Prudence is a Socialist Virtue

During the recession I was amused by the attacks on the Left:  ‘you’re fiscally irresponsible’, ‘if we followed your programme we’d go bankrupt’, etc.  In the ten years prior to the recession we pursued a reckless policy of fuelling the property boom, accompanied by an irresponsible fiscal policy of cutting taxes, increasing spending and paying for it all by the revenue from that boom.  This crashed the economy and forced us into a bail-out.  Was the Left in power?  No, it was Fianna Fail and that paragon of fiscal rectitude – the privatising, tax-cutting, small-state, Boston-axis, now-history Progressive Democrats.

And the attacks keep coming as another crop of conservatives launch another round of accusations against the Left, donning the mantle of some sort of radical centre.

The economy is facing a number of potential dangers:

* Brexit and the impact on sectors that rely on British markets combined with the impact on sterling and the knock-on effect on businesses exposed to cross-border activity

*  An over-reliance on corporate tax revenue. The Taoiseach’s Department states: 

‘Ireland’s economy [is] heavily influenced by a relatively small number of multinational corporations concentrated in a few enterprise sectors. . .The top 10 goods export products from Ireland, drawn principally from the chemical and pharma industries, account for 45% of all goods exports, while the IT industry dominates services exports. The top 10 tax-paying groups account for close to 40% of corporation tax receipts, making this revenue stream vulnerable to weaker global growth and changes to business models and processes in these sectors. ‘

10 corporate groups pay 40 percent of all corporate tax revenue – that’s precarious.  And with pressure from the EU over the common corporate tax base and the US Administration’s attempts repatriate multi-national companies, there is a real risk to that revenue.

* Demographic changes: the increase in over 65s is accelerating.  Between 2000 and 2005, the average annual growth rate was 1.5 percent; between 2010 and 2015, this more than doubled to 3.4 percent.  This will require more resources for pensions, health care, community care, etc.

*  Housing prices and under-supply: with rents and house prices set to rise by over 20 percent in the medium-term, we could find less spending the productive economy (never mind the social impact).  In addition, prices and lack of supply could impact on foreign investment as companies ask – where are our employees going to sleep?

The Department of Finance lists 28 risks to Ireland’s economy – many of them relatively minor (my favourite is ‘expenditure expectations’ – how are we going to mollify the masses if they start demanding more).   While there are risks in any cycle, the ones highlighted above should lead us to step carefully.

What has been the response of Fine Gael-led, supported by Fianna Fail?  Cut revenue.  The amount of tax cutting over the last budgets – and the promise of more and more – looks eerily like the decade of tax-cutting prior to the crash.  In the last four budgets over €2.7 billion has been cut from tax - with 57 percent of this coming from cuts to the Universal Social Charge.  This is the most efficient tax of all, capable of generating considerable revenue with low marginal rates.  All this not only limits our social options (building houses, increasing A&E capacity, etc.); this revenue-erosion could also hinder our ability to respond effectively to economic risks.  This is not very prudent.

It’s not like we have a high-tax regime.  When compared with our EU peer group (using the CSO’s new GNI measurement that removes multinational distortions), we find ourselves at the bottom of the table.

So how should progressives respond?  First, start an honest national conversation about the opportunities and limitations that we are facing into.  We need to avoid both fiscal defeatism, and a populism which asserts that everything can be paid for by soaking the rich (nothing wrong with giving the rich a good splash – but it’s not going to build a strong social state). 

Second, if our programme presupposes an increase in public expenditure – and it does – we should be even more vigilant about costs.  The Nevin Economic Research Institute shows that Irish health spending is higher than our EU peer group on a per capita basis (though spending on hospital services is low).  This shouldn’t be happening, given our relatively favourable age demographic.  One of the many strengths of the Slainte care report is that its proposals for a single-tier health service can remove many of the upward cost pressures generated by private incentives.  Another area is the use of Public-Private Partnerships (PPPs) – would they pass robust value-for-money scrutiny? 

Third, we should champion popular participation in expenditure efficiencies.  What group is most likely to know on a first-hand basis the inefficiencies and bottlenecks in public spending?  Those who deliver the services; namely, public sector workers.  Employee-driven innovation in public services could lead to many creative solutions to improve productivity and service quality.

Given the fiscal recklessness of conservative parties prior to the crash; the recklessness during the recession (think ‘housing’ as one example of austerity’s legacy; and don’t even think about nationalising Anglo-Irish); and, now, the ideological primacy of tax cuts over sensible fiscal policy – given all this, it is time progressives step into this debate.

After all, prudence is a socialist virtue.

Comments

[Colum McCaffery]

Great. I thought I was the only socialist who urged prudence.

[Paul sweeney]

On public speaking efficiency the wpest and there are many, is public private partnerships. They are never assessed for value for money because they are not.
They are simply a conduit of public money into the pockets of the private sector. The excuse given by their proponents is that we cannot borrow money for investment, which is baloney Yes the stability and growth Pact is ia deep constraint and should never of been signed up to.

[Paul sweeney]

Public spending