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Fintan O’Toole: Budget must stop spread of inequality in Irish society

Covid pandemic is amplifying divisions inherent in having two different economies

“We don’t just have two economies – we also have two very different stories about Irish society.” File photograph: Getty

The coronavirus has a mocking kind of hippy vibe. Even as it makes life more dreary and sadder, it daubs the structures of society in lurid dayglo colours. It makes luminous what had been dulled by familiarity. It has long been true that Ireland’s peculiar path to development has given us two economies that are socially distanced from each other, but now this is a truth universally acknowledged. Today’s budget must be a circuit-breaker to stop two economies from becoming two societies.

The pandemic has told the tale of two Irelands in a melodramatic, over-the-top style. It is like those logos that theatres used to use, with a tragic mask and a comic mask side-by-side.

The main reason Ireland did not implode in the great banking and property crash is that the multinational sector of the economy was largely immune to its effects

There is the domestic economy of small- to medium-sized businesses. Its story is almost unbearably grim: 300,000 fewer people will be at work this year than in 2019. Many of these people are suffering their second devastating recession in 12 years. And this time, they can’t do what young Irish people have always done when times are hard at home. Getting out is not an option. The lockdown is not just within one’s own county – it is within the country too.

But there’s a whole other economy – and it’s booming. The export sector, led by the big multinationals, is heavily concentrated in two areas: medicine and pharmaceuticals, and IT. The pandemic has been good for both. So, while tourism and travel-related business declined by almost 90 per cent in the second quarter of this year, medicinal and pharmaceutical output grew by over 30 per cent. While arts and entertainment were down by 68 per cent, computer services were up by 4 per cent.

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Largely immune

In some ways, this is a saving grace. The main reason Ireland did not implode in the great banking and property crash is that the multinational sector of the economy was largely immune to its effects. It has been similarly immune to the pandemic. Without it, we’d be in a much worse state, not least in terms of the tax take and the amount Paschal Donohoe has to borrow.

The euphemism of choice is 'a K-shaped recovery'. One arm of that K is pointing towards the stars; the other towards the gutter

But the great problem of the two economies is inequality. It is often pointed out (rightly) that Ireland’s tax system does more than those of most other countries to reduce inequality of income. What’s not stressed so much is that that’s because it has to. Before taxation and welfare benefits kick in, Ireland has one of the highest levels of income inequality in the developed world – and it has increased over the last 30 years. The top 10 per cent of households have more raw market income than the bottom 40 per cent combined.

Today’s budget must be a circuit-breaker to stop two economies from becoming two societies. Photograph: The Irish Times

Income doesn't tell the full story – accumulated wealth has to be considered too. A recent Central Bank study shows that the wealthiest 20 per cent of households each have a median net wealth (after all debt is subtracted) of €853,000. The poorest 20 per cent of households each have a median net wealth of €1,000. The overall disparity is vast: the bottom 50 per cent of households have 7 per cent of the wealth; the top one per cent have more than double that share: 15 per cent.

The troika-led recovery from the banking crisis has exacerbated this division. Everyone benefitted as Ireland gradually emerged from that wreckage. But the well-off benefitted most. The average net wealth of the top 10 per cent of households by income nearly doubled between 2013 and 2018, while the lowest 20 per cent of households by income have seen their wealth increase by just 33 per cent.

There is an economy in which people can work online and be reasonably safe and watch their bank balances grow because they are not spending their salaries

Now, all of this is before the pandemic. It’s the pre-existing condition of the Irish economy – or, as we really should say, of the Irish economies. The divide between the domestic and the export economies does not account for all the inequality, but it’s surely a big part of it. And what we can see so obviously around us is that this divide is being dramatically exacerbated by the pandemic. The euphemism of choice is “a K-shaped recovery”. One arm of that K is pointing towards the stars; the other towards the gutter.

Social cohesion

Thus, we don’t just have two economies – we also have two very different stories about Irish society. On the one hand, the pandemic has brought home to us the vital, even existential, necessity for social cohesion and solidarity. Those qualities are founded on an underlying sense of equality. There has to be an “us”, a community in which we take responsibility for each other. We have seen that, in spite of everything, it does still exist.

On the other hand, though, the pandemic has brought home the starkness of our divisions. There is an economy in which people can work online and be reasonably safe and watch their bank balances grow because they are not spending their salaries. And there is one in which people have to get on the bus and do physical jobs that expose them to danger – or else, as 300,000 people have found, become unemployed.

The virus is speeding up and amplifying the inequalities that were already a latent threat to the viability of a republic. The budget must try to stop the spread of this corrosive disease.