Medusa, once a beautiful woman, so offended Athena, her hair was changed into snakes and her face made so ugly that anyone who looked at her was turned to stone. Even after she was dead her head retained its power to petrify, so too with yesterday’s announcement. This is just the beginning. It is not a budget as we know it but a five year plan that intensifies the squeeze all of us with each passing year.

The Ugly Stuff

• Misdirection dominated the opening as the Government failed to accept responsibility of the so-called structural deficit, about 2/3rds of the black hole created by its reckless policies from 2002. This marks a catastrophic failure to provide real leadership and is its single biggest failing. You cannot lead a nation on false pretences. Where is the honesty?
• Taxes more than spending cuts will be used to fill the void, starting with a treble whammy of Income, Health and PRSI Levies. This risks nose-diving the economy into a downward spiral as people save more rather than spend.
• There is no effort to reduce VAT or suspend stamp duty to encourage more transactions.
• Although the tax hits are progressive, a minimum wage earner will still pay €350 per year on a tiny €17,500 salary. Meanwhile he or she is disproportionately hit by the increase in indirect taxes like a 25% increase in a packet of cigarettes and by unemployment risk.
• Spending cuts are woolly but expect Child Benefit to be means tested next year. Help for crèches to be cut by 65% as Childcare Supplement is abolished and replaced with a new scheme.
• Mortgage interest relief is being restricted to the first 7 years of a mortgage.
• Increasing CGT and CAT is more likely to yield less rather than more tax, especially CGT.
• That public sector pay has to be brought in line with our competitors is mentioned but no immediate action is taken. The Government has funked telling the public sector the truth in crystal clear terms that rates of pay have to come down.
• Incremental pay increases based on longevity and costing up to a half a billion a year remain in place.
• Although Ministerial pensions for serving members gets the chop, some perks get removed and expenses get cut 10% but unvouched expenses remain for TDs, the only workers in the country allowed to do so.

The Pretty Stuff – it’s all relative!

• The government is finally getting its arms around the problem.  International investors who finance Irish debt should not be overly displeased, despite some of the obvious political fudges.
• The income tax hit is progressive which means those on higher income pay more, but there are problems around those earning €75,000 per annum.
• The controversial pension levy is being adjusted at a cost of €100 million to protect lower paid workers.
• The establishment of NAMA (National Asset Management Agency) is the right step, transferring a huge amount of heavily discounted land and development loans out from the banks to reverse the credit crunch.
• Investment in capital projects, although being trimmed, will remain at 4% of GNP for the next number of years.
• Property related taxes are being introduced – interest relief on residential investment mortgages is being cut by 25% and trading profits from residential development land is finally being treated as normal income and subject to income tax or, in the case of companies, 25% corporation tax.
• Banking supervision is being reformed and this time no insider gets the top job.  An outsider, Sir Andrew Large, former Deputy Governor of the Bank of England is to oversee the birth of the new system.
• Further state support for Irish banks will come at the price of ordinary share capital for Irish tax payers.
• A business support fund of €100m over 2 years is being established and investment in crucial research and development is being maintained at 2.5% of GNP for the next number of years.  In addition, tax relief on investment in intellectual property is finally being introduced.
• €128m is being targeted to support 25,000 people in training, experience and education schemes.

All told the beginning of a five year period of austerity in Ireland but the Government hasn’t tried to con the electorate this time. It’s a start, there’s still a long way to go but at least now we have a poxy plan!