Hi °C | Lo °C One of many possible reasons for having an early Irish Budget in October may be contained in the fact that new taxes on the “old reliables” — drink, fuel and and tobacco — would come into force at midnight on October 14.
Other taxes have to wait until the new financial year in January and social welfare rises don't have to be paid until April.
A small matter, no doubt, but in the current straitened circumstances, every little helps for the embattled Dublin Exchequer.
Then there is the not so little matter of a carbon tax, which might also be a child of midnight. The Greens have got lucky. They want a carbon tax to save the environment; now Fianna Fail wants one to save its bacon. Even Mary Harney would prefer it to higher income taxes.
If the Finance Minister, Brian Lenihan, really wants to make a name for himself, though, he should double the tax on drink. It is another sign of the grip which alcohol has on the national psyche that it was one of the main beneficiaries of the boom, being spared virtually any tax increases.
A substance whose effects are almost entirely harmful has become ever cheaper in purchasing terms; unlike tobacco which gets clobbered every year.
Yet most drinkers are not alcoholics and can adjust their consumption to higher costs more easily than smokers, nearly all of whom are addicts.
All such taxes, of course, run up against the obstacle that they add to inflation. It is a serious obstacle when it coincides with pay talks. They are bogged down on precisely the question of whether pay rises should match recent inflation.
Inflation-indexed pay is one of the most toxic economic instruments ever devised. It is currently spreading its poison from the traditional high-inflation countries of the Mediterranean into ECB interest rates for the rest of the euro area.
In the past, countries like Spain and Italy raised pay in line with inflation, devalued their currencies to restore the lost competitiveness, then paid again for the resulting inflation ... and so on.
It worked well enough, too. But having given up devaluation by joining the euro, they never got round to abandoning inflation-linked pay. In so far as they pay out again, the ECB will keep interest rates higher for longer.
In the Republic, inflation-linked pay was never formalised, but neither was it abandoned as a concept, as it should have been when we joined the euro.
That's the economics. But there is no denying that maintaining purchasing power is an unavoidable aspiration of workers. Employers — and the Government is by far the biggest employer — have never devised a wages policy which attempted to marry these competing interests.
Yet the choice must be made between inflationary indirect taxes, non-inflationary income taxes, or reduced spending growth. So far, those choices have been presented in a very fuzzy way, insofar as they have been presented at all.
The Budget is coming early because the tax revenues are so poor. There will be a rescue package for house-buyers. We must not depart too far from EU rules on borrowing. Measures will be introduced to make business more competitive. There will be no more cutbacks.
It is very difficult to envisage the kind of Budget that would deliver all that. One clue may lie in the Taoiseach Brian Cowen's first shiny initiative — the Pre-Budget Outlook.
This claims to show the cost of maintaining public services at current levels.
In 2008, that worthy objective cost an extra 5%. Add existing capital programmes and the total rise in government spending was 4.3%.
The 2008 Budget turned that into a 9.3% increase. That included social welfare increases and extra capital spending, but still left money for improved services, in case you hadn't noticed.
Geddit? If, in 2009, holding services at existing levels is again deemed to cost another four per cent, but a couple of billion of the capital programme is “re-prioritised”, the total growth in spending, after social welfare increases, could be as little as 6%. And no cutbacks. Don't they have the figures to prove it?
We shall see. In all the rush there will be no Pre-Budget Outlook, but it may still be a guide to strategy.
Bringing the date forward pushes a lot of the right political buttons.
Any complaints over the next four weeks can be dealt with in the new hit production ‘Waiting For Budget’.
The terrible tax returns which are likely to show up in November can be dismissed as irrelevant, now that the new Budget has arrived. The EU Commission has less time to delve into the bowels of the national accounts.
Who knows? By this time next year it might be plausible to put a few optimistic numbers in Budget 2010. Between golfing, gobbeldygook and now this unexpected move, the Government has gone about handling the crisis in a curious way. If they get things right on October 14 though, it might just work.
Brendan Keenan writes for the Irish Independent.
