Government reaction to crisis needs to be credible

 

The downturn demands an honest response as to what really divides the Irish workforce, writes FINTAN O'TOOLE.

LET’S START with two simple questions. Are we in an unprecedented crisis? Are we serious about sharing the pain?

It is a truth universally acknowledged that the answer to both questions is yes. If so, a genuine radicalism is required.

The first step is to recognise that the divisions in the Irish workforce are not between public and private, but between those who are comfortable and those who are struggling. We must also recognise that public and private spheres of the economy are now completely intertwined – the taxpayer is stumping up for the greed and folly of supposedly private businesses, and now effectively underwrites the entire economy. From that recognition must flow a bold measure – a cap on all incomes, in the public and private sectors.

Limit all incomes for the next two years to a maximum of, say, €80,000. The precise figure can be argued over, but I’ve chosen this amount as one on which anyone can have a decent standard of living. Public sector salaries over that amount – from the Taoiseach down – should be cut to this level, saving the State significant sums. Private sector incomes more than €80,000 should be taxed so as to bring them down to this level, raising significant revenues for the State.

Cori Justice, the Roman Catholic Church organisation that campaigns on issues of poverty, justice and social exclusion, has estimated the current effective tax rate for a single person earning €120,000 a year at just 36 per cent – a figure that is simply too low.

The arguments for doing this are rooted in justice and economics. In the first place, a common ceiling would convince everyone that we are actually in this together, and that no one is going to be making a killing from everyone else’s misery.

And from an economic point of view, it makes much more sense to cut the incomes of the well-off than of low earners. This is because people on modest incomes spend what they earn – they have no choice – and in the process help to keep the economy going. Money is much more useful in the pockets of those who are less well-off.

If people are to make sacrifices, however, they need to feel that the pain is worthwhile. Government can do three things to make this message convincing. The first is to bring the cost of living down. Wages have risen here, not because we’re especially greedy, but because Ireland is a very expensive place to live. We need to introduce limited price controls. It should be illegal, for example, to charge a mark-up of more than 10 per cent over the sterling value of imported goods.

The second thing the Government can do is to get serious about taxation and spending. Spending of dubious value (€170 million on forestry this year, for example, or the €70 million Horse and Greyhound Fund) should go.

Pending the report of the Commission on Taxation, all tax shelters, except those that have very clear and quantifiable economic benefits, should be suspended immediately. The scandal of these shelters is that it is impossible to know how much they actually cost: the last estimate we had from the Revenue Commissioners, in 2004, was €8.4 billion a year. If the current figure is anything like that, suspending these reliefs will in itself go a long way to getting the public finances back in order.

Everyone earning above the minimum wage should pay an absolute minimum tax rate of 25 per cent. The super-rich so-called tax exiles, who live here but have their residency elsewhere, should be forced to choose between citizenship, and its obligations, and actual exile.

Other tax reliefs should be examined ruthlessly, including the new ones that were bizarrely included in last October’s supposedly draconian budget. The extension of stamp duty relief for young farmers (a scheme that was supposed to end in 2008 but was mysteriously renewed in the budget) should be reversed – a measure that would save €53 million this year. The budget’s cuts in stamp duty for non-residential property from 9 per cent to 6 per cent should be reversed – saving €180 million this year. These two measures alone would save more than a quarter of a billion euro.

Thirdly, the Government should announce a medium-term shift from the wasteful and inefficient duplication of private and public expenditures on social services. A universal pre-school system would be vastly cheaper and much better than the current €400 million tax break for child care. A universal education system would save at least the current €100 million subsidy to fee-paying schools.

A universal health insurance system would empower patients and deliver a far better and more just service than the current mess of public, private for-profit and private not-for-profit systems. A universal State pension would be as cheap as the current combined cost of tax reliefs and pension payments, while producing a more just and secure outcome and putting private and public sector workers on the same footing.

With decent childcare, schools, health and pensions, people could live on less and we would be a long way towards having a competitive economy.