Posts By Michael Taft

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Starving Ourselves: Ireland’s Low-Spend Economy

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When we look at the headline numbers, it appears that Ireland is a low-spend economy – that is, Government spending is well below EU averages.  This helps explain why we don’t have anything near the public services, income supports and investment that other EU countries enjoy.  However, it is claimed that a significant part of the extra spend in other EU countries is due to their older demographic which necessitates higher public resources (pensions, healthcare, etc.).  Strip this away, and we may find that Ireland is actually a high spending country.

Seamus Coffey has contributed to the debate by doing just that – stripping out spending on the elderly.  When this is done Ireland comes in, not near the bottom, but near the top:  the 5th highest public spending economy in the EU-15, even ahead of ‘high-spend, high-tax’ Sweden.

This is a politically loaded argument.  If it can be established that we are, in fact, a high spending country this would justify a tax-cutting agenda.   We have the money, so the argument would go, we just don’t spend it right.

So are we an average or even high spending economy by EU standards?  No.  Not even close.  In fact we are starving ourselves of public resources.  Let’s go through this argument because I’m sure we’ll hear more of this as the campaign to cut taxes continues.

Headline Figures

First, with the help of the EU Ameco database, let’s look at primary expenditure (public spending excluding interest payments) with an adjustment for GDP per the Irish Fiscal Advisory Council (which has created a hybrid measurement between GDP and GNP).  2012 is the last year we have data for old age expenditure – and as we will see below, it is highly misleading to make any conclusions about spending levels for this year.

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The Politics of Breathing Space – or Why the Irish Government Can’t Let Syriza ‘Win’

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It is difficult to make sense of the EU governments’ attitude towards Greece – not if we’re using rational measurements.  There was a deal on the table – as reported by Paul Mason of Channel 4 news.  The Greek government was happy enough with it, the EU Commission was happy enough with it, it didn’t cross all the t’s but it provided the necessary breathing space to allow a more sustainable and beneficial deal for both creditors and debtors to emerge.  So what went wrong?

One of the problems with writing about the current crisis is that by the time this gets posted, events have moved on – such is the speed at which events, and rumours of events, are moving.  So let’s just hit some highlights.

You’d think Greece has been lethargic in applying its austerity programme, resulting in comments like – ‘Why can’t Greece be more like the virtuous Irish?’  But as Kevin O’Rourke states, pointing to the comparative fall in the structural deficit between Ireland and Greece:

‘So, to summarise: the Greeks have done more “reform” than we have, have endured a lot more austerity, and live in a country where the costs of austerity are likely to be higher than here. Perhaps the Irish government might want to tone down its assertions of relative virtue, and display a bit of solidarity with Greece. Is a less deflationary and less creditor-friendly Eurozone  not in Ireland’s long term interests, assuming that we remain a member of the single currency?’

What the new Greek Government wants is very reasonable:  a few weeks to draw up an agreed programme.  Claims that ‘we don’t know what they want’ (made consistently by our Finance Minister) are misleading and insulting. They are not asking for extra money, they are not seeking transfers from, or additional liabilities to, other members states.  From the outset, Greek Ministers has been asking for what can be called a ‘bridging loan’ which would only last a relative few weeks – in order to negotiate a new programme.  In other words, they are asking for time – a reasonable request for any new government.

And that is exactly what was almost agreed – or at least was on the table.  Paul Mason quotes from a draft agreement was drawn up by EU Commissioner Pierre Moscovici

‘The above (the proposed agreement) forms a basis for an extension of the current loan agreement, which could take the form of a (four-month) intermediate programme, as a transitional stage to a new contract for growth for Greece, that will be deliberated and concluded during this period.’

This coming from the EU Commission which is not known for its debtor sympathies.  Nonetheless, it was a constructive intervention – even if some officials from the EU Finance Ministers’ meetings tried to insist it didn’t exist.

This got nowhere even though Greece was willing to sign.  So why the opposition to what could be seen as a face-saving compromise for all involved?

Quite simple – the Syriza government cannot be seen to ‘win’.  Never mind debt write-downs (which Syriza is not looking for – Alexis Tsipras has made it clear they will honour all contracts, all obligations); the ‘win’ here refers to breathing space and the political momentum that such space might encourage throughout Europe.

