Political Response to Economic Crisis in Ireland

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This article was originally published on Socialist Action

Sinn Féin Offers a Better Way

Sinn Féin has published its response to the Dublin government’s threatened plans to cut public spending once more in its Budget for 2011, There Is A Better Way. The Fianna Fail/ Green coalition in government has outlined planned further cuts totalling €6bn in both capital and current spending, including welfare payments to the poor. This would bring the total level of ‘fiscal tightening’ to €20.6bn since the end of 2008, which is now equivalent to 13.1% of GDP.  For comparison the British government’s current plans – among the most draconian of any major European country- amount to 9.2% of GDP.

The Sinn Féin response stands in stark contrast to the bourgeois parties across Europe who have used the recession and ensuing fiscal crisis to launch an attack on the social welfare gains built up since WWII. The SF policy has three key components. First, is to shift the burden of taxation from the poor to a rich in a series of measures including higher income and wealth taxes for higher earners and the rich. Secondly, reform of the tax system in what the party calls a ‘financial stimulus’ to redistribute incomes towards the poor and low-paid. But the largest component of the policy is a €7.5bn government investment package in infrastructure and other areas such as early childcare, which is estimated to create 160,000 jobs. This would go some way to addressing the collapse in investment which more than accounts for the entirety of the Irish recession.

The other major parties in Ireland have all signed up to the policies of the Dublin government in the South while Sinn Féin is the only party to consistently oppose the same agenda of the British government in the North of Ireland. In Dublin, the FF-led government had been hoping to co-opt the other parties, Fine Gael and Labour, into explicitly supporting their further attacks on the living standards of workers and the poor. Given that both actually propose very similar measures (with Labour simply calling for a ‘rebalancing’ of the measures towards tax increases), there was actually the basis for a de facto grand 4-party coalition, including the junior coalition partners the Greens.

However, FF’s slump in the polls, down to 18% in one poll in October, from 41.6% in the 2007 general election, made the nominal opposition parties more cautious. The caution turned to outright hostility for purely electoral considerations as the government has been forced by High Court order to hold a long-postponed by-election in Donegal, with others to follow in the New Year. The legal case was itself a victory for Sinn Féin, with the other parties content to allow the government to continue in office despite dwindling parliamentary and popular support. The consequence is that the government is likely to fall early next year and may well call an early general election. Neither Fine Gael nor Labour saw any electoral advantage in propping up Fianna Fail, even while they agree on the substance of further cuts.

Saving The Nation

Fianna Fail, which styles itself ‘The Republican Party’, made the appeal to other parties to support its Budget on the grounds that a failure to act would lead to a ‘loss of sovereignty’ as the ECB/EU/IMF are waiting in the wings to impose further, even more drastic cuts. In fact the government’s own policy now makes this outcome more than possible. Financing through the bond markets is no longer possible as long-term interest rates approach 8%, compared to just over 2% for Germany. While the ‘austerity’ policy has led to a collapse in economic activity and a widening of the public sector deficit, a uniquely generous bailout of bank bondholders means that respected commentators believe the cost to taxpayers will be approximately €76bn, more than 8 times the size of cuts threatened in this December’s Budget and equivalent to €17,000 for every woman, man and child in the State.

The effect of the guarantee is to provide an enormous transfer of taxpayer funds to bail out primarily German, British and French banks, the main holders of debt in Irish banks. While the EU and ECB have insisted on this when burdening Greek workers and the poor with increased debts, the Dublin government initiated this policy itself. The only conceivable explanation is that by bailing out the bondholders, the latter will not foreclose on the banks and their property speculator customers. These two groups, bankers and property speculators, are the political core of the Fianna Fail alliance, even though for historical reasons, its electoral support derived from urban workers.

This subservience to European finance is the flip-side to the government’s prostrate position before the interests of US industrial and commercial capital. This is codified in the lowest corporate tax rate in the OECD area, 12.5% compared to 39% for the US and Japan, 30% for Germany, as well the indulgence of myriad schemes, which reduce the effective rate of tax to below 2%.

