Lenihan balancing between the electorate and the ‘bullying’ markets?

I see Mack’s picked up Gerard’s pertinent comment on the Laffer curve argument that more taxes mean less incentive to work, and then a commensurate drop in the numbers working follwed by a drop in the actual tax take. Retailers on the southern side of the border need no introduction to either the theory or the practice since the differential in VAT, which opened up last Autumn… The phrase that stuck with me from the Dail exchanges yesterday was the charge from Bruton that it was ‘a book-keeper’s budget’; ie, close the gap, regardless of the economic outcome of the method chosen… The trouble is, as one Twitterer noted, Bruton sounded way more scary than the Minister of Finance, since he wanted cuts, cuts, cuts… Some cuts are desirable, of course… finishing off the restructuring of the HSE requires a whole tranche of middle management to go, for instance… But the sums being asked for to fill the structural deficit require deeper cuts than Enda Kenny was hinting at the weekend…

The deeper truth here is that we are seeing the requirements of a representative democracy jarring up against the economic needs of a small nation whose borders are as sublimely open (to bullying markets) as they were unremittingly shut under Eamonn De Valera’s prolonged economic ruck with the UK. But it is hard not to think, as I argue over at the Daily Telegraph, that the local elections in June had more to do with the decision not to cut the pay of jumpy public servants, and instead put the loading on levies/taxes…

Ultimately, the country will thrive on its capacity to be flexible and re-invent itself and its industries. For all the handwringing now, the truth is that the Republic is and will remain a changed place. As the Guardian perceptively notes:

For all the cliches of Celtic tigers returning to their cages, Ireland’s new economy will remain, along with its highly trained workforce. A global economy in downturn means there is nowhere else to go. It is a thought that Yeats would have cheered.

And on that theme, Damien Mulley puts a word for the regenerative capacity of business to re-invent new and prosperous models at moments like this:

2009 has seen plummeting property prices and plenty of highly skilled people looking for jobs which are serious advantages in terms of starting a tech company. Most of a tech company can be run from anywhere with a broadband connection anyway when it first starts out. A tax or grant boost from the Government to invest in technology startups now will get most bang from a buck. Planning for the future is not all about slashing present costs. We should remember that Google started in a downturn too and the Government should be thinking in those terms.

It would be foolish for any democratically elected government to commit so completely to just one part of Ireland’s economic game. Markets may self organise, but as this crisis ably demonstrates, they are effectively underwritten by governments whose efforts are in turn underwritten by a lot of human activity based on money generated the old fashioned way: ie through taxes. We’ll see if the electorate’s (taxpayer’s) patience (wallet) stretches far enough to get the country and its banks off the hook…

Most ordinary tax paying citizens of the Irish state will just be hoping his gamble works, particularly Union members… That’s something the opposition parties, in their haste to land a killer blow, might do well to remember…

More analysis on the Republic’s budget from Dan and Mack

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  • Mack

    Damian’s wrong about one thing – Google didn’t start in a downturn, it started smack bang in the middle of the dot-com boom, they went public towards towards the end of the bust though.

  • Mick Fealty

    Ermm… That would be right… 99, I think…

    Heard David O’Meara of Emmy winning Havok talk at the last Leviathan who basically said that what Ireland lacks is business formation skills rather than good ideas… Yet, they started in 98 too…

    Yet in principle Mulley has a point… There’s a lot of ailing technologies out there… innovation is a good place to be when people start grasping for new solutions to old problems…

  • Dan Sullivan

    We need some basic brownfield style facilities for start ups that have good broadband, and water and waste facilities. Most of the rest is goldplating.

  • Mick Fealty

    And some considerable luck Dan. Niall Stanage on CIF (http://url.ie/1feb):

    “The reality was that the Celtic Tiger was sired by outsiders, lured by nothing more mystical than an English-speaking, decently-educated and unusually young population and an extraordinarily low corporate tax rate.”

    Enter McWilliams’ concern about overly deflationary approaches…

  • Mack

    A large portion of any nations success is down to luck. All successful nations are similar, but all failed nations fail in their own ways, right? You’ve got to have a whole range of things come together and work for you – one stroke of bad luck and you won’t be successful.

    Niall Stanage is being overly negative in that regard – what could be more inherently Irish than the Irish legal system, speaking English, Irish demographics, the Irish education system, the Irish tax system, the Irish diaspora, or even the Irish weather system (no need for expensive cooling systems in your data centre).

    There is a part of the Irish psyche that still questions are own abilities, sure it was those foreigners who came in and took advantage of us too make themselves money. Well, if it were that simple income per head in Ireland wouldn’t have grown the way it did, we’d be an emerging market outsourcing destination. Perhaps the locals did manage to pull a stroke on dem foreigners? Also the Celtic Tiger era ended 7 or 8 years ago, the last 7 or 8 years growth was fueled by a credit / construction bubble. Unfortunately, locals where fully responsible for that and it’s mostly that credit bubble that’s exploding now. 1 in 4 (yes!) males were employed in construction building 350,000 too many houses.

    We can’t be complacent – the BizCamps, OpenCoffee look to be a good start. But we’ve got ask ourselves why did those youngsters from Limerick have to go to California to get 10k or so in funding from y-combinator? Where’s the tech incubators here – with the support, cameraderie, netwsorking (human)…