The breathing space would give time to construct an alternative to austerity.  The breathing space would provide momentum, not only in Greece, but in other countries (and not just the periphery) to those forces who have been arguing for an alternative to the current deflationary regime.  The breathing space would create the danger that the initiative could be wrested away from the controlled-rooms of Minister meetings and taken up by popular forces.  The breathing space could be a very dangerous space – dangerous to the current elite.

What might happen if the new Greek Government constructed a programme whereby relaxation of arbitrary budget surplus rules (which would cost nothing to anyone but would allow for a humanitarian and investment programme), coupled with an authentic reform that tackled the corruption and tax evasion imposed on Greek society by the oligarchs?  A programme that met all EU fiscal targets but did so in a different way than what is being demanded by EU member-states?  This wouldn’t put some folk and some ideologies in a good light.

This helps explain why only a matter of hours after they were elected, the new Greek government was subjected to a torrent of demands to continue the Troika, extend the current bailout deal, maintain the current course – no deviation, no relaxation.  Even now, the bottom line from the Eurogroup is that Greece must apply for a bail-out extension – even though this is unnecessary and gratuitous given the EU Commission’s intervention.

Syriza raised hopes and expectations throughout Europe in the aftermath of their historic victory.  They continued those with the new Prime Ministers’ first address to the Greek parliament.  They swept through Europe in the person of the Finance Minister Yanis Varoufakis and his support team.

That had to be shut down – and shutdown quickly.  If Europeans got similar ideas, all manner of problems could arise for domestic governments who have a more grim agenda in mind.  The last thing the Syriza government should be allowed is to carry on all this hope and expectation-raising.  Normal business must be resumed and seen to be resumed.  Immediately.

This explains the Irish Government’s attitude of ‘no breathing space’.  This might give time for progressive voices here – in concert with other European groupings – to critique and propose alternatives to a deflationary programme of squeezing public spending, cutting taxes and obsessing over a balanced budget while labouring under incredible debt levels.  Give the Greeks breathing space and we might get ideas about getting one of our own– and that can’t be allowed.

The Irish Government’s position is unconscionable and unreasonable.  Their opposition to the Greek Government’s reasonable request should be highlighted at every opportunity, opposed at every turn; and not only for the sake of the Greek people.

For, like the Syriza Government, the next Irish Government – hopefully the first progressive government elected in this state – will be demanding the same thing:  breathing space.  Let’s hope it is not too late – for Ireland, for Greece and for Europe

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Sacrificing Our Young

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It is often stated that everyone has made sacrifices during this crisis.  Whatever about ‘everyone’, there are certain groups that clearly have ‘made sacrifices’; or, rather, have been sacrificed. And one of these groups is young people.

We have seen emigration rates rise substantially, high levels of unemployment, substantial cuts in social protection payments and even insults (the infamous ‘unemployment as a life-style choice’).  Let’s look at another grim metric – Eurostat’ssevere material deprivation rate.

As stated before, this benchmark is particularly dire.  Severe material deprivation is defined as enforced inability to pay for at least four of the following items:

To pay their rent, mortgage or utility bills * to keep their home adequately warm * to face unexpected expenses * to eat meat or proteins regularly * to go on holiday * a television set * washing machine * a car * telephone

Eurostat looks at the plight of young people throughout Europe, aged 15 and 29 years.  For 2012 this is the percentage of young people suffering severe material deprivation.

Youth Deprivation 1

Unsurprisingly, Greece leads the league.  But there’s Ireland right there at the top.  More than 13 percent – or more than one-in-eight young people live in severe material deprivation conditions.  This is more than double the average of other non-Mediterranean countries (a particular comparison given that our Ministers continually claim that we are not Greece or Italy, etc.).

The growth in severe material deprivation among young people over the course of the crisis has been alarming to say the least.

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clairbyrnelive1

The French Elephant in the Room

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How do EU countries manage to provide better public services and income supports than us?  And are the Irish willing to pay for European-style public services (the implication being we are not).  These were the two questions posed by the Claire Byrne Live show which compared life in France with our lives here.  It was both provocative and frustrating; frustrating because it did not answer the first question.  Had it done so, we would have realised the second question is irrelevant.  

