Jim Stewart: The Government's main stated current economic policies (Budget April, 2009) are (1) to stabilise the public finances and (2) provide finance to banks in order that they will resume lending. Both policies will exacerbate the economic crisis rather than solve it. This is because raising taxes and cutting government expenditure will result in further reductions in demand and incomes, increase unemployment and reduce taxes. The private sector has experienced an enormous fall in wealth (€150 billion according to National Irish Bank, 2009). This fall in wealth has been accompanied by an increase in private sector saving. What is needed is a fiscal stimulus to increase demand. Fiscal stabilisation policies are not enough. Some possible measures to stimulate spending could be vouchers which must be spent within a limited time period, or vouchers which can only be spent in hotels/guesthouses (accredited by Bord Failte). This latter policy has the advantage of minimising leakage, and most likely stimulating spending of a multiple of the value of the voucher.
The second main policy objective is also unlikely to succeed in ensuring “credit flows to businesses and consumers”. Policy should focus on the real economy, not the banking sector. The overall policy emphasis on ensuring the banking sector is commercially viable will not result in credit flows to the real economy. Rather, it damages the real economy because so much of Government borrowing and future tax revenues is used in support of the banking sector. There is a danger that the banking sector will survive but many firms in the real economy will fail. In my next post I will describe what banks should do, why current policy will fail, and what can be done to correct the situation.
Showing posts with label Budget 2009. Show all posts
Showing posts with label Budget 2009. Show all posts
Tuesday, 12 May 2009
Wednesday, 22 April 2009
Budget 2009, ODA and Guru George
The effects of the recent Budget will be felt in the developing world as well as here in Ireland - click here for Oxfam's response to the ODA cutbacks. And click on the video below for a new angle on RTE's George Lee - as seen from a school in India.
0.7% GNP by 2012 from 07by12 on Vimeo.
0.7% GNP by 2012 from 07by12 on Vimeo.
Wednesday, 15 April 2009
The budget, the over-fifties and the under-fives
Jim Stewart: The recent supplementary budget, while removing a considerable amount of income from almost everyone, also treated some groups in favourable ways in terms of pension provision - for example those over fifty in the public service and those working in universities.
The budget affects pension provision in a number of ways, and indicated that further change is on the way. Some of those in receipt of pension provision were adversely affected. For example former ministers who are paid pensions while remaining a member of the Oireachtas will no longer receive a pension. However, this still means that former ministers who are no longer members of the Oireachtas receive a pension even though they are not at the normal pensionable age. Nevertheless, this is a welcome step to reduce the exceptional cost (by international standards) of our elected representatives.
Proposals to reduce the public sector ‘pension levy’ on low income groups are also welcome. This will reduce the anomaly whereby low income groups contribute to the levy, but are not entitled to a full occupational pension because their occupational pension is integrated with the social welfare pension
The main beneficiaries are those in the public sector aged 50 and over.
In announcing a voluntary early retirement scheme (those aged over 50 may retire without actuarial reduction in their pensions), the minister stated that payment of a lump sum “at normal retirement age of 60 or 65 would be subject to current tax law provisions" or, as stated in Annex D to the Budget, “subject to the taxation provisions in force on the date the application was approved” (Annex D: Incentivised Scheme of Early retirement in the Public Service). The period of exercising this option is from May 1st until “a review before the end of the year”. A key phrase is 'current tax law'. This guarantee does not extend to those retiring beyond this early retirement window. This leaves open the possibility that lump sums will be taxed at a future date - in particular as the Minister noted that he was “looking forward to the recommendations of the Commission on Taxation” which he will receive later this year.
The minister also stated that the Government were committed to “a review of all areas of tax exempt income”. This is likely to mean that tax reliefs associated with pension provision will be examined further, subsequent to the report of the Commission on Taxation and the white paper on pensions reported to be due for publication later this year.
Those in the public sector aged 50 and above now need to carefully consider their retirement decision, perhaps several years earlier than intended. It should, however, be noted that the Minister was careful to state that the decision to retire was not solely at the discretion of the individual but “will be subject to local management arrangements to ensure that the scheme operates in an orderly manner” (Budget April 2009).
There is no doubt that this scheme is advantageous to an individual on an actuarial estimate of the value of future pensions, lump sum etc. The longer the service and the closer an individual is to 50 the greater the actuarial value. There are no costings, and it is likely that the scheme will save money now, but increase costs later on so that overall costs to the State will increase. The main effect is to redistribute costs from payroll to pensions, and to defer certain payments through time. It is likely that those about to retire or considering retirement will avail of this scheme.
