Notes On The Front

A Tale of Two (Dumb) Tax Cuts

Fianna Fail and Fine Gael competing over tax cuts.  Let’s look at two of them.

First up is Fianna Fail’s proposed cut in the capital gains tax rate – from 33 percent to 25 percent.  They claim that this will:

‘. . . help to incentivise investment and free up more money to be put into new companies, creating more jobs and broadening our tax base.’

Leaving aside the non sequitur (a tax cut broadens the tax base? really?) there are three issues here.

First, most of the capital gains tax receipts come from companies, not individuals.  So this is actually a corporate tax cut.  And there is no guarantee that a company that sells an asset will use the proceeds to re-invest in new companies. 

Second, the tax cut will be available for all activities – productive or not.  I make a killing in the currency market, swapping Japanese yens and Aussie dollars .  Not terribly productive (indeed, these types of activities on a large scale can be quite disruptive) but I get the tax cut.  Given that 25 percent of capital gains tax comes from the real estate sector, this is a tax cut for the buying and selling of houses and property.  What could go wrong with that?

Third, capital gains tax has little to do with start-ups – it occurs when you sell the asset; in other words, when you exit an activity.  So here I am with a great idea that I want to turn into a business, I believe it will make me serious dosh, I will be my own boss, I will drink with the beautiful people in boutique hostelries.  I estimate that after three years I can sell my business for a neat €10 million.  However, I demur.  Why?  Because Fianna Fail wasn’t elected.  Instead of netting €7.5 million under a Fianna Fail tax regime, I will only net €6.7 billion under the Fine Gael regime.  Not worth it.  I stick with my current job and a marginal tax rate of nearly 50 percent.

The above may be a bit extreme but you get the point.  And what’s the price tag for Fianna Fail’s tax cut?  €267 million.  That’s a fair bit for very little.

Paschal Donohoe called this tax cut: ‘the dumbest tax change I’ve seen’. 

Maybe.  But Fine Gael is making a strong challenge.  Let’s turn to the second ‘dumb’ tax cut:  Fine Gael’s proposed cut in the inheritance tax.

Currently, daughters and sons receive a tax-exempt threshold on inheritances from their parents.  This is worth €335,000.  Inheritances above that are taxed at 33 percent.  Fine Gael is proposing  that the first €250,000 above the tax exempt threshold will be taxed at 20 percent. 

For instance, I inherit €750,000 from my parents.  Currently my inheritance tax bill would be €137,000 – or 18 percent of the inheritance.  Pretty low already.  Fine Gael would drive that down even further.  Under Fine Gael’s proposal my tax bill would be €104,000 – a cut of nearly 25 percent.  I now pay only a 14 percent tax rate.  I get an extra €33,000.  And for what?  This is not ‘earned’ income. I didn’t work for this money. I get this money for the simple reason I am the son or daughter of my parent.  And only if I’m in the highest income group.

This tax cut will cost only €40 million but my question regarding the tax cut is ‘why’?  My second question is ‘why’ ?  That’s also my third question.  This tax cut give no benefit to the productive economy, does not benefit the overwhelming majority of people.  It is highly, highly regressive

Calling Fianna Fail’s capital gains tax cut ‘dumb’ while producing this inheritance tax cuts – well, Paschal should be aware of stones and glass houses. 

It’s hard to know who wins the ‘dumbest tax cut’ award.   Each has their own merits.  While Fine Gael’s tax cut is the most venal, from a social equity perspective,, Fianna Fail runs strong if only for the price tag.  If we see this election as a two-way race, this is what we are reduced to.

Maybe we should look at more progressive choices.

The Progressive Bloc Opens Up a Significant Lead

Is there any justification in maintaining that election 2020 is a two-way race between Fianna Fail and Fine Gael?

