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Friday, 14th August 2020
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Hard choices must be made between increasing spending or reducing taxes Back  
Alan McQuaid says public spending is the most important consideration in the next budget.
The big worry going forward is that the Government will continue to increase current day-to-say spending next year by the same level as in 2001, that is around 20 per cent, which is way over the top by any stretch of the imagination. This is simply not sustainable. At this juncture, the Government has to make hard choices between increasing expenditure or reducing taxes but not both. With a general election coming up sometime over the next twelve months, the temptation will be to deliver a similar Budget this December as in December 2000. This would in my view be a big mistake. There is no doubting that the issues of health and child care will be top of the agenda as regards spending proposals for 2002, but they must be implemented at the cost of reduced expenditure elsewhere. Indeed, it is worth noting that official expenditure on the Health Vote has risen by around 186 per cent over the last five years or so, but with very little to show in return for this high level of spending. In simple terms, another couple of years of day to day expenditure like we have seen in 2001, and all the good work of targeting/achieving Exchequer surpluses will be undone. The last thing we want is to go back to the bad old days of huge budget deficits, but that is how it will be if we are not careful. Hard choices have to be made sooner rather than later, if the public finances are again not to become a monkey on the back of future governments.

Tax cuts or spending increases?
Last December you threw everything but the kitchen sink into the economy with a combination of major tax cuts and spending increases. Given than an election is not too far away and tax receipts are starting to slow down, I think you should put more emphasis on spending than on tax cuts this year, without getting too carried away on the expenditure front. I think there is very little need to go on reducing personal tax rates at this point in time, and is unlikely to get you much plaudits come election time. As I‚€ôve said above, the public is more concerned about health, childcare (including state-guaranteed education for autistic children/adults for as long as they need it), and road safety rather than tax concessions. Indeed, all the tax cuts in the world are no use to anybody when they are dead.

Medium-term budget strategy
With the Irish economy slowing down and with tax revenue likely to be on the decrease, the Government should publish a medium-term budget strategy, which conforms with the Maastrict Treaty and ensures that at the very least Ireland has a balanced budget every year over the next ten years or so, and does not resort to excessive borrowing as in the past. The Government should publish forecasts for the medium/long-term as to how it sees the impact of the inevitable enlargement of the EU on Irish economic growth/public finances going forward.

Road Safety
The Government cannot go on ignoring the carnage on our roads, with entire families being wiped out by a combination of poor driving conditions and a widespread disregard for speeding limits and the rules of the road. Minister, you should along with your colleague in the Department of the Environment, Noel Dempsey, prioritise improving our road network as quickly as possible, and examine closely the Swedish model (which has the lowest road death rate in Europe). Speeding fines should be increased drastically, with the fine rising by an ascending scale of £10 say for every mile over the speed limit rather than having a flat fine, irrespective of speed. Increased taxes on higher-engine cars should also be considered.

Transport
With transport bottlenecks continuing to increase, further initiatives have to be taken to discourage private cars coming into the middle of the city. While it is unfair to penalise motorists when an adequate public transport system is not in place, the Government/local authorities should follow Ken Livingstone‚€ôs example in London and consider charging motorists on a daily/weekly basis for coming into the centre of the city.

Inflation
Irish inflation still remains higher than desirable at this point in time, and the Government cannot afford to get complacent in its battle to keep price-pressures under control. Whatever, about raising the price of a packet of cigarettes and getting the social partners to agree to having tobacco excluded from the CPI for the purposes of wage negotiations, you must be careful not to sanction further increases for semi-state companies/local authorities. In my view these should not have been contemplated until Ireland‚€ôs inflation rate was well under control (below 3.0 per cent). Indeed, since the start of this year we have seen higher medical insurance, motor taxation, parking meter charges and the introduction of service charges in the greater Dublin area all adding to inflation. Furthermore, a sizeable hike in the television licence is now also on the cards, and the VHI is set for another subscription increase, just months after it was granted a 6.5 per cent rise in premiums. While all these increases on their own don‚€ôt add up to much, together they are quite significant. I still hold the view that greater competition in the marketplace, with more choice for consumers is the only way to curb inflation in the long run. With this in mind, I cannot understand why the Grocery Order is still in place, other than to benefit retailers rather than consumers. You should also take some measures to ensure that retailers don‚€ôt use the changeover to the euro at the start of next year to make a quick buck at the expense of the consumer.

Euro changeover
There still seems to be a general lack of public awareness about the changeover to euro notes and coins, which is just a few months away. The Government needs to go on an extensive publicity campaign between now and then to explain all the ins and out of the new single currency. The Nice Treaty referendum result should be a stark reminder that the Government can take nothing for granted and assume everything is ok as far as the general public is concerned.

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