First, do no harm. The technology sector, world-wide, has slowed dramatically over the last year. Yet despite our heavy exposure to that sector, Ireland has escaped the worst impact, because it remains an attractive and competitive place in which to do business. Corporation tax rates remain modest, the workforce is highly trained, and the legal and policy context is favourable. So the first piece of advice to the Minister must be to do nothing that would reduce Ireland’s overall competitiveness.
Keep cutting taxes. The domestic side of the economy has also slowed, affected firstly by the impact of the virtual closedown of parts of the economy in a bid to keep foot and mouth disease from spreading. Later, worries about the global economic slowdown added to this lack of confidence in the consumer sector. This significant slowdown means that inflation will be less of a worry going forward, and also means that tax reductions would be helpful in maintaining confidence and allowing the economy to grow at around its sustainable rate, which is probably in the region of 5 per cent - 6 per cent. So the Minister should persist with tax reductions, notwithstanding the many voices to the contrary. Tax cuts are an ideal remedy for an economy whose growth rate has been halved. We should not make the mistake of assuming that because there are less funds in the kitty, there should therefore be less tax cuts.
Don’t throw money at the system to improve services. Public services are still well behind the standards of other western countries, but the Minister should not assume that he can solve this by throwing money at the problem. Spending on health, for example, has exploded over the last few years, but few people notice any improvement in the quality of health care. In many cases, extra spending on services could lead to more spending on agencies, authorities, commissions, task forces, and other admin. spending, as well of course on higher pay for the staff delivering the services, but not on actual improvements in the services to the public. So the Minister should ensure that any extra public spending leads to real improvements in the quality of public spending.
Widen the band - a lot. When considering the taxation side of the Budget package, the Minister and the Government will presumably be quietly satisfied that over the last four Budgets the tax rate targets (42 per cent for the top rate and 20 per cent for the standard rate) outlined in the Programme for Government have already been achieved. The choice now is whether to cut rates further, or concentrate resources on other measures, such as larger tax credits or a wider standard tax band. In general terms, this may be a year to put more resources into the latter. In an international context, our tax rates are no longer particularly high, but the top rate of tax kicks in at a very low level. For a single person, the top rate of tax is payable at ?20,000 per year. It would seem sensible to increase this very substantially, and in any case the ‘individualisation’ plan of a couple of years ago contained plans to raise this to ?28,000 - why not do it now in one step?
Press ahead with the infrastructure programme. It seems almost too incredible to believe, but there is a serious chance that in a few years time we might actually have a modern infrastructure in this country. Planning seems to be moving ahead for a decent road system, a far better public transport network, and other essential improvements. Under no circumstances should the Minister dilute these plans as an economy measure. That’s not to say that non-economic projects such as Stadium Ireland should not be reviewed or even cancelled if needs be, but the components of the National Development Plan that will clear infrastructural bottlenecks should be all-but sacrosanct!
Enhance competition - via further privatisation? Although competition issues are not necessarily directly relevant to the Budget, nonetheless as far as possible the Minister should seek to foster greater competition across the economy. And as the private sector is generally a more efficient provider of services than the public sector, greater private sector involvement should be encouraged.
Find imaginative solution to childcare issue. The childcare issue seems to have faded somewhat from the agenda in recent months, but the high cost or unavailability of childcare services remains a definite blockage to economic growth. The harder it is to get childcare, and/or the more it costs, the smaller the labour force. It’s highly unlikely that the Exchequer could ever afford to pay a large part of the cost of childcare for the large number of families affected by this issue, but a start has to be made somewhere. Imaginative efforts to help address the childcare problem would make a real difference to this economy.
Note: The views expressed are personal and are not necessarily the views of KBC Asset Management. |