In the Irish Times MRBI poll – the first poll whose fieldwork came after the election was called – the Progressive bloc garners 38 percent of the vote, with Fianna Fail trailing at 25 percent and Fine Gael falling further behind at 23 percent.  The two conservative blocs total less than half the vote.

Earlier this month I suggested this contest could be seen as a three-way contest.  The first two polls (the Sunday Times B&A poll having come out on Sunday) seem to confirm that.    But we shouldn’t be too surprised.  The growth in support for progressive parties has been growing since the early 1980s.  During much of this time, this growth was taking place below the radar as we were still captured by the idea that Irish elections are a contest between Fianna Fail and Fine Gael.

Now, however, that growth has burst into and throughout the radar.  Indeed, support for Progressive parties is now beginning to challenge the combined strength of the two conservative blocs.

Of course, there are the usual caveats:  this is just one poll; it is ‘early days’, etc.  Parties can grow or fall back over the course of the campaign.  A real problem is that, not being cohesive, there may be a problem in maximising seats between progressive parties (though, as pointed out previously, voters are increasingly transferring within the progressive bloc). These and other questions will fuel speculation in the days ahead.

However, this speculation should be rooted in the fact that the first two polls show that Progressives are contenders, not also rans, not just mere fillers for a conservative-led coalition.    

The challenge is to build on these results.  In an earlier post I suggested a modest strategy for progressives – to boost the votes of all progressive parties (the party of your choice) and to urge progressives to transfer within the bloc to maximise seats. 

Most of all, progressive parties – activists, spokespersons – should now start acting and talking like poll leaders.  We need to convince more people that progressive policies will make a real and positive impact on their day-to-day lives.  To do that requires people having confidence in the candidates and parties they vote for.  We should start acting like the leaders that the polls show that we are.

Now is the time for trade unionists to make these arguments, either individually or collectively.  Now is the time for civil society activists who might not be associated with any particularly party to urge support and transfers for progressives.  And it is time that party activists to make their voices heard within their own party.  Support for progressives has never been higher in an election poll.  Let’s not throw away the opportunities this presents.

It might be a stretch to say that the old order is collapsing while the new order is trying to emerge.  History rarely vindicates poetic aspiration.

But we can confidently say that there is a lot of people trying to tell us something,  trying to tell us that they are not satisfied with either conservative bloc, trying to say they are willing to support a progressive party and, potentially, a progressive alternative.

The question is – are we listening. 

Fianna Fail: Learning Nothing, Forgetting Nothing

It was said of the French Bourbon kings that they learned nothing and forgot nothing.  Fianna Fail are the modern-day Bourbons.

‘Fianna Fail is pledging to give first-time buyers €1 for every €3 they save for a mortgage as part of a radical new plan . . . The new SSIA-style savings scheme would be capped at €10,000 per person and run in conjunction with the Help to Buy scheme.’

Fianna Fail proposes to pump demand in a housing market that is already unaffordable to most prospective house-buyers, especially in Dublin and increasingly in other urban areas.  What can we expect from this policy?

First, this will inflate prices.  Already, industry analysts are predicting a return to house-price growth of between two to four percent, arising from ‘post-Brexit certainty’.  Putting cash into buyers’ hands will drive up prices as developers increase the sale price to grab some of that subsidy.  This is Economics 101.  This is not dissimilar to the subsidies that were introduced prior to the crash and we know where that led.

Second, it means that prospective house-buyers will face higher debt levels as they jump the hurdle of the Central Bank’s deposit requirement.  Higher prices mean more borrowing and higher household debt.

Third, it will drive up housing costs.  Higher prices will mean higher mortgage payments, especially with banks charging the highest levels of interest rates in the EU (bar Greece).

And here’s the kicker:  it will cost the state €250 million per year – or €1.25 billion over the next five years.

So Fianna Fail proposes to increase public spending by €1 billion plus – all to increase house prices, household debt and housing costs.  To say you couldn’t make this up doesn’t really capture the full absurdity of this proposal.

