“Good old days indeed.”

RTÉ does a good job of collating the speeches at the Fianna Fáil Ard Fheis today [Check against delivery – Ed] with Taoiseach Brian Cowen promising a new financial watchdog, warning that in this fight for Ireland’s economic life taxes would rise and services would suffer in the short term, and that recovery will be tough but as a small nation Ireland can adapt radically – “we have submitted our targets and proposals for this to the European Commission. And they have accepted them.” Hmm.. With reservations. From Brian Cowen’s speech.

During the good times, we developed a fairer and more progressive tax system that allowed people to keep more of their own money. Everyone had a better standard of living. That tax model was based on continuing growth. It works best when we have high employment and a thriving economy. Unfortunately, we are not a thriving economy for now, and we need to adapt our tax system to fit our new circumstances. Everyone will need to pay more.

Timely then for the Irish Times’ Colm Keena’s article on the “good old days”

A key point about this is that a large percentage of the Government’s tax take was from property or construction-related taxes and the people who were paying these taxes were borrowing the money from the banks, who were in turn borrowing the money abroad. The Ahern era pro-cyclical credo, “if you have it, spend it”, is considered a very unwise economic strategy by many economists, but there must be few if any on the globe who advocate a policy of borrowing abroad to pay taxes during a boom era, so you can pay off the borrowings later when you’re in a bust.

The result has been a type of perfect storm with a collapsed property market bringing with it a sharp contraction in the economy and public finances that are badly in the red. Meanwhile the people who took out mortgages and other property-related loans during the boom years are left with their long-terms debts, while also being faced with the likelihood of increased income tax rates.

As well as claiming credit for running a “can do” low-tax entrepreneurial economy, the Government also has a tendency to point out that we have a debt to gross domestic product (GDP) ratio that is low compared to other European economies, putting us in a strong position for weathering the storm in which we now find ourselves.

But this, too, is a bogus claim to some extent. Much of the more wild borrowing by builders, property developers and property speculators that occurred during the boom will most likely never be paid back. Many ordinary mortgage holders will also not be able to pay their debts. The resultant hole in the finances of our banks is a problem that the taxpayer, via the exchequer, looks likely to have to fix. No one has as yet put a figure on this black hole but it will no doubt be huge.

Has anyone told Bertie?

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  • Dave

    “During the good times, we developed a fairer and more progressive tax system that allowed people to keep more of their own money.”

    This is what the Keynesians can never grasp: the State never has the courage to shrink the public sector once it expands it. It never fires any of them; acts to make them more efficient, or reduces their pay.

    Public sector pay has increased substantially since 2000, and it now running at a differential of 30% over private sector pay. Under the Benchmarking system, public servants demanded that their pay increases keep in line with the private sector in order to prevent the State from ever reducing them, yet now that private sector pay is falling and must fall by a half or more to restore competitiveness in the economy, the public sector workers have reneged on the linkage and are now demanding that their pay is no longer linked to rates of pay in the private sector.

    Likewise, the minimum wage has more than doubled since 2000, and welfare rates are among the highest in the world. In the mean time, the EU has expanded to include Eastern bloc countries where the minimum wage is less than the minimum unemployment benefit in Ireland and where even the more progressive of those countries such as Poland has an average industrial wage that allows a Polish employer to employ six Polish workers for the cost of employing one Irish worker. Wage competitiveness has been utterly abandoned in Ireland, and FDI investors such as Dell are Eastbound within the EU.

    Yet the government will cite the Social Partnership wage agreement models as being beneficial to the Irish economy while ignoring the reality that such agreements were only useful to the Irish economy when they were used to constrain wage demands and thereby maintain competiveness and were not used to increase private and public sector wages and thereby undermine competitiveness. They were converted from useful economic tools into blatant propaganda cover to justify populist concessions to destructive wage increases.

    So, now, as with all Keynesian muppetry, taxes must rise in order to sustain the expansion of the bloated State because the State never shrinks itself. As with the EU, the function of the citizen is reduced to earning the wealth that is required to sustain the well-paid employment of the risible muppets that govern them.

  • Dave

    By the way, you should look at what these union parasites officials who have driven up public sector pay are paid before you agree with Biffo that you must pay higher taxes to the State so that these unions and civil servants can continue to bleed the taxpayer dry.

    The General Secratary of the AHCPS is paid €221,929 and the Deputy Secratary is paid €177,547, with the lowest level of pay for a union official being €69,659.

  • anon

    Was benchmarking not introduced to make sure that all the managers in the public didn’t head of to greener pastures in the private sector? In other words to hold onto the greedier managers. There was a trickledown to the lower paid, but nothing compared to what happened at the top.
    I think it was Michael McDowell who said that he was earning around 30% as a minister of what he had been earning at the Bar…
    So now that the private sector has crashed (oh we all heard how wonderful it was!) it is somehow the fault of the public sector that the country is in the shit. Nothing to do with the greed of the private sector, AngloIrish, the other banks, builders and developers …