Social Welfare Cuts: The Path of Least Resistance Politically
During the “Fuck You Emmet Stagg, Fuck You” exchange in the Dail last Friday, the following was said:
Deputy Paul Gogarty: It is most unparliamentary language and I now withdraw it and apologise for it but I am outraged that someone dares question my sincerity on this issue.
I do not like what has to be done, but I will take responsibility, take it on the chin, get the unpopularity and lose my seat because it is the only thing we can do to get this country out of the state we are in.
Deputy Róisín Shortall: No it is not, it is not the only thing we can do. What rubbish. Deputy Gogarty has bought into the Fianna Fáil line on this.
Responding to Eamon Gilmore’s claim, made in the Dail yesterday, that the Government “does not give a curse for people who are poor or in receipt of low pay” Taoiseach Brian Cowen retorted that:
“we are back to the polemics again”. He said “all we are hearing is the populist notions that there is some simple way of this country getting out of trouble. There is not. It requires the Government to have a bit of gumption and determination to do it and that is what we are prepared to do.”
Emphasis mine. The similarity between the two are obvious, and it has been widely commented upon, by those on the left, how this TINA tactic is a way of railroading through these deeply counter-productive and highly conservative measures by claiming that no viable, workable alternatives exist.
However, what is also clear is that claiming to make the ‘hard choices’ and avoiding the ‘populist route to do what is needed for the country’ is a way of ignoring the reality that they are actually following the path of least resistance. When we consider where real economic power lies in this country it’s obvious that the choices the FF/Green Government are making are the easiest politically.
The evidence for this can be seen in a Post-Budget Statement from TASC, and once again we should be grateful for the analysis that they are providing. In their Pre-Budget statement before the budget TASC pointed out that reducing some of 111 tax relief measures listed by the Commission on Taxation the Government could find the money they claimed was needed to reduce the budget deficit without reducing social welfare payments or public service pay.
Now, that both measures have been put in place (and as Paul Sweeney has pointed out the argument was that if public service pay cuts are not implemented Social Welfare cuts were unavoidable - but still we got both) we find out that if they had removed just one form of tax relief they would have been provided with enough savings to avoid any or almost no cuts in social welfare.
According to the TASC Post-Budget Statement:
“Tax breaks cost the State an estimated €7.4 billion in 2009, far more than the EU average level. The cuts to social welfare will save €760 million in 2010 and €809 million in a full year. All or most of the cuts to social welfare could have been avoided if the Government had cut tax breaks to landlords, which were worth €877 million in 2007.”
While Budget 2010 did reduce the level of interest on loans that can be claimed against when taking out loans to buy rental properties from 100% to 75%, which reduced the cost of this tax break to the tax payer by €95 million, the Government has not presented a calculation of what the remaining cost for this tax break is.
Remember, a ‘tax break’ is the common name for a term that is referred to in budget literature as a ‘tax expenditure’. During a debate on the budget focus is justifiably on what level of tax payer’s money is being spent in individual departments and so on. However, a tax break is seen as a cost in the same way as capital expenditure.
So we do not know exactly how much this tax relief is costing us now. However, if we take €95 million from €877 million (the cost of the tax relief according to the Minister for Finance in an answer to a Dail question on 3rd of November 2009) we get €782 million.
Once again, the cuts in Social Welfare are estimated to save €760 million in 2010 and €809 million in a full year, so we can see that it was possible for government to find the money needed to make the saving without cutting social welfare costs. Was Paul Gogarty aware of this when he was using “unparliamentary” in the Dail? Of course he was.
And that is just one form of tax relief, albeit a particularly economically useless one. As the Tasc statement put it:
“Ireland has a surplus of commercial rented property, as well as a widely-reported problem of upward-only rent reviews which are constraining otherwise viable commercial activity. Likewise, Ireland has a surplus of empty housing units. It is therefore difficult to justify on economic grounds the continuing subsidy to landlords. This is not a major job-creating sector of the economy, and it is difficult to justify tax breaks for those who are benefiting from a ‘passive income’ - that is, an income based on ownership not on productive activity within the economy.”
The statement also addresses the fact that welfare cuts are three times the fall in relevant consumer prices. Go here for the full document.
Discussion
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Comment by: Proposition Joe
Dec 16th 2009 at 19:12
I was a little stumped as to where the striking similarities lie in the italicized utterances of Messrs Gogerty and Cowen.
Then it hit me, they both used a variation on the idea of getting out of our current difficulties. Uncanny!
But isn’t that notion of fixing what’s broken the entire basis of the public discourse these days? One doesn’t hear anyone talking about maintaining the current state of things, does one?
Otherwise I totally agree, the welfare cuts did go down the path of least resistance. And the other striking aspect of this cowardly approach, well put by Sean Sherlock, is how the cuts cleaved along generational lines.
