Programme for Government overview
The programme runs to over 150 pages with over 90 priorities. It contains lots of sensible ideas and commitments in areas such as enterprise, education, housing, investment and regional development, many of which Ibec advocated in our pre-election campaign. If implemented, these will help support sustainable and balanced economic recovery.
The programme mentions that government will take advantage of the flexibility in the rules for capital investment in order to increase exchequer capital funding by €4bn out to 2021. This is about one-third of the increase needed to reach the Ibec recommendation of 4% of GDP. Currently, fiscal rules are restricting us from undertaking the capital investment which is urgently needed to meet the demands of a rapidly growing population.
This capital expenditure is essential for enhancing the productive capacity of the economy and ensuring sustainable growth in the future. Ibec will continue to support government to argue for flexibility at a European level and to ensure that Eurostat rules and definitions align with the ambition to leverage private investment at a national and EU level. A more flexible approach is needed, one that distinguishes between running costs and capital expenditure. The implementation of a saving and investment scheme could enable the use private savings for PPP’s which would provide off-balance sheet funds for investment projects which could address pressing infrastructure and investment gaps in the regions.
In a change to patterns in recent budgets, there will be a ratio of 2:1 between spending increases and tax reductions. The tax policies outlined are largely in line with the pre-election manifestos and focus on reductions to the USC for low and middle income earners, enhancements to the capital gains tax regime and greater tax equity for the self-employed.
While the programme commits to publishing a medium-term income tax reform plan, there is no evidence that this government plans any meaningful reductions in the marginal income tax rates of high skilled workers. The programme also sets out a number of additional tax raising measures such as higher excise on tobacco, a new tax on sugar sweetened drinks and the absence of indexation of tax credits and bands, which will push more workers into the marginal tax rate.
Planned reforms in education policy are particularly welcome and should help support skills supply over the coming years. The housing reforms appear largely positive but it will be crucial to see specific measures implemented reduce the cost of private sector housing supply. Unfortunately, the programme makes no explicit reference to the Digital Single Market (DSM), its importance to Ireland or a need to engage internationally on it. It remains to be seen if a junior ministerial appointment will be made to oversee this important policy area.
There are a range of measures in the programme aimed at supporting regional, rural and local development and the increased focus on achieving more balanced regional development is very welcome. Ambition however needs to be matched by firm spending commitments. It is unclear within the programme which Minister has responsibility for the roll out of regional broadband.
The programme refers to the introduction of measures to address precarious work and increased casualisation of employment. Overall though, there is no recognition that government is facing a climate of increased industrial discord and pay claims that are outside the norm which risk undermining some of the positive economic progress of recent years. On pay expectations and the potential for industrial disputes, pay rises and budget tax cuts mean workers will get the equivalent of about two weeks additional pay this year. Compared to 2014, the average worker will be better off by almost one month’s pay by the end of the year. This is at a time of historically low inflation. This reality needs to be reflected in wage expectations. There is no appetite for a national pay agreement but there is merit in establishing open channels of dialogue between government, Ibec and the trade union movement to manage expectations and safeguard competitiveness.