"We will emerge sooner or later from this crisis"
ECONOMIST VIEW:FRANK BARRY, Professor International Business
1930, 1956, 1982, 2008. Do we see some kind of pattern here? At least the historical perspective lets us see that we will emerge sooner or later from this crisis.
Our low rate of corporation tax originated in an innovation – export profits tax relief – introduced in 1956, the worst year of the decade.
The “good boom” of the early Celtic Tiger years began when the last budgetary crisis was brought under control. Widespread debt default though – or, in the Irish case, the retention of the “land annuities” – was necessary to help hobbled economies out of the Great Depression.
One of the interesting points made in last Saturday’s Irish Times by the former head of the NTMA was that all bondholders receive higher interest rates than depositors because they are supposed to shoulder greater risks.
There is debate within the economics community as to whether the IMF has re-thought its policies in the wake of the Asian debt crisis.
Previously creditor banks were always protected, leading economist Prof Joseph Stiglitz to deem the IMF a commando division of Wall Street.
Debt restructuring will still be on the cards if the markets ever get Spain within their sights.
Our current budgetary crisis was two-pronged: a sudden collapse in tax revenues and a rapid over-expansion in public spending, with little attention paid to efficiency. Both strands need to be addressed.
Water charges, carbon taxes and closing off tax expenditures as in the €15 billion plan are all “no brainers”.
A fixed charge for water would have made no sense; water meters are to be installed nationwide. These taxes will cut waste, increase efficiency and raise revenues.
The decision to raise VAT while only modestly rebasing the income tax system, other than broadening it to bring more into the tax net, is disappointing and lacking in courage. Income taxes are fairer than VAT, which takes a higher proportion of income out of the pockets of the poor.
The income tax system of the late 1990s was hardly punitive and the income tax measures here will still yield lower revenues as a share of GDP than then.
On the other hand, I think it is appropriate to bring down the minimum wage. It never made sense to me to prevent jobs being taken at wages to which both parties agree.
At the other end of the income spectrum, the plan “provides for competition in the medical and other professions to be overseen by an independent figure, reporting regularly to Government”.
Can we really believe that the medical consultants and barristers, many of whom make most of their money from the public purse, will be tackled?
I would love to see a forensic journalist like Colm Keena explore how these groups fare, and have fared so far.
Most disappointing to me is the treatment of the educational class divide.
For the middle classes, there is no move to a rational system of student loan-funded third-level fees.
For those most at risk of poverty and unemployment, there are reductions in payments for every pupil for programmes such as Youthreach and Adult Literacy and increased fees for Post-Leaving Certificate courses.
Frank Barry is professor of international business and development at Trinity College Dublin