ESRI/FFS "BUDGET PERSPECTIVES 2010" CONFERENCE

The ESRI and the Foundation for Fiscal Studies (FFS) are holding their twelfth "Budget Perspectives" Conference on Tuesday, 13 October 2009.

The Conference will examine some of the key economic and public finance issues that need to be considered in framing policy for the forthcoming Budget and the medium term.

Date: Tuesday, 13 October 2009

Time: 0830 to 1300

Venue: The ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2

For further details please click here.

Tim Callan, Claire Keane, John R. Walsh (ESRI)

A new property tax could be designed to take considerations of fairness and ability to pay into account. Analysis by ESRI researchers Tim Callan, Claire Keane and John Walsh shows that the amount of property tax payable, if any, could be effectively linked with ability to pay. For example, a tax which provided full or partial relief to the one-third of the population with lowest incomes could still raise revenue of close to €1 billion per year. Annual taxes on property are widespread in the OECD and have several advantages over stamp duties which are the main form of property taxation in Ireland. Stamp duties put barriers in the way of mobility, and distort decisions about whether to move or refurbish/extend an existing home in the face of changed circumstances. But moving from stamp duty to an annual tax, as recommended by the Commission on Taxation, does encounter problems of fairness in the transitional phase. The Commission recommended an exemption for a fixed, seven-year period from the date of purchase. The ESRI researchers suggested that the length of the exemption might vary to take account of the rate of stamp duty paid, and the point in the house price cycle at which it was paid.  Consequently those who paid most stamp duty during the years of rapidly rising house prices would obtain greatest relief. The Commission on Taxation also recommended that child benefit be included in the income tax base. This has advantages over simply cutting rates of payment for Child Benefit, as in the McCarthy Report. Analysis using the ESRI’s tax-benefit model shows that making Child Benefit taxable could provide similar savings to the Exchequer to the rate cuts proposed in the McCarthy report, but with much greater protection for those on the lowest incomes, and a greater net reduction for those on high incomes.

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Paul Gorecki (ESRI)

Under pressure from the recession, specific groups, industries and professions often look for government intervention to protect their position. Governments tend to give in to such requests for tailored protection more often than they should, for a number of reasons e.g., because the benefits of the protection granted are concentrated and visible, and the costs are dispersed and not so visible. Paul Gorecki (ESRI) analysed why government decisions in this area tend to depart from what is best for the economy and society. He suggests that governments need to consider three questions in deciding whether or not to grant such bespoke protection:

• Why?
• Which instrument – budgetary, regulation, or competition?
• What are the consequences for productivity and growth?

Three mechanisms are suggested for nudging policy outcomes closer to the best results:

• providing better information on the impact of granting bespoke protection;
• a regulatory budget that sets out the costs of new regulatory interventions; and,
• tests that must be satisfied before bespoke protection is granted through increased regulation or exemption from the Competition Act.

In terms of current issues under consideration, Professor Gorecki argues that if this approach were applied, demands for bespoke protection such as a cap on the number of taxi licences or approval of the proposed Code of Practice for grocery undertakings or exemption of certain medical professions or actors from parts of the Competition Act would not be accepted.

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Alan Matthews (Trinity College Dublin)

Negotiations on a new EU medium-term financial framework will start in earnest following the appointment of the new EU Commission at the beginning of next year. This follows a year-long consultation on possible reforms to the EU budget which examined possible new sources of EU revenue, the structure of EU spending priorities as well as improvements to the management of EU finances. “For the first time, Ireland will enter these negotiations as a net contributor to EU finances over the framework period”, noted Professor Alan Matthews, Director of the Institute for International Integration Studies at Trinity College Dublin, in his presentation to the ESRI/FFS Budget Perspectives conference. “It is therefore important to start a discussion now on what Ireland’s priorities for these negotiations should be”. In the past Ireland received substantial net transfers from the EU budget, but with rising relative prosperity it has become a net contributor. “The danger is that we focus on trying to maintain a large agricultural share in the new EU financial framework, because this is the policy area where EU expenditure will continue to exceed our budget contribution - even though in the longer term we might benefit more from increased EU expenditure on fighting climate change or cross-border crime, or promoting research and development, or strengthening Europe’s borders.” Other Member States will also approach the budget negotiations from the perspective of minimising their net national contribution or maximising their net national transfer, so there is a real danger that the outcome could be very far from the budget that Europe needs to meet the global challenges that it faces. To address this problem, Alan Matthews proposes a mechanism to separate the distributional consequences of EU budgetary decisions from their substantive impact. According to Professor Matthews, “this would give the Member States an incentive to focus on constructing the right budget framework for Europe, and not the budget which simply seeks to preserve the existing pattern of net transfers.”

Link to Publication