If you’re unemployed, don’t expect much help from the budget (it will end up destroying jobs – especially through investment cuts).
What struck me most is the proposition that Child Benefit should be taxed. This featured on RTE’s This Week (the weblink to the programme is unfortunately not available). The Minister for Social Protection claimed her preferred position was to tax Child Benefit since this would protect the most vulnerable. The ESRI’s Professor John Fitzgerald made a similar statement – that those on high incomes would be taxed while the vulnerable would be spared. This view shows a lack of appreciation of what can happen to hundreds of thousands of households struggling on modest incomes.
Of course, Child Benefit will not be taxed in this budget; apparently, the computers in Revenue and the Department of Social Protection still can’t ‘talk’ to each other. And here’s another thing: taxing universal benefits does not undermine the principle of universality. Taxation can introduce a progressive feature in payments that are granted to all, regardless of income or employment.
But the emphasis on ‘protecting the vulnerable’ ignores the fact that people at work are also vulnerable. Yet it is this crucial group that would be hit in the ‘preferred option’. It underlines a view that social protection is for the poor, rather than for protecting the social.
What would happen if Child Benefit were taxed? How would some income groups be hit? Those on social protection would be protected – but low and average paid should watch out.
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Let’s assume the Government comes up with the best house-property tax ever devised – truly progressive, taking into account all the social factors such as unemployment, low-income, arrears, and mortgage equity (or lack of). Yes, it’s a big assumption but let’s try it anyway. If this occurred there is still a strong argument that the Government should not introduce such a tax next year or even the following. And that is because the economy and hundreds of thousands of households cannot absorb it. Let’s run through some of the arguments.
First, the domestic-demand recession is expected to continue next year – the sixth year in a row.
As seen, both the EU and the IMF expect domestic demand (consumer spending, government spending on public services, and investment) to fall again next year. They both estimate that consumer spending will fall, as more people wilt under the combination of austerity measures, falling incomes and unemployment. Even by 2014, domestic demand will start rising but only marginally.
While under normal growth conditions, a house property tax would be an efficient tax – limited impact on the domestic economy and more efficient at reducing the deficit; relative to spending cuts. Even so, the impact on consumer spending would be high: for every €100 raised in a house-property tax, there is a resulting reduction of approximately €75 in consumer spending. In normal growth situations, the economy would absorb this. But as we know, these are not normal times. So what would be the impact of introducing such a tax while the economy is still in a domestic-demand recession?
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