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Minister for Finance Paschal Donohoe at Government Building ahead of Budget 2018. Photo: Eamonn Farrell/RollingNews.ie
Eamonn Farrell
Minister for Finance Paschal Donohoe at Government Building ahead of Budget 2018. Photo: Eamonn Farrell/RollingNews.ie

Budget 2018: €20 for everyone has to be paid for somehow

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LONG-TERM strategy gave way to short-term electioneering in yesterday's budget, and both the politicians and the public could end up paying a real price.

This budget may well prove to be a pre-election budget, given the shaky ground that the minority coalition is on. 

It was no giveaway budget, but Fine Gael and Fianna Fáil definitely made sure that there was something in it for everyone - something that they could sell door to door during an election, promising more if their party is given a commanding lead in the next government. 

The issue with giving something to everyone is that you inevitably end up giving very little to anyone.

For most people, this budget will net them less than €20 a month in their income, but that is still a tangible benefit that you can point to. It wasn't the only thing in there. 

There is a bit of investment in health, a bit in education, a bit in housing, but cutting taxes and raising benefits is what has always sold to Irish voters. 

Unfortunately, the cost of that €20 is somewhere in the hundreds of millions when its spread across the whole of society - hundreds of millions that could have been spent on a few big projects that would have had far more impact on people's lives than a tax cut. 

While people are probably more concerned about housing and healthcare these days than they are about a few extra euro in their pocket, those things are much harder to deliver on and even harder again to sell. 

It takes a lot longer for a politician to explain how a combination of different initiatives over a number of years will deliver a mix of both private and social housing, which might put downward pressure on rent and house prices over time than it is to tell them that their taxes have been cut or their pension is going up. 

The tax cuts and welfare increases are also a scattergun approach that will target more people, whether you're someone on the minimum wage, someone on a pension, someone on the average wage, or someone on the dole. 

The government was also smart enough to hold off on things like eliminating Mortgage Interest Relief, phasing it out over several years so that it won't take place until after the next general election. 

Even the least cynical people in the country can see the problems with that. Politicians aren't all in it for themselves, and they do care about making a difference. 

Making a difference means getting power though, and getting power means getting votes. You can see that the efforts that went into this budget to change things, but, by prioritising tax cuts, none of these plans will be as effective as they could be. 

Tripling funding for the National Treatment Purchase Fund, for example, will take a lot of people off the waiting list by getting them treated in the private sector, but, overall, there is nothing in the budget to move Ireland towards a more sustainable healthcare system that would limit these waiting lists to begin with. 

The same goes for housing. There are a few measures in the budget that will push the private sector to move on vacant properties and build, but there won't be a single extra social house built by the state, and affordable housing didn't even get a mention. 

By cutting taxes, the budget limits the potential that the state has to deliver houses itself, and, effectively, all the government could do was set up a quango that will loan money and get the private sector to finance the rest of it. 

The profits that the private sector will seek on those houses will eventually be sought from the public buying them, and it will cost a lot more than €20 a month.

The stability of the tax base is also a cause for concern. In order to increase the amount of money available, Paschal Donohoe had to create it from somewhere. 

What we're getting is a range of small taxes that add up to a lot, from a new tax on sugar to increase excise on cigarettes to more stamp duty on commercial developments. Excise on tobacco, for example, is sold as a public health measure, but raises more than a billion in revenue each year. If it does start to disincentivise smoking, the exchequer will have a huge hole to fill. The same goes for alcohol, for petrol and diesel, and, in time, it will be the same with sugar. 

Shifting taxation from income to spending also hits the worse off more than the well off, as a box of cigarettes or a bottle of Coke cost the same to some on €100,000 a year as they do to someone on a €15,000, but it's still a bigger proportion of the lower earner's income. 

Increasing stamp duty on developers is welcome but it's also not sustainable beyond the medium term when we have met the demand for office blocks and new retail outlets. 

Bertie Ahern hedged all our bets on stamp duty in the property sector back in the Celtic Tiger while simultaneously cutting taxes and look how that worked out.

The issue here is that the money raised is already spent, committed to funding measures introduced in this budget. If those revenues disappear, they will eventually have to be replaced by something else, and we could end up in the same cycle of boom and bust. 

Ultimately, come election time, any positive headlines today won't mean much. People's wallets might be minutely heavier when the canvassers start calling, but people will be far more concerned about their rising rents, the cost of childcare, the quality of healthcare, and the countless other problems in Ireland that went unaddressed in the budget.