Paul Hosford: Public patience has limits — especially when their tax cut is on the line

Irish Examiner

2 days ago

Like Christmas, it feels like the budget comes around earlier every year.
Part of that is the fallow summer period during which the idle hands of the country's political journalists are searching for work.
Without the day-to-day Punch and Judy show of the Dáil, there has to be a focus somewhere, though ask ministers at doorsteps and press conferences about the budget any time pre-August, and you will find them rolling their eyes to heaven and asking has it gotten earlier this year and repeating a mantra about the "budgetary process".
Given that much of the mid-summer choreography focuses on the summer economic statement and the release of the Tax Strategy Group papers, it is no wonder that those idle hands drift towards budget speculation.
This year, the focus has started early on one key issue, not just because it is being speculated upon, but because its actual merit is being discussed, which is novel at least.
Usually, budget measures are seen as something of a fait d'accompli and in recent, more prosperous, times everything was on the table because everything was possible within reason. Of course, there were competing interests, but with huge economic surpluses the last government was well able to cater to everyone even a little.
However, while Tuesday's announcement of the summer economic statement brought with it news of another surplus, there is a serious question about how it is going to be deployed.
Contained in the document was the news that the overall tax package in the October 7 budget is due to be around €1.5bn. Over a billion and a half euro to spend solely on cutting taxes is the stuff of dreams for many governments and one to which this coalition has become quite accustomed.
Where does the money go?
Last year's €1.6bn income tax package was aimed squarely at low- and middle-income earners with the main tax credits; the personal employee and earned income tax credits increased by €125. On top of that, the standard rate cut-off point was increased to €44,000 and the USC was cut to 3%.
Across the board, there were increases in carer tax credits, in credits for renters, in benefit in kind, in capital acquisitions and and with it an extension of mortgage interest tax relief.
This year, however, the landscape is somewhat different. With €1.5bn to play with, the Government has already tacitly pledged a large chunk of that away.
While a commitment to cut the Vat rate for the hospitality sector is not in the programme for government, despite what some have said this week, it was agreed as part of government formation talks and was taken as a win by Fine Gael, which had pushed hard for the reduced rate.
The problem with the reduced rate for restaurants and hotels comes with its costs. In the Tax Strategy Group papers published on Thursday, the authors outlined that cutting the Vat rate for the hospitality sector, including pubs, restaurants, hotels, and hairdressers, would cost €867m per year.
While that is lower than the estimated figure put out by finance minister Paschal Donohoe of between €950m and a billion euro, it is a sizable chunk of the tax package available to the government in just two-and-a-half months.
Political and social choices
On Tuesday, as the government announced a €30bn capital plan alongside the summer economic statement, which warned of moderated spending, it was put to Mr Donohoe that the commitment to one industry could come at a cost to workers. This he accepted, but said that every budgetary decision comes with trade-offs.
While the idea of sacrificing tax cuts for workers in order to aid one specific industry is an argument which has been carried out all week, it was refreshing to hear Mr Donohoe say explicitly that the budget is a mechanism of political and social choice.
Too often it has been framed as a winners and losers argument, but what it is in actuality is an argument of priority, a statement of intent and the positioning of where we are at any given moment. It is a series of political choices, not a mere shopping list.
In a radio debate on Wednesday, economist Barra Roantree argued against a blanket Vat cut, saying that the biggest beneficiaries would be the biggest chains. Why, he questioned, should McDonald's get a Vat cut at a time when its profits have jumped almost 17%? The counterargument, of course, is that the real beneficiary of a cut is the customer.
It will come as no surprise that the cost of eating out has risen alongside the cost of food in supermarkets.
In my house we use the crudely designed and implemented Spice Bag Index. Through the miracle of food delivery apps keeping receipts, we are able to track the cost of a spice bag in our local Chinese in the years since we bought our home. In that seven-year stretch, the price has jumped from €6.40 to €10.20, though it must be said that the quality remains excellent.
There is no question that hospitality, like every other industry, is facing a crunch. The sector has come through covid lockdowns only to face rising costs, constrained supply lines, and a public less willing or able to spend money on entertainment.
Divisions
But hearing Fianna Fáil junior minister Niall Collins on radio this week saying that he did not believe a blanket cut in the Vat rate was justified, while Fine Gael's enterprise minister Peter Burke "unequivocally" backed it, shows that there will be friction in the run-up to the budget on the issue.
Government sources questioned on Thursday whether Mr Collins had gone on something of a solo run given that he had somewhat contradicted his party leader Taoiseach Micheál Martin on the issue.
But those in government who want to see the cut in the books that Jack Chambers and Paschal Donohoe hold up on the steps of Government Buildings in 10 weeks, might be minded to listen to the message of Mr Collins.
Speaking to Limerick's Live 95, Mr Collins said that there was no evidence that a previous reduction in the Vat rate to 9% was "actually passed on to the consumer" and that there was price gouging in the sector.
While the budget will lay out a statement of priorities, the passage and success of this particular measure will depend on public buy-in.
Convincing stretched middle-income earners to forego tax cuts, which would put somewhere in the region of €75 a month back in their pockets in favour of an industry which many believe has been too expensive for too long will require some finesse in its messaging.
While the row has focused on the differing opinions of coalition partners, the consumer has been left out of the discussion. If the Government is faced with a list of choices that are broken down into binary winners and losers, the average person will always choose to win.
But if a Vat cut can be sold as a net good for employment, for tax take and for those who just wish to eat out once a month, then it has a chance of resonating with the public.
Simply telling members of the public that businesses are a Vat cut away from viability is not a communications strategy, because it doesn't hold up to any scrutiny. If the public sees nearly €700 million spent, they will want to know what's in it for them, be it affordability or the greater good.
Otherwise, it will be back to splitting a €10.20 spice bag.
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