There is an alternative – one that has been raised by a number of groups in ICTU’s Raise the Roof coalition.  The Government could build houses on land in public ownership and sell directly to house purchasers at cost – either through local authorities or a dedicated agency.  Prices would be lower which would put downward competitive pressure on private house sales.   This would also lower debt and monthly housing costs (i.e. mortgages).  And the price tag?  Nothing.  You build the house for x amount and sell it for x amount (or possibly with a slight surplus that could be re-invested into more public house building).   

But neither Fianna Fail nor Fine Gael are interested in alternatives.  They are sticking rigidly to the private market, tweaking it with demand-side subsidies, which will only inflate prices and push house purchasing beyond the reach of ever growing numbers.

We need a third choice to implement rational, economically-efficient and socially equitable solutions to the housing crisis.

The First Poll Shows Progressives and Fianna Fail Out in Front

The campaign’s first poll coming from Behaviour & Attitudes (the fieldwork was done prior to the election called, so the first published poll) shows progressives and Fianna Fail out in front with Fine Gael trailing badly.

The commentary will focus on Fianna Fail’s rise and Fine Gael’s decline.  And while one might question the magnitude of the change between the two parties (in the previous B&A poll, Fianna Fail and Fine Gael were even at 27 percent), unless it is an outsider, the poll shows a considerable swing against the current Government.

However, a third of voters want something different than the conservative parties.  Pat Leahy of the Irish Times described the three choices facing the Irish electorate:

‘The early days have suggested that voters are faced with three broad choices. The first is to stick with Fine Gael as the leaders of the next government . . . The second choice is to make Fianna Fáil the largest party, and thus ensure they will lead the next government . . . The third choice is a radical break with the past, as represented by much of the non-Fianna Fáil opposition. This choice won’t lead the next government. But it will influence it greatly.’

According to the B&A poll, the third choice has more support than the first two.   How can progressives build on this? 

First, this week should see Fianna Fail publishing policies, notably economic policies.  We will see what difference there is with Fine Gael (we will probably have to look hard).  Progressives should be ready with their critiques.

Second, progressives should start making clear the few key points they will enter the post-election scenario with.  This will help people to focus on what they can expect from voting progressive.

One thing this poll does show is that support for parties could be quite fluid and even volatile.  The ‘third choice’ is very much on the agenda.

Promising the Sun, Moon and Stars

During elections there is always a danger of promise-inflation.  But Fine Gael is looking to be the most inflationary of all.  They have promised increased public spending increases, tax cuts, budget surpluses and higher investment.  All interesting until you start looking at the details.  Let’s look at primary current public spending (excluding capital investment and interest payments).  This is the area that will fund improvements in health, education, childcare, public transport, etc.

Fine Gael is basing their promises on the recent economic and fiscal projections published by the Department of Finance.

The Government / Fine Gael is projecting spending increases of €11 billion.  However, €3 billion of that is pre-committed – mostly from the impact of demographics (e.g. an older population and health care).  When this is factored in, the projected increase in current public spending is €8 billion over the next five years. 

However, inflation eats almost all this away.  The current spending increases amount to a 10.7 percent increase over the five years; inflation will over run at 9.8 percent.  In essence, this spending increase amounts to running to standstill with no real (after inflation) increases.

And when we factor in population growth (over the next five years, population is projected to increase by 250,000), we find that the promised spending increases actually end up falling – by nearly four percent.

So a promised spending increase actually ends up being a spending cut.

Of course, any party in office could easily rectify this:  by reducing the level of projected tax cuts (Fine Gael is promising €3 billion over the next five years); by finding new revenue streams; by reducing the projected high levels of the budget surplus. 

However, as an opening bid, Fine Gael is promising spending increases which on closer examination are anything but.

With election promises, sometimes the sun is not so warm, the moon not so bright and the stars can be a very long ways away. 

