Following an outline of a five-year fiscal adjustment from 2012 to 2017 in our Summer Quarterly Economic Observer, (NERI 2012b), we focus, in this edition, on the specific details of an alternative budgetary strategy in the Republic of Ireland for the year 2013, only. This is offered in the wider context of on-going public debate in the lead-up to the presentation by the Minister for Finance of next year's Budget in December 2012. The crisis in unemployment continues as the level of real domestic demand stays constant or is in decline. There is evidence of rising income inequality and consistent poverty. Loss of income, jobs and continuing erosion of purchasing power is depressing demand. A succession of austerity budgets is dragging down domestic demand and delaying recovery while exports are not sufficient to generate significant take-off in the immediate foreseeable future. One person's spending is another person's income, business or job and every job creates its own demand for goods and services with a revenue yield for public services.
In our view the priorities for Budget 2013 should be:
- Maintenance of current levels of public capital programme investment;
- Direction of additional investment under a new stimulus programme towards priority areas of infrastructure;
- Avoidance of further harm to domestic demand and employment;
- Protection of the incomes of the most economically vulnerable households; and
- Additional and moderate increases in taxation of high-income and high-wealth households.
Specifically, the case is made in this Observer for:
- A prioritisation of public capital expenditure with no further reductions in the planned public capital programme for 2013 and later years;
- A re-assignment of the planned fiscal adjustment towards revenue so that target government expenditure is held at its 2012 level in 2013 (44% of GDP) while target government revenue is pitched at 36.5% - one percentage point higher than what is currently planned;
- A targeted increase in revenue by one percentage point of GDP mainly through a narrowing of tax reliefs and credits for households with incomes in excess of €100,000 per annum; and
- A continuous review of all areas of public expenditure 'line by line' with a view to reducing waste and re-directing savings to additional public spending in priority areas to include for example:
- Early childhood education and care;
- Mental health services for young people; and
- A youth guarantee to extend training and work opportunities for school leavers.