THE GOVERNMENT has produced a Finance Bill designed to reassure the public that it can successfully manage the economic downturn and sustain its budgetary arithmetic while, at the same time, buying off protesting farmers. It is an unconvincing proposition.
Even as Minister for Finance Brian Lenihan outlined what he described as a range of progressive tax measures in the Finance Bill, most attention was focused on a faltering banking system and on the consolidation and capitalisation measures likely to be imposed there. Uncertainty and gloom permeates the business and financial sectors and, until that is dissipated, the prospects for an economic recovery will be delayed. The Finance Bill strongly echoes the Government's assertion that Ireland is open for business. A benign corporate tax regime; enhanced research and development concessions; attractions for start-up companies and reduced stamp duty for commercial property provide convincing evidence of that fact. And while a 3 per cent levy has been introduced for those with incomes exceeding a quarter of a million euro, Mr Lenihan emphasised the balancing concessions that have been made to older people and for those on low incomes.
The political fallout from one of the most unpopular budgets in decades, driven initially by the removal of medical cards from the over-70s, is still working its way through the system. It has been marked by a range of exclusions from new taxation measures for low-income earners and pensioners and by a variety of farming concessions. Some relief was offered to those people who own second properties abroad when Mr Lenihan acknowledged that, unlike Irish holiday homes, it would be just too difficult to track them down and tax them on those assets. Regional airports were allowed a small advantage over Dublin. And it still is not clear whether public servants and Oireachtas members will become liable to car parking charges.
Apart from that, Mr Lenihan made something of a fuss about the progressive - even if belated - nature of some changes. And a rather unconvincing tilt was made at an unknown number of tax exiles who enter and leave the country at their pleasure.
Government confidence remains fragile. Asked what would be done if the fiscal situation continued to deteriorate, Mr Lenihan responded that the measures in the Finance Bill represented the maximum amount of tax that could be taken out of the economy next year. Any further response would, he said, have to be on the expenditure side.
As to whether such decisions may involve current or capital expenditure, he didn't say. But the Government is likely to wait until after the December tax figures become available. At that stage, Ministers will have to face the unpopular prospect of borrowing heavily to pay public servants. They will also have to brace themselves for a storm of negativity as the new tax levies impact for the first time on pay cheques. Before any of that happens, however, they will have to sort out the banking system.