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Budget 2017: austerity and the fiscal space

18 October 2016

Any hopes that last year’s pre general election budget marked a break with the policies of austerity have been dashed by Budget 2017.  It represents a strong assertion that those policies are ongoing and will continue into the foreseeable future.


Commentators have described Budget 2017 as a “standstill” budget.  This is true in purely fiscal terms with the tax and spend measures contained within it amounting to only €1.2billion or 0.5% of GDP.  However, when you step back and view it as the latest in a series of austerity budgets - stretching over eight years - then it can be said to part of a programme of austerity that is not paused or standing still but continuing to advance. 

What is also clear from this broader perspective is the ongoing influence of the Trioka.  Though Its mission in Ireland has officially ended the programme it set out for the country continues to be implemented.  The parameters of Irish budgets continue to be set by the EU.  It is the application of the EU’s budget rules to the economy that determine the broad figure for tax and spending measures.  This is the so-called “fiscal space” in which all the parties - including the trade unions - are operating within.  However, this does not absolve the Irish political class of responsibility.  They are wiling collaborators in this and have distinguished themselves by going beyond even the draconian measures demanded by the Trioka.  An example of this was the announcement in the budget speech that the Government would reduce Ireland’s national debt faster than the EU rules oblige - moving from debt-to-gross domestic product (GDP) target of 60 per cent to a significantly lower 45 per cent. 


Another aspect of the budget ignored by the standing still perspective - and one which is wholly the responsibility of the Irish government - is the is the regressive character of the those limited measures that were announced. 

In relation to tax there were cuts to USC and inheritance tax.  The later clearly favours the wealthy but the flat rate cut in USC also favours higher earners.  For example, a worker earning €20,000 will benefit by €106 – while their boss earning €100,000 gains €356.  The 70,000 low paid workers - who are on the national minimum wage - will see their pay increase by only 10 cent per hour to €9.25 - a paltry figure which will be completely eroded by inflation.  The welfare increases that were announced – which, after inflation and taking account of the delayed March implementation, will be just €1.72 per week – will have a negligible impact on the living standards of some of the poorest people society.  The value of welfare payments still remain significantly below the level they were in 2009. 
However, it is the measures related housing that really show the regressive character of the budget.   The new help to buy scheme - which provides for a 5 per cent tax rebate on purchases of new homes up to €400,000 - will only serve to push up the prices of the limited number of new builds available.  The tax rebate will  be more than offset by the rise in prices - putting those seeking to purchase homes in a worse position.  Rather then alleviate the housing crisis this measure will actually deepen it.  The only group of people to benefit will be property developers who will see a growth in potential profits.  What also helps developers is the relatively high price thresholds in the scheme - up to €400,000 - and even €600,000.  Such prices are well beyond the reach of low income families. 

Another group to benefit from the budget were landlords - the very same class whose hiking of rents has contributed so much to the housing crisis.   They will be able to deduct 80 per cent of the interest paid on borrowings on a rental property next year, up from 75 per cent previously, with “full interest deductibility” expected by 2021.  In a nod to small scale landlords the rent-a-room scheme allows those letting out a room in their home on a long-term basis, such as to a student, can now earn up to €14,000 a year tax free, up by 17 per cent from €12,000 previously.

As means to tackle the housing crisis these measures are pathetic.  But the approach of the Government is even more outrageous when we consider the ongoing sale of NAMA properties to US vulture funds such as Cerberus. 


Budget 2017 serves to highlight the true nature of the Irish recovery in which the benefits of economic growth are accruing to the multi nationals and the local gombeen capitalists.  Indeed, the very foundation of the recovery is to make permanent the sacrifices by workers during the period of the financial crisis.  This was clear in the hard-line approach taken by the Government and employers - which was cheered on by every media outlet - to the recent industrial action by transport workers.  The action - which had the modest aim of partially restoring the value of wages that had been in decline for eight years - came under concerted attack.  What was also notable in that dispute was the mobilisation of the the industrial relations bureaucracy against the workers. 

This will be the pattern of things to come. There will certainly be more of these type of struggles in the future and they are already on the boil in other sectors.  However, they will not succeed with a leadership that is tied to the Government and employers through social partnership and which accepts the the broad programme of austerity - limiting itself to lobbying for fairer policies within the restrictions of the so called fiscal space.  To build a movement that can win Irish workers must assert their independence and reject austerity in its totality. 

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