War waged on poor with a dossier of half-truths

 

CONSIDER FOR a moment four more or less random things we learned in the run-up to last week’s Budget. Each of them has a significant bearing on the public finances. Not one was given any prominence either in the vast bulk of commentary on the options facing Brian Lenihan or in the Budget itself, writes FINTAN O’TOOLE

Firstly, the Economic and Social Research Institute produced stark new figures on tax relief for private pensions. It showed that €8 out of every €10 goes to the top 20 per cent of earners. It also showed that giving this relief at the standard rate of tax (which is to say, making it available on an equal basis to all taxpayers) would raise revenue of €1 billion a year – significantly more than the savings made by cutting social welfare payments. More than four-fifths of this money would have come from the richest 20 per cent.

Secondly, we discovered, thanks to an analysis by the think-tank TASC (the advisory council of which I chair), that if tax breaks on personal income and corporation tax were reduced to average EU levels, their cost to the exchequer would fall from €7.4 billion to €2.2 billion – a saving of €5.2 billion. (We are spending three times as much on tax breaks on personal income and seven times as much on corporate income as the EU average.)

Thirdly, we discovered that there has been a drastic cut in the number of tax officials dealing with the richest individuals and companies. Simon Carswell reported in The Irish Times that 50 of the 258 officials in the Revenue’s Large Cases Division are taking early retirement. This is the division that deals with companies with a turnover of more than €130 million and individuals with a net worth of more than €50 million. We know from repeated evidence presented by the Comptroller and Auditor General that there is a direct relationship between the number of tax audits performed by the Revenue and the amount of tax raised. Fewer officials means fewer audits, means less income for the exchequer.

Fourthly, we discovered that the subsidy from the public purse to the banks through Nama is even higher than we thought. There was already an outrageous intention to pay €54 billion for assets supposedly worth €47 billion – a subsidy of €7 billion. In fact, it has become clear than the assets are worth nothing like €47 billion. CB Richard Ellis, one of the largest commercial property agencies, pointed out that the €47 billion is a significant over-estimate. In other words, even before Nama has got under way, billions of euro have been wiped off the value of the loans it is taking on.

These are just a few examples of factors that have a heavy bearing on the state of the public finances. (The biggest of all, of course, is the unknown amount – perhaps twice the €4 billion saved in the Budget – that will be used to recapitalise the banks next year.) But none of them matters. They formed no part of the broad media and political agenda. They were simply annoying little flies buzzing around on the periphery, threatening to distract us from the certainty that there was no choice but to target office cleaners, blind people, carers and children.

This is what we might call the negative spin – shaping the agenda by excluding a whole range of issues from the discussion. There is also, of course, the positive spin – the advancement of certain propositions that become unchallenged “facts” whether or not they are true.

In our case, these facts resolved themselves into two propositions. One was that the well-off are paying tax at over 50 per cent. The other was that Irish wages in general are grossly uncompetitive.

Neither of these “facts” bears the least scrutiny. The endless quotation of tax rates in excess of 50 per cent refers to marginal rates, not to the amount that someone actually pays.

According to accountants KPMG, the current effective tax rate (including PRSI) for someone earning the equivalent of $100,000 in Ireland is just 34 per cent and for someone on $300,000 it is 44 per cent. The constant citation of rates of 54 or even 57 per cent is simple (but highly effective) propaganda.

The same is true for the standard truisms about wages. Unit labour costs (the ratio between productivity and earnings) hardly rose at all in Irish manufacturing between 2000 and 2007.

The growth in labour costs last year was slower than the average in the euro zone. This year, unit labour costs are expected to fall by 7 per cent here and rise by 3 per cent in the rest of the euro zone – giving us a relative advantage of 10 per cent this year alone.

And yet, we get a Budget based entirely on the supposed impossibility of raising taxes on the wealthy and the supposed urgency of driving down wages by attacking the public sector, cutting welfare and (the hidden agenda) cutting the minimum wage. The Government must be amazed at how easy it has been to sex up its dodgy dossiers of half-truths and declare war on the poor.

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