Ireland Calling by John Spain
A budget of a thousand cuts is the latest austerity measure for the Irish
Posted on Thursday, December 13, 2012 at 08:19 AM
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- A leap of faith by Ireland, the exit from the IMF/EU bailout
- A temporary detour from ecomic issues to Irish soccer madness
- Give Britain a break after decades of Irish emigration to the UK
|A young boy joined carers to protest last week’s budget cuts |
outside Leinster House in Dublin on Tuesday morning.
The reason was that all the bad news had been slowly leaked out over the previous few weeks to lessen the impact on the day.
So we knew all about property tax and increases in payroll "social" tax and cuts in child benefit payments and other adjustments like extra tax on alcohol, tobacco and cars.
We didn't know about some of the "adjustments,” one of them being the cut in respite payments to carers, something that has proved to be so contentious that it could yet destabilize the government even though the overall amount involved is relatively small in terms of overall state spending.
Carers are people who look after other people at home on a full-time basis -- like a parent looking after a severely handicapped child or someone looking after an elderly parent with Alzheimer's.
From the state's point of view, these people should be treated like heroes since they keep the loved ones they care for out of hospitals where long term care would cost a fortune. The amount saved by the state as a result has been estimated at around €4 billion a year.
Carers here get a basic payment of just over €200 a week from the state, and they also were getting an annual respite payment of €1675, to allow them have some "respite,” a short holiday or break from what is usually a demanding, year round 24/7 commitment. In this budget, that respite payment has been cut by €300.
A meaner, nastier cut is hard to imagine. This would be true even if most carers used the money for the respite break they were supposed to take.
In fact, however, many of them were using the money not for a holiday but to tax or insure the car they need to take the person they care for out of the house occasionally, to medical appointments and so on. Or they were using it to fill the heating oil tank for the winter, since many immobile people needing care also need higher home heating than healthy people.
This is just one of numerous small cuts that were made in the budget in areas of state spending that affect the lives of the poorest or the most vulnerable in our society. Extra payments for medicines for the poor is an example of another. And there are many, many more.
But it's not just the poor and vulnerable who will have their lives made more vulnerable by this budget. The lower to middle income families across the country are going to be hard hit as well. These are the so-called coping class.
The trouble is since the boom and bust many of them are just not coping anymore. And they now find that they are being squeezed even more.
Many of these would be people who bought properties over the past decade for which they paid boom time prices and which are now in negative equity. They are struggling to pay their mortgages already and are now being hit with a new property tax.
They paid heavy stamp duty (like a sales tax) when they bought their homes. It was six percent on an average house and nine percent on expensive properties.
During the boom it was quite normal to pay stamp duty of €20,000 to €50,000 when buying a property. People simply added it to the mortgage, borrowing enough to pay for both the house and the stamp duty. And this is part of the reason so many people are now struggling to make their mortgage payments.
There was a wide expectation that when the new property tax was introduced in this budget, people who had paid heavy stamp duty in recent years would be allowed to offset that against their tax bill. Instead they have to pay up the full amount of property tax like anyone else.
It's double taxation and it's clearly unfair. But the government went ahead with this anyway.
Similarly, the government made no attempt to target child benefit cuts at people who don't really need the payments. The payments are universal so all families get them, rich and poor. Taxing them would have taken about half of this money back from better-off families, while leaving payments to poor families intact. Instead of doing that, the government did an across the board cut which will hit every family in the country.
The property tax and child benefit cut will have most impact on ordinary middle income families here, with most of them down around €2,000 a year. That may not sound a lot, but for families who are already living on the margins after a succession of austerity budgets it will make life even more miserable.
On top of the cuts, there are the extra charges and tax that people will have to pay. The main one is the PRSI social tax (which is supposed to help pay the state's welfare bill) which is being hiked up.
Of course it's really an income tax since it is deducted directly from pay. The effect will be to bring the marginal rate of tax on income for many ordinary people to well over 50 percent.
The problem for many families is that while they are being squeezed dry by the government, many of the "luxuries" that are in reality essentials for many of them are costing more and more. The government is increasing annual tax on cars, for example, and petrol (gas) is going up as well.
Some might say that a car is a luxury, but if you're stuck in a new housing estate miles away from work and schools and there is little or no public transport nearby, what do you do?
This felt like a budget of a thousand small cuts, many of them hidden. The cut to the carers respite payment, for example, hardly registered in the media on budget day but is now the hottest issue facing the government.
The reason all these small miseries were imposed by the government is that they began the task of making the €3.5 billion adjustment with the three biggest items in the budget off the table. These were income tax rates, basic welfare rates and the Croke Park agreement on pay and pensions for state workers.
Fine Gael and Labor made pre-election promises that income tax rates and basic welfare rates would not be touched, rash promises that have now come back to haunt them.
So there was no change in the basic income tax rates (although there was the hike in the PRSI "social" tax on incomes which has the same affect.) And there were no changes in basic welfare payments like unemployment benefit and old age pensions (although the length of non-means tested jobless benefit was shortened and better off pensioners will now have to pay more of their own medical bills).
A much more imaginative approach to income tax and welfare and the link between the two could have been started in this budget and needs to be done soon if we are to incentivize business creators and workers to help us get out of the slump we are in.
The Irish welfare system pays people not to work and gives them many extra benefits for not having a job. In Germany more than a decade ago the welfare system was changed so that welfare payments there pay jobless people to work in all kinds of activities like community service programs and so on. You get very little for free unless you give back to society.
The Croke Park Agreement which guarantees pay levels and pensions in the public service (all state workers) was a major logjam in this budget. In the big spending departments like health and education up to 80 percent of spending is on pay and pensions for staff, but because pay cuts are ruled out, making any meaningful cuts in their budgets involves hitting frontline services.
So, for example, although school teacher's pay is not being cut, class sizes are going up (which affects students).
While student grants in universities are being delayed and student fees are going up, university teachers' pay (probably the highest in Europe) remains untouched.
Then there is the scandal of the pensions for state workers which go on being paid at levels that are twice what many people who spent their working lives in the private sector paying into pension private schemes end up with. And this is continuing while the state is desperately trying to save small amounts of money by cutting things like the carers respite payment.
This budget was not just unfair; it was incompetent and cowardly. Instead of some blue sky thinking we got more of the same old ideas, a myriad of minor changes that eat away at the living standards of ordinary people.
And of course here was no mention in the budget of the elephant in the room, the huge burden of the banking debt repayments Irish taxpayers have been lumbered with and which are going to cost us billions in the years ahead, money the government might as well pour down the drain. If the government had any backbone it would have told the European Central Bank by now that this party is
It all makes a very bleak prospect for Christmas and the New Year.