The policy response to the crisis, to enrich these foreign capitals by depleting the resources of the workers and the poor failed to reckon on the finite level of the latter, and the voracious appetites of the former. Usually, in a Western European economy of the standard type, the domestic bourgeoisie, crushed by the impositions on its own activities and the damage done to its domestic markets would rise up and remove such a government. But Ireland is not a standard type of Western European economy. While one quarter of the country remains a direct colony of Britain, the remainder retains the distorted social structure of the recent colony. Most especially, outside of the dominant layers in banking and property speculation, the bulk of the Irish bourgeois class is comprised of globally insignificant capitals, with owners of fast food outlets, bookmakers and publicans to the fore in IBEC, the main employers’ federation. There are literally only a handful of Irish-owned companies that compete in global markets.

So, when in 2009, policy in the advanced capitalist countries was focused on measures to boost domestic demand, tax breaks, employmentsubsidies and so on to ensure the survival of indigenous capitalism, no such measures were adopted by the Dublin government. Lacking any significant capitalists that compete in world markets, there was no purpose to such a policy and the first resort was to attack wages and social welfare spending. This has only now become popular elsewhere once the survival of domestic capitals has been ensured.

This is why the Sinn Féin policy is so significant. Perhaps uniquely in Western Europe, the party has adopted a policy of increased investment which can only be conducted by state or state-linked bodies (in this case, the National Pension Reserve Fund). And, uniquely in Western Europe, this is not a programme that entails saving sections of big capital. As elsewhere it would require an enduring leadership role for the state in the economy. But it would immediately lead to the state becoming the dominant force in the domestic economy, albeit one that would require a new partnership with foreign capital, on both a more productive and equal footing.

The policy is also gaining ground. A string of popular campaigning organisations, such as Social Justice Ireland and Community Platform have tentatively moved in the same direction, while the Irish Congress of Trade Unions has adopted pro-investment stance, but contradictorily pins its hopes on the government persuading the private sector to initiate the investments. No doubt these contradictions will be resolved in course of the struggles over the next period.

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One Response

  1. Frances

    November 15, 2010 6:26 pm

    The progressive Sinn Fein budget proposal is very worthy of active public support.

    Regrettably, Sinn Fein as well as FF, FG and others have studiously avoided any discussion about repealing the low 12.5% corporation tax rate, lest we might offend the Americans. The American corporations have exploited the Irish tax haven relentlessly during the past decade. The “Double Irish” and “Dutch Sandwich” have become the contemporary legal tax avoidance scheme (http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html). Moreover, continuation of such a state-sanctioned tax avoidance scheme will breed more corruption among the ruling political and business elites in the Republic.

    An interesting example is the case of Round Island One Ltd. (Ireland), a shell company of Microsoft Inc. (USA). Round Island One Ltd. had a gross profit of nearly US$9 billion in 2004. It paid the Government US$300 million in taxes that year. The effective tax rate was 3.3%, not the statutory 12.5%!

    Ireland’s annual corporate tax revenue is believed to have been at least 6 billion Euros in 2009. If the effective tax rate was 3.3%, and if the statutory tax rate of 12.5% was applied, the incremental tax revenue would be about 16 billion Euros! This one-year figure is interestingly the same as the planned budget cut to be imposed by the Government in the 4-year budget proposal.

    By raising the corporation tax rate to just 15% (same as Slovakia), the extra annual tax revenue would be 21 billion Euros. The Americans will complain loudly but they will not leave. They will not find a more benignly negligent government with a distorted tax regime anywhere else in the World.

    What we need now is a GOVERNMENT OF NATIONAL SALVATION. The present FF-Greens coalition should resign immediately for the good of the people and the country. An early general election would cost considerable amount of money and would cause months of uncertainty among the people. A practical alternative would be for all parties to nominate Sinn Fein to lead a new government of the people, until 2014. In this approach with the new Government of National Salvation repealing the low corporation tax rate and undertaking other socially progressive measures, we can still honour any prior obligations pledged secretly by the present regime to the EU, such as open-ended payment to undisclosed Anglo bond holders. And more importantly, we can retain our hard-won independence to solve the severe fiscal imbalance problem in our own way. There is very little time left to act in saving the country, in the memories of the heroes of Irish Independence.