The budget contains some measures that have been advertised as stimulus. The opposition parties will certainly argue that these measures didn’t go far enough.
I’ll take a contrary attitude here. All the parties put forward plans in which the net fiscal adjustment was about €4 billion so the fact is that all parties are agreed that the overall macroeconomic effect of the budget needed to be contractionary. It’s easy to paint a budget that has €5 billion in spending cuts and €1 billion in new spending initative as “having stimulus” and a budget with €4 billion in spending cuts and no new initatives as being “devoid of stimulus”.
The reality is that, by and large, these two hypothetical budgets will have the same effect. Of course, one can always argue that some types of tax cuts or spending increases are particularly stimulatory and that one can think of a better mix than the government put forward. But, by and large, this is a secondary issue to the principal one related to the overall macroeconomic stance.
My contrary attitude extends to the government’s own limited stimulus measures. The idea that the the half percentage point increase in the VAT rate triggered an huge increases in cross-border shopping was always ridiculous: See two articles from the early days of this blog by current adviser to the Minister for Finance and former blog alum Alan Ahearne (back then blog posts were written in the third person apparently!) and a later crankier post by me.
To my mind, cutting the VAT rate is just a kneejerk response to a wildly inaccurate public perception based on a desire to be seen to be doing something “positive”. Cutting excise duties on alcohol similarly won’t do much to reduce cross-border shopping. I wouldn’t care much if these were measures that didn’t give up much revenue. However, the summary of budget measures shows that these two decisions alone will cost €257 million on a full-year basis. For comparison, the cuts in child benefit will save €220 million.