How the Left Can Successfully Argue for Higher Taxation 2: Just What the Doctor Ordered

Attention all progressives: tired of listening to neo-liberal commentators prattle on about high taxes, that whenever something worthwhile is proposed its met with ‘oh, my, taxes, taxes’, sick to the teeth at right wing-drivel about how its better to ‘hug’ disadvantaged children than actually do something for them (because that would mean taxes)? Tired of all those ‘spending out of control’, ‘government is too big’, ‘swollen bureaucracies’ mantras? Well, relief is at hand: social insurance.

A daily dose of this will chase those right-wing blues away.

In a previous post we saw that while Ireland is a relatively low-tax and, consequently, low-spend economy, it is only in two tax categories where we fall behind our EU-15 partners: social insurance and local taxation. In fact, it gets weirder.

Take the five highest European spending economies: Sweden, Belgium, France, Finland and Norway. Together, these countries take nearly 46% of the total wealth in taxation - or nearly €1 in every €2 of wealth is ‘taken by the Government’. Ireland would have to raise over €13 billion to reach that average. We could raise the standard rate of tax to a whopping 40% and still fall short. But not all is what it seems to be. What happens when we exclude social insurance and local taxation?

My, oh, my: could Michael McDowell have been right along? We really do seem to suffer from high taxes – we get hit harder than Sweden and they’re the world’s benchmark.

Of course, that’s when we exclude social insurance and local taxation. Social insurance plays a major role in the delivery of social expenditure (social protection, income supports, health, housing). In Germany, for example, nearly 2/3 of all social expenditure comes through social insurance, not general taxation.

So how can the Left argue for higher ‘taxation’ without getting politically decapitated? By coming at the problem through ‘insurance’ rather that tax rates.

Social insurance (or, in Ireland, PRSI) is based upon a principle that radically distinguishes it from ordinary taxation, namely the contributory principle. There is a direct link between contributions paid and a range of benefits which are payable when particular life situations arise: old age, sickness, work injury, unemployment, widowhood, pregnancy, invalidity. The point is that, through social insurance, you know the benefits you will get for the money you pay through PRSI levies.

This is different from taxation: for most people, tax is just money that goes into some black-hole. We could argue 24/7 about how income taxes fund teachers and doctors and Guards and enterprise supports but most people don’t make the connection and, after being fed a steady diet of lazy and cynical journalism, (never mind years of governments who are hostile about tax and expenditure) are extremely mistrustful of ‘politicians’ promises’.

But health – now that’s a different matter. To offer a realistic prospect of a modern, no-tier health system that treats all patients equally regardless of income, providing free GP care and prescriptive medicine, removing the inefficiencies and perverse incentives that currently permeate our system: that might be something of interest to people.

Universal social health insurance could do just that. There are a number of caveats, of course, for much depends on which model is adopted (Maeve-Ann Wren provides a short summary, for instance, of the differences between past Labour and Fine Gael proposals).

For our current purpose we can take on board the proposals by The Adelaide Hospital Society which has published one of the most comprehensive analysis of how social insurance can literally cure the health system. It explores four different options – from the ‘Rolls Royce’ choice to less costly alternatives, basing them on the following principles:

• Insurance must be mandatory and would be paid into a Health Insurance Fund
• It must be levied on all income regardless of source
• All hospitals and providers are incorporated into the system (they may well opt-out but they would receive no public subsidies – either through the new insurance system or taxpayers’ funding).

The Health Insurance Fund would eventually become a major financing vehicle for the health system. Of course, there would still be Exchequer subsidies – into the Fund, capital investment, etc. But a significant amount of current general expenditure would be diverted away from health.

What would the Adelaide’s ‘Rolls Royce’ option buy? Essentially, it would buy for everyone the same treatment currently received by those paying private insurance. In addition, it would purchase free GP care, free prescription medicine and some long-term care. Everyone would pay into the Fund according to their means and everyone would receive treatment according to their need.

Initially, a universal health insurance levy of 6% could be introduced – to be paid on a tri-partite base of 2% each from employees/self-employed, employers and the State. In addition, the levy would be applied to all income – capital gains, inheritances, gifts, etc., while the state would pay the full amount for those on social welfare and low-pay. In effect, the Left would be arguing for a new 2% levy on taxpayers. It would amount to €1.86 a day for average income earners.

Yes, this would still be a hard sell. Yes, we would have to face down politicians in all right-wing parties who would go apoplectic over ‘more taxes’ (a bit rich coming from people who want to spend millions in tax subsidies for private hospitals). But it would be interesting to see political posters around the area:

‘For less than the price of a cup of coffee you can have a completely free and equal health service.’

Of course, social health insurance is not sufficient. We still need considerable investment in capacity and personnel. We are facing into, for instance, a considerable GP shortage. The HSE is turning into, well, a ‘swollen bureaucracy’ – unaccountable and ineffective. Social insurance cannot address all these issues but what it can do is rationalise the system to make further investment more effective. Social insurance is part, albeit an absolutely vital part, of much wider reforms.

And this is only a start. Pay-related social insurance benefits (unemployment, disability carers’, etc.), state earnings-related pensions, year-long Maternity Leave and new benefits – educational sabbatical leave, new family benefits, nursing home benefit: there are a number of programmes and benefits we could study from other countries to which are the most popular, efficient and social equitable.

It’s all there to play for. And because it’s social insurance, people wouldn’t be buying a pig-in-the-poke. It would be the ultimate contract between what people pay and what people get. That is how social market economies have built up a strong ‘public realm’ – by building into their systems a contractual relationship with the tax-paying public. Indeed, the Left could present itself as a ‘low-tax, well-insured’ modernising movement (and when we come to discussing local taxation, we could find people sympathetic if tax and spend were rooted closer to their community).