A Modest Strategy for Progressives

This post follows on from last week’s post which suggested we don’t have to see Irish politics as defined by a two-way contest between Fianna Fail and Fine Gael.  There is a potential for a three-way contest that includes the combined progressive parties.

Now that the election has effectively been called we can reasonably assume there will be no pre-election alliance among the progressive parties.  However, this should not be fatal to the progressive project.  Let’s look at Portugal.

In 2015, after four years of austerity policies implemented by the centre-right PSD government, the Portuguese went to the polls.  The result was a minority Socialist government supported by the Left Bloc and Communist Party.  In the run-up to and during the campaign such a formation was not considered nor did it appear on the agenda of any of the progressive parties – in large part because Portugal never had such a government.  The race was seen as between the PSD and the Socialists.  When the result was in, both parties fell well short of a majority.  However, even on election night the Socialist leader Antonio Costa seemed to reject a progressive coalition. 

Nonetheless, a progressive government eventually emerged after protracted negotiations, a failed attempt by the PSD to form a government, and a hostile President.   Though progressive politics in Portugal and Ireland are not comparable (Portugal has a strong Left tradition with a European left/right divide), there are some potentially interesting parallel: 

• Such a governmental arrangement was not contemplated during the campaign; not by the public nor any of the political parties.
• It only became a prospect after the election, especially with the strong performance of the Left Bloc which did not come at the expense of the either the Socialists or Communists.
• The parties – especially the Socialists and Communists - overcame their historical conflicts to cooperate in the new arrangement.
• It was a unique arrangement, never having been tried before, except briefly in the aftermath of the 1974 revolution.

The individual progressive parties worked separately prior to the election and, without planning, ended up together.  Could that happen here?

Grassroots Action

The reality is that a progressive consensus can only be forged in a post-election scenario – and even here this will depend on political will and the relative and combined strengths of the parties.   Therefore, what we do and say during the election should help lay the ground for what could happen afterwards. 

We shouldn’t expect the parties themselves to take the lead.  They will, as organisations, be understandably concerned with their own agendas, manifestos and constituency campaigns.  But this doesn’t mean the grassroots can’t act - party members and activists, trade union and civil society activists.  Two small things that can be done:

Propagate a progressive analysis:  quite simply, put forward the idea of a three-way contest wherever they can - in the media, social media, in meetings and engagements of every kind.  This would help put greater public (including media) focus on the individual progressive parties without precipitating any decision a party might make after the election.

Keep the votes in the progressive house:  to help drive up the number of seats and create progressive cohesion – call for transfers to other progressive parties.  As shown in the last blog post, without any guidance, voters for progressive parties are increasingly transferring within the progressive bloc. One doesn’t have to name names; a simple call to ‘vote for the progressive party of your choice and transfer to other progressive parties’ would help.

We don’t have to rely on, or wait for, party leaderships and executives to act.  Any supporter of progressive politics can take these steps in whatever small (or big) way they can.

A Modest Strategy

This still leaves open the question of what happens after the election.   However, as the 2015 Portuguese election showed, a positive result is not predicated on pre-election agreements.  

We can make this work to our advantage.  If progressive parties won’t rule out a post-election accommodation with either of the conservative parties (and most won’t) then consistency would at least mean they don’t rule out acting cohesively, as a bloc. This can help insinuate the logic of a three-bloc contest into the debate.

Maximising gains across the progressive spectrum is more likely to increase options.  A poor result would make it easier for the conservative parties to co-opt one or two progressive parties.  A strong result, however, would require the conservative parties to deal with almost the entire range of progressive parties.  This sets up the potential for those parties to construct a common purpose based on their own policy similarities. 

And a very strong performance could even open the possibility of a progressive-led government.  Or force the two larger parties closer together, opening up the possibility of a progressive realignment in the medium term.

Irish politics teaches us to be wary about predicting post-election scenarios.

