Budget 2012: Statements


Tuesday, 6 December 2011





Senator Katherine Zappone

Budget 2012 is the first quintessential test of this Coalition Government’s ability to bring us, all of us, onto a significantly stronger foothold to generate individual and collective recovery, social and economic sustainability. Both parties are equally responsible if together they have made the wrong choices, and have lost this prime moment to balance the limited resources that we have as a nation so that each sector, interest and individual has a spark of hope for the new year. Both parties are also equally responsible if they have made the right choices.

What are some of the prime ingredients needed at the macro level, to make the right choices? There are at least three. First, that we take the right amount out of our national budget in order to adjust our way towards fiscal responsibility, strategic investment for recovery and a solid social fabric. The Government decided that budget 2012 would save €3.8 billion. While there was pressure to go higher, I think we should have stayed at the original €3.6 billion figure. This would have demonstrated our Government’s determination to restructure bank debt in the long term, in order that eventually we halt the socialising of losses at the expense of privatising the gains. While we need policies of austerity up to a point, these are being distorted by inordinate efforts to save the banks at great personal cost to Irish citizens, and necessarily lead to lower output and lower tax revenues. Furthermore, while the people will have to find some way to survive this extraordinary budget adjustment for 2012, how can we possibly do this again in 2013? It is economic nonsense to believe that someday we will be able to pay it all back even if the Germans and the French insist that we do.

Second, should we spend our way out of recovery or should we cut our way out of recovery? The Government chose to cut spending on public services and capital expenditure by 58% and increase taxes by 42%. As there are extensive arguments, and evidence referenced, for both the ‘cut more’ formula and the ‘spend more’ formula, I think it is rational to conclude that the Government’s choice in this regard is an ideological choice and one could question whether this choice will lead to a more inclusive as well as recovered nation. Why did not the Government opt for a 50-50 split? In the absence of irrefutable evidence surely this would have been the fairest, most sensible way to proceed.

Third, to make the right choices about this budget I think that the Government ought to ensure, through its taxation, social protection and investment decisions, that those with wealth and-or economic security share more of their resources with those experiencing poverty or economic insecurity. This is the true meaning of equality and fairness. It is also a solid formula for economic prosperity as countries such as Finland and Norway demonstrate. If fairness means only protecting the vulnerable this is not equality. Furthermore, within the current debate about closer European fiscal union, Ireland ought to bring the following message to the European table - that we will seek closer union if it means an increase in social solidarity as well as fiscal rectitude.

On the basis of evidence that more equal societies do better, and with the awareness that poverty is increasing in our society, some positive aspects of the budget are: reducing the social charge for the lower-paid; no rate cuts to primary weekly social welfare payments; maintaining State pensions for older people; maintaining the universal free pre-school year; strategic investment for job creation; targeted measures to provide a stimulus for SMEs; and all reform efforts, within each Department to cut waste and inefficiencies as long as the Government commits itself to monitoring the impact of all cuts, in order that they do not push any citizen into poverty, deeper poverty and less social protection.

The Minister for Public Expenditure and Reform, Deputy Brendan Howlin, stated that one of the main features of the new budgetary architecture was to introduce “evidence-based policy” and I welcome this. Therefore, I challenge the Government’s choices to increase the VAT rate to 23%. As we have heard in the Dáil and in the news the ESRI has provided solid evidence that the current VAT system is highly regressive. Even at 21% we have evidence that lower income households pay a higher proportion of their income in VAT relative to the higher income households. An increase to 23% will hit the poorest households the worst and we can wholeheartedly say that this move will increase the regressive nature of our taxation system.

The Government could and should have reduced income tax relief on pension contributions to the standard income tax rate. This could have saved €500 million. There is very little robust rationale for why the Minister decided not to reduce it.

The cuts to child benefit have already been mentioned. This cut will impact approximately 460,000 children and SILC evidence clearly demonstrates that larger families are more at risk of poverty. Changes have been announced to the lone parent allowance. Justifying these changes with the assertion that the new rates will bring us into line with international standards is flawed when Ireland has an underdeveloped system of subsidised child care. Similar changes to the one parent family payment were mooted in 2006 but were dispensed with given the lack of employment, and training and child care supports. What has changed since 2006? There are still too many barriers for lone parents to get work that pays enough to meet their basic needs and, therefore, these cuts will be counterproductive.

The cuts to the capitation rates paid to pre-school providers and a reduction in staff-child ratios reduces even further any chance of additional training and planning time for early years educators. Numerous research studies indicate the positive connection between training and subsequent improved outcomes for children, especially those children who need it most.

One could be forgiven for being concerned that the focus of the multiple cuts that we have heard during the past two days are largely about meeting the requirements of the troika’s external agenda. This focus on monetary and fiscal rectitude has to be balanced with a very clear articulation by our Government of the vision for Ireland that it has at this time. In other words, who is holding a cohesive vision of what kind of Ireland we are creating by cutting large chunks of investment in the social fibre of this land?

The articulation of this vision for a new Ireland could include a call, a voluntary call, on those who have enough or who have plenty at this time, to share with those who have least. For those who have few financial resources at this time, do we hear a vision that empowers and motivates communities, even in the most disadvantaged areas, to a sense that building meitheal often calls on human qualities of resilience that have so often marked the history of our people in difficult times past? Therefore, I ask the Government to start speaking of an ethical vision that stresses values and that demonstrates that behind all these facts, figures, cuts and investments for jobs that someone is holding a cohesive vision as to what a new Ireland will look like.

Financial Justice
Financial Justice
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