Tweedledum Tax Cuts vs. Tweedledee Tax Cuts

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Apparently the Government, if not having an outright row, is at least engaging in a ‘strong debate and discussion’.  What’s it about?

  • The introduction of a Living Wage and associated reforms such as abolition of zero-hour contracts and minimum wage increase?
  • A comprehensive affordable childcare network – with savings of €400 to €500 per month for families with young children?
  • Universal access to free community health services – such as GP visits, outpatient services and heavily-subsidised prescription medicine?
  • Maybe a debt-relief programme – not only for households in arrears, but also for those caught in the terrible debt spiral of money-lenders and their interest rates which can exceed 100 percent?
  • Or a guarantee of an adequate income and home-help services for all people in retirement?  Or additional supports, such as a ‘cost-of-disability’ supplement for disabled women and men – of whom 50 percent are officially described as living in material deprivation?
  • Or a major drive to reduce rents in the private rented sector – through rent freezes combined with a new public enterprise drive to directly deliver quality, affordable rental units to private tenants?
  • Is the row about any of these or something similar (like eliminating all education-related costs such as school-books, transport, ‘voluntary fees’)?

No.

It is about which tax cuts the Government should pursue.  Good grief.

Let’s call it for what this is.  First, this is a deeply disingenuous debate – ‘my-tax-cuts-are-better-than your tax cuts’.  No Government Minister, TD, or candidate should be allowed to come to the doorstep, seeking votes by claiming ‘we can cut your taxes and still deliver European-style living standards – income supports, public services, economic and social investment’.  To make such claims is either hypocritical or completely indifferent to how the real world operates.

Living Standards 1

Second, tax cuts will undermine the next government’s ability to actually improve people’s living standards – affordable childcare, affordable rents, reduced public transport fares, free and comprehensive primary health care, real free education, etc.  Let’s not forget that Irish living standards are closer to Greece’s than it is to most other EU-15 countries.  Question:  how will a couple of extra Euros close this gap?

Third, this is a return to boom-and-bust economics prior to the crash, when parties competed on the basis of who could deliver the most tax cuts.  And if you think this is exaggerated just note:  we have a rush to tax cuts while the Irish property market is the fastest growing in the world.  Sound familiar?

In all ways this is a dismal, depressing debate which, more than anything else, shows up the complete lack of new and innovative thinking in Government circles and the political establishment.

That people are desperate for extra cash is wholly understandable.   People are under pressure.  The EU has found that over 70 percent of Irish households are making ends meet with some or great difficulty (in the EU-15, this figure falls  to 50 percent; among our peer group – other small open economies – this figure falls to 29 percent).  It further found that one-in-four people live in deprivation; which includes one-in-three children.   According to a survey by the Irish League of Credit Unionspublished yesterday:

‘ . . . three-quarters said managing their household bills and expenses would be “much harder” over the Christmas period, with 51 per cent admitting they would struggle to heat homes and 40 per cent finding it difficult to cover other utilities.’

Tweedledee 2

The tax cuts brigade cynically exploits the difficult condition that many people find themselves in.  But the fact is that tax cuts won’t provide that relief.  The tax cuts lauded in Budget 2015 will, for low income earners, evaporate even with our minimal inflation rates.  Here is just a snapshot of the real increases (after inflation) after the tax cuts.

People trying to ‘make ends meet’ need pay increases (either hourly increases or an increase in working hours).  However, the CSO shows that pay increases are going almost exclusively to higher income earners.  Since 2010 the following have seen their weekly pay increase by:

  • Managers and professionals:  €56
  • Clerical, sales and service workers: (- €6)
  • Production, transport and craft workers:  (- €32)

Those who are getting the highest real increases due to tax cuts are the ones who are getting weekly income increases (managers and professionals earn, on average,  close to €60,000; white and blue-collar workers – who make up over 62 percent of the workforce – receive between €25,000 and €26,000).  To those who have  . . .

People trying to ‘make ends meet’ need an increase in social protection payments.  Yet, in Budget 2015, core social protection rates were cut in real terms even when the Christmas bonus sop is included.

Most of all, we need an honest accounting from those who argue for tax cuts.  Let’s remember that the Government has projected that government spending on public services and investment will fall in real terms (after inflation) up to 2018.  This is below-the-radar austerity, letting inflation do all the cutting.  At the same time, however, they didn’t project the impact of any tax cuts.  So we have one of two scenarios:

  • Either the Government will finance tax cuts through further spending reductions on public services, investment and income supports; or
  • They will abandon their goal of balancing the budget by 2018.

I would certainly support the latter as I wrote here (but to increase economic and social investment, not fritter away on inefficient tax cuts).  But what is more important is for the Government parties – either collectively or individually – to explain how they will finance these tax cuts.

Arguing against tax cuts is a hard sell.  During the first phase austerity – from 2009 to 2014 – personal taxation rose by nearly 25 percent during a period when real wages were falling and income supports such as Child Benefit were being cut.  This was economically irrational and socially damaging (fiscal prudence would dictate that you protect incomes and jobs to sustain demand until the recession is over – fiscal prudence was the first casualty in austerity’s war on people).

Further, after years of Government onslaught on people’s living standards, people are rightly sceptical that their personal situations can be improved by public policy intervention.  The tax cuts brigade plays to this:  they throw out a few coins a week and leave people to purchase their goods and services in private markets; goods and services which people in other European countries get free or purchase at below-market rates such as childcare, public transport, healthcare, education.  And people, having lost any faith in the idea of pooling our resources together to collectively deliver these goods and service through a public space, rightly feel there is no alternative.

The final deception in this tax-cuts debate is that it suppresses the irresistible truth:  that we will never reach the level of European services, income supports and investment until the corporate sector here pays an equivalent contribution to what they pay in other EU countries.  And the first stop is to increase the ‘social wage’, or employers’ social insurance.  It would have to more than double here to reach EU averages – and it is this that collectively purchases public services and income supports that drives living standards.

The challenge for progressives is considerable and should not be under-estimated:

  • To outline the specific services and income supports that can deliver real living standard gains
  • To instil in people the confidence that working collectively we are all better off than acting as individuals with a few extra euros in our pocket, lost in the great hyper-market that is our social economy.
  • To promote an alternative means of providing extra direct income to people.  For people in work this means a wage-led recovery, focusing on the Living Wage and related reforms such as abolition of zero-hour contracts, increasing the minimum wage and inserting a Living Wage clause in all public procurements and outsourced labour contracts.  From the extra revenue, this can enable public finances to make even more social and economic investments and, so, start a virtuous expansionary cycle.

And finally, progressives– with creativity and sharp analysis – must show up the tax-cuts debate for what it is:  a deceptive buffet offering spoiled food which people will end up paying for in stagnating living standards.

Are we up to meeting that challenge?  Hopefully – the economy and social prosperity depends on it.

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