A mixed bag amid some missed opportunities is probably the quickest way to sum up the Budget 2012 review given to the MBA Association.
Hosted at Mason, Hayes & Curran just one day after the government presented its austerity budget to the nation, the legal, tax and economic implications of the budget were picked apart at the annual MBAAI Diary Launch and Budget Event.
Leading the charge for the legal firm was Robert Henson, Tax Principal at Mason, Hayes & Curran. He flagged up some of the tax implications of the budget and welcomed some of the government’s initiatives. Tackling the larger political and economic issues was Marc Coleman, Economics Editor at Newstalk radio, Sunday Independent columnist, and MBAAI member.
Henson was happy to see corporation tax stay unchanged. No changes in the rates of individual income tax was also welcomed since people will not see extra taxes and business will be spared the administrative burden of managing changing rates, he said.
Henson also welcomed changes to the R&D tax credit and the Special Assignee Relief Programme since they would be positive for inward investment. However, the VAT increase from 21% to 23% was unwelcome, he said.
Coleman, on the other hand, was unwilling to address the budget specifics. In a wide-ranging talk, he touched on taxes, competitiveness, political and public-sector reform, left-wing politicians, and creeping government involvement in the private sector.
Addressing the budget debate, Coleman said there is a tendency to rapidly accept the debate framed by government broadcaster RTÉ without looking at the larger economic picture.
"The consensus reigns with troubling consequences," he said. Instead of introducing "destructive tax increases and welfare cuts," Coleman called for fundamental reform of the public sector.
Drawing on various government reports and his work with the National Forum, Coleman said huge savings can still be made if there is political will. He urged people to scrutinize the current system, and said the country needs political, competitive, public sector, and tax reform.
While it would take “hard work” to implemente some of the National Forum’s proposals, the 2012 budget was “politically easy,” Coleman said. But the Forum identified just over €3 billion in annual savings while still protecting welfare and the lowest paid in the public sector.
And that was before payments to bank bondholders were renegotiated, said Coleman. He estimated those savings at around €750 million.
Coleman, however, said he was not criticizing public sector workers but he was calling for wages of those above average industrial wage to be pared back. Nor was he taking a dig at left-wing politics, he said. In fact, Coleman said the only politicians who recognized the need to tackle high levels of senior public sector pay were all left wingers.
However, he said the Croke Park Agreement, running until 2014, is a mistake and is “locking in future unemployment.” The public sector needs wage cuts for most levels, smaller management and shorter reporting lines, Coleman said.
But despite the missed opportunities, “Compared to what the previous government did [this] government must be complemented,” he said. Asked if they would chose between success, failure or a mix of both, Coleman said people would chose success.
“The problem with yesterday’s budget was it was half and half,” he said. “You don’t mix success with failure.” Coleman said the budget included around €1.9 billion in cuts and €1.4 billion in tax increases. His solution was to “leave taxes alone and cut wasteful spending.”
The increase in VAT was a particularly bad move and would probably reduce the tax take on spending, Coleman said. In the Q&A session, he was asked about the VAT decrease from 13.5% to 9% for certain services earlier this year, Coleman said tax figures were not detailed enough to show an effect but “anecdotal evidence” from the hotel sector in particular points to an increase in business due to lower prices.
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