Claiming the Alternative

How many times do we hear from those who criticise the critics of austerity – ‘well, what’s your alternative.’  That the alternative has been outlined and measured by a number of groups for years is rarely acknowledged.  This time, however, it will be difficult to ignore given the recent work by Claiming our Future. 

They have compiled a menu of tax measures which would largely impact on high income groups, capital, property and corporate income taken from a range of civil society groups. It shows that not only are spending cuts unnecessary, tax increases on low-average income groups are also unnecessary.  The key message in the CoF document is that if the Government wants to hit low-average income groups, it is a political decision – not one based on economic or budgetary necessity.

CoF takes proposals from TASC, UNITE, Social Justice Ireland, Nevin Economic Research Instiute (NERI) and ICTU which supplied the revenue estimates – most of which has been taken from the Department of Finance (the proposals and estimates supplied by UNITE have not yet been published). 

The full list can be accessed at the link above.  Here is a broad breakdown.

There are also proposals to increase DIRT and introduce a Financial Taxation Tax (though the revenue estimate of €500 million is not included by CoF in its final tally since it wouldn’t come on stream in 2013 even if the Government supported it).

So what’s the bottom line?  CoF provides three of them.

• The total for all measures would raise between €5.5 and €6.9 billion.

• The total for all measures, excluding a recurrent household property tax, would raise between €5.2 and €6.2 billion.

• The total for all measures, excluding a recurrent household property tax and a rise in the corporate tax rate, would raise between €4.7 billion and €5.4 billion.

These measures would be sufficient not only for Budget 2013 but for Budget 2014 as well. 

The CoF also brings together the recommendations for investment which is not only a tool of economic growth and employment but fiscal consolidation as well – since growth and employment increases tax revenue and reduces unemployment costs.  Proposals from NERI, ICTU, Social Justice Ireland, TASC and UNITE all propose investment programmes ranging from €1 billion to €3 billion sourced from different funds:  Government cash reserves, National Pension Reserve Fund, private funds (pension funds, etc.), Recovery Bonds, etc.

So how much better would it be?  NERI, using their HERMIN model, has already measured the impact of a budget with €2.3 billion in tax increases, €400 million in spending cuts (via Croke Park savings) and a once-off investment of €500 million.  They found that this set of proposals would create an extra 21,000 jobs and boost growth by an additional 1.3 percent – while hitting the Government’s own deficit reduction target.

All of this shows what progressives have been saying for some time – a budgetary strategy combining investment and ‘growth-friendly’ fiscal adjustments (increased taxation on high-income groups) will produce a better result than an austerity strategy. 

Claiming our Future has brought together the information for a budget strategy that does not rely on spending cuts or tax increases on low-average incomes.  So the next time someone asks, ‘What’s your alternative’ – just direct them to the work of CoF. 

Comments

[tells.it.like.it.is]

As always, the transparency of such proposals would make me me smile if this wasn't so serious.

Let me summarize it as ...

Think tank members paid by the state suggest other people's pensions should be raided.

(While remaining mysteriously silent on the the tax-free treatment of the difference between the true actuarial value of their pension and their superannuation contributions).

[Michael Taft]

tell.it.like.it.is - what think-tank members are paid by the state and what proposals would raid pensions?

[tells.it.like.it.is]

Michael, most of the TASC contributors work in academe. All listed on their web-site, if you care to look.

And do I really need to spell out the impact of changing the tax relief for defined contribution pensions?

Less tax relief will inevitably result in lower contribution rates, which in turn will result in smaller pension payouts.

[Michael Taft]

tell.it.like.it.is - TASC does not receive a public subsidy, nor was their pre-budget submission written by the economists network. Second, you surely are not suggesting that we continue to subsidise the pension contributions for high-income earners to amass super-pension pots. If so, fair enough.

[paul]

In talking about the 'actuarial value' of public service pensions, it is always forgotten that such a value is calculated on how much it would cost to purchase such a pension from a private pension company. This 'cost' would include a healthy profit for the company, of course, so it is far in excess of the value of such a pensiion.

As well as this, it seems that the value of the state old age pension is rarely deducted for the sake of the calculations.

Nor is any mention made of the often generous contributions paid by private employers into employees pension funds.

Between prsi, superannuation, spouse and child payemnts and the pension levy, I am currently paying 180 a week for a pension.
I am also told that this generous pension was part of the reason why my pay was cut by 7% 2 years ago, so that's in effect an extra contribution.

I will pay for another 20 years at such a rate, and the payout will be in the ball park of 25k a year at current rates.

Is that really such an amazing deal?

[tells.it.like.it.is]

@Paul

"As well as this, it seems that the value of the state old age pension is rarely deducted for the sake of the calculations."

Is that surprising, given that the cohort of public servants actually eligible for a contributory state pension won't start retiring in bulk until around 2029.

You will also notice that the state pension will only be paid from age 68, whereas the median retirement age for public servants is far younger than this.

"Nor is any mention made of the often generous contributions paid by private employers into employees pension funds."

That's hardly surprising, given that such generous contributions are only paid to a small minority.

"Between prsi, superannuation, spouse and child payemnts and the pension levy, I am currently paying 180 a week for a pension."

PRSI costs you nothing net, since you're on a higher payscale than your older colleagues to cover that liability.

Spouse and child payments provide extremely good value extra cover in the event of your untimely death. You'd barely to able to buy that kind of cover on the open market.

Finally have you subtracted the generous tax break on your pension levy and superannuation deduction when arriving at that 180 a week figure?

"I will pay for another 20 years at such a rate, and the payout will be in the ball park of 25k a year at current rates."

You've neglected to mention the 150% of final salary lump sum paid tax free.

You've also forgotten that you won't be paid at today's rates. In fact there are a huge number of retired public servants getting a higher pension now than they ever earned in salary.

Also, you paid far less for the first half of your career, before the advent of the levy.

"Is that really such an amazing deal?"

In short, yes. Yes. And thrice yes!

[tells.it.like.it.is]

@Michael

"... you surely are not suggesting that we continue to subsidise the pension contributions for high-income earners to amass super-pension pots."

The vast majority of people who would be impacted by TASC's proposals are not amassing anything remotely describable as a super-pension pot.

The super-pension pot trope could be eliminated completely from the debate by limiting the amount that is tax free at the marginal rate to say 20k p.a.

Now, for a mid-earner in the private sector to even approach the pension benefits of a public servant, they need to save a substantial portion of their income.

I'm questioning whether TASC proposals are equitable given that the full value of public sector pensions would not be subjected to the same harsh tax treatment. And that ironically so many TASC contributors will themselves enjoy this favorable tax treatment.