Provocatively, we learned that in France:

  • Children receive full-time education from the age of three, totally free
  • A visit to the GP costs €7 and the waiting times for medical procedures can be measured in days – not months or years
  • If you become unemployed, you get 80 percent of your last wage in unemployment benefit for up to two years.

In other words, the French social model is far, far advanced compared to ours. 

How do they do they achieve this?  Do they tax their citizens more?  The programme provided a couple of statistics in a video introduction that should have alerted the discussion.  They compared a French two-earner household with an Irish one – both on €80,000.  The Irish household paid higher personal taxes (income tax, USC, PRSI). 

The second stat showed French government spending at 57 percent of GDP; Irish government spending is well below that at 40 percent.   So, if Irish personal taxes are higher, but spending is much lower – well, somewhere in there is the answer.  Let’s see if we can find it with the help of Eurostat and the EU’s Ameco database.

Claire Byrne 1

When it comes to personal taxation on employees and household consumption tax (VAT and Excise), Ireland and France are pretty close with both trailing the EU average.  So the reason can’t be found here.

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Debt? What Debt?

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With the Dail to debate a private members motion from Catherine Murphy, TD calling for support for a European Debt Conference, it is worth looking over Ireland’s debt numbers; especially as we will get a flood of claims from some quarters that our debt level is fine, its’ sustainable, we don’t need debt relief, etc. etc. etc.

The starting point in such debates is the question:  is Irish debt sustainable.  This can, however, descend into a black hole of formulae.  Simply put, just about any debt can be considered ‘sustainable’ if the debtor is willing to starve the kids and live under the railway bridge.  ‘Sustainable?  Sure, but there will be sacrifices’ (which, in Ireland are never inventoried).  If you believe this is an exaggeration, consider the EU elite’s attitude towards Greek debt levels. 

Let’s go through some bald numbers.

Debt 1

Irish debt is among the highest in the 19 Eurozone countries.  Officially, it is at 110 percent of GDP; when measured against our fiscal capacity as suggested by the Fiscal Council, it rises to 122 percent.  We’re placed fourth though look out for Cyprus and Belgium in the next few years.

When we turn to what some call an ‘illegitimate’ debt – that private banking debt that we all ended up paying for – Ireland remains league leader.

Debt 2

While banking debt makes up a quarter of our GDP, in the Eurozone the total debt is less than 2 percent.  And for Ireland, this doesn’t count the nearly €20 billion taken from the National Pension Reserve Fund for recapitalisation – since this is categorised ‘investment’ and not debt.   Were it not for the official banking debt, our overall levels would be close to the average Eurozone level. 

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The Very Real Cost of Rising Inequality

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Inequality is one of those concepts that for many people remain somewhat abstract and amorphous.  There are few that are against equality, but it has difficult gaining traction in the popular debate.  When you’re trapped in deprivation, debt, or low-pay then income or more hours of work becomes the measure of the solution.  Equality, however framed, remains detached.

It shouldn’t be.  For all of us are paying a real Euro-and-cents cost for rising inequality.  Inequality has many facets – economic, social, cultural, gender, sexual.  Let’s just look at one aspect – rising income inequality with the assistance of a valuable database:  the World Top Incomes Database.

Equality 1

In 1977, the top 10 percent income group’s share of national income was 27 percent.  By 2009 this had increased to 36 percent – a rise of 9 percentage points.  Two years into the recession saw a drop in this share as income from the speculative bubble fell faster than the national average.  However, don’t worry – Eurostat shows that since 2009 it has started rising again.  While the data isn’t directly comparable (the World Incomes Database is based on tax revenue data, while Eurostat which is based on a survey of households shows little medium-term movement), an indicative number would be that it has risen to 37 percent in 2012.

Another way of looking at this is that the lowest 90 percent saw their share of national income fall from 72.7 percent in 1977 to 63 percent in 2012 (using the indicative number).

Again, this graph is abstract.   So let’s play a little game.  What would be the impact on households if the share of the lower 90 percent had remained the same; that is, how much more money would the lower 90 percent have today if their share of the income was the same as in 1977?

The bottom 90 percent of households would have €10.975 billion more.  Nearly €11 billion spread out among approximately 1.5 million households.

