Gavan Reilly: Learning to handle the cost of living… with this Government

Regular readers will be familiar with three of my main grievances with the State and how it spends money in recent years. The first is how national budgets in the last decade have tried to announce something for everyone in the audience – whether it be a modest increase in welfare rates, or a piecemeal course in payroll taxes – spreading the jam so thinly that most will barely get any taste.

The second is just how expensive it can be for a government to do very little. In the last budget for instance, raising the higher tax cut off by €1500 cost the Exchequer just a pinch under €600 million. That’s a lot of money to spend, giving the average worker a mere 82c more in take-home pay every day.

The third is the return of classic State bureaucracy in the last few months, and how the imaginative flexibility in the early days of Covid (PUP was created almost literally overnight!) has now all but vanished.

With all that being said, therefore, it probably will not surprise you that - while it’s hardly a panacea to fix all ills - the nature of the State’s €200 electricity credit is a decent move. The Government found itself with unused cash for retrofitting at the end of 2021 and decided it would be nice to simply distribute the money back to every household, uniformly and quickly as a €100 credit. And, because the demand for further aid came in before the cash was distributed, the State simply topped it up to €200. Job done; simple; effective; imaginative.

If only you could say the same for the rest of the package.

The government is right to be concerned about adding fuel to the fire, and putting too much money back in people’s pockets at a time when many households already have savings built up from the pandemic - it might only prompt more spending which drives inflation further. But tinkering with State charges only seems to nibble at the edges of the problem when the Government could have done much more.

Paschal Donohoe told me last week that it was important for Ireland’s financial reputation not to rewrite a budget, or make taxation changes, midway through a year – but also that tax cuts now would have to be made up through state borrowing, adding to an already sizable national debt. But that’s hardly a defence: the 82c-a-day cut from last October is also being paid through borrowed money. Why not compound the same policy and do the same measure again from March? After all, it is a long term FG goal to raise the tax cutoff point to €50k…

Or better yet, why not borrow money from ourselves? Last year’s VAT returns were a billion higher than planned. Why not put the same cash into a VAT cut this year? The Revenue’s own figures show a 1% cut in the top (23%) rate would cost €481m. Would it really have fueled awful inflation to make life that bit more affordable?