By John Spain

Last week was budget week in Ireland, and it is years since a Budget was looked forward to with as much interest.

The reasons were twofold. First, thanks to the ongoing boom here and the huge overrun in tax revenues again this year, no Irish minister for finance before has ever had such a crock of gold to dip into and dish out.

And second, next year is an election year here, with Taoiseach (Prime Minister) Bertie Ahern going for the historic three in a row, another five years in power which will make him the longest serving taoiseach continuously in office ever.

So with truckloads of money at their disposal and an election they want to win on the way, the government seemed to have every incentive to make last week’s budget the most generous one ever here.

And was it? Well, yes and no.

Yes, because there were tax breaks and welfare boosts. No, because they were smaller than everyone was expecting.

When you worked all the figures out, you found that after all the talk about the country being awash with money and the government having an enormous revenue surplus, the budget would make most families better off by around *100 a month. Big deal!

There were some particular disappointments that punctured a lot of balloons here. The first one was the stamp duty (tax) that has to be paid every time a house or apartment here is bought.

Because of the boom in house prices, this tax now rakes in a huge amount of revenue for the government. Buy an average home in one of the better areas in Dublin these days and after the sale you have to hand over an extra *30,000 to *50,000 in stamp duty to the government.

A decade ago, only a minority of houses were caught for the middle 6% stamp duty rate, and only real mansions were hit with the top rate of 9% (now payable when a house sells for more than *635,000). Thanks to soaring house prices, even the top rate can now apply to the average Sean Citizen in Dublin.

House prices have climbed year after year, but the rates and thresholds for stamp duty have never been adjusted. With the housing market here now cooling off, the expectation was that this budget would be the one when it would happen. But the government again failed to do it, mainly because stamp duty has become such a huge money spinner for them.

That was a big disappointment. Stamp duty now acts as a major distortion of the housing market in Ireland, inflating real costs to buyers and discouraging people from moving house. It’s way past time it was replaced by a low level annual tax on all property, but the government does not have the courage to do it.

Another big issue here is the problem first time buyers have in getting a foot on the property ladder. No stamp duty is paid by the average first time buyer, but even so it is impossible for many first-timers to buy a home because of the soaring prices.

These days, first-timers borrowing *200,000 or more on a 35-year mortgage are becoming the norm. At that level, young couples are saddling themselves with a huge debt virtually for life.

To try to ease their burden, Minister for Finance Brian Cowen did double the amount of interest that first time buyers can claim against their income tax. But the effect of this has already been wiped out by recent and impending interest rate rises.

So in summary, the government did little in this budget to bring fairness into the property market here. Instead it is taking the lazy option, sitting back and raking in the stamp duty money.

The second big let down in the budget was income tax, because instead of cutting the top rate from 42% to 40% (like the Progressive Democrats have always promised) Cowen only cut it to 41%. The Progressive Democrats may be the junior party in the government, but they should have been able to get their way on this before the election.

What Cowen did do, however, was indicate that if he was back in office after the election next summer, then the remaining 1% would be cut in the next budget. This was a shameless piece of vote-buying, an explicit promise on what the next budget would contain which is not something that a minister for finance here has ever done before.

Cowen adjusted the tax bands for all workers, badly needed since the boom has pushed so many ordinary people into the higher 42% tax bracket. The new bands mean that a single worker here can now earn *34,000 before they start paying tax at the new 41% rate.

At the lower end of the income scale, Cowen changed the threshold to take a lot of low paid workers out of the tax net altogether. This was welcome and will give some people an incentive to get a job instead of staying on welfare.

But in general the effect of the income tax changes was much less than most people here were expecting.

Overall, the tax cuts package announced in the budget will reduce tax revenue by *1.25 billion. It sounds like a lot, but the reality is that for most families it will mean an extra *20 or *30 a week in their combined after tax pay. Big deal.

On top of that, of course, many families will benefit from changes in welfare payments, especially in the monthly child benefit, which is paid regardless of income level. This went up by *10 per child.

Other welfare changes included a *20 hike in unemployment benefit, bringing the basic rate to over *185 a week. And reflecting the growing importance of the “grey vote” here (partly because they are more likely to vote than younger people) the budget increased the state pension to just over *200 a week.

There are other changes across the spectrum of welfare benefits here, designed to lower child poverty, provide support for carers and improve services for old people. In total state spending on welfare will reach *15 in the coming year, about the same as the government will spend on our creaking health service.

Overall, the extra spending on welfare will cost the government *1.4 billion more than the current year. Between the tax cuts and the welfare hikes and other changes, the budget will cost the state around *4 billion more than it did in the current year.

All of which sounds impressive when you see it in headlines. And the papers here last week filled their special budget supplements with pages and pages of analysis and figures explaining what the changes will mean.

But the truth is that the changes are all very minor, and that is what is most worrying about this budget. All of the concentration has been on the individual effects of the minor changes that have been made, and little attention has been paid to the big picture — the vast amount of money that is now being spent by the government.

Easy come, easy go — that old saying is particularly appropriate to the way this government has been running the state finances. With so much money flowing into the state coffers there is a tendency to throw money at problems and to give everyone a bit extra whether they need it or not.

Total government spending in the coming year will rise by 11%, close to double the rate our economy is growing. And this follows a 13% rise this year.

What is particularly worrying about this is the way the money is being spent — hundreds of millions are being spent on all kinds of services for minority groups because it is the politically correct thing to do.

Asylum seekers, for example, are costing several hundred million even though we know that 95% of them are bogus. The real cost of our high general immigration (like the extra language support teachers needed in schools) is only now becoming apparent, because we are not targeting the kind of foreign workers we need, with proven ability in English and some understanding of Irish society.

We also continue to dish out hundreds of millions in unemployment benefit to the hard core of long term unemployed, even though we have a full employment economy. And we dish out huge chunks of public money to save people from the consequences of their own actions, whether it is having more children than they can support or drinking too much or failing to change their skills in a changing world.

So much public money is being burned by this kind of spending that there is not enough left to spend on the lasting things we should be doing while we have a boom to pay for them. It’s a sad fact, for example, that after all the talk about spending billions on our infrastructure — which is way behind that of the more developed European countries — we still don’t have an uninterrupted motorway between Dublin and any other Irish city. And we still have too many school buildings that deserve to be condemned.

Meanwhile, the pay bill for state workers continues to grow at an alarming rate without any evidence of increases in efficiency of service provision because the government would rather give them the money than face down the public service unions.

It’s easy come, easy go. Taxpayers here are paying through the nose and no one is able to say exactly where all the money is going. There is very little to show for it.

But having got the money in so easily, the government seems not to care as long as they can buy their way back into power again. The trouble is that this huge amount of government spending is dependent on the tax paid by the workers in the private sector. If there is a downturn here we’re going to have years to regret how we blew it.