Comment by: donagh
Dec 16th 2009 at 23:12
Always grateful for a comment Proposition Joe, but it would be better if you’d read the whole post carefully first. Getting out of the current difficulty is not the issue that I highlight, but the formulation that there was only one way - cutting social welfare and public service pay - to get out of our current difficulties.
Messers Gogarty and Cowen are guily of the crime of ommission, a transgression that seems to be reaching epidemic proportions. Indeed, you interpreted my highlighting selectively to suggest that I was implying that we should ignore our present difficulties. Ironic then that I was suggesting that there was alternative ways to face the difficulties without wrecking the economy and further reducing the income of people who are living on low incomes as it is. But I get into these kinds of conversations all the time. People tell me that we have to cut the deficit, that the levels of public expenditure are ‘unsustainable’ and anyone who doesn’t admit that is ignoring the reality. I say to them, that they are ignoring the reality. The economy is worse then they imagine, and if they think that reducing the deficit through 4 billion in cuts is going to achieve anything positive in the short to medium term they are deeply deluded.
But we seem to agree on it being the path of least resistance. No one said this was going to be easy, but its obvious that those talking the most about the ‘hard choices’ are, as always, taking the low road.
Comment by: Ronan L
Dec 17th 2009 at 11:12
A good post, although with a budget deficit of over €20bn next year, my suspicion is that we’ll have room for every expenditure cut, removal of tax break, and tax hike one might care to mention over the coming years. It’s also worth remembering that even with the cuts they have made, net spending on social welfare next year is projected to increase by more than 20%.
As a general point, I think it would be worthwhile of those against social welfare cuts but in favour of (or at least not as set against) cuts in public sector pay to get that distinction out there, as it seems all those opposed to the expenditure cuts are being lumped together in a ‘no cuts to public sector/social welfare’ grouping.
Comment by: donagh
Dec 17th 2009 at 13:12
Thanks for the comment Ronan. Not sure what you are basing your suspicions on because if the basic principle in a recession is ‘whatever you do make sure you do no harm’ then this is not being heeded by this government, and there is no indication that they are likely to act wisely next year either. They have chosen to cut back on a section of the economy that has a direct impact on tax revenues and the wider economy in general, while doing nothing to reduce a cost that is providing nothing to the economy.
As you say social welfare costs are set to increase. But it seems strange not to grapple with the reason for those increases because if the economy is going to continue to function it seems astonishing to me that you should argue that the money should be taken out of the economy in order to pay for it. Rather unemployment should be tackled in a forensic way while also addressing the imbalances in the structure of the economy – in short the complete lack of enterprise base. This cannot be paid for by farming out money which would be used to pay for welfare. So it will have to be borrowed.
Cutting public sector pay will not affect the deficit to any great degree, no matter what international investors are alleged to think. Rather, I would argue, it is part of the strategy to reduce pay across the board, a tactic that many Irish economists advocate.
Although talking about the US economy, Paul Krugman has some interesting things to say about the benefits of that. Would like to go on, but am in a bit of a rush at the mo.
http://krugman.blogs.nytimes.com/2009/12/16/would-cutting-the-minimum-wage-raise-employment/?src=twt&twt=NytimesKrugman
Comment by: a.hall
Dec 17th 2009 at 15:12
Ronan, social welfare NET SPENDING is set to increase. How very monocausal. you just keep on keeping it simple and remove ANY variables which might upset your conclusion. This is why economists are taken serious by journalists, and singgered at by social scientists.
Comment by: Michael Taft
Dec 17th 2009 at 20:12
Ronan - stating the level of the fiscal deficit doesn’t tell us how to resolve it. A crude ‘cuts = savings’ approach has yet to be modeled in full but the ESRI simulations show up the severe limitations in the short and long term; particularly the danger of embedding cuts into the economy so that future growth is depressed, resulting in a low-growth, high-debt, high-interest future.
But let’s run one concrete example from the budget: the social welfare/public sector pay cuts. Ireland After Nama has thrown up some interesting geographical data - namely that in a number of large towns public sector workers make up a disproportionate amount of the workforce. Take Portlaoise, Kilkenny, Mullingar, Sligo - public sector workers make up 40% plus of the workforce (2006). Even higher today, probably, of the active workforce. Now what does a cut in their disposable income do to local businesses? What does it do economic activity in these towns and their hinterlands? Now compound that with a cut in the disposable income of social welfare recipients - and in many of these areas joblessness is high due to past over-reliance on the construction sector. If you owned a business dependent on the local labour market, how would you feel about these across-the-board cuts?
What will be the result? More job losses, business closures, short-timing of retail workers? How does this vicisous cycle play out - all because someone thought that ‘cuts = savings’? A model of this would could even throw up perverse results.
Now, let’s talk about real solutions to the real intertwined problems of growth, consumer spending, employment, investment and the deficit.
Ireland After Nama post: http://irelandafternama.wordpress.com/2009/12/09/public-sector-pay-cuts-the-hidden-geographies/#more-269