A people with bizarre attitudes to tax and spending

Fri, Oct 5, 2012, 01:00

ECONOMICS:WE IRISH are unusual in our attitude to tax and government spending in at least three respects: we meekly accept increases in “invisible” taxes but revolt when asked to write even small cheques to the Government; once we have paid our taxes, we care little about how politicians spend our money; and despite being a politically right-of-centre nation, civil society voices are much more likely to advocate more taxes and a bigger state than vice versa.

Start with the respective public reactions to two changes to the tax code made earlier in the year – the introduction of a €100 annual household charge and the hiking of the main value added tax rate (from 21 per cent to 23).

The VAT increase will already have cost the overwhelming majority of people multiples of the household charge, yet there has hardly been mention of this additional burden over the course of the year.

By contrast, the household charge has triggered a tax revolt that is enormous in scale. Hundreds of thousands have refused to pay and Phil Hogan, the Minister levying the tax, faces protests wherever he goes. For a nation that has often appeared to have underreacted to austerity, the response to the €2-a-week charge looks like an overreaction.

Nor is this an aberration. The response to the €50 sceptic tank charge was similar.

Yet more evidence of Irish taxpayers’ allergy to writing cheques to government came in last week’s Comptroller Auditor General’s report, which suggested that non-payment of motor tax is seven times higher in Ireland than in Britain.

The lesson for politicians (and the troika) appears to be that the most effective way to raise revenue is to tax people as stealthily as possible.

A second unusual characteristic of Irish taxpayers is how little we seem to care about what the Government does with our money once the State has relieved us of it.

In most EU countries, taxpayer organisations exist to highlight government waste and counterbalance lobbying from interest groups which seek more from the exchequer’s coffers or fight to hang on to the share they have already secured. Taxpayer alliances are even more common in the Anglophone world. Yet no such entity exists in Ireland. This is all the more curious given theenormous expansion in public spending in recent times. In 1997, when the Fianna Fáil-Progressive Democrat administration came to power, general government expenditure stood at €26 billion. A decade later, the coalition, labelled “neoliberal” by its fiscally innumerate critics, was spending €70 billion. This 163 per cent increase was by far the biggest among peer countries and four times the increase in the euro zone as a whole (see chart).

As a resident abroad until 2010, I watched from afar with some amazement. It was clear that little of the extra cash was being allocated on the basis of rigorous analysis, evaluation or consideration of value for money. Much of the spending was targeted at pleasing vested interests or buying them off.

When interviewing politicians on trips to Dublin, my pet concluding question was to ask whether voters on doorsteps or at constituency clinics raised issues of waste/excess in public spending. Before the crash, not a single politician could recall the issue ever coming up.

A third curious aspect of the tax/spending debate is ideological. According to international attitudes surveys, Irish people are unusually right of centre. This is reflected in the unique state of affairs in the democratic world whereby the two largest parties have always been conservative-leaning.

Given this orientation, one might have expected a US-style Tea Party movement to rise across the land, with protests against tax increases of all kinds spreading like wildfire. But that has not happened. Nor has a single civil society organisation or lobby group advocated going beyond the current administration’s two-thirds cuts/one-third taxes budget adjustment strategy.

By contrast, plenty of groupings have advocated going the other way. Social Justice Ireland just this week urged that two-thirds of the adjustment come from higher taxes, while last week the Nevin Institute think tank proposed 85 per cent come from more taxes with spending cuts of just 15 per cent. Irish redistributionists may be in the minority, but they are more motivated and better organised than the inarticulate libertarian majority.

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