Cut state spending and support small enterprise

WHILE it may have been a surprise for Opposition politicians to learn from Department of Finance officials recently that growth was not going to be anywhere near previous projections – and therefore the state of our public finances will continue to be far worse than previously claimed – it was no surprise to Ireland’s small and mediu m business-owners.

They have known for two years how dire the situation is.

By contrast, our gaggle of left-leaning economists, cocooned within their institutional walls, have no comprehension of real-world economics. They believe we can repeat the fiscal mistakes of the mid-1980s by perpetually increasing income and capital gains taxes instead of having a laser-focus on government spending.

We have forgotten the lessons of the Tallaght Strategy of 1987 when our political system belatedly realised that reducing the burden of personal taxation on job creators, as well as courageously reducing government spending, would allow real employment to grow in Ireland and our pernicious national debt to be reduced. The marginal rate of income tax is by far the most important tax for facilitating growth. It is effectively the corporation tax for most small and medium businesses and the self-employed.

Any increase in that rate will affect decisions on hiring, expanding and even the starting-up of new businesses.

It was no accident that when we lowered the marginal rate in the late 1990s, we experienced a growth of business confidence never before seen in the Republic.

Indeed, if we once again lowered our marginal rate in Budget 2011 we would experience a similar resurgence in employment and business confidence, and the 84-year-old Fianna Fáil party might be saved.

It is a myth that Ireland has no alternative but to raise taxes as well as reducing spending over the next four years. We will never balance our budget under this approach because the tax rises will kill growth.

To balance the budget and fix our structural deficit, we need a much smaller state and real economic growth. Growth is what will bring in the revenue to the exchequer, not punishing tax rises on a dead economic horse. It is no accident that the strategy of the European Commission and the Government over the past two years, to raise the effective marginal rate of tax from 41% to 52% (ESRI calculation) through levies, has actually resulted in the Government accruing far less income tax revenue than it expected.

It is also a myth that cutting government spending will prevent a return to growth. Spending more money on the public sector will not reignite the private sector economy – one only has to look at Obama’s America to realise this. Neither will spending less on the public sector hamper private sector economy.

True fairness and social conscience is not found in spending money which we don’t have and burdening our children with the ever-rising interest on our national debt.

This is immoral. True economic social conscience is found in ensuring conditions are ripe for real employment in a society that rewards work and effort. This is the best way to help the poor and everyone else.

John B Reid

Knapton Road

Monkstown

Co Dublin