‘New economy’, ‘truly historic’, ‘very substantial change’, ‘more left-wing than Sinn Fein’s election manifesto’, a ‘new relationship between the public and private sector’: like a film whose best scenes are in the trailer, the draft Document produced by Fianna Fail and Fine Gael (Document) was never going to live up to the previews. But it's even more problematic than that.
Let’s focus on the fiscal issues. Understandably, given the unprecedented nature of the economic shutdown and the lag in data, the Document is light on specific targets and numbers. However, what can we glean?
First, there are the usual protestations: ‘sound management of the public finances’ and ‘safeguard the public finances’ and ‘all decisions with regard to our national finances must be fair and sustainable’. These are logically meaningless. Is there anyone arguing for ‘unsound’, or ‘unsustainable’ public finances? It’s like the politician who comes out against crime.
However, it is an attempt to taint anyone who may, at some future point, disagree with their policies as being ‘fiscally irresponsible. This provides a potential clue to the future direction of fiscal policy; that is, they are already preparing the ground for down-the-line fiscal ‘consolidation’ (another meaningless term except that it portends austerity).
Not only that: we can gain some insight into the nature of this down-the-line consolidation from the promise that there will be ‘no increases in income tax and/or Universal Social Charge (USC)’. This provides a clear signal that future consolidation will be more focused on the spending side.
The most concerning aspect of the Document is its treatment of the Fiscal Rules:
‘Exercise sound management of the public finances, by . . . [complying] with the EU Fiscal Rules and the Stability and Growth Pact.’
This completely ignores the fact that the current government has actually abandoned the Fiscal Rules. In the 2018 Summer Economic Statement the Government stated:
‘The fiscal rules are currently unhelpful . . . A full and literal application of the fiscal rules would involve the adoption of pro-cyclical policies not remotely appropriate to our position in the economic cycle. That is why fiscal space is increasingly an inappropriate concept . . . A literal application of the fiscal rules would damage our economy; that is why policy will no longer be formulated on the basis of ‘fiscal space’.
What’s going on here? Simple: when the Fiscal Rules required austerity, the Government implemented them. When they allowed for higher spending (as started to happen in 2018), the Government abandoned them on the basis that they would fuel over-heating. Now that we are back in big-spend times, they can be used to justify future ‘consolidation’. In short, the Fiscal Rules are merely instrumental.
The game is further revealed when the Document discusses policy at EU level.
- There is no suggestion the Government will argue for reform of the Fiscal Rules – at the very least, the exclusion of investment when calculating the deficit – or their continued suspension.
- There is no reference to mutualising debt between the Eurozone counties, though the reference to ‘work at an EU level to . . . respond effectively to the COVID-19 Emergency and its aftermath, based on solidarity between Member States’ hints at this.
- There is no recognition that an active role for the European Central Bank in absorbing national debt is the most economically efficient and socially equitable way to get us through this crisis.
There is no sense at all that the current fiscal architecture at EU or domestic level is an obstacle to recovery. This, combined with declared fealty to unreformed fiscal rules, does not bode well.
Already, Cliff Taylor is worrying about the cost of the commitments. He’s not the only commentator with such concerns. However, there is also consensus that the Document is ‘aspirational’. Therefore, many are missing the point – because an aspiration has little cost; though it can provide hostages to fortune.
For instance, one can worry about the cost implication of the Document’s commitment to place ‘the State firmly at the centre of the Irish housing market’, but the best palliative for this is to read the rest of the section on housing which has little that is not already policy. The only exception, and a welcomed one at that, is the prospect of a constitutional referendum on property rights arising out of a commitment to reduce the cost of land.
As curious as the idea that aspirations have cost is the notion that this is somehow a ‘left-wing’ document. Newly elected Labour leader, Alan Kelly, TD:
‘ . . . welcomed the fact that the parties had come around to “a different way of thinking” . . . that they have come around to a different way of thinking on a new social contract and other social democratic policies.’
Personally I don’t see it. Increased spending is not synonymous with social democracy or any other progressive articulation of policy. Between 1995 and 2008, health spending more than quadrupled but we still don’t have a European-style healthcare system (i.e. single-tier, free and comprehensive – it took a pandemic to achieve that temporarily). In the last few years the Government has substantially increased spending on early years and childcare. But we still have the highest fees in the EU, with some of the lowest-paid workers in the economy.
The problem with past government policy is not that they didn’t spend money – when they had it. The problem is that they avoided the necessary structural reforms to achieve efficient and equitable outcomes.
So, the lack of fiscal numbers and targets is not the problem. The failure to point to the necessary structural reforms is.
If we want to pursue fiscal stability we will need to shift taxation on to:
- Assets and property, including financial property (or a wealth tax)
- Passive income such as inheritances and gifts
- Capital income and unproductive activities (can somebody please explain how currency speculation, trading in commodity futures, or buying back shares contributes anything remotely related to economic value-added?)
- Environmentally-damaging activities.
We will need higher employers’ social insurance (in the long-term, can’t be done in the short-term) to pay for European-style pay-related benefits for illness, unemployment and parental leave.
We will need to direct state competition into the private rental sector through cost-rental accommodation – to direct spending and investment away from rentiers to the productive economy.
And we will need to strengthen an unsung plank of fiscal policy – the expansion of labour rights in the workplace. The statutory right to collective bargaining can increase wage floors and reduce precariousness. This would have a significant fiscal benefit through increased tax revenue and private consumption.
It is up to progressive parties whether they want to tango with this draft Document for Government. But, if so, start the dance with eyes wide open. The idea that they can ‘influence’ or ‘shape’ the final Programme may be enticing.
But lurking behind the text and aspirations is a fiscal orthodoxy that is waiting to come roaring back – domestically, at Eurozone level and, if this morning’s media commentary is a taster, in the public debate.
And then what will progressive parties do?
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