Speech by Finance Spokesperson Michael McGrath on Budget 2012
Published on: 06 December 2011
At the outset of my contribution, for a moment, I want to honour the memory of my predecessor as Fianna Fáil Finance Spokesperson and the man who delivered the last budget in this House as Minister for Finance one year ago tomorrow, the late Brian Lenihan. I am sure we can all agree on one thing today – Brian’s patriotism and courage in the face of the greatest possible adversity remains an inspiration to all of us as we confront together the country’s enormous difficulties.
Today is not about the Government versus the opposition. All of us sitting here today have the privilege of being elected members of Dáil Éireann and it is our duty to put the Irish people ahead of any narrow party political interests. I have no doubt we share the same fundamental objectives for this country – to bring about economic recovery, to improve the quality of life for our citizens and to give them hope during this dark economic period. I believe it is our common purpose to make this country the best it can possibly be.
CC, today is the day that Fine Gael and Labour accept the responsibility that comes with being in power. The Government can no longer hide behind the actions or decisions of the previous government.
When this Government came to office last March, the Budget for the year had already been passed for them, despite their trenchant opposition to it, and FG / Labour had no major budgetary decisions to make until this week. From now on, you will be judged on your actions, your political choices and the results they bring for our people.
Over the past two days, the Government has made known its political choices. And let’s be clear about one thing – difficult and all as the circumstances undoubtedly are – the Government had choices. Yes, you are working within the framework of the EU / IMF deal, but in the words of Minister Noonan himself, speaking at the end of the last quarterly review in October: “The troika made it clear that they had no difficulty in substituting one fiscal measure for another with an equal value.”
So let there be no equivocation on this point – the decisions laid before this House yesterday and today are the decisions of Fine Gael and Labour and of nobody else.
The EU & IMF didn’t tell this Govt to cut child benefit for third and subsequent children; the EU & IMF didn’t tell this Government to increase the Drug Payment Scheme threshold to €132 per month for hard-pressed working families; the EU & IMF didn’t tell the Govt to cut the fuel allowance to vulnerable elderly people by 6 weeks……..and the EU & IMF certainly didn’t tell this Government to breach its own pay cap and give one of its special advisers a pay increase of €35,000. These were political choices made by FG and Labour.
We, in Fianna Fáil, have committed ourselves to a positive approach to opposition. We have not and will not oppose measures for the sake of it. If we agree with what you are doing, we will support you. If we disagree, we will oppose you and put forward what we believe to be a credible and realistic alternative. I regret to say that was not the approach of FG and Labour in opposition. In fact, your approach in opposition was utterly cynical. Measures that were so obviously necessary were opposed tooth and nail by Fine Gael and Labour.
Much of your opposition rhetoric not to mention reckless election promises are now coming home to roost. While in opposition and during the election, both FG and Labour gave people the distinct impression that there would be as easier and softer way of tackling our problems. Now that you’ve shown your hand, the Irish people have been left bitterly disappointed.
Various people who now sit around the cabinet table described this country as being ‘banjaxed’ as ‘as economic corpse’, as ‘a country in a pawn shop’. As a true republican party, we will not adopt such a negative, self-serving and corrosive style of opposition. We will call it as we see it, but we will never portray this country in a light that is unfair or that will undermine efforts to improve life for our people. This is a great country, going through an extraordinarily difficulty period in its economic history, but come through it I have no doubt we will.
CC, the Irish people have endured a great deal over the past 3 years or so. Successive budgets have forced more and more sacrifice on them. Many people are struggling to get by on a day to day basis; people are worried about providing for their children today and what future those children will have tomorrow. High levels of unemployment and forced emigration have re-emerged as an unwelcome feature in every community across the county.
Many families will spend this Christmas without loved ones, with young Irish men and women working in places as far away as Australia, Canada and the US. Their absence and their aspiration for a future in this country must be given expression in this House today.
Over the coming days, people will be coming to terms with the detail of the cuts announced yesterday and the tax changes today. They’ll find many unpleasant surprises buried in the detail, including social rate cuts by the way, such as for:
- pensioners with less than an average of 48 weeks contributions per year (anyone who leaves workforce for some time including mothers……..) – statement clear ‘new payment rates’
- disgracefully, for widows, you’re increasing the number of years contributions required to qualify from 3 years to 10 years…….
- One parent family payment is also being cut by bringing the qualifying child age to 7
You have given the pretence that rates are being maintained – the truth is for many welfare claimants – their weekly income will be substantially cut.
