It is looking like 2018 was a bumper year for tax collection. There are more people in work now, with some quarters reporting 200,000 more, than at the time of the last general election. All that means the state’s coffers will be filled with more income tax, USC, and PRSI.
Where government policy starts and stops has always been a blurred line, and particularly so with regards to the ‘recovery’ the country seems to be experiencing at the moment. Albeit a rather broad measure of government productivity, the number of acts passed in the Oireachtas is in decline, and this might be helping fuel the recovery. Many will say that the government which governs least, governs best.
In 2015, which was the last full year in which a majority government ran the country, there were 74 acts added to the statute books. In 2017, the first full year of a minority government, there were 44 statutes added. 2018 is looking like it will deliver even fewer acts of the Oireachtas than 2017. When you compare this lack of legislative activity to some of the older initiatives started by the last government, the results are interesting. Many of the job initiatives which were criticized when Fine Gael & Labour took over in 2011/12, seem to be paying dividends now. But the problem arises when those initiatives run their course and their affects are less noticeable, in that, what happens when you turn off the tap? In fairness to the relevant Ministers, they have managed to keep Irish interests at the very top of the Brexit agenda, despite it being a total omnishambles from a British view-point. Further to the dodgy news, Ireland finds itself in a robust position to attract foreign direct investment because of measured responses to EU and OECD-led initiatives to change the corporation tax rules, and we seem to be staying safe in this regard and protecting our sovereignty and competitive corporate tax rates.
Now, where I am going with all this is the interesting part, which I think most people will also have noticed, because it is the part of all this that affects the working man and woman; with stronger economic growth, there has been the most minor of increases appearing in the pay packets of workers. The tax bands and allowances have failed to keep pace with these modest increases in pay, and the net result is a higher burden of taxation on the average worker. In fact, there were a number of issues created this year, which could even affect the lot of workers, if not directly, indirectly.
As in previous years, the Minister for Finance held the line strictly, and the “confidence and supply” agreement between his party and Fianna Fáil, had its fingerprints all over the budget. The Fianna Fáil priority of universal social charge (USC) reduction was accommodated, alongside the Fine Gael priority of widening the 20% band. However, last year also saw a ramping up in preparation for a new PAYE system which came into effect on January 1st. Often referred to as ‘PAYE Modernization’, it labours significant extra costs onto employers. Running payroll will now be as much about ensuring Revenue are kept kosher as it is about giving employees their proper dues.
Revenue took it upon themselves to review, and by all appearances, phase out the system of flat rate expenses for employees, this year. These standard tax deductions granted to different categories of workers reflected money they would spend on exclusively work-related items, like cleaning their uniforms and so on. The administrative decision could have resulted in unbelievable disruption on top of the revamped PAYE system, but after some jiggery-pokery, its implementation has been deferred by a year. That’s not really good enough, the proposal should be axed entirely, if for no other reason than it stops Revenue having to deal with large-scale, sometimes erroneous, claims for expenses.
So, yes, changes to USC and tax bands in the budget will leave most workers with a few euros more each week, after tax, but the feelgood factor remains missing in the zeitgeist of the nation. A suggestion at the start of last year that a reduction to the V.A.T. rate of 13.5% in the housing sector to boost the supply of housing units went nowhere. Such a move, according to a response to a parliamentary question from the Minister for Finance, might cost in the order of €240m per annum. Of course, there was no thought of the additional uptake in activity and the resultant uptake in tax revenue, but in any event, it doesn’t seem to be the amount involved that presents the problem for government, as much as the very notion that a property tax incentive could be part of a solution to the current market failure. Of course, the government is wrong in this regard but it will take them some time to realize this.
Perhaps less pressing, but affecting significantly more people than many of crises, is the inevitable “pension timebomb”. The pension funding situation is getting worse because for over a decade now the state has been settling liabilities out of the savings account because the current account has been empty. The era of permanent and pensionable work, the once great ‘a job for life’ is a thing of the past for most people in the private sector. There is plenty of evidence to suggest that private sector workers will change jobs and careers multiple times throughout their careers. That makes longer term pension planning more difficult, and in some sectors virtually impossible, particularly for low-paid workers. One of the proposals that was put on the table last year was auto enrolment. This, in effect, means that a worker is automatically put into a contributory pension scheme the day they start their job, unless they opt out. It could be of significant help in tackling pension funding shortfalls but appears to be some time off as of yet.
Over a decade ago, we started dealing with the banking collapse and the economic recession it caused. When you compare 2018 to 2008, last year shapes up pretty well. Economic growth got us close to full employment. But we will never know just how much better it might it have been without the litany of infrastructure problems we faced and the ever-looming threat of Brexit.
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