Lorcan Clarke
Student Economic Review 2012 Committee Member
It’s that time of year again. The winter is upon us and a harsh budget is in store. Amid Christmas cheer, Budget 2013 will be announced on 5th December. How will it affect us students though?
First up, here’s a bit of background:
The government has committed to austerity measures of €3.5bn for this budget, to meet the Troika bailout target of a deficit of 7.5% of GDP for 2013. The plan after that is for a fiscal adjustment of €3.1bn in 2014 and €2bn in 2015. The good news? We’re on track as 2012’s GDP deficit target of 8.6% looks likely to be achieved and tax revenues returned to growth last year for the first time since 2007.
However, after four years of austerity, most of the politically easier spending cuts have already been made, so further savings will necessitate controversial decisions. With Labour’s commitment to not cutting social welfare benefits or public pay and Fine Gael’s to not raise income tax rates, something has to give.
There is grounds for even further austerity, given that the GDP growth forecast for 2013 has recently been reduced from 2.25% to 1.5%, mainly on account of slower growth internationally hurting Irish exports. Although this will decrease the tax take, the government has insisted there is no need for a tougher budget and fears it would make an already bad situation even worse.
So that’s the background, now where will this €3.5 billion of savings come from and what does it mean for students?
€1bn will come from new taxes while day-to-day spending will be cut by €1.7bn. In addition, the government plans to use extra revenues generated this year and cut back on reserves to reach the targets.
The tax changes aren’t of much concern to students, at least not directly, but let’s consider them first. While income tax rates and bands will remain unchanged, the increase in revenue will come from new taxes, reducing tax reliefs, and broadening the base for PRSI.
The main new tax looks set to be a property tax, likely to cost homeowners an average of €300 per year. This, combined with broadening the PRSI base to include rental income, is of significance to students, as increased costs for landlords can be expected to translate to higher rents.
Some bad news for hedonists, drivers, and hedonist drivers, as excise duties and taxes on motoring, both VRT and motor tax, are set to rise. However, your right to a sugar fix is being defended by the most unlikely candidate, the Dental Association (IDA). They have opposed the idea of a 10% hike in tax on soft drinks on the grounds that 60% of the population does not consume them so any measure aimed at taxing them would target a minority and disproportionately lower income group.
Students who earn more than €100,000 should know that a “solidarity tax” is on Labour’s agenda, but worry not as Fine Gael have insisting the only tax rise should be the property tax.
So that’s the tax changes, now what about the spending cuts?
The government’s aim here is to save money by having better-targeted social spending. All social transfers are potentially in the firing line, but especially universal payments such as child benefit, which is paid to all families regardless of income and accounts for over €2bn, a tenth of the total social welfare budget.
Research from the ESRI has found that 94% of Irish people are better off in employment than out of work and the majority of the other 6% are actually in work anyway. This would appear to undermine any calls for cutting social welfare in order to incentivise work.
Pensions are a politically sensitive area for cuts, with the government having avoided cutting them in the previous two budgets. However, Budget 2013 looks set to take away the tax relief on pensions worth more than €60,000. Further concern for the grey lobby, as allowances are under scrutiny and qualification criteria for medical cards are back on the table due to the spiralling costs for providing the cover.
Of primary important to students is the Education budget. There will be much interest in the student contribution, currently standing at €2,250, which is set to reach €3,000 by 2015. Minister Ruairi Quinn has to cut an extra €20m from the budget due to the higher-than-expected number of teacher retirements last February, and the higher increments bill for young teachers. With 78% of the budget going to pay and pensions protected under the Croke Park deal, the hit will have to come from somewhere else. A reduction in school grants and a fall in the teacher-pupil ratio looks most likely.
What about job prospects for final year students?
The unemployment rate looks to remain as high as 13% until 2015 at the earliest, with long-term unemployment accounting for 61% of those out of work now. The Budget looks to have minimal increase in the tax burden which would have damaged the business sector by increasing the cost of employment, according to the Irish Small and Medium Enterprises Association .
While the fairness of the incremental rise in the Student Contribution is much debated, the budget overall does not look likely to disproportionally target students. Pensioners, schools and property-owners will be more affected. So in a relative, purely self-interested sense, happy days.
