We’re less than a week out from budget day, where are the negotiations now?
Ongoing. Talks between Fianna Fáil and Minister for Finance Paschal Donohoe picked up again on Tuesday after the weekend, and Donohoe also met Independent members of the Government. The demands on a relatively small amount of money – only around €350 million – are great.
Isn’t it around this time of the process that the Government usually finds a couple of hundred million down the back of the couch?
Yes, but the convenient few bob to help the Minister for Finance out of a hole is unlikely to dramatically appear this year. First of all, Fianna Fáil will not tolerate a repeat of last year when €300 million was discovered at the last minute. Secondly, the Department of Finance says any extra money will have to be raised elsewhere in taxes.
Can’t they make do with what they have?
No, because Taoiseach Leo Varadkar and Donohoe have made clear they want to raise the threshold of €33,800 at which people enter the higher 40 per cent income tax rate, and Fianna Fáil is adamant it wants a commitment in its confidence and supply deal with Fine Gael that Universal Social Charge (USC) be reduced. It costs a lot of money to do both while also adhering to the commitment to split budgetary decisions on a 2:1 basis in favour of spending increases.
So, what taxes will be increased, and how much will that give the Government?
Government insiders believe the giveaway package has to be of the order of around €600 million to have any meaningful political impact. That means Donohoe has to find an extra €250 million or more in revenue-raising measures, as well as possibly raiding what Varadkar previously called the “hidden fiscal space” of unallocated money across Government.
A range of tax increases are understood to have been tabled in discussions between Donohoe and Fianna Fáil, from the old reliables of tobacco and alcohol to a new sugar tax. However, Donohoe would have to significantly raise the price of a pint and cigarettes to get anywhere near what he needs.
Government sources are also cool on the idea of raising the special 9 per cent VAT rate on the hospitality sector even though this would provide Donohoe with the extra resources he needs. This had been seen by some as the most obvious – and easiest – way to get some quick cash.
The question of where Donohoe gets the extra money from will be the key issue this week. “Everyone assumes he has something, but nobody knows what it is yet,” said one Government insider.
Should Fianna Fáil come up with some ideas of its own to raise revenue?
The party is likely to argue it is not up to it to come up with such suggestions while Government sources say it is “all a negotiation”. Fianna Fáil will want adequate warning of any tax increases to prepare its TDs whose abstention, after all, is needed for the budget to pass.
Fianna Fáil last year seemed to be obsessed with a €5 increase in welfare payments. Is it the same this year?
Up to a point. Willie O’Dea, the party’s social protection spokesman, has said the party wants a €5 increase for pensioners, carers and those on illness and disability payments. While they would like everyone on welfare payments to get an extra €5, those on the dole are less of a priority. The timing of these welfare increases is also likely to be a matter for negotiation.
Are the Independents happy?
Not yet, but they are unlikely to settle until close to budget day. Most of their requests are relatively small, but expect some noise and marches to the plinth from the Independent Alliance to remind people that they are in Government and making a difference.
So, where is the main row likely to come from, if there is to be one?
Insiders believe that the main tug of war between Fianna Fáil and Fine Gael will be over the income tax package. Sources on both sides believe it will be a mix of a small cut in the USC and a small widening of tax bands, but the exact composition of this bargain will be hard fought.
Both parties are leaving themselves wriggle room. Neither Donohoe nor Varadkar have publicly said how much they want the threshold for the higher tax rate to rise by, and Micheál Martin on Tuesday avoided specifically saying he wanted to reduce the 5 per cent USC rate to 4.5 per cent.