However, those not near retirement age should consider their options carefully, because of uncertainty about the direction of future incomes (post tax and post various levies), the absence of alternative employment, the possible ending of favourable tax treatment for those aged 65 and over, and the future level of pension payments, as pension increases may be linked to price changes rather than current salaries.
In the current crisis, being in the labour force gives greater security to the level of current (and perhaps future) income than being retired, because income at work (even after recent increases in levies) will be higher than in retirement. In addition, pension payments are unlikely to match income rises in future periods, increasing the divergence between incomes of those who retire now and those who remain in the work force. Finally, higher current incomes may facilitate savings, to ensure continuity in living standards prior and post retirement.
One other group who benefited from announcements made with the Budget are those working in Universities (see Summary of Supplementary Budget Measures – Policy Changes, Pension Fund Transfer). Even though only partly funded, university pension schemes had an estimated deficit of €1.3 billion and the State will now meet this liability. No extra levies or changes to pension terms were announced. Universities pension schemes were never fully funded. Pensions paid at retirement were funded, but increases to pension payments after retirement came from the exchequer. This deficit arose because of the collapse in asset values and the growth in wage costs (particularly at senior levels without matching increased contributions to pension schemes). In previous years, the pension scheme was also used to fund generous early retirement schemes. The new arrangements essentially involve converting university pension schemes to a fully PAYG system. The University of Limerick and Dublin City University always operated a PAYG pension scheme and are unaffected by these changes.
Finally, the radical proposal to provide a free pre-school year for all children starting next year, although in replacement of the early child care supplement, is welcome. This is a progressive measure and supports the advocates of ‘early intervention’ as a means of ending poor achievement and a higher incidence of social problems amongst lower income groups.
The budget affects pension provision in a number of ways, and indicated that further change is on the way. Some of those in receipt of pension provision were adversely affected. For example former ministers who are paid pensions while remaining a member of the Oireachtas will no longer receive a pension. However, this still means that former ministers who are no longer members of the Oireachtas receive a pension even though they are not at the normal pensionable age. Nevertheless, this is a welcome step to reduce the exceptional cost (by international standards) of our elected representatives.
Proposals to reduce the public sector ‘pension levy’ on low income groups are also welcome. This will reduce the anomaly whereby low income groups contribute to the levy, but are not entitled to a full occupational pension because their occupational pension is integrated with the social welfare pension
The main beneficiaries are those in the public sector aged 50 and over.
In announcing a voluntary early retirement scheme (those aged over 50 may retire without actuarial reduction in their pensions), the minister stated that payment of a lump sum “at normal retirement age of 60 or 65 would be subject to current tax law provisions" or, as stated in Annex D to the Budget, “subject to the taxation provisions in force on the date the application was approved” (Annex D: Incentivised Scheme of Early retirement in the Public Service). The period of exercising this option is from May 1st until “a review before the end of the year”. A key phrase is 'current tax law'. This guarantee does not extend to those retiring beyond this early retirement window. This leaves open the possibility that lump sums will be taxed at a future date - in particular as the Minister noted that he was “looking forward to the recommendations of the Commission on Taxation” which he will receive later this year.
The minister also stated that the Government were committed to “a review of all areas of tax exempt income”. This is likely to mean that tax reliefs associated with pension provision will be examined further, subsequent to the report of the Commission on Taxation and the white paper on pensions reported to be due for publication later this year.
Those in the public sector aged 50 and above now need to carefully consider their retirement decision, perhaps several years earlier than intended. It should, however, be noted that the Minister was careful to state that the decision to retire was not solely at the discretion of the individual but “will be subject to local management arrangements to ensure that the scheme operates in an orderly manner” (Budget April 2009).
There is no doubt that this scheme is advantageous to an individual on an actuarial estimate of the value of future pensions, lump sum etc. The longer the service and the closer an individual is to 50 the greater the actuarial value. There are no costings, and it is likely that the scheme will save money now, but increase costs later on so that overall costs to the State will increase. The main effect is to redistribute costs from payroll to pensions, and to defer certain payments through time. It is likely that those about to retire or considering retirement will avail of this scheme.
However, those not near retirement age should consider their options carefully, because of uncertainty about the direction of future incomes (post tax and post various levies), the absence of alternative employment, the possible ending of favourable tax treatment for those aged 65 and over, and the future level of pension payments, as pension increases may be linked to price changes rather than current salaries.
