September 10th Afternoon: The Recession Diaries
Good lord - is Master Batt O’Keefe in danger of turning into a modern-day Huey Long, a radical redistributionist who wants to confiscate wealth from the rich and give it to everyone else? He seems to have recently discovered the fact that there are lots of millionaires running about the place and he is using that fact to ask the great question - why should the rest of us subsidise the cost of millionaires’ higher education? Master Batt is horrified. He is commissioning reports to look into this and bring forward a new way forward - tuition fees.One can become almost ill at the absolute cynicism of Master Batt. Where was he when his party was busy shelling out major dosh to high income groups in the form of property tax subsidies (Revenue’s latest figures show the taxpayer shelled out over €50,000 each to 37 individuals for investing in building private hospitals in 2003)?
Maybe there’s a belated logic in all this - maybe Master Batt intends to take the proceeds from the new tuition fees for millionaires and reinvest it into the Irish education system. Well, if you believe that then I have a lot of used cars I’d like to sell you. The money will not be reinvested - it will go towards getting Fianna Fail out of an exchequer crisis they created by, among other things, giving out all those property tax subsidies (and continuing so many other subsidies to millionaires).
How do I know the Government won’t reinvest the money? I’ve browsed through the OECD’s Education at a Glance 2008- a compendium of all manner of educational statistics throughout the industrialised world. And guess what - the Fianna Fail government doesn’t do educational investment. It didn’t during the glory days of budget surpluses. How much less so is it going to do now. Here’s some pointers:
Ireland ranks 30th out of 34 countries in terms of education expenditure as a percentage of GDP. Only six out of 30 OECD countries have a worse pupil-teacher ratio at second level than Ireland. Only two countries, Greece and the Slovak Republic, invest less as a percentage of GDP in education than Ireland.
Were Irish current expenditure on 1st and 2nd level education to just reach the average of other EU-15 countries, we would have to increase our spending by at least €1.1 billion (and this wouldn’t count the cost of capital expenditure such as the IT programme, etc.).
This is quite a spend. But Master Batt is not going to anywhere near that - in truth, no political party wants to address this under-spend because it immediately calls for increased taxation. And this is a no-go area for Irish politics.
Admittedly, increasing general taxation during a recession is not terribly smart. It withdraws cash at a time when cash in the hand is necessary to maintain some element of demand in the economy (never mind having enough to withstand our high inflation rates). So is there a way of squaring this circle - increasing tax revenue, without harming economic demand, in order to increase social investment? I have one small proposal.
Inheritances. There is no objection in principle, even among those who fervently believe (and it is a faith, nothing else) that increasing taxation undermines economic incentive. Inheritances and gifts are ‘unearned’ income. The recipient has done nothing to earn this money except outlive their parents who happen to have made a lot of money. One can make an argument for cutting capital gains, income tax, corporation tax if you accept the ‘economic incentive’ argument (spurious as it ultimately is), but the incentive argument stops well shy of cutting inheritance tax, or Capital Acquisition Tax (CAT).
But that’s exactly what Charlie McCreevy did. He cut it from 40% to 20% back in 1999. How much has that cost the Exchequer since 2000? Over €2 billion. Were CAT to be increased back up to the 40 percent threshold, how much would the Exchequer hope to gain over the next three years? €1.3 billion. And the great thing is that there isn’t much that can be done to avoid this tax (not anymore than is being done now - and more could be gained if loopholes were closed). Of course, the top rate of CAT used to be 55 percent. But we don’t want to get too greedy. We just want to soak the rich, not drown them (do we?).
So if Master Batt were really serious about getting more resources for education he should have a quiet word with Minister Lenihan. He could point out that there’s a lot of millionaires. He could point out that currently CAT only affects high income groups. He could point out that it wouldn’t harm economic incentive - in fact raising CAT would increase efficiency because it could be reinvested into the vaunted ‘knowledge economy’.
It’s not much. But it would be a start.
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