TAX AND THE CELTIC TIGER

 

Sir, - It is not unusual for economic phenomena to cause problems more of a political rather than an economic nature. This year, the Minister for Finance has what is in reality an entirely political problem what to do with the huge heap of cash the Revenue has as a result of our current economic boom?

Generating this surplus is precisely what a so called progressive tax regime is supposed to do to mop up purchasing power to prevent inflation without raising interest rates, an alternative which has its own inflationary impact. Economic theory says that the surplus can be put aside for a rainy day, i.e. to be returned to the economy when the boom is gone to reduce the impact of the subsequent bust. Alternatively, it can be used to repay debt accumulated when tax revenue was insufficient during earlier recessions.

Thus, reducing the surplus by returning money to the economy, either through tax cuts or through increased Government spending while the boom continues, would create economic problems, if not political ones. It is perhaps unfortunate that posterity doesn't have the vote, as posterity might well prefer that our large long term public debt be reduced with the Minister's current problem. - Yours, etc.,

AB, MA, MSc (Econ), MLitt,

Lecturer II in Economics, Waterford Regional Technical

College,

Cork Road,

Waterford.

PS. - This is your posterity that I'm talking about, not mine, since I am, as it happens, childless. - J.P.McC.