Not as unfair a Budget as some think – but fairness isn’t all

Now that the first blast of dust has settled in the debate on the Irish budget, ERSI analysts have asked – Is It Fair? The short answer is, who cares about fairness when ( nearly) everyone is feeling pain? The more complex one is that  it all depends on from where you’re looking at it.  Relative fairness may have been achieved better than a Sinn Fein platform rant would have you believe. But absolute fairness becomes harder to claim lower down the scale. Perhaps the best that can be said here is that the cuts come from a higher base than in the UK, where people also start to pay tax a cool 9k earlier than in the Republic (at least before the Budget takes effect)., as Andy Pollak’s recent post reminded us. But again, who in the Republic cares about comparisons with the North? 

A caveat should be entered here too. Anyone who delivers dogmatic verdicts on the basis of relativities and outside comparisons had better be sure they’re comparing like with like, taking in tax credits and the cost of living. Comparisons within the same State system is tricky enough, never mind between two quite different systems.

Why is it that the Irish government like most others balk at soaking the rich with higher tax rates at times like these? The answer has little to do with the charge of going out of their way to outrage public opinion by giving one final bung to old cronies. How perverse is that?  It’s because major redistribution during a recession adds to costs at exactly the wrong time and because of one other brute fact: that holding tax down as low as possible (even at these deflationary levels) boosts the chances of the growth that Ireland desperately needs. This is the deal that Obama has settled for in the States. And it’s in American growth that Ireland’s best hopes lie in pulling out of recession sooner rather than later.

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  • slappymcgroundout

    The problem in your analysis is, of course, that the lesser taxation of the rich did not create much in the way of jobs here in the US. So spamming us with the mantra doesn’t make it so, it just means that you’re spamming us with the mantra.

    Relatedly, if you haven’t figured it out yet, the reason why billions in stimulus hasn’t done jack is because it wasn’t given to the right folk. It was given to top end earners and not bottom end earners. Sure, the top end folk can buy more stock, or retain the value of the stock they already have, but money to the corporation doesn’t mean jack when the putative consumers of the corporation are more putative than consumers as they have no money to spend. It’s why every study ever done says that the unemployment insurance that these shameless hacks in my own party voted against is the best stimulus on call, as it is money that will be spent, and soon, and it does generate something along the lines of 1.50 for every 1.00. We and they can’t say the same thing about tax breaks for the wealthy. What we can say is that as of now, the US has experienced zero job growth over the last decade. That’s right, zero job growth. And find yourself a graph of real wages. No real wage growth either. By the way, not to piss off Mack as well, but the other truth here is that some sold us NAFTA and free trade on the idea of job creation and wage rise. Neither has happened. The housing and credit bubbles were designed to avoid the inevitable. You want to look for the sign of destruction, look at the US trade deficit over the years. You cannot have job growth when every year your trade deficit increases. The housing and credit bubbles were manufactured in a feeble attempt to delay the inevitable.

    So you can keep on spamming the masses with your spam, but please, understand that it’s spam.

    Almost forgot, but here’s a good piece on how NAFTA (and by implication the other free trade agreements) killed the US economy. Note the job loss table, Table 2, almost halfway down the page:

    http://www.epi.org/publications/entry/briefingpapers_bp147/

    Here’s a piece with a subpiece with the title, sluggish private job growth indicates failure of tax cuts. Kindly note that this was in 2005, before the house of cards collapsed:

    http://www.jobwatch.org/

    And note the following subpiece, having to with historically low job creation. And note the initial subpiece on wages.

    Again, as I said, please know that you’re spamming us with your spam. And that after you wrote that we ought to not compare apples and oranges and then you cited Obama’s failure to have any backbone whatsoever as something you all ought to imitate.

  • Alias

    “It’s because major redistribution during a recession adds to costs at exactly the wrong time and because of one other brute fact: that holding tax down as low as possible (even at these deflationary levels) boosts the chances of the growth that Ireland desperately needs.”

    Is there no claim that a state can make, however ridicolous or deceitful, that you will not volunteer your services to promote?

    If you knew how to work a calculator, you might want to tot-up what the interest bill on the outstanding sovereign debt and then work out by how much the Irish economy will need to grow by in order to stand still. Here’s a hint: it isn’t in single figures.

    One other hint:”restribution” of wealth was the point of this budget – restribution wealth from Irish citizens to eurosystem bonholders.

  • Kevin Barry

    Terrible nonsense Brian, as per usual.

    Slappymcgroundout has nailed it on the head, your post is spam.