  • For each household, this would mean approximately €7,400 more income

Of course, there would be differences given the variations in household types (single, couple with children, single parents, etc.).  And this is just a suggestive estimate.  But imagine the improvement in their fortune if a low-paid couple (on €30,000 per year) were receiving an extra €140 or more per week.  And compare this to the €4 weekly increase from the tax cuts, which won’t even keep pace with inflation.

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If This Isn’t an Emergency, What is?

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If five percent of the population suddenly fell ill to an unknown disease a national emergency would be called.  Government agencies and health professionals would be brought together under the direction of an emergency cabinet committee to first diagnose the disease, come up with a cure and then deliver it.

Well, we have such a disease – and it affects not five percent but 30 percent of the population. It is not unknown –   It is the economic and social disease of deprivation.  The CSO released the 2013 Survey of Income and Living Conditions and the data on deprivation is truly alarming.

Deprivation 1There are now 1.4 million who are categorised by the CSO as living in deprivation.  There are well over 400,000 children living in households suffering from multiple deprivation experiences.  Since the start of the crisis, these numbers have more than doubled. The disease is spreading.

You are classified as ‘deprived’ if you unable to afford or experience two of the following items:

 

Two pairs of strong shoes * A warm waterproof overcoat * Buy new (not second-hand) clothes * Eat meat with meat, chicken, fish (or vegetarian equivalent) every second day * Have a roast joint or its equivalent once a week * Had to go without heating during the last year through lack of money * Keep the home adequately warm * Buy presents for family or friends at least once a year * Replace any worn out furniture * Have family or friends for a drink or meal once a month * Have a morning, afternoon or evening out in the last fortnight for entertainment

This is not a welfare phenomenon.  Over 22 percent of all those experiencing deprivation are actually in the working force – well over 300,000.

Deprivation 2

The number of people experiencing in-work deprivation has more than trebled since 2008 – more than one-in-five working today.  Over a third of one-income households are in deprivation.  But a substantial number of two-income households also find their living standards marred – one-in-six.

Clearly, having a job is not necessarily a pathway out of poverty.

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The New Fiscal Enemy Within: The Elderly

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“Old people don’t need companionship. They need to be isolated and studied so that it can be determined what nutrients they have that might be extracted for our personal use.”

- Homer Simpson

The Irish Times published the highlights of a paper produced by the Department of Public Expenditure and Reform (DEPR) purporting to show the latest crisis awaiting us – the crisis of unsustainable public pensions.  DEPR produced some numbers:

  • The number of people aged 65 and over is projected to increase from 570,000 in 2013 to 855,000 in 2026.
  • Spending on the contributory and non-contributory State pension schemes already account for €4.93 billion, or 25 per cent, of the total cost of social protection services.
  • The State could have to provide annual increases in funding of nearly €200 million up to 2026 just to keep pace with the growing elderly demographic.  This means a 50 percent increase in spending on state pensions by 2026

These look like truly scarifying numbers – 50 percent increase in the number of pensioners and 50 percent increase in pension costs.   No wonder the newspaper headline read:

‘Cuts to state pensions “must be considered”

What can we do, short of setting up a kind of Hunger Game for the elderly?  Thankfully, DEPR has some ideas:

  • Cut the weekly pension by €8.50 per week
  • Scrap the €10 weekly top-up for people over the age of 80
  • Bring forward the scheduled dates for raising State pension eligibility
  • Abolish the free TV licence.
  • Means test fuel allowance for new recipients of the Department of Social Protection’s household package of benefits.
  • Abolish free travel passes for spouses and companions of the elderly

Or we could take another route:  increase PRSI contributions and/or cut back on expenditure in other areas (health, education, etc.).  Thankfully, DEPR is on top of things, laying out the painful but necessary reforms (i.e. cuts) necessary to sustain our public pension system.

What does all this add up to?  Rubbish.

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Syriza Comes to Ireland’s (and the Eurozone’s) Rescue

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Everyone in Ireland, regardless of their political orientation or party-political affiliation, should be hoping Syriza wins the upcoming Greek election and forms the next government. Why?  Because their proposals on public debt would be a major boost to Ireland and the Eurozone as a whole.   The headline to Denis Staunton’s excellent article said it best:

‘Why Ireland should support Greek plan to write down euro-zone public debt’

Leave aside your ideological predispositions.  Even Wolfgang Munchau of the Financial Times believes Syriza and Spain’s Podemos are the only parties talking sense about European debt.

