TASC Budget 2014 Analysis and Proposals

Nat O'Connor: TASC today launched our Budget 2014 analysis and proposals, 'Choosing an Equitable Route to Recovery'. The full report is available here. A two-page summary is also available (click here).

The 14-point summary goes as follows.

1. There is a strong public interest in lowering the deficit and controlling the extent of the national debt. But a narrow focus on deficit reduction through cuts would be misguided.

2. Official policy on addressing the public finances has ignored the international evidence that a more balanced approach is required to closing the deficit and recovering the economy. The multiplier effect of cuts has probably been much higher than was anticipated. Large scale fiscal consolidation has a substantial contractionary effect on growth and employment.

3. TASC proposes that the discretionary fiscal adjustment should be accompanied by a targeted programme of investment using funds from the Strategic Investment Fund (ISIF), which will also act as a stimulus to the economy.

4. The Government’s re-engineering of the promissory note repayments allows flexibility with regard to the level of adjustment for 2014 to a much greater extent than in previous years’ budgets.

5. Further cuts to public services are likely to deepen inequality in society and put Ireland’s economy onto a lower developmental trajectory for years to come. More reductions in public expenditure risk being false economies that will do long-term damage to education, health and other areas of public services. Vital programmes such as homeless services and mental health services need increases to cope with much higher demand – not cuts. TASC’s analysis is that the adjustment in the public finances in this year’s Budget should be lower than €3.1 billion.

6. Specifically, TASC proposes that, as part of the effort to restore sustainability in the public finances, while taking account of the cost to growth and employment, and the need to avoid deepening inequality and inequities, the discretionary adjustment in 2014 should not exceed €2.7 billion. Apart from the adjustment of €350 million in 2014 under the Haddington Road Agreement, the adjustment should be made entirely on the revenue side.

7. In addition to the €600 million in carry-over measures from previous budgets, TASC is proposing €1.75 billion in new measures on the revenue side. Alongside this adjustment €1.5 billion from the Strategic Investment Fund (ISIF) should be used for strategic investment in 2014 in order to boost growth and employment.

8. Ireland’s overall tax take is low compared to EU averages. In 2011, Ireland’s total revenue from tax and social security contributions was less than three-quarters of the average in the EU (28.9 per cent of GDP compared to the EU27 weighted average of 38.8 per cent).

9. TASC is proposing a range of costed reforms to capital taxation including reform of tax relief for landlords; the introduction of a small wealth tax, and a number of changes to Capital Acquisitions Tax (CAT)

10. TASC is also proposing reforms to pension tax reliefs. Research has shown that 80 per cent of the benefit from pension tax reliefs goes to the top 20 per cent of earners. TASC is proposing the standard rating of pension tax relief as well as a curtailment of the tax relief on pension lump sums.

11. Social insurance contributions in Ireland are extremely low by EU levels. Raising the social security contribution of employers to euro area averages (as a proportion of GDP) would be sufficient by itself to meet the next two budgets combined targets. TASC is proposing the introduction of a third band of employer’s PRSI contributions at 17 per cent charged on the portion of salaries above €100,000.

12. Finally, TASC is proposing a range of tax increases on socially ‘bad’ goods and services, e.g. gambling, tobacco, alcohol, and carbon emissions, the social benefits of which counter-balance their regressive distributional impact.

13. Steps must also be taken to address the ways that Government can reduce the cost of living for people, such as influencing rent levels, utility prices, transport costs and professional fees. This would also help small businesses.

14. The international evidence shows that excessive consolidation, or consolidation focused on the wrong areas, can have disastrous economic and social consequences in the short and long term. TASC’s budget proposals show that it is possible to lower the deficit in a way that lessens the impact on jobs and is consistent with equality and social justice.