Vol 9 • Issue 1 • Spring 2010
A question asked by many people in the current crisis is what needs to be done to strengthen the economy? It’s a huge question and there are books written trying to provide answers. “What should the Irish Government do in the present context?” asks Fr Sean Healy of Social Justice Ireland.
SHAPING IRELAND’S FUTURE – GETTING THE BALANCE RIGHT
of all we need to learn from the mistakes
made in the recent past. For example, after the huge growth experienced from the mid-1990s to the start of the 2000s Ireland made a fundamental mistake on the issue of growth. We became convinced that economic growth in itself was good and the higher the rate of economic growth the better it would be for Ireland.
Whatever controlled or limited economic growth was to be resisted. Consequently, Ireland followed a very questionable pathway as it put its faith (and huge incentives) in construction to continue the high growth levels that had been seen in previous years. Growth in housing construction masked Ireland’s deteriorating ‘fundamentals’ for several years. Yet we know today that much of the growth that came from construction was built on borrowed money that could not be repaid. The lesson to be learned is that while economic growth is important, what that growth is built on and what it is trying to achieve is critical. Right now Government:
• Says it is trying to ensure the economy is ‘turned around’ and moves into growth.
• Is facing a very difficult fiscal situation as Ireland is borrowing far more than it is collecting in taxes.
• Has decided to balance its books principally by cutting public expenditure rather than by increasing taxation.
The principal argument presented by Government to justify cuts in public expenditure is that Ireland’s total tax-take cannot be increased. But this does not stand up to any close scrutiny. Ireland has one of the lowest total tax-takes in the EU. It is bracketed with Romania, Slovakia, Lithuania, Latvia, Estonia and Greece as the lowest tax countries in the Union. Please note this refers to ALL taxes and not just income tax.
Another argument presented by Government to justify cuts is that Gross Domestic Product (GDP) has been falling and so it is inevitable that tax-take should fall in such a situation. What this fails to recognise is that Government has
dramatically reduced the percentage of GDP being taken in tax even though GDP has been falling.
The critically important question for Government and for Irish people generally is what kind of society do we want? If we want services in areas such as education, health, social welfare, childcare, eldercare and infrastructure in areas such as public transport and social housing to be at an EU-average level (which they are far from being at present) then we must recognise that we need to bring our total tax-take above the levels of Romania, Latvia and the others listed above.
This can be done by eliminating the breaks in the tax system which benefit only the better- off and by broadening the tax- base to ensure we have a fairer tax system.
In this process we should also be very careful not to accept the idea that increased tax incentives for business are a good means of stimulating the economy while welfare cuts have no negative effects. In Budget 2010 Government cut VAT and excise duties as a means of reducing cross-border
shopping. These cuts cost €257 million and will not reduce cross-border shopping. In the same Budget Government cut child benefit by €220 million which will see child poverty grow in Ireland in the period immediately ahead. Were these the right choices in light of the kind of society we wish to build? I don’t think so.
In Budget 2010 Government cut €760 million from social welfare. This money would all have been spent in the local economy and maintained some stimulus. By cutting this amount Government reduced the stimulus to the economy. People receiving social welfare payments spend all their money in the local economy.
Decisions taken on taxation and public expenditure in these few years will fundamentally shape the Ireland that emerges for coming generations. What kind of Ireland we want in the future should be the key question being addressed as decisions are made in these areas.
Fr Sean Healy is the Director of Social Justice Ireland (www.socialjustice.ie)
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