That’s how we can turn the tide on the conservative consensus. Now all we have to do is summon the imagination, the arguments and most of all the confidence to put this new programme to the people.

A hearty dose of social insurance may well be just what the doctor ordered.

Comments

[Aidan OSullivan]

Great article.

‘low-tax, well-insured’ - I love it! :)

I saw first hand in the US how the Republican Congress used to always underfund public services, then say - "Look how your taxes are wasted on inefficient public services." And then pushed the privatization agenda for essential services.

This is what is happening in Ireland with the PDs. There is no doubt many of our public services are totally inadequate, but we need to build the trust in the 'public sphere' so we can make the case for real public funding and real reform.

Thanks for your insights into the social insurance model.

[Conor McCabe]

The government should set up a SWAT team to tackle management interests in the health service. It would save more lives.

[Jim]

Well done Michael, well presented. May I,as one voice, wholeheartedly support any work that might be taken to highlight the Adelaide report and to push by every and all available means to take this significant political step as a country. I would suggest taking this beyond this point and perhaps trying to have a get together some weekend for all interested parties.

[Lorenzo]

"In effect, the Left would be arguing for a new 2% levy on taxpayers"

Well, no they wouldn't, they would be arguing for a new 4% levy on taxpayers. Just because the employer is paying the other 2% does not mean the employee avoids the burden of it. It will get passed on (eventually) in lower wages. The tax incidence of taxes on wages tends to fall on the workers.

"And this is only a start."
That's what we're afraid of.

[Michael]

Jim - I'm all for advancing the agenda in any way possible. Of course, Labour has a policy of universal health insurance (though I can' remember all the details and, in this area, the devil really is in the details). It was published back in 2002 I think. Maybe some Labour members could convince their party leaders to run with it in a vigorous manner.

Lorenzo, good to hear from you again. Ah, tax incidence. Actually, the theory of tax incidence doesn't suggest that an increase in payroll taxes will translate into lower wages. But first, let's not forget that many employers already pay a 'health levy' in the form of collectively agreed health insurance benefits. A universal health insurance could merely see a substitution effect (depending on the extent of the benefit) - to a greater or lesser degree. In this instance, initial and final incidence may be similar because there is little or no extra cost.

In any event, all the theory suggests is that tax incidence will be determined by a range of factors - including price and supply elasticity, workers bargaining power, the nature of competition, etc. For instance, a business may try to transfer higher costs to consumers but this may be difficult in a highly competitive market; or to workers but this may be difficult if they are organised, or the labour market is tight, or if employers' group can't negotiate it in 'social partnership'. In such cases, the employer may just absorb the cost because they are highly profitable and may see a competitive advantage if other companies do try to pass on the tax.

The advantage in a universal health insurance is that all employers are treated equally - and in this instance may benefit the 'high-road' employers who are already provide such benefits. The argument that it would make Irish business uncompetitive abroad is dubious in the extreme - especially as in most other EU countries, employers social security costs are much much higher.

In any event, a 2% health insurance levy would equal in the manufacturing sector about 0.12% of total turnover. So we should be careful not to overstate its potential effect.

But most importantly, Lorenzo, don't be afraid. The idea that everyone under a universal health insurance would be treated equally regardless of income or wealth is surely something to give us hope. Or a state earnings related pension so people can be guaranteed a decent living standard in retirement and not have to rely on unaccountable equity markets or the acumen of pension fund managers. Or year-long maternity leave with very high income replacement - so that children can benefit from being in a home environment (and drive down the price of crèches since demand would be reduced). There is nothing there to fear.

[Jim]

Fore politicians who tackle this issue Michael and others you just mentioned public opinion is one of two battles to be won. There is also difficulties with many selfish perspectives pervailing in these industries. The 'common good' may need to be fought for. Noel Browne felt that Consultants were as culpable in the Mother & Child scheme debacle as the hierarchy of the clergy, and he bemoaned why doctors could not like nurses work for a wage.

[Tomaltach]

Michael,
There is one issue that hasn't properly been addressed here. Imagine this scenario. The government takes on the above agenda - universal health insurance paid for by a levy of 2%. We'll assume for the moment that you have covered all the costs in your analsysis. Initially, waiting times and medical outcomes improve slightly. Then the progress halts. The minister is on the airwaves explaining away the temporary halt "Systems need to be adjusted etc etc" Another year passes and shock horror, the waiting lists are growing again. With expanded budgets health managers were less agressive in making efficiencies. With an increasing pie, health workers dug in for higher pay. Within 5 years the lists and outcomes are pretty much where they were. No substantial modernisation has taken place. And nightmare - we are now stuck with the 2% levy.

The fear of this catastrophe is surely a block against the risk of taking the plunge. And is it not a very real fear?

[Michael]

Thanks Tomaltach for your comments. Sounds like you're describing our current health care system sans a universal health insurance. I hope I made it clear that while social insurance is necessary it is not sufficient. If, for instance, we do not increase supply to meet demand - that is, if we don't have the beds, the wards, the machines and the staff - then capacity constraints as you suggested will arise. There are more problems than this (an ageing GP population for one, the rationalisation of small local hospitals which is always a political killer, is another). But the strength of social insurance is that it removes perversities in the system and starts from a base whereby everyone is treated equally. That premise, alone, is worth efficiency gains and popular support. That people are wary of such interventions merely shows the cynicism that has resulted from years of right-wing insprired ideologiacal experiments (co-location being one) and sops to private health care interests. I do not in any way underestimate the challenge this poses. Yes, there is real fear. But the best place to start undermining that fear is a platform of equity and social justice. You'd have to admit - it would be a novel starting place given where we are now.