ROLL THE CLOCK back 10 years and welcome to a world of a budget over two days.
Budget 2012 was the first budget of the newly elected Fine Gael/Labour government and things were so tight that it took two days to spell out the bad news.
The first bringer of bad news was Labour’s Minister for Public Expenditure and Reform Brendan Howlin, who outlined spending cuts totalling €3.8 billion.
Day 2 saw more bad news for taxpayers as Fine Gael Finance Minister Michael Noonan looked to raise another billion in tax hikes.
We’ll get to the some of the details now in a minute but first let’s talk about the all-important context. At the time, Ireland was under the EU/IMF’s bailout programme, so the Troika (remember them?) essentially called to the shots.
Under the loan agreement, the purse strings were watched closely by Ireland’s bailout partners/masters and the cuts and tax hikes were all part of the deal.
There’s a huge debate about whether the austerity that Ireland’s government enforced was fair and necessary but it is what happened at the time, so this is more a record of how it played out.
One thing you might remember about this budget was the-called ‘Budget Leaks’ controversy. This was when documents pertaining to Ireland’s budgetary plans were circulated in advance in a German parliamentary committee.
Upstart news website The Journal published some extracts from the documents, which included details about various tax hikes and spending cuts. We also published the actual documents should you fancy a gander.
Although then Taoiseach Enda Kenny and the Department of Finance insisted that the documents were provisional in nature, they correctly flagged some measures including the impending VAT increase from 21% to 23%.
Belt tightening
Something else you might remember from this budget was that ahead of it being announced, Taoiseach Enda Kenny made an address to the nation about the government’s plans.
Whereas the Covid-19 pandemic has perhaps made us a little too used to national addresses by taoisigh, it was a big deal when Kenny decided to make the 2011 address. “An exceptional event for exceptional times” is how Kenny put in on the night.
Essentially his message was that the country faced a huge challenge, “this budget will be tough, it has to be tough,” he said.
Kenny even used the ‘best small country’ line that essentially became a mantra for the following four years:
I want to be a Taoiseach who retrieves Ireland’s economic sovereignty and who leads a government that will help our government really succeed. I want to make this the best small country in the world in which to do business, in which to raise a family, and in which to grow old with a sense of dignity and respect.
So what happened on the Budget days?
Kicking things off on day 1, Howlin acknowledged that “as a Labour Minister I never expected that I would be making these type of announcements” but that government was “forced to make difficult and unpalatable decisions”.
“Government spending must nevertheless fall next year and in each subsequent year to 2015,” he said.
Howlin said that the pressure on the social welfare budget was “enormous” and that changes had to be made. Although there were no changes to basic rates of social welfare, various programmes were trimmed to remove people from the net.
The 28-week winter fuel allowance is a big topic in Budget 2022 but in Budget 2012 Howlin announced that the season was being cut from 32 weeks to 26.
The axe fell in a big way in the public service, with a €400 million cut from public service wages. This was to be achieved by changes to sick leave, overtime and “limited recruitment” in the following year.
“By the end of this year, the numbers employed in the public service will be below 300,000. Next year, the government plans to reduce the size of public service by a further 6,000,” Howlin said.
Day 2 was the Noonan show as the veteran TD outlined his first of six budgets as Finance Minister.
Beginning his speech, Noonan took a swipe at “the Fianna Fáil/Green government” which he said “gave the purse away again this time last year as fiscal autonomy was conceded to the IMF”.
“The task of this government is to regain control over Ireland’s fiscal and economic policies, to grow the economy again and to get people back to work,” he said.
In his speech, Noonan outlined that that there would be “no increase in income tax” but that increased taxes would come from other sources.
There were to be increases in VAT, Excise Duty, Motor Tax, Capital Gains Tax, Capital Acquisitions Tax and more.
In total, €1 billion in extra taxes were to be raised from indirect taxation measures.
Household charge
Ahead of the budget, it had been confirmed that the government would be introducing a €100 Household Charge for every household in the country, with some waivers in place for vulnerable groups.
The Household Charge became somewhat of a rallying point for anti-austerity activists and there was a campaign to support people if they chose not to pay the mandatory charge.
Failure to pay the charge could result in fines and a tax of €2,500.
Left-leaning politicians argued that the charge hit poorer people disproportionately and various TDs said they would not be paying it themselves.
Something Noonan wasn’t touching was corporate tax, which of course is only now to change in 2021 after Ireland reluctantly agreed to fall in line with other OECD members.
During his Budget 2012 speech, Noonan said the 12.5% corporate tax rate was “central” to Ireland’s attractiveness for inward investment and that the government would not be changing it despite “international pressure” to do so.
The opposition have already criticised this approach but they should make clear in their replies to the Budget what their alternatives are. Are they suggesting that income tax should be increased or that we should welch on our commitment that the 12.5% Corporate Tax Rate is sacrosanct? If they are, we fundamentally disagree with them.
In finishing his speech, Noonan also paid tribute to his predecessor as Minister for Finance, Brian Lenihan Jr, who had passed away earlier that year from pancreatic cancer.
“Brian Lenihan had, as Minister for Finance, a most difficult task which he fulfilled with great courage and dignity,” Noonan said.
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