“IT’S NOT LIKELY to be the same old story of Santa Claus or Scrooge that we’ve known in past budgets – that will be the big change.”
So says Austin Hughes, Chief Economist of KBC Bank Ireland, who we spoke to about what he reckoned was on the cards for Budget 2018, which will be announced next week.
This year, the pressure is on Minister Donohoe who faces his second year in charge. But what you’re probably wondering is – how will the changes that the Government bring into play actually impact on my pocket?
Here, Hughes tackles the seven essential questions about Wednesday morning’s Budget announcement to give you a clearer idea.
In previous years, the Budget has been a fairly badly-kept secret before its official announcement. This year however, has been a little different, says Hughes:
This year it has been fairly tight-lipped, with the exception of the €5 a week budget for pensioners. This could be because Minister Donohoe wants to operate in a certain way. It could be because the Department of Finance are ‘searching down the side of the sofa’ for what could be found and don’t want to over-promise if they can’t deliver.
This, Hughes explains, is because of a smaller ‘fiscal space’ - ie the amount of money the Government has to play around with this year. So the Budget is likely to bring promises, rather than immediate improvements:
The budget room for manoeuvre will open up in the next few years so there will be promises of investment in healthcare, education and promises of a brighter future rather than something that will dramatically change lives right now.
This year, there has been a lot of talk around softening taxes for lower to middle income earners, coming in two possible ways – changing tax bands (so fewer people pay a higher rate), and reducing the Universal Service Charge. But what does this mean for you?
There will be a change in tax bands and a marginal cut – likely to be 0.5% – in USC for some of the lower bands. Partly as that’s a commitment for the Government.
Hughes says, however, “that in reality is that this doesn’t make a huge difference”. Some of the lower bands will be “maybe €60 better a year”, while those who earn up to around €70,000 “will have an increase of around €5 a week“.
This would be seen as an attempt to match the €5 pension increase, says Hughes: “They want to incentivise the people who ‘get up early in the morning’ as Leo famously said, and those who have worked.”
Last year it was announced that 2018 would see the introduction of sugar taxes. But how this actually plays out could be interesting, says Hughes. The tax may impact the soft drinks industry as much as consumers:
Because it has been introduced in the UK, there will be more of a drift towards the manufacturers reacting. It’s thought that companies will just lower the levels [of sugar in their products] rather than paying it.
This is being done for what economists call “the nudge” in behavioural economics – using a price change to raise people’s awareness and in turn, change their behaviour.
Meanwhile, this behavioural change is supported by other health campaigns – “on its own, [the sugar tax] won’t make a major dent.”
So, what is it going to cost you for a can of Coke? “It could translate as about 5c or 6c on the average can of sugary drinks.”
Worried about the Help-To-Buy scheme being pulled? Well that’s unlikely to happen just yet, says Hughes:
I’d be surprised if the promised review of the Help-To-Buy ended up recommending that the scheme should be ended. We will probably proceed with it for another year or two, though it may have some slight tweaks.
Overall, Hughes warns that the key to solving the housing crisis is to “get rid of the market’s instability” – something that can only be solved by a lot of long-term investment:
Stability and the promise of infrastructure is a better plan than a short-term fix that gets people into circumstances that won’t suit their family needs. We need more roads, public transport, the capacity to deliver schools and retailing. The lessons learned in the crisis is if you build houses in the middle of nowhere is not the solution.
Unfortunately, this may not be of much consolation to those who are in dire need today:
The reality is those in need require lasting solutions – getting them into accommodation that is not suitable for them in the long-run is not the solution. They need homes where they can plan their lives and unfortunately that won’t happen overnight.
If you are a student and hoping for an end to fee increases, this is unlikely to be the year that you are catered for, says Hughes:
The education system is creaking as more people come into it and the onus may need to be put on those using it – the cost of education has to go up and we are going to have to find more money for education.
How is this likely to pan out for students over the next few years, and who is likely to have to foot the bill?
We may see an increase in fees and a promise to put in place a more radical funding proposal over the next two to three years, either through fees or a loan system.
Why does the price of cigarettes keep going up? It’s actually another piece of behavioural economics: “The idea is to nudge people in a particular direction by increasing the cost and at same time highlighting the impact on people’s health.” So, how much will it cost this year?
There is likely to be the same 50c increase you saw last year. There are concerns about smuggling and particularly about the weaknesses in sterling leading to cross-border purchases that may constrain the government from raising it any more than that.
What about pints and glasses of wine? Well actually, that may depend on your tipple of choice, and weirdly, tourists may have a role to play in this:
There are questions about whether the VAT in the tourism industry, should go back up to 13.5% from 9%. One way to increase that would to increase alcohol duty. They may not do this because of Brexit concerns but instead they may increase the alcohol duty. They may also differentiate the amount of increase depending on the types of alcohol, though all categories are at risk.
If you’re part of a family that always find Christmas a tough time financially, your Christmas bonus isn’t going anywhere:
That’s become a tradition that they will continue – that’s almost seen as a done deal. It is likely to be similar to last year’s Christmas bonus of 85% of their normal weekly payment. It does make a real difference for people who are on very tight budgets at an important time of the year.
In general, social welfare payment increases are a little less likely than tax cuts for lower and middle income earners, and are likely to make a difference of about €3 or €4 extra a week.
Overall, Hughes says the likely changes in the Budget “won’t be a case of icing on a cake but a bit of icing on a rather plain biscuit.”
So, how do you feel about the changes Austin has suggested will be included in this year’s budget? Let us know in the comments section.
Want to ensure you’re prepared for the Budget no matter what’s announced on Wednesday? Visit KBC.ie for information on current accounts, savings accounts, loans, mortgages, insurance, credit cards, student accounts and a series of handy calculators.
To embed this post, copy the code below on your site
have your say