Irish budget day 2 – opposition attacks “socially regressive” VAT increases

Ed Jacobs reports on the latest developments from Ireland over the budget brought on by the eurozone crisis.

As the Welsh government finally saw its budget passed, in Ireland, the opposition Fianna Fail party has dubbed as “socially regressive” the budget measures announced by the Fianna Gail/Labour coalition government.

On day two of Ireland’s budget, finance minister Michael Noonan presided over a series of painful measures likely to impact on families across the country.

Outlining the extent of the measures being taken, the BBC’s  Jennifer O’Leary explained:

Ireland’s finance minister left income tax untouched. Instead the theme of Budget 2012 is taxing what people spend and consume.

In order to raise 1bn euros of new taxes, Michael Noonan has introduced a range of capital taxes and confirmed an increase on VAT.

Motorists in particular will feel a serious dip in their pockets given that all rates of motor tax have increased, along with carbon taxes.

It is not just those spending, people who inherit property will be paying more. Those who save will see an increase in the rate of DIRT tax. Even though it was flagged before today, retailers in the Republic remain incensed by the VAT increase.

Minister Noonan said he did not expect an exodus of shoppers from the Republic of Ireland crossing the border as the difference in the two rates is 3%. But busy forecourts just north of the border can be expected. Petrol and diesel prices in the Republic are up from midnight on Tuesday.

Then there is the precursor to property tax – the 100 euros (£85) household charge per dwelling. Northern Ireland-based owners of homes in the Republic will be liable for the charge. The Irish government has confirmed that property owners, not occupiers, will be liable.

Presenting the proposals, in an echo of the ‘blame the opposition’ stance being taken by David Cameron and George Osborne in the UK, the minister declared:

“I am afraid the Fianna Fáil/Green Government gave the purse away again this time last year as fiscal autonomy was conceded to the IMF and the European authorities. After a decade of disastrous decisions the building bubble burst and a government which was riven with dissension could no longer find anyone to lend money to it, so they were forced to turn to the IMF and the European authorities to provide funding.

“The people of Ireland have paid a very high price for this mismanagement of the economy. Personal wealth has been destroyed, thousands of people are sinking into poverty, emigration has returned and unemployment is far too high. The task of this government is to regain control over Ireland’s fiscal and economic policies, to grow the economy again and to get people back to work.

“Those that have lost their jobs and young people who cannot get jobs have suffered most. The primary purpose of this Budget is to support the creation of jobs in the short term, the medium term and the long term.”

Fianna Fail’s finance spokesman Michael McGrath, meanwhile, sought to denounce the measures by declaring it to be a “socially regressive” budget – though it is the actions of one of the governing coalition’s own deputies that caught the attention of much of the press.

Outlining his intention to vote against what he saw as an unfair budget, Labour TD for Dublin West, Patrick Nulty – elected to the Dail in a by-election just over a month ago – said of the measures announced:

“The household charge combined with the increase in VAT is deeply regressive, unfair and ultimately counterproductive. People on low and average incomes will be disproportionately affected while the wealthy benefit from flat rate taxation levied in this manner.”

He continued:

“I am not prepared to support measures which damage our economic recovery while attacking the weak, the sick, the marginalised and the vulnerable.”

As the two day process of announcing the budget drew to a close, for the Irish press, there was a mixed response to what had been announced, with somewhat differing interpretations about what it meant for the government.

In the Irish Times, Political Correspondent Deaglán de Bréadún argued that, in the medium term, the outlook for Enda Kenny’s administration seemed reasonable:

When Michael Noonan finished speaking today, there was silence from the Labour benches and muted applause on the part of Fine Gael colleagues. Given the parlous state of the public finances, nobody was ever going to mistake Noonan for Santa Claus.

The two speeches today and yesterday were quite a cunning and clever mixture and showed a certain amount of political skill in a very difficult situation. Despite the departure of Tommy Broughan and now Nulty (who needs to cover his left flank from left-winger Joe Higgins), the outlook for this government looks positive for the immediate future.

But the situation in the eurozone is deeply worrying and that, in the end, will probably determine the fate of the Coalition and indeed the rest of us.

However, writing in the Irish Independent, Seamus Coffey, a lecturer in economics at University College, Cork, observed how the government had lost its political capital from its first year in office:

“This budget appears to have been an effort to do as little as possible in as many areas as possible to reach the 8.6% deficit target. It is not clear if the “salami slice” approach taken will be successful. It might get the deficit to 8.6% of GDP next year, but there is no way a similar approach will reduce the deficit to less than 3% of GDP by 2015.

“Unless there is a miraculous turnaround in economic growth the big ticket items of the public finances will have to be addressed. These are social welfare payments and public sector pay on the expenditure side, and income taxes and the collapse of capital and wealth taxes on the revenue side.

“For many there will be relief that these areas survived this year’s budget. For the government they have squandered the political capital that the first year of office may have offered.”

See also:

Irish Budget part one unveils “unpalatable decisions”Ed Jacobs, December 6th 2011

Taoiseach calls for a hotter firewall for the Euro crisisEd Jacobs, December 1st 2011

Press hail election of Higgins as Irish PresidentEd Jacobs, October 31st 2011

Genteel Irish Presidential race cuts up roughKevin Meagher, October 27th 2011

Michael D Higgins: A real candidate for a real RepublicRory Geraghty, September 10th 2011

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.