In the current crisis, being in the labour force gives greater security to the level of current (and perhaps future) income than being retired, because income at work (even after recent increases in levies) will be higher than in retirement. In addition, pension payments are unlikely to match income rises in future periods, increasing the divergence between incomes of those who retire now and those who remain in the work force. Finally, higher current incomes may facilitate savings, to ensure continuity in living standards prior and post retirement.
One other group who benefited from announcements made with the Budget are those working in Universities (see Summary of Supplementary Budget Measures – Policy Changes, Pension Fund Transfer). Even though only partly funded, university pension schemes had an estimated deficit of €1.3 billion and the State will now meet this liability. No extra levies or changes to pension terms were announced. Universities pension schemes were never fully funded. Pensions paid at retirement were funded, but increases to pension payments after retirement came from the exchequer. This deficit arose because of the collapse in asset values and the growth in wage costs (particularly at senior levels without matching increased contributions to pension schemes). In previous years, the pension scheme was also used to fund generous early retirement schemes. The new arrangements essentially involve converting university pension schemes to a fully PAYG system. The University of Limerick and Dublin City University always operated a PAYG pension scheme and are unaffected by these changes.
Finally, the radical proposal to provide a free pre-school year for all children starting next year, although in replacement of the early child care supplement, is welcome. This is a progressive measure and supports the advocates of ‘early intervention’ as a means of ending poor achievement and a higher incidence of social problems amongst lower income groups.
Thursday, 9 April 2009
Budget 2009: What they're saying online
Online reactions to the Budget and its aftermath include Karl Whelan over at the Irish Economy blog, who makes a pithy point today regarding Peter Bacon’s NAMA report, and Michael Taft of Notes on the Front, who points out that “We are being hit by a double whammy. More unemployment means a lot more people have a lot less to spend. At the same time, the Government is radically reducing people's disposable income (in particular, the key low to average income households who tend to spend almost all their income). Without people spending money, business declines, jobs are lost or short-timed, wages are frozen or cut – which sets off another round of deflation”.
Over at Turbulence Ahead, Gerard O’Neill says that “One consequence of the more flexible and fluid, predominantly private sector labour market that we now have in Ireland is just that: individuals and households are flexible - they make adjustments to the new circumstances that face them. Including decisions about whether to work, and for how long. I'm guessing Irish working couples will look at their paychecks this month and next and act accordingly.”
Meanwhile, Stephen Kinsella looks back at another Bacon Report and suggests that more attention should have been paid to its recommendations.
Over at Turbulence Ahead, Gerard O’Neill says that “One consequence of the more flexible and fluid, predominantly private sector labour market that we now have in Ireland is just that: individuals and households are flexible - they make adjustments to the new circumstances that face them. Including decisions about whether to work, and for how long. I'm guessing Irish working couples will look at their paychecks this month and next and act accordingly.”
Meanwhile, Stephen Kinsella looks back at another Bacon Report and suggests that more attention should have been paid to its recommendations.
Wednesday, 8 April 2009
Budget 2009: What they're saying (II)
The Society of St. Vincent de Paul points out that 30% of people already in poverty have a job, and states that bringing those below the minimum wage into the tax net through the income levy will only exacerbate this problem.
On the trade union front, both ICTU and Unite focus on jobs. In a statement headlined ‘Harsh Budget does not Deliver on Jobs’, ICTU’s David Begg notes that “protecting jobs, maximising employment and creating new opportunities should have been to the fore in this budget, but the measures were simply not commensurate with the gravity of the problem we face”. Unite’s Regional Secretary, Jimmy Kelly, dismissed yesterday’s Budget as doing nothing to address the underlying crisis of job losses, noting that “each job lost costs €20,000 in lost tax and increased social welfare. It also has a direct negative impact on other jobs”. Yesterday, Sli Eile examined the unemployment backdrop to the Budget.
Finally, CORI has just issued a lengthy and balanced analysis of the Budget, available here. Among a wide range of issues covered, CORI notes that “the Government’s lack of transparency in the Budget documentation is a serious cause for concern. Without the full details of expenditure on issues such as social housing it is not possible to fully evaluate the impact of a Budget”
On the trade union front, both ICTU and Unite focus on jobs. In a statement headlined ‘Harsh Budget does not Deliver on Jobs’, ICTU’s David Begg notes that “protecting jobs, maximising employment and creating new opportunities should have been to the fore in this budget, but the measures were simply not commensurate with the gravity of the problem we face”. Unite’s Regional Secretary, Jimmy Kelly, dismissed yesterday’s Budget as doing nothing to address the underlying crisis of job losses, noting that “each job lost costs €20,000 in lost tax and increased social welfare. It also has a direct negative impact on other jobs”. Yesterday, Sli Eile examined the unemployment backdrop to the Budget.