But in the cold light of day, there are some measures that really should be reconsidered……..
Minister, the cuts you are imposing on young people with disabilities is deeply unfair. It is a heartless and cruel cut.
Cutting up to €88 a week from young people going on disability allowance – some of whom have severe and profound disabilities – is totally unnecessary Minister.
Young people with disabilities look forward an income of their own to give them a sense of independence and give them some quality of life.
Minister, last year, you rounded on the Government for imposing a cut in the blind pension – and I think you were right – it was the wrong thing to do. But what you are proposing here is also wrong.
Minister – you have the majority to bulldoze through whatever you want – you don’t need Fianna Fáil support – but for the sake of the €7m involved, Minister, will you have a second look at this cut to young people with disabilities.
In Education, the changes announced will effectively mean some schools will no long be able to provide guidance counselling to students. If they do, they essentially have an increase in the pupil teacher ratio. At a time when young people are under huge pressure to perform in school and conform with their peers – very often – the school guidance counsellor is the safety net that prevents a personal problem escalating. With youth mental health and suicide a growing problem for our young people, this is a cut which could come at a very high price for some.
Education is a core value for our party. As a country, given the direction our economy is taking, having a postgraduate qualification is becoming increasingly necessary for our graduates. The cuts you are planning in postgraduate education are socially regressive and economically counter-productive.
These changes will mean, in a great many cases, that the son or daughter of a widow, a carer or someone from a low income family will simply no longer have the option of postgraduate education. This is not right. Education is a gateway to a better future – both for individuals and the country as a whole. This cut – along with the further cuts to the student grants and the 20% to the fund for Students with Disabilities will save only €15m.
Irish Times today – 200 people earning €150k or more, with 100 of these earning over €200k.
Where is the fairness in that Minister?
On coming into office 9 months ago, this Government asked to be judged on its success in tackling the jobs crisis. If it does succeed, I and my party will be the first to congratulate the Government. The retention of existing jobs and the creation of new jobs simply has to be the number one priority for all of us. We can all accept that making inroads into Ireland’s unemployment rate will help to solve so many other problems. It would reduce our social welfare bill, improve our income tax take and increase disposable income in the domestic economy. It would be the most painless way of reducing our budget deficit and getting our economy back to track.
On coming to office, you promised a Jobs Budget within the first 100 days in Government. You delivered a jobs initiative last May, funded by a raid on the private pension savings. I regret that this initiative has so far failed to deliver.
The truth is that the number of people on the live register today is 448,600 – this is 7,300 higher than when you came to office. You have pointed to increased tourism numbers in 2011 as evidence that the Jobs Initiative is working, but this is compared to an exceptionally low base in 2010 and the signs of recovery in tourism were evident before the Vat reduction took effect in July.
Today’s budget fails to give any meaningful hope to those looking for a job. You have outlined some measures today designed to give a jobs boost – and they are welcome insofar as they go – once again there are no targets, no timetable for delivery – long gone is the talk of 100,000 jobs.
Minister, I am glad to see you’ve read our budget proposals on the USC, and you are exempting many part-time, casual and seasonal workers.
I am sure all members will agree it is a very modest change to a charge FG and Labour railed against last year.
Of course, you shouldn’t spin this change out of all proportion – anyone working full-time will pay the exact same as before.
CC, in assessing the impact of Budget 2012 on the Irish people, we need to look at the combination of today’s and yesterday’s announcements. When you examine the figures, people will be hit very hard indeed. Working families with children and families dependent on welfare will be the hardest hit.
Let’s take the example of a working family with 4 children, over the course of a year:
- On child benefit, they lose €432
- On Vat, they will pay at least €400 extra.
- On Drug Payment Scheme, they will pay €144 extra.
- On household charge, they will pay €100.
- On motor tax, excise duty, carbon tax, at a minimum €100.
- If they are fortunate enough to have private health insurance, the VHi has said a typical €2,000 premium will now cost at least an extra €1,000.
- Total €2,176 – excluding increases in school transport charges, public transport increases etc.
Let’s take the example of a family with 3 children (aged 3, 8 and 14), who paid income tax for years but where the principal earner lost his / her job at the start of the recession and the family now rely on mortgage interest supplement to keep the family home:
- On child benefit, they lose €228.
- On the fuel allowance, they lose €120.
- For the youngest child, they lose €200 on the back to school allowance. For the two older children, they lose €105 between them.
- The Vat increase will them at least €250.