• In 1989 Fine Gael and the Progressive Democrats entered into a pre-election alliance, but following the election the PDs entered into a coalition with Fianna Fail. This was notable for being the first time Fianna Fail entered a coalition, in a deal between two long-time enemies:  Charlie Haughey and Des O’Malley.
• In 1992 Albert Reynolds and Dick Spring tore strips off one another prior to the election but entered into a historic coalition afterwards – the first time Fianna Fail and Labour coalesced.
• At the same time John Bruton declared he would never enter into coalition with Democratic Left, accusing them of still having links with paramilitaries. Two years later they were coalition partners.
• In 2016, Fianna Fail formally supported a minority Fine Gael government, a first for these parties.

Things can change dramatically and unexpectedly following an inconclusive election.  And this includes a cohesive progressive intervention.

This is a modest strategy.  This is not about generals moving pieces on an electoral chessboard that doesn’t reflect political conditions.  The point in any progressive struggle is to root strategy in reality, to identify what is possible, to make a credible assessment of the actors’ capacity in any particular conjuncture. 

The priority is to rule-in the possibility of a third bloc in the public debate.  This requires maximising cooperation, respecting the legitimacy of other parties’ positions or strategies (even if we don’t agree with them) and ending sectarianism.  In some corners of the progressive landscape, sectarian attacks are still made.  This undermines progressive cooperation and reinforces the rule of the conservative parties.  Fortunately, the propagators of such attacks are becoming less influential.

The post-election scenario could be a lengthy affair.  In 2016 it took over two months to reach a post-election conclusion.  Election 2020 could see an even longer period, depending on the result and the number of parties involved in negotiations.  Therefore, there will be considerable time to make arguments and interventions.

Some will be concerned that such an open-ended strategy would allow some parties to take the gains and subsequently reject any post-election cooperation, choosing to go it alone.  That is, of course, a risk.  Is it worth taking?  Is it worth participating in a broad, if messy, church where there is always the danger people will do things that we oppose?  If we don’t think the risk is worth taking, we can always retreat into our small contented chapels. But we know where that leads. 

So let’s go out and support our respective parties and candidates, talk up a three-way contest, ask supporters to keep their transfers within the progressive house, refrain from sectarianism  and do everything possible to push up the progressive vote so we can maximise opportunities following the election.

And on the day after the results, let’s start the debate about how progressives, if they act together, can achieve a lot more than if they act separately.  

A Three-Way Contest

While elections can throw up surprises there is one thing we can be fairly certain of:  either Fine Gael or Fianna Fail will lead the next government.  Will they combine, repeating the confidence and supply experience (with roles potentially reversed) or enter into an ideologically-compatible grand coalition?  Or will they win the support of other, smaller parties and rule separate from each other?   Whatever the final outcome, we know the answer because the only question is – will Fianna Fail or Fine Gael lead the next government.   It’s a two-way race. 

In this construction, progressive parties are confined to a supporting role.

However, one can construct the electoral landscape in a different way, at least at a categorical level.  There are four broad progressive currents:

• Nationalist Left: Sinn Fein
• Social Democratic: Labour and Social Democrats
• Radical: People before Profit, Solidarity, Workers Party, Rise
• Greens

In addition, there are independents loosely associated within Independents4Change (I4C) as well as other unaffiliated independents.

Together, these four currents constitute a ‘progressive bloc’ – parties that have more in common with each other than they do with either the conservative parties; on a policy level, at least.  If this is the case, then we can see Irish politics as – or evolving into – a three-way contest. 

Let’s take the European and local elections as an example.  The results were not considered good for progressives.  Sinn Fein and the radical parties suffered considerable losses, Labour treaded low-tide water while the Social Democrats failed to make significant inroads.  Only the Greens managed to make significant gains.  Yet, despite this, progressives as a bloc competed with the two larger political blocs.

