Pouring money into unreformed public services delivering poor value and little accountability is futile, writes Gerard Howlin
n the hurly burly of the campaign, issues that really matter get short shrift. Opinion polls and leader’s debates are less soap opera than cold suds.
Regrettably, we seldom got beyond that.
On Friday, we will make a decision which in typical Irish fashion we will disavow when it doesn’t work out. That’s our prerogative — but it is also our responsibility.
A lot of things that matter are beyond our control which makes minding what does, more important. Yesterday, sterling traded at 78p to €1, compared to 70p for much of 2015. Boris Johnson’s backing for Brexit brought sterling to a seven-year low against the dollar. These gyrations are market nerves but, underline the importance of the UK vote on June 23. If Britain leaves the European Union, the consequences may be more important than our own decision on Friday.
But back to the price of cabbage. Bord Bia says the value to Irish food and drink exports of the relative strength of sterling and the dollar against the euro in 2015 was €950m. A total of 41% of Irish food exports go to Britain, so losing eight pence on every pound is a blow.
We know how easy it is to lose jobs and how hard it is to regain them. Figures published yesterday indicate our employment numbers are only now back to 2009 levels. Ireland has enjoyed an astonishing good run on interest rates, exchange rates and oil prices. The trend has been a friend. Wherever oil prices go in the longer term, currency rates were always going to fluctuate.
Whatever the outcome on Brexit, uncertainty in the interim will pile pressure on Irish competitiveness.
Look at the imponderables around the world and then look at the offerings from our political parties. Would you max out your credit card if the overtime, let alone the job you depend on to repay it, was in jeopardy? That is what we are signing up for.
Take the hated USC as just one example. It is hated as Michael Noonan said, to the degree it is efficient. Last year it accounted for 23.25% of all income tax. Yet all are offering to cut or abolish USC or for the few who make of virtue of not, there are a slew of other charges preferred for the chop. This is dangerously unaffordable nonsense.
We have a national debt of €180bn. If interest rates rise, repayments will too. If confidence on international money markets in Ireland’s economy falters, our interest rates will rise, regardless of the international environment.
It will take a little time to percolate through, but it will. And that’s just for starters. From 2012 to 2015 inclusive, the four full financial years this government was in office, USC brought into the exchequer €66bn. This year, before any overruns, the government estimates it will spend €55bn. So that is USC for you. Every four years, it more than covers what we spend in a single year. But, it’s “hated”.
In parallel with one fiscal fantasy, is another. We must pay less tax but magically enjoy better services. The basic monetary calculations do not take account of value-for-money for what we raise in taxes and borrow with interest, to invest in public services.
Pouring money into unreformed public services delivering poor value and little accountability is futile. Astonishingly we have arrived psychologically in a space where having forgone the chance for meaningful reform of the public service, we intend to proceed by one means or another to cut taxes we cannot afford to do without, while increasing investment in services which as configured do not deliver value for money.
In November 2002, Fianna Fáil sensibly abolished a first-time-house-buyers’ grant of €3,610. On the day it was shoehorned into a dominant narrative of broken promises after the 2002 election. In effect, that grant was a subsidy for builders, funded by all taxpayers, including those with little hope of getting on the housing ladder.
Now, astonishingly Fianna Fáil and Labour propose to subsidise house deposits for first-time buyers. It is the same thing, except far more expensive. It stands out as an extraordinarily stupid unlearning of the past. Joan Burton knows these subsidies do little except baste in butter the backsides of those who need it least.
She sensibly abolished a once-off bereavement grant of €850 in 2013. Undertakers said it was a “disgusting” thing to do. Well they might. Every cent went straight into their back pocket. Similarly, since 2013, she set her face against allowing taxpayers be held to ransom by landlords demanding increased profits via higher across-the-board rent subsidies, provided by the state.
Inexplicably, housing NGOs have morphed into lobbying machines for landlords. That beats Banagher.
A large part of this election is based on an illusion that hollowing out the tax base from the bottom up is progress. It is anything but. It most adversely affects those who most depend on public services, who when those services are cut in a downturn, as inevitably they must, suffer most.
There is also a fundamental principle of equity. An eye-watering 29% of income earners are out of the personal tax net entirely. The top 1% of income earners are now estimated to pay 22% of all income tax and USC; while the bottom 75% pay just 19% of the total. It is nonsense to hear through megaphones from platforms at protests about paying for water and more through progressive taxation. Our taxation system excuses more than a fifth of people from paying anything at all through direct taxation.
A turning point in learning the lessons of the crash was the late Brian Lenihan’s budget in 2009 when he said “we need to broaden our tax base so that everyone makes a contribution”. Through that prism, USC was a fundamental reform. It is now being unwound in an election that is the equivalent of the marching season, for tax policy.
In Denmark, a single worker on an average income of €36,000 pays almost €13,000 in tax and social insurance, compared to about €5,000 here. The tax paid by a person on half-average income here is less than one-13th that in Denmark and is the second lowest in the OECD.
In hollowing out the tax base from the bottom, we are out of kilter and most likely to perpetuate the inadequate services those on the lowest wages depend on most. Our higher rate of tax is not out of sync by international norms. What is undermining economic growth is that it applies at abnormally low rates of income by international standards.
But no matter. We were not deemed either interested or adequate to participating in a grown-up discussion about how much we want to pay, for what. Maybe an election, the marching season, is not the time and place. But if not now, when?
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