- On motor tax, excise duty, carbon tax, at a minimum €100.
- Their minimum contribution towards mortgage interest supplement will increase by up to a staggering €572.
Total €1,575 – and this is a family entirely dependent on welfare.
These are two examples of families already hard hit by the recession. It would be unrealistic to think they could unaffected by the budget.
The major flaw in this Budget, Minister, is that its impact is not progressive – in fact it is a highly regressive budget. It is also socially regressive because of the choices you’ve made.
It’s all very well to tell people you’re not hiking up income tax and you’re not cutting basic welfare rates – but that’s cold comfort when families already struggling to get by realise the impact of the budget on them.
I’ll tell you one thing– these families won’t be taking Minister Varadkar’s advice and booking a holiday on the back of this budget any time soon!
You are not asking the very high earners to shoulder more of the burden.
CC, the Government’s entire budgetary plans for 2012 are based on a projection of the economy growing by 1.6% next year. I sincerely hope this growth level is achieved and exceeded. But on behalf of my party, I have to set out the analysis as I see it. With each passing day, the Government’s forecast for economic growth in 2012 looks increasingly optimistic and out of line with the views of a range of independent commentators.
Consumption in the domestic economy continues to contract. Consumer sentiment is weak and the extra money being taken out of people’s pockets through this budget, as I’ve demonstrated, will make matters worse. While we hope the ECB will further reduce interest rates later this week and which you should be demanding be passed on to both personal and business customers, on all other fronts, the omens for consumer confidence have deteriorated in recent months and 2012 looks like yet another very fragile year for the domestic economy.
Our exports reached record levels this year and have the potential to drive us back to economic growth. Multinationals operating out of Ireland and many Irish businesses have performed remarkably well in the export sector.
But the risks before us are stark. Our ambitions for an export-led recovery are now under serious threat from the ongoing Eurozone debt crisis and its impact across the globe. Our main trading partner, Britain, has dramatically downgraded its own growth forecast for 2012 from 2.5% to 0.7% of GDP.
The European Commission has downgraded its forecast for the Eurozone economy in 2012 from 1.8% to 0.5%.
Others predict that the Eurozone could slip back into recession. In simple terms, if there is less demand among our main trading partners for the goods and services we produce, our exports will suffer and will act as a drag on our economic growth.
With an optimistic growth forecast of 1.6% underpinning this budget, I believe the Government’s strategy for the public finances is based on shaky foundations.
In its Quarterly Economic Commentary published last week the ESRI downgraded its growth forecast for 2012 to 0.9% and goes so far as to project a contraction in GNP. The OECD has a similar outlook projecting just 1% GDP growth, well below the 1.6% the Department has forecast. The plan is to reduce the deficit to 3% by 2015. This is based on achieving a 26% growth in tax receipts while implementing a 30% cut in capital expenditure over the period.
The 9% increase in income tax receipts the Minister was forecasting for 2012 before he even stood up in the house today looks ambitious even taking into account the carry over effect from last December’s budget. As the Minister is only too well aware, the last 3 months have shown a sharp deterioration of tax receipts.
In November, alone tax receipts were €337m off target. The White Paper on Receipts and Expenditure showed that the full year tax take would be €700m below target for this year and even this is flattered by his mid year raid on private pensions which yielded €460m.
As the Minister has pointed out many times, every 1% of economic growth is worth about €800m to the exchequer – so, if for example, our growth ends up being only 0.6% – the budgetary plans for 2012 will be thrown out of line by €800m. This underlines how critical it is to bring about economic growth in 2012 and future years.
When you take the political commitments made by FG / Labour and the 2012 budgetary strategy outlined today and yesterday, the Government has given itself very little room to manoeuvre. If you look at the four main income headings – you have used all your headroom in Vat in one fell swoop (the PfG caps the top rate at 23%); you have committed to no income tax increases for the lifetime of the Government; all parties agree corporation tax should not be increased, and there is a limit to how much excise you can add to a litre of petrol or a pint of beer.
On the expenditure side, you have ruled out any reductions in welfare rates for the 5 years of the Government, you appear to be committed to the Croke Park deal to 2014 – so you have left very little room on either the revenue or expenditure side should your growth forecasts prove to be too optimistic.
Without question, you have made the easier political choices in this budget – I am not so sure you will have that luxury in your future budgets.
The sobering news for FG / Labour backbenchers is that far from this being the hardest budget in the Government’s life, it may actually prove to be the easiest!