Finally, CORI has just issued a lengthy and balanced analysis of the Budget, available here. Among a wide range of issues covered, CORI notes that “the Government’s lack of transparency in the Budget documentation is a serious cause for concern. Without the full details of expenditure on issues such as social housing it is not possible to fully evaluate the impact of a Budget”
Budget 2009: What they're saying (I)
Orla O’Connor (Acting Director of the NWCI) has called on the Minister to reverse his decision to tax or means-test Child Benefit until such time as there is a fully subsidised quality childcare infrastructure in Ireland. Barnardos welcomed the fact that no reduction in the basic social welfare rates will be made, but expressed concern that the reduction to the rent supplement scheme announced yesterday will adversely affect those living in the private rented sector and increase their risk of homelessness.
Siptu President Jack O’Connor has said Budget does not provide for social solidarity, while Impact warned that the Budget cuts, and the reassertion that more cuts will follow in 2010 and beyond, mean we are now entering a period of public service rationing.
Meanwhile Comhlamh has criticised cuts in overseas development aid.
We will be publishing more links to reactions as they become available.
Siptu President Jack O’Connor has said Budget does not provide for social solidarity, while Impact warned that the Budget cuts, and the reassertion that more cuts will follow in 2010 and beyond, mean we are now entering a period of public service rationing.
Meanwhile Comhlamh has criticised cuts in overseas development aid.
We will be publishing more links to reactions as they become available.
Budget 2009: A budget destined to deflate
Peter Connell: Over the past few weeks, the debate regarding the scale of the fiscal deficit that the government should aim for in today’s budget has been joined by economists and commentators of all persuasions. They seemed to range from those like Brian Lucey of TCD on the one hand who, on Monday night’s Questions and Answers seemed to argue for a package that would take €6 to €9 billion out of the economy, through to those on the left arguing for a smaller correction such as the Labour Party’s €2.8 billion package, and those arguing for a stimulus package mirroring policies in many other developed countries.
Seen in the context of this range of views, today’s budget with spending cuts and tax increases adding up to €3.3 could be viewed as falling somewhere in the middle. Quite a few commentators this evening are suggesting that the government may have got the balance more or less right by avoiding excessively deflationary measures and have avoided ‘killing the patient’.
That, I think, remains to be seen. A cursory examination of the projected impact of the tax increases (and cuts to the Early Childhood Supplement scheme) on low and middle income families presented on the Department of Finance website suggests that consumer spending is destined for further very sharp falls in the coming months. We know that about 35% of all income is earned by those earning between €20,000 and €40,000 a year. And we can be pretty sure that most of that income totalling about €37 billion is spent – on food, rent, mortgages, clothing, transport, household goods. A married couple, one in employment with two children under 5 and an income of €30,000, will have over €100 a month less to spend from May onwards – assuming the earner doesn’t loose their job due to the deflationary spiral this budget seems destined to exacerbate.
On that basis the Minister for Finance shouldn’t be surprised if his tax take from VAT and Excise turns out to be rather less than he anticipates.
Seen in the context of this range of views, today’s budget with spending cuts and tax increases adding up to €3.3 could be viewed as falling somewhere in the middle. Quite a few commentators this evening are suggesting that the government may have got the balance more or less right by avoiding excessively deflationary measures and have avoided ‘killing the patient’.
That, I think, remains to be seen. A cursory examination of the projected impact of the tax increases (and cuts to the Early Childhood Supplement scheme) on low and middle income families presented on the Department of Finance website suggests that consumer spending is destined for further very sharp falls in the coming months. We know that about 35% of all income is earned by those earning between €20,000 and €40,000 a year. And we can be pretty sure that most of that income totalling about €37 billion is spent – on food, rent, mortgages, clothing, transport, household goods. A married couple, one in employment with two children under 5 and an income of €30,000, will have over €100 a month less to spend from May onwards – assuming the earner doesn’t loose their job due to the deflationary spiral this budget seems destined to exacerbate.
On that basis the Minister for Finance shouldn’t be surprised if his tax take from VAT and Excise turns out to be rather less than he anticipates.