As a bloc, the votes for progressive parties were approximately equivalent to what Fine Gael or Fianna Fail received.  It should be noted that the above does not include ‘independents’; in particular, the I4C candidates.  Therefore, support for progressive candidates in the European election is understated.

An Emerging Progressive Bloc

It would be convenient if the public debate understood that the next election was a three-way competition between these competing blocs.  Unfortunately, this is a categorical construction, not a political one.  The different elements that make up the progressive bloc are not cohesive.  They do not have a common purpose or recognise a common destiny with each other.  Progressives are not conscious of constituting a bloc.

The progressive bloc may exist only as a potential but this potential has some concrete validity.

First, there is considerable agreement on policies and principles between the different parties that make up the progressive spectrum – housing, labour rights, public services, low-pay and poverty.  They are closer to each other than they are to either conservative party.  This cohesiveness is underlined by voting patterns in the current Dail where progressives tend to support each other.

Secondly, supporters of progressive parties self-identify as politically ‘left’.  In the 2016 RTE exit poll, voters were asked to self-identify as either ‘Left’ or ‘Right’ on a scale from 0 (the most left-wing)  to 10 (the most right-wing).  Anything below 5.0 can be considered progressive, or left-of-centre.

AAA/PbP voters identified themselves as the most ‘left-wing’, followed by Sinn Fein.  The Greens, Labour and the Social Democrats were grouped closely together as left-of-centre.

Third, transfer patterns in the recent European election show supporters of progressive parties transferring in far greater numbers to other progressive parties than to conservative parties. 

Over a third of voters for progressive parties transferred to candidates from other progressive parties.  This compares to eight and six percent for Fine Gael and Fianna Fail respectively. Among voters, anyway, a progressive consciousness is starting to emerge.  In this tabulation, the two I4C candidates were included as they feature prominently in their respective constituencies. 

Fourth, there is a long-term decline in support for the Fianna Fail and Fine Gael blocs and an increase in support for the combined progressive parties.

In the 1980s Ireland was described as having a two-and-a-half party system:  Fianna Fail, Fine Gael and Labour with the latter (even in combination with the Workers’ Party) trailing the larger parties by a substantial margin.  35 years later, support for progressive parties has nearly trebled, with all three blocs now receiving nearly equal support.

Finally, many party members and activists are already cooperating in a range of civil society initiatives:  housing campaigns, anti-racism campaigns, etc.

Policy compatibility, voter identification, transfer patterns, historical trends and activist cooperation:  the tragedy for progressives is that they collectively have not connected these dots (even though voters may have started to), and are not yet capable of constituting an alternative to the conservative blocs.

* * *

Some may dispute the categorisation of progressive parties.  How can some of the parties who have been in coalition with conservative parties, or who are open to coalition with them, be considered ‘progressive’?  There are legitimate concerns that parties will tack one way prior to an election and tack a completely different way when the results are in.  However, this is not something confined to progressive parties (Fianna Fail didn’t campaign in the last election on the basis of supporting a Fine Gael minority government).

What is important is not to let the past dictate or circumscribe our ability to create new and better alliances, or pursue strategies that can achieve concrete gains for progressive parties and their supporters.  Some have suggested that the fundamental starting point of a progressive alliance is the rejection of any post-election accommodation with either of the conservative parties.  However, the logical conclusion of this position is to radically shrink the progressive bloc to almost nothing; in effect, to eliminate it altogether. 

Progressive parties in other countries have refused to allow past actions to limit future relationships.  If Podemos had rejected any contact with the PSOE (who implemented painful austerity measures), then Spain would not be on the verge of a progressive government.  If the Left Bloc and Communists / Greens had, similarly, rejected the Socialists (who also implemented austerity), then Portugal would not have benefitted from one of the most progressive governments in Europe.

With voters already moving over the long term to a more progressive position, reinforcing that in transfer patterns, it is imperative that progressive parties vindicate the emerging preferences of their support base.  In the next post I will propose a way of doing that as we enter into election 2020.