Political decision-making and attention-seeking have morphed into one. Getting attention or avoiding it are old habits – the new normal is that analysis underpinning choices with big consequences too frequently amounts to a calculation about how it affects the news cycle. Its all-pervasiveness means there are no longer good litmus tests for policymaking.
The debate over student fees is an example of the wrong thing for the wrong reason. Another is the threat to again reduce the VAT rate on hospitality businesses to 9 per cent, down from 13.5 per cent. Minister for Higher Education James Lawless spoke the truth when he said that the €1,000 reduction in student fees was a once-off measure, funded by a cost-of-living package that would not be repeated. The Tánaiste and Fine Gael Simon Harris leader jumped in feet-first, made a big issue of it, and insisted that fees would be reduced. But reduced from what? The €3,000 they were before the series of “once-off” reductions, or the €2,000 they were last year? The sustainability of third-level funding was not allowed to cloud the issue. A spat was started, and the spotlight was on.
Manufacturing difference and reducing students fees would cost €100 million per year. Bringing VAT down again to 9 per cent for the hospitality sector would cost €734 million. Cumulatively that is more than €3 billion cut out of the tax base in the remaining life of the Government.
That is big money in a country with only three sources of tax large enough to make any real difference – income tax, corporation tax and VAT. Just days away from learning what the next turn in the Donald Trump tariff saga will be, we are being egged on to slash a dangerously narrow tax base further. It is only weeks since the International Monetary Fund described our fiscal position as “highly exposed to external policy shifts and shocks” and recommended “broadening the tax base through VAT, property tax and personal income tax reforms”.
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The Department of Finance’s Tax Strategy Group in its report on VAT last July pointed out that the EU Commission, the OECD and others such as the Commission for Taxation and Welfare recommended broadening the VAT base and narrowing the scope of reduced rates to stabilise VAT revenues. The Commission for Taxation and Welfare proposed widening the VAT base and limiting the use of zero and reduced rates of VAT. There is no requirement, it said, for a business to pass on any VAT reduction to the consumer at reduced prices.
When the State spent €1.2 billion on the last VAT reduction for the hospitality sector it went into the pockets of proprietors, not customers. To repeat the dose would, in the opinion of the Tax Strategy Group, constitute “an enormous fiscal transfer of taxpayers’ money to the sector which the evidence available at present does not support”.
To add to the dreary nonsense of experts who don’t have to get elected, or even get on the news, on Monday the governor of the Central Bank reiterated warnings about the narrowness of the income tax and VAT base. He specifically warned against the widespread application of reduced and zero rates to a variety of goods and services.
In a digital era where attention is currency, and clicks shape policy, the frenetic pursuit of the spotlight passes for political expertise. In fact, it’s a downward spiral where good money and credibility are thrown away in the false hope of electoral approval for bad policies. The remark of the wily Luxembourg politician Jean-Claude Juncker that “we all know what to do, but we don’t know how to get re-elected once we have done it” has become a backstop for time servers. Their own supposed expertise in getting elected is the real nonsense. Fine Gael chased the crowd and lost badly in three elections. It is in Government with an apathetic Fianna Fáil because time and again the opposition, principally Sinn Féin, failed to persuade people they are up to the job. They have not only lost their way; they have also lost the compass.
The problem is not that the Government parties can’t do economics, they can’t do politics. They have neither the backbone nor the bandwidth to carry the arguments they once believed in but now hardly remember. It is a measure of how far Ireland has come that the power of the publicans has passed intact to restaurateurs and hairdressers. That is progress indeed.
Days before Trump rolls the dice on tariffs again, big chunks of our tax base are blithely gambled on in pursuit of the approbation of a grasping and politically unreliable middle class.
