ANALYSIS:With the eyes of Europe and the financial world on Ireland, it was imperative the Budget was not defeated, writes STEPHEN COLLINS
WHETHER THE Budget of 2011 starts the process of national recovery only time will tell but politically it appears to have succeeded. The measure may be one of the toughest Budgets in the history of the State but it contained no big surprises. That was only to be expected in the light of months of speculation about its contents,
the publication of the targets for 2011 in the four-year national recovery plan and the terms agreed as part of the EU-IMF bailout.
The big doubt over the past two weeks has not been about the content of the Budget but whether it would be approved by the Dáil. There were even suggestions that the prospect of damage to the national interest of a Budget defeat was so great that some Fine Gael TDs might abstain to ensure that the measure passed.
In the event, the Government had a more comfortable majority than anybody forecast. Not only did Michael Lowry and Jackie Healy-Rae rally to the cause and continue their support for the Government but Fianna Fáil prodigal son Joe Behan returned to the fold for the Budget. The Wicklow TD, who voted against the 2009 Budget and even more sensationally left the party to become an Independent, announced that he was voting for the 2011 measure in the national interest.
Unlike some of the other Independents, Behan is not given to grandstanding in the media spotlight in return for his Dáil vote. He has been his own man since going to the Independent benches but his decision to back the Budget came as a welcome relief for a beleaguered Government.
Given the sheer scale of the tax increases and welfare cuts that were involved in the Budget, coming on top of three successive tough budgets, the calmness of the political reaction was striking. The fact that an election is now going to happen in two to three months helped to defuse the impact as there was no real incentive for anybody to bring the Coalition to a premature end.
The fact that the eyes of Europe and the financial world were on Ireland yesterday made it even more imperative that it was not defeated.
If the Budget achieves its economic and financial and objectives with the ease that it passed muster in the Dáil, Minister for Finance Brian Lenihan might even be proved right in the claim at the end of his speech that there was every reason to be confident about the future of the economy and the country.
Most of the changes announced in the tax code or the social welfare system were well flagged in advance. That doesn’t mean that they will be easy for the average family to absorb but it looks as if there is no political banana skin that may derail the measure in the days ahead as the attendant legislation goes through the Dáil.
The exemption of the State pension from the general 4 per cent cut in welfare payments is a reflection of the Government’s fear of the elderly as the potentially most potent political lobby group. The attempt to withdraw the medical card from certain categories of pensioners two years ago gave the Coalition a bloody nose it has not forgotten.
Public service pensioners have taken a hit this time around although the cuts have been tapered cleverly to exempt the first €12,000 of income while clobbering the small number of people on pensions of over €60,000.
People of working age dependent on the welfare system have not been as lucky as pensioners. Their entitlements have been reduced and they will also be affected by the cut in child benefit and a range of other measures to curtail social spending.
People in the workforce on low incomes will also be hit hard by the Budget. The tax changes involving a 10 per cent reduction in the credits and a similar reduction in the bands are designed to bring more people into the tax net.
That will involve people on low incomes who currently pay no tax being required to contribute for the first time.
People higher up the income scale will also have to pay more because of these changes and they will also be hit by the removal of the €75,000 ceiling on PRSI payments. It means that when PRSI and the income levies are added together they will be paying an extra 11 per cent on the bulk of their income on top of income tax.
Many middle-income earners will also be hit by the reduction in tax relief on pension contributions.
In the past income tax changes, no matter how severe, have not posed short-term political danger. Taxpayers are not a single coherent group with common interests and don’t have the ability to threaten a government’s survival.
However, they are all voters and given that a general election will be held in late February or early March they will soon have an opportunity to express their reaction. The fact that the Budget contained further reductions in the salaries of the Taoiseach and his Minister has probably come too late to impress anyone as have the changes to the State cars regime.
Going on the opinion polls it is clear that most voters have already made up their minds about this Government. If the Budget does actually work Fine Gael and Labour stand to benefit as they will be in office before long with most of the difficult decisions already taken.
While that will be scant consolation for Fianna Fáil and the Greens in the short to medium term it may gave them grounds to believe they have a chance of long-term survival.