This Government - and the last one -- spent the last few years following a budget script largely prepared by the troika. Heading into next Tuesday’s 2015 Budget, Ministers actually get to make some choices, even if they are a lot more constrained than a lot of the pre-budget hoopla would suggest.
Here are five of the key calls which have to be made:
1. How much to borrow? Despite a surge in growth , the gap between borrowing and spending this year will still be around 4 per cent of GDP, or around €7 billion in cash terms. Borrowing next year has to be below 3 per cent, as dictated by the EU rules. The EU and IMF - and the Fiscal Advisory Council - want the government to take another €2 billion out of the economy to be sure, to be sure to meet this. However such is the recent surge in growth that the ESRI reckons the target can be exceeded without any further budget cuts. There are a lot of moving parts here but the smart money says that the government will go with reasonably conservative forecasts for growth and target borrowing of a bit under 3 per cent, say 2.7 -2.8 per cent, in the hope that faster growth will again let it beat the target.
2. What to do with income tax? In net terms the budget is not going to give away much cash. But income tax "cuts" have been promised, so money will have to be found to deliver something. There has been a long-standing row between ministers about whether to cut the top 41 per cent tax rate or widen the tax band, which at the moment imposes this higher rate on relatively low incomes. However this is decided, there are likely to be a few elements to the income tax package, possibly also including tweaks to the Universal Social Charge (USC) or PRSI, to ensure that all taxpayers benefit, albeit modestly enough.
3. What to promise for future years? The goodies to be dispensed next Tuesday will be limited enough. So the Government will lay out a three year plan, which will say that - if current trends continue - further income tax relief is planned for 2016 and 2017. This is a hugely political exercise as there will be at most one more budget after the one next Tuesday before the next general election. The really key political decision is what to try to push through in this Budget and what to hold on to for next October's package.
4. Where to spend? This area is oversen by public spending minister Brendan Howlin. Savage cuts in spending have been a feature of recent years. These are now over, but there is still very limited spare cash - and a lot of demands. Previous plans had been to trim a further €800 million from overall day to day government spending next year and while higher growth and lower debt repayment costs will give some leeway, there is no large cash pile. If the Department of Health is to get more money, for example, less will have to be spent elsewhere. Ministers will also want to leave some cash to boost investment spending in areas like social housing.
5. What to do about corporate tax? The Apple tax investigation by the EU Commission relates to very specific tax rulings, but no-one is in any doubt that its timing is political. A big OECD study of corporate tax is under way and elements of Ireland's tax system are in the firing line. Change is coming here and the days of the so-called double Irish tax structure are coming to an end. The only question for Minister Michael Noonan is when to move. It would be a surprise if he does not clearly signal his intentions for reform in the Budget, while also promising a structure to continue to attract foreign investment in future.