Tuesday, 7 April 2009
Budget 2009: further comments
Sli Eile: Some additional – and initial – observations about specific points in the Budget.
Leading by example?
The announced changes to pay and conditions of senior politicians do not go far enough. Too little too late. What is particularly disturbing is the lack of public contrition for the way that the Property-Political-Financial complex has ruined the economy and with it our reputation abroad.
Capital taxes
Ireland is a special case when it comes to taxes on property, land, capital gains and wealth. Some Governments at various stages in the last 30 years meekly attempted innovation in these areas to find stiff opposition and inaction leading to withdrawal. It is a case of Thou shall not tax capital. So the move from 22 to 25% Capital Gains Tax was bordering on risky. But if it was legally and administratively possible to change CGT rates, now why not go further and change the rates up to the original 40%? For an extra €45m in a full year investors might be scared off! How much would have been yielded on a restoration of the 40% CGT rate? Enough to pay a Christmas bonus to welfare recipients?
Overseas Aid cut again
This time the cut was €100m giving a combined reduction of €195m between February and April adjustements. Trócaire has already condemned this cut this evening.The combined effect will be to push Ireland's ODA contribution to under 0.5%. The poor elsewhere, as well as the poor at home, are paying for the Irish banks.
Social Welfare payments
So recipients were spared cuts in basic rates. However, other stealth cuts apply from childcare to reductions in public services more generally and much more to come.
In a post on Irish Left Review, Michael Taft points out that – contrary to popular belief – social welfare payments in Ireland are average to low compared to in the European Union. Using the latest internationally published data from OECD, Taft shows that Irish single unemployed (for example) receive the third smallest benefits in the EU group of 15 countries.
Many commentators assume that falling prices will continue, and will facilitate cuts in social welfare rates. However, there is no guarantee that prices will continue to fall and, in fact, the Department of Finance own estimates allow for some price increases from 2010 onwards. A further point is that low-income households have different expenditure patterns and are much less affected by price falls in areas such as mortgage interest (which enter into CPI calculations).
Free pre-school provision?
This sweetener offers €170m for free universal pre-school education for all children aged 3. In case someone is about to declare a new era for early childhood education, please don't. The true cost of universal provision is likely to be a multiple of this amount, taking into consideration capital spending, adaptation of premises and not to mention training of staff, inspection and costs of staff. Nobody believes that you can provide a quality pre-school system at under €2,500 per child for a full-year, full-session provision adapted to the needs of three year olds in new or existing buildings. It simply will not work. If this offer is being traded for an elimination of the childcare payment by the end of this year, it is a particularly unconvincing move.
Tax Rates
Colm Keena in a recent series in the Irish Times has pointed out that '9,129 people, or 0.3 per cent of earners, between them earned €6.7 billion, or 6.6 per cent of all income'. This is where a top tax-rate of 48% should apply – immediately – not after some Commission report.
Public Capital Programme
This is a very problematic area of the Budget, and one that deserves closer scrutiny. If there was one area of public spending where the Government could have made an immediate and positive impact on saving jobs this was it. Instead the PCP (less contributions to the National Pension Reserve Fund) is being cut by about €500m.
Here, there was little sign of a fundamental shift, so urgently needed in prioritising labour-intensive and socially desirable projects.
Tax Base
Not surprisingly, the Government went for no action on most of those areas where they could have begun to erode the unacceptably large amount of tax lost as a result of various reliefs and exemptions with little relevance to employment or output.
Public Sector
No signs of real reform here. Schemes to encourage people out of the service will – in the presence of an inflexible embargo on filling of vacancies - lead to chaos in critical areas of public service delivery. The centre cannot micro-manage each individual case as is currently proposed.
Banking
So €80 billion is the book value of bad debts. Who knows? Who cares? The taxpayer in 2009 and 2059.
Budget 2009: Dept of Finance project 15.5% unemployment
Sli Eile: Some say a week is a long time in politics. Well, only a few weeks ago the Government was ruling out another budget (don't mention the B word) and any raising of taxes 'until the Commission on Taxation reports' (in September of this year).
That was then.
In this latest round to Budget 2009 the Government has gone for tax increases over further expenditure cuts and some softening on the borrowing line with a projected move up to 10.75% of GDP in 2009. Whatever comfort there is that Government did not follow a policy of 'slash and burn' quickly evaporates when it is realised that:
most of the tax increases fall on PAYE earners including the working poor and those on the basic minimum wage;
the Minister of Finance has clearly signalled that worse is still to come as he outlines a fiscal austerity programme for the coming 4 years to 'restore order to the public finances'.
