Taxes must be cut to stop new Flight of the Earls

THE continuing collapse of employment and exchequer revenues, as evidenced by last month’s official figures (Irish Examiner, June 3) proves once again that the Government’s contractionary economic policy continues to be disastrous.

The very basics of economics teach us that in a recession or depression, a government must implement a pro-growth fiscal policy.

Cutting government spending to balance our budget is crucial, but in addition to this we must slash income tax rates in order to generate independent domestic economic growth.

Instead of doing this, the Government, astonishingly, is determined to repeat the taxation mistakes of Garret FitzGerald’s government in the recession of the 1980s.

There are now 439,100 people on the live register. However, this number only includes, for example, the people who have officially signed on. The true unemployment rate is likely to be much higher than 13.7%. During this ongoing unemployment catastrophe, our political class have been consumed by side-shows such as the Lisbon Treaty, NAMA and even the situation in Israel.

Meanwhile, for the umpteenth time in our history we are set to experience yet another Flight of the Earls, with our best and brightest (including so many of our young people) fleeing the country.

A chilling report by Ernst and Young forecasts that unemployment will “remain a significant problem” for up to a generation, and will be “a recession of the youth”. This vista is unacceptable. In my view, this forecast will be realised if we persist with very high income taxes on the most productive people in our economy, the very people we need to create wealth and employment.

We cannot expect to recover economically with European-style high income taxes (the marginal rate now effectively 56% as a result of the income levies), a possible additional property tax and a government-controlled banking system. This is a recipe for deep stagnation and depression, disillusioned youth and an explosion of crime. The Government cannot, by fiat, force the banks to lend money to Irish business. We do not live in a command economy. We also cannot expect the banks to lend meaningfully in an environment where the forseeable future is one of fiscal austerity by way of high taxes.

Finally, it is my considered view that the Government must divest itself of the Irish banking system – Irish banks must be forced to survive on exclusively private capital.

We must remove the higher income levies post haste and then slash the higher rate of income tax from the current 41% down to 30% or less. These actions, in addition to dramatically reducing government spending, will allow the real economy to breathe freely. Such an environment will also give banks the confidence to lend again to the real economy as the fiscal environment will be sympathetic to growth.

John B Reid

‘Crannmor’

Knapton Road

Dun Laoghaire

Co Dublin