Since coming to power, the Government strategy has been to look for easy targets to raise tax revenue, ideally ones they think people will not notice. The Government raided private pensions for €460m but because people don’t see it coming out of their disposable income the Government felt they would get away with it. Now they are focusing on VAT, hoping they will not notice that either.
The Minister may be trying to pass this off as simply an increase in tax on luxury items but in fact many everyday items will increase in price as a result of this, including:
- Mobile and landline phone calls – Adult clothing and footwear – Car Park charges – Detergents – Petrol and Diesel – Prams – Shampoo – Soap -Toothpaste
These are hardly luxury items Minister!
When news of the VAT increase leaked in the German Bundestag, the Minister was quick to put out his analysis that it would have a greater impact on the better off. In fact, the distributional effects of VAT in Ireland were examined by the ESRI in a paper published in July.
The results were unambiguous. They showed clearly that those hardest hit by a Vat increase are households in the lowest 10% income bracket, households in rural areas, and one parent families.
A few months ago, Minister you said “What we really need is for people to go into the shops and start buying again” Well one would think that the Government policies would also encourage people to spend – then you go and increase Vat! People are being given mixed messages.
Increasing Vat by 2% in this budget is a major mistake. At a time when exports are facing a challenging environment, there was an opportunity to put an emphasis on the domestic economy, but you have decided to do the opposite.
Small retailers will be left with the dilemma of whether to pass on the increase and suffer the loss of sales or try to absorb it themselves and run the risk of putting the survival of their business in jeopardy.
With very few people likely to get a pay increase in 2012, this Vat increase means an across the board reduction in purchasing power and a consequent fall in the standard of living.
In his reply to me last week the Minister stated that the VAT increase would raise €670m. The Summary of Budget Measures shows that the expected full year out-turn from the increase will be €670m in a full year – clearly indicating that there will be an impact on the volume of retail sales from the increase. It is a basic law of economics – if you put up the price of goods and services – the demand is going to fall………….
Let’s take one example, car sales have already gone in to decline since the end of the scrappage scheme in June. Figures released on Friday by the Motor Industry showed that car sales in November were 50% down on 2010. The 2% VAT increase will add €300 to the cost of an average family car. The State collects considerable revenue from car sales both in terms of VAT and Vehicle Registration Tax. The Minister may find it is not just VAT returns that are depressed by the proposed increase but also the revenue he takes in from VRT and also excise duties as people cut pay on spending in other areas.
In launching the jobs initiative the Government’s argument was that by reducing the lower VAT rate from 13.5% to 9% it would stimulate demand in labour intensive sectors of the economy. I believe that this Vat increase further undermines the earlier policy decision to reduce the lower Vat rate.
We also need to consider what the impact of the VAT change will be on retailers in the border region. Minister, you have played down the significance of Vat as a driver of cross-border shopping. And it is true to say that Vat is not the only factor…….the relative euro / sterling exchange rate of course also influences where people living in the border region and beyond do their shopping.
However, those closest to the situation believe this Vat increase will make a difference. North of the border, the Chamber of Commerce in Derry are delighted with the increase – they have stated the VAT increase in the Republic will have a beneficial knock-on effect for businesses in Derry.
The sentiment south of the Border in Dundalk, is the complete opposite. Dundalk Chamber of Commerce has said the Vat increase will hurt businesses in their area.
The Minister would appear to be banking on their being no deterioration in the exchange rate against Sterling but there is a risk the Minister could find himself in the midst of a perfect storm next year caused by a combination of the VAT increase and a weak Sterling.
Worryingly, the VAT take has been below profile in each of the last six months. The cumulative underperformance in 2011 has been €464m with less being taken in this year than last year despite the rise in the Consumer Price Index. The Vat reduction in the Jobs Initiative doesn’t fully explain this.
It should be noted that current Government Ministers reacted with hysteria when the previous Government increased Vat by 0.5% to 21.5% in October 2008:
Minister Bruton said: “The Minister has made decisions today that will threaten to turn a recession into a depression.”
Minister Burton said “In today’s Bill, the Minister is proposing to increase VAT by 0.5% to an astronomical 21.5%. This is one of the highest rates in Europe.”
She described it as ‘ the single most disastrous action he took in the early budget for 2009. This mistake, she said, sent shoppers scurrying over the Border to queue in ASDA in Enniskillen and Sainsburys in Newry.
Well how the times change! I would love to know Minister Burton’s private thoughts on increasing Vat to 23% in this budget!