According to its own estimates (Macroeconomic and Fiscal Framework 2009-2013) this Budget is deflationary – 'it is estimated that the level of economic activity will be reduced by about 1 percentage point on foot of the Supplementary Budget'. The realism of this estimate may be questioned.
So, no stimulus there.
The underlying assumptions and projected macroeconomic outcomes are chilling. From its typically conservative stance, the Department of Finance has moved to embrace a very pessimistic outlook projecting an unemployment rate of 15.5% in 2010 – up on a current level of over 11% and a projected figure of 12.6% in 2009. These figures are shocking. How many of the unemployed are at risk of becoming unemployable after years of being out of work? What about families dependent on social welfare with nobody in paid employment for prolonged periods and without the escape valve – for the foreseeable future – of emigration to the UK or the US?
The projected drop in GDP is now set at 7.7% for this year. The projected decline in GDP is increasing at a steady rate since last Autumn in each successive update of the figures. Have we seen the end of this upward slide? I think not, unfortunately. This is probably going to be the biggest (and fastest) drop in output of any advanced industrial country since World War 2. The implications for social well-being, social partnership, the state of public services, health, crime, civil unrest are profound. We should not panic but the scale of this downturn, its speed and its likely gathering impact on peoples' lives is shocking.
We are about to learn more hard lessons about the legacy of free-riding capitalism and its domestic application to Ireland in the last quarter century.
Budget 2009: Banking proposal and cuts in discretionary income the real news
Terry McDonough: It is interesting that the initial reactions to the budget are emphasizing the stunning nature of the package. My own take is different. I am struck by the overall sense of moderation. The total sum of cuts and tax increases is on the low end of the predictions and recommendations. Cuts are by and large unspecific. Tax measures are widely spread and each is close to expected levels.
This said, the total will provide a widespread shock to disposable income which will exert further downward pressure on the economy. The government has done well to ignore some of the more extreme advice eminating from academia.
The major innovations in revenue are the signaled future property taxes and the carbon tax. It seems unlikely, however, that the government is planning to substantially alter the structure of revenue. A progressive approach to this question would involve a combination of a more steeply graduated income tax, substantial carbon taxation, wealth taxes (not just property taxes) and increased inheritance tax (while exempting unsold family homes).
There is little indication of the necessary employment programmes which will be increasingly central to responding the current crisis.
Despite the understandable interest in the impact of the budget on family incomes, the "bad bank" proposal may ultimately be the most significant announcement. The estimate of 80 to 90 billion in impaired loans was quite startling. The real question, of course, is how much of this is ultimately unrecoverable. This should determine what the government should pay for the impaired loans. This is, of course, effectively unanswerable because no one knows where the bottom of the property market is. It would have been far preferable for the government to create good banks under public control which would have retail lending as their purpose. This would have left the risk in private hands where it belongs. The minister's proposal potentially exposes the state to losses which it cannot afford while it does not guarantee lending by the "cleansed" banks. Further recapitalization will ultimately be needed.
Professor Terrence McDonough teaches at NUIG
This said, the total will provide a widespread shock to disposable income which will exert further downward pressure on the economy. The government has done well to ignore some of the more extreme advice eminating from academia.
The major innovations in revenue are the signaled future property taxes and the carbon tax. It seems unlikely, however, that the government is planning to substantially alter the structure of revenue. A progressive approach to this question would involve a combination of a more steeply graduated income tax, substantial carbon taxation, wealth taxes (not just property taxes) and increased inheritance tax (while exempting unsold family homes).
There is little indication of the necessary employment programmes which will be increasingly central to responding the current crisis.
Despite the understandable interest in the impact of the budget on family incomes, the "bad bank" proposal may ultimately be the most significant announcement. The estimate of 80 to 90 billion in impaired loans was quite startling. The real question, of course, is how much of this is ultimately unrecoverable. This should determine what the government should pay for the impaired loans. This is, of course, effectively unanswerable because no one knows where the bottom of the property market is. It would have been far preferable for the government to create good banks under public control which would have retail lending as their purpose. This would have left the risk in private hands where it belongs. The minister's proposal potentially exposes the state to losses which it cannot afford while it does not guarantee lending by the "cleansed" banks. Further recapitalization will ultimately be needed.
Professor Terrence McDonough teaches at NUIG
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