  • Brian Walker

    Well guys I don’t write to be popular or to “lend my services ” to anybody. But this is how governments generally react. and its worth asking why, rather than demonising them. And slappy. lower taxes sure did create jobs over here, courtesy of American FDI. You”ll be saying they should invest at home next, and I hope they will.

  • DC

    I dont think a 4 or 5 year budget should be seen as definitive in the sense that there could be another 5 years of something similar after this one – if growth lags. So making a judgement on it could be pointless. Like if I were to come along and take a tenner off you – you might think no bother this time sure it’s a one-off, but to do it again and possibly again, is another matter entirely. And following your policy presciption to recessions Brian this kind of situation is well possible.

    So I think in terms of NI – I wouldn’t rule out another 5-7% cut to the block grant next spending review.

  • andnowwhat

    My wee tuppance on the general economy in the south.

    Aslongas I can remember there has been no entepeneurial spirit in the south.

    How the hell can one make a real economy without having big industrial factors? It makes no sense.

    I spent a fair bit of time in Dublin at the height of the celtic tiger (I was going out with a girl from down south) and the arrogance was thick in the air. The problem with air is that it is like an economy based on foreign jobs, insubstantle.

  • Mack

    @Brian

    Why is it that the Irish government like most others balk at soaking the rich with higher tax rates at times like these?

    Not sure about this. The removal of tax reliefs on private pensions (and other reliefs) will soak the rich – somewhere between €100-200k (age dependent – for pensions alone) on a €1 million income for example (by 20130. Of course they’ll also soak ordinary private sector workers on €32k or more.

  • A.N.Other

    Social Justice Ireland Analysis of the budget;

    http://url.ie/8fw1

  • Mack

    @A.N.Other

    This,

    immediately standard rating the pension tax break

    is harsh – especially seeing as ordinary workers in the private sector would continue to subsidise gold plated defined benefit pensions in the public sector. At least giving employees some time to pressue their companies into improving their pension provisions (likely forgoing pay increases or negogiating pay cuts and increases in the employers contribution is fairer if this route is to be taken).

    introducing a text tax

    Seriously, wtf? Tax young kids and their communications. What next, an email tax? A comment on Slugger tax ?

    levying corporate profits via a temporary 2.5% levy

    As an explicitly temporary measure there might be value in this. But, Ireland has an above average corporate tax take (what it actually takes in). This sector is booming – telling foreign multinationals that want to invest here that they must ‘share the pain’ because of the irresponsibility of the Irish banks and pressure groups such as CORI / Social Justice Ireland in increasing spending to unsustainable levels during the bubble is likely to be counter-productive.

    introducing a third-level loan system alongside the reintroduction of fees

    This is a good idea, but to be sure, once taken, fees are permanenet and will be increased.

  • Bemused Southerner

    andnotwhat,

    I spent a fair bit of time reading posts by you and your ilk and for me too “the arrogance was thick in the air”.

    When you say that there is no entrepreneurial spirit in “the south”, I’m inferring that this is in comparison to “the north”. I also take it that this view of yours, rather than being informed by some authoritative source (such as the Global Entrepreneurship Monitor), is actually just pulled from your apparently rather bigoted and self serving arse.

  • Greenflag

    andnowwhat,

    ‘As long as I can remember there has been no entepeneurial spirit in the south.’

    All credit to you on reaching the century then . I trust either Queenie or herself in the Aras has sent you the cheque for your five score years 😉

    To say that there has been no ‘entrepreuneurial ‘ spirit is ridiculous . I would agree that there has been a ‘dearth ‘ of entrepreuneurial ‘spirit’ the origins of which lie deep in our economic history -back indeed to the 17th century . William Molyneux was the first to speak up against the English ‘impositions’ on Irish economic development .

    ‘Molyneux was elected a Fellow of the Royal Society in 1685 and was a member of the Irish Parliament for the city of Dublin in 1690 and 1692. He published The Case of Ireland being Bound by Acts of Parliament in England Stated in 1698 in which he argued for Ireland’s autonomy under the English crown . Molyneux was particularly concerned at the detrimental effect English trade policies were having on the smaller Dublin based clothing and other manufactories .

    During the heyday of the tiger years 1995 through 2005 new businesses (that entrepreuneurial spirit ) were being set up in the Republic at several times the rate ( 5 or 6 I believe of the rate in NI or the UK ) .

    Many of these ‘start up’s’ were engendered by business to business feeding off the large multinationals . Unfortunately once it became ‘clear’ to one and all that the way to quick riches was via ‘property’ then that sector took off -just as it did in Florida , California , Spain , Northern Ireland etc etc .

    But even back in the dismal 1930’s there were ‘entrepreuneurs ‘ . Tom Roche started CRH with 500 pounds back in 1939 approx .