Syriza is proposing a European Debt Conference – similar to the one held for Germany after World War II.  And the broad proposals they will bring to the Conference are based on this this paper written by Dimitris P. Sotiropoulos, Yiannis Milios and Spyros Lapatsiora.  In short:

  • The European Central Bank (ECB) acquires a significant part of the outstanding sovereign debt of the Eurozone countries – reducing national debt levels to 50 percent of GDP.
  • These bonds would be converted to zero coupon bonds with a 1 percent discount
  • The countries will buy back the debt when the ratio of those bonds falls to 20 percent of GDP

The impact for Ireland would be dramatic.  In one fell swoop our public debt would be more than halved – reduced from 108 percent of GDP to 50 percent.  This would cut interest payments by approximately half, saving €3.7 billion.  Imagine what we could do with that €3.7 billion every year – increase investment, improve public services, and boost social protection income (even cut taxes if that is your political perspective).  Whatever, this money would constitute a major stimulus programme for Ireland.

It would have a similar effect throughout the Eurozone.  All countries would benefit (with the exception of Estonia, Latvia and Luxembourg; their debt is already below 50 percent).  Over €4 trillion of Eurozone debt would be removed.  With the massive interest payment reductions, the Eurozone would receive a similar stimulus boost.  This would be the best way to escape the looming deflationary crisis.

The authors also hold out the prospect of a further boost, by presenting a slightly different alternative scenario to the one above:  interest payments would be suspended over the first five years and rolled up into the zero coupon bonds. Giving Ireland and the Eurozone a free pass on interest payments over the next five years would have an even more stimulatory and economically-galvanising effect.

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The Era of Making Ends Meet

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2015 will be all about making ends meet; or rather, not making ends meet.  Gone are the drama days of the last few years – NAMA, bondholder debt, collapsing employment and output, bailouts and Troikas (unless the EU decision-makers are determined to accelerate the European deflationary spiral; then we could have drama aplenty).  It’s not that these issues have gone away – but they are now embedded, hidden, in what can be called a ‘new normal’.  And this means we are entering into an excruciating and potentially protracted period of grinding things out; day by day.

So many commentators talk about the economy in recovery but ‘people not feeling it yet’.  I suggest there is a better way of looking at it.  The boulder has fallen down the hill – that’s what the gravity of recession will do; that, and austerity pushing it down faster.  Now people are pushing the boulder back uphill – it’s a big boulder and it’s a big hill.  And people are supposed to be ‘feeling it’?  They are supposed to be grateful?  Hmm.

We have discussed other indicators – deprivation, food poverty.  These are harsh benchmarks that affect a significant proportion of the population.  But there is another indicator, referred to as ‘soft’, which gives a more representative picture of this phase we are entering:  making ends meet.  It is called soft because it is not calculated on the basis of percentages of the median wage (relative poverty) or even a survey of people’s concrete experience (deprivation indicators).  It is based on asking people ‘are you having difficulty making ends meet’ – a highly subjective question that doesn’t define ‘difficulty’ or ‘ends’.  It is left to people to determine that.

The EU asks such a question in the annual Survey of Income Living Conditions.  They break it down by degrees:

  • Households making ends meet with great difficulty
  • Households making ends meet with difficulty
  • Households making ends meet with some difficulty

This is the result:

Making Ends Meet 1

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A Mini-Tax-Cutting Budget? Abolish the USC? Can It Get Any Worse?

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Christmas comes early for employers, high-income groups and right-wing ideologues.  The Sunday Times (behind a paywall) reports on demands from Government backbenchers to introduce a mini-budget in an attempt to salvage the Government’s fortunes.  And what would be the centre-piece of such an initiative?  The race is on between Fine Gael and Labour backbenchers over who can make the most outrageous tax cutting promises, including the notion that the Universal Social Charge (USC) be abolished.    Ho-ho-ho.

Let’s first deal with the idea of abolishing the USC.  Who would be the greatest beneficiary?

USC 1

As seen, someone on the minimum wage would get a boost of 2.2 percent in net take-home pay from the abolition of USC.  This rises to over 10 percent for those on €100,000 and it gets even more lucrative for those on very high incomes.  Abolishing the USC would be highly regressive – benefitting those on the highest incomes the most.

