Wednesday, April 15, 2009

Cuts foolishly ignored in favour of tax hikes

The budgetary storm has finally hit and the news isn’t overly comforting for young people looking for work for the first time. The government has decided that tax increases – euphemistically termed ‘income levies’ – rather than cuts in spending, will provide the bulk of revenue needed to fill the hole in the exchequer. The danger here is that a reduction in people’s spending power will exacerbate the downturn and result in further job losses.

More than anything, those coming from college into a job-starved economy such as myself would have wished for a budget that went some way towards improving their work prospects. There are few indications of this budget doing just that. A reduction in PRSI contributions for employers, for example, was absent and a work experience placement scheme for 2,000 graduates, while welcome, was limited in scope.

To his credit, Brian Lenihan at least acknowledged yesterday that our tax base is too narrow and needs an overhaul. However, while increased taxes will raise an estimated extra €3.6 billion, his budget has once again failed to deal with the government’s astronomical levels of spending.

With not far off 400,000 people on the dole, there is simply no excuse for continuing to shelter the public service from redundancies and wage cuts. This isn’t a matter of fairness or private sector resentment, but of fiscal reality. We no longer have the number of tax-paying private sector workers needed to foot a public pay bill of €20 billion. It is utterly illogical for the public service to remain its present size when the economy has shrunk so drastically.

There is little political will to tackle this, however, so instead the government has turned to trying to tax our way out of this economic abyss – a risky process.

Perhaps surprisingly, the dole – aside from the December bonus and payments for under-twenties – was left untouched. For a great many vulnerable people, especially those with families, this will come as a huge relief. However, for a single person without a mortgage or children such as myself, a modest cut in line with deflation would have been quite reasonable. This saving could he been better spent on retaining the full early child payment, for example, which was slashed by half.

One of the most dramatic elements of the budget is undoubtedly the decision to half dole payments to under-twenties to €100. The rationale behind this drastic cut is to encourage younger people into training and keep school-leavers out of the dole queue. While ensuring the dole is not an attractive option has some merit, the degree by which it was cut was absurd. Living on such a meagre payment would be beyond difficult. And, more to the point, just what jobs exactly would these people be training for?

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