Increasing VAT is the wrong tax measure at the wrong time. We accept that an increase in VAT will at some point over the next four years form part of the process of closing the deficit. However, to frontload the increase all in one year could kill the recovery stone dead.
We believe the Government’s decision to impose a levy on private pension funds was deeply unfair. In effect, you are raiding the private savings of Irish citizens and the measure runs contrary to the long established principle of encouraging people to save prudently for their retirement.
It was a sneaky levy – you said it was a levy on the industry but of course the industry is passing it on to pensioners by way of reduced benefits and to workers by way of increased contributions…..pensioners don’t see it on their statement……..Tara Mines…..
The decision was taken against the advice of the Pensions board and indeed officials and the Minister for Social Protection. I’m highly sceptical of the Government’s promise to end the levy in 4 years time. Become embedded in the system, link with jobs measures will become blurred over time…………..
Instead of imposing this levy, Fianna Fáil is proposing an investment stimulus of at least €5.6 billion over four years. The Government’s pension fund levy should be ended and replaced with a mandatory investment by private pension funds of 4% over four years (average 1% per annum) in the Strategic Investment Fund announced by Government in September. This would be an investment of €700 million per annum and would be supplemented with an equivalent annual investment from the NPRF. This would offer a long term cash flow benefit to private pension funds while stimulating economic activity and developing the infrastructure capacity of the State. The Strategic Investment Fund should also be open to regular savers in a manner similar to the National Solidarity Bond.
Minister, enterprise has to be put at the centre of all aspects of Government policy. While we have to continue to attract foreign direct investment, small and medium sized Irish businesses will lead this recovery. We need to give them every possible assistance.
- We need an appeals mechanism based on economic circumstances to limit the burden of commercial rates.
- We need a significant enhancement of supports for small businesses would I proposed in our budget submission would include a doubling in the budget for County and City Enterprise Boards.
- I believe the Government should convene an Economic Advisory Council, to complement the work of the Fiscal Council, comprising a broad range of representatives from the private sector to advise Government on enterprise and wider economic policy. The membership of the Council could be drawn from the key sectors of the economy including SMEs, Financial Services and the export sectors such as the agri-food industry.
The steps we have taken since 2008 have resulted in a marked improvement in our competitiveness. The European Commission forecasts that by 2012, Ireland’s competitiveness will have improved by 14%. This progress must be continued.
- Minister – I firmly believe we need to start encouraging rather than penalising the self-employed in this country. As a means of encouraging entrepreneurship, the State should consider a voluntary PRSI scheme for the self-employed so they can claim Jobseekers Benefit and other welfare benefits if their business fails. The current system is a real deterrent to someone thinking of starting a new business.
During the election campaign, retailers were promised that legislation would be introduced to end upward only rent reviews. The current limbo has created a vacuum in the commercial property market. The worst thing about all of this is the uncertainty it is creating – retailers don’t know where they stand – investors can’t make investment decisions while this uncertainty remains – you need to make a decision one way or the other!
- I don’t know how long it takes to get advice from the AG about the constitutionality – but this is going on for 9 months
On the proposed €100 household charge – people have known this charge was coming for some time – people are worried about where this charge will end up at –I didn’t hear any unequivocal commitment that this will be replaced in one year with a more equitable charge??
The bill doesn’t provide any exemptions for carers, widows, the disabled and pensioners. Will people in negative equity, mortgage arrears and those who paid massive amounts of stamp duty in recent years have to pay the charges?
Minister, this is a socially regressive budget. Its impact will be felt hardest by low and middle income families with children, by young people with disabilities, by vulnerable elderly people, and by students trying to build a better future.
You had the option of closing loopholes and targeting higher income earners. Instead you have played your trump card by increasing Vat in the first year of the Government’s 5 year life. This is despite the clear evidence of the weakness on the domestic economy. The tens of thousands of families in mortgage difficulty will find nothing in today’s announcement that will help them. People outside medical card guidelines who take out medical insurance will be hit with massive premium increases. The 448,000 on the live register have not been given any real hope.
The real flaw in this budget is its inherent lack of fairness. The Irish people know that cuts have to be made and that taxation has to increase and are willing to accept changes if they believe them to be fair.
Unfortunately, as these measures are rolled out over the weeks ahead, I believe that basic test of fairness will has not been achieved by this budget. The real measure of this budget and this Government’s economic strategy will be whether real inroads are made in the months ahead in reducing unemployment across this country. I am sure, Deputies that is a measure we can all agree on.