But this doesn’t tell the full story as the above refers to headline tax rates.  High income groups can hire an army of accountants to avoid paying large amounts of income tax, inheritance and gift taxes, capital gains tax – exploiting a huge array of reliefs and allowances and other legal tax reduction strategies.  However, that army is defeated when it comes to USC.  There is no getting out of paying it.  So, if anything the benefit to high income groups would be disproportionately higher than the chart above.

Let’s put this in Euros and cents.

USC 2

Someone on the minimum wage would get €7 per week; at the higher end they would get over €350 per week (that’s right, a €16,000 annual tax cut).  From my own, admittedly back-of-the-excel-sheet, calculation, over 46 percent of USC revenue comes from those earning €70,000 or above.  Less than 10 percent of USC revenue comes from those earning less than €30,000.  Guess who wins out in that tax-cut auction.

To be fair, some proponents of abolishing the USC claim that alternative means of getting revenue from high income groups can be introduced.  This is simply not realistic.  USC collects over €4 billion per year.  That’s over one-third of what income tax takes in.  How could you make it up?

  • Increase the top rate of tax from 40 percent to 57 percent.  That would do the trick (though as mentioned above, those who can afford accountants would be able to get around the high marginal tax rates).
  • Abolish tax relief on pension contributions, health insurance and mortgage interest.  However this would only bring in €1.5 billion – or 37 percent of the USC loss.
  • Abolish PAYE tax relief.  This would raise €2.8 billion – still, far short of the USC loss.  And every worker above the income tax threshold would lose €1,650, wiping out gains for all low and average income earners.
  • Increase VAT to nearly 30 percent.

There are other measures such as a wealth tax which the Nevin Economic Research Institute estimates could raise €250 and €500 million.  You could toss in increases on capital income (inheritance, capital gains) but there’s a limit.  Of course, there’s a real loss here.  Instead of using the additional revenue from wealth and capital taxes to invest in social housing, education and health, we would only be clawing back a tax break that we gave to higher earners in the first place.

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Don’t Mind What’s Going On – Feel The Spin

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You’d think there would be concern among commentators about the latest GDP numbers produced by the CSO.  After all, a quarterly growth of 0.1 percent is not that far from negative growth.  Or that consumer spending has fallen in the last two quarters (an interesting contrast to all those feel good anecdotes about increased consumer confidence).  Or that the explosion in export growth doesn’t quite tally with global trends or even other numbers produced by the CSO.

But there’s a class of commentators who are determined to cheerlead regardless. Michael Hennigan gives a flavour of these – with economists talking up the ‘fastest growing economy’ in the EU.  Sure, why not.

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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?

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Now Let Us Plot the Great Social Expansion

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Are we getting into election mode? We have Government Ministers promising every tax cut possible while warning of the pestilence that will descend upon us if anyone else gets elected to office. No doubt, parties are preparing their election manifestos, poster and leaflet designs, and candidate strategies. Good luck to some of them.

We know what the Government parties intend to do – pursue real spending austerity as identified here. They will cut primary expenditure (excluding interest) by 9 percent, public services by 8 percent and investment by an incredible 15 percent in real terms; that is, after inflation. They will do this in pursuit of an economically reckless, socially callous and fiscally irresponsible and unnecessary goal: eliminate the deficit by 2018. In fact, they intend to run a small surplus. We have an investment crisis, a poverty crisis, an enterprise crisis (in the indigenous sector), and a public service infrastructure degraded after six years of irrational austerity. Yet the Government intends to stand idly by while it pursues budget fundamentalism.

Fiscal Space 1

However, while they have outlined what they intend to do with expenditure (cut it in real terms), they have not revealed their taxation policies. They’re projections are based on ‘no change of policy’. If they reduce taxation – and maintain their deficit elimination target – they will have to cut spending even further. But they’re hiding that little scenario.

The Government hopes to trap progressive parties and independents. They will say ‘if you want to increase expenditure, you will have to raise taxes’. They will accuse progressives of wanting to increase taxes on workers. Given that workers have suffered falling real wages while at the same time seen the effective tax rate increase by nearly 25 percent since the start of the crisis (never mind the cuts in income support such as Child Benefit) any hint of increased taxes is not likely to be met with hurrahs.

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