    CRH, plc, headquartered in Ireland, has operations in 36 countries, employing approximately
    92,000 people at over 3,500 locations.

    In the USA and Canada the company is known as Oldcastle and they employ some 40 ,000 people .

    And then there is the more recent Glanbia which originatre in the south east Waterford and Wexford which employs some 4,500 people across 15 countries including production facilities in Northern Ireland .

    I do agree that we could and should have more home based hi tech businesses established by Irish ‘entrepreuners’ . Hopefully the lessons learnt in this ‘property bubble ‘ burst will unleash local talents in more productive areas than just construction .

  • andnowwhat

    Bemused, I am not having a go. Being a nationalist, I have every interest in the south being a success

    For a nation to be successful it needs to have good jobs for the common man ie. industry. Commerce requires consumers with plenty of money in their pockets and the security to spend it.

    Now, Britain is a prime example of what happens when this situation no longer exists. Throughout the 80’s and in to the 90’s it bleeded all its industry with indigenous firms either folding or being bought by foreigners. Examples of the former would be steel and mining. An example of the latter would be British car manufacturing.

    The south has a fantastic education system but I am not aware how much emphasis is put on training engineers for heavy industry.

    American investment, for example, is not something to build an economy on unless one uses the incoming investment and taxes to expand the indigenous industry base substantially. I saw what happened in Canada during the 80’s recession. America pulled all but every piece of investment it had there.

    Here’s an example of what they could do. A massive new opportunity presents itself in the new automotive technologies (I know that QUB are doing a lot of work on this, battery designs etc). Surely to goodness it is not beyond the government to invest heavily in engineering courses at all levels and facillitate the actual building of an Irish car? Why not?

    IMO, a successful economy is one that can provide a good quality living for the very thickest in society.

    BTW, sorry for rambliing on a bit.

  • Mack

    Surely to goodness it is not beyond the government to invest heavily in engineering courses at all levels and facillitate the actual building of an Irish car? Why not?

    Because there already are scores of excellent car manufacturers with established brands, distribution channels, quality manufacturing facilities. If someone spots a gap in the market providing better components, or something new, then go for it. Funnelling taxpayers limited resources into car manufacturing in Ireland would be as wasteful as pouring into bankrupt financial instituitions..

  • Greenflag

    @slappymcgroundnut ,

    Excellent lead post above . Nail on head and all that.

    @Brian Walker ,

    While it maybe true that it’s in American growth that Ireland’s best hopes lie in pulling out of recession sooner rather than later the fact is that Obama was forced to settle (or at least so it seems) for continuing the Bush tax cuts as an exchange to getting the Republicans to allow an extension of unemployment benefit for some 2 million Americans who represent just 7% of the total number of Americans unemployed /underemployed/ gave up looking for non existent jobs etc of some 28 million.

    The political arithmetic changed in November and from January on -given a Republican Congress and their focus on deficit reduction (while spending more on wars) the prospects for American ‘growth’ will dim further .

    As for the removal of the Bush tax cuts for the wealthy . Had Obama had his way with the tax reform a Wall St investment banker making a bonus of a million dollars would have had to pay 44,000 to the IRS . I would’nt call that soaking the rich . Back in Harold Wilson’s time that ‘investment banker ‘ would probably have had to fork over 900,000 to the Exchequer .

    Ireland did not have to ‘ape’ the USA in this regard . Trickle down economics does not work except for China and India and other emerging economies where American investors now invest their bloated funds so that businesses in those countries can export even more to the USA thus putting the American trade deficit into an even bigger black hole than it already is and thus undermining the value of any remaining US assets held by the 60% of Americans who actually have some wealth or even equity . For the 40% of Americans who have nothing bar their next pay cheque or unemployment money well they can just about afford to buy some of those still cheap Chinese imports for Christmas .

    Thought for the Day

    If you or I had invested say a million Euros in a French or German or British Bank which promised a very good return on the capital -and if that bank had lent your investment to property developers in any of those nations and if those property developers went bust who do you think should pay back your investment if any ?

    Not the property developer for they’re bankrupt .
    So that leaves the bank – but they’re also on the verge of bankruptcy .

    So that leaves just the British , German or French taxpayer who of course will be forced to pay you for your banker’s and their clients the property developers greed and poor decision making .

    As you said above indirectly – life is not fair .

    To them that hath it shall be given and to them that hath not even that which they haven’t got -will be taken from them for such is the way of anarchic financial capitalism at least in the here and now .

    It will have to be replaced -But there is dearth of political leaders world wide who would take on the Mammon Gods of Wall St , the City and the ECB 🙁