The Cedar Lounge Revolution

Lucky me, getting the latest edition of Hot Press. For what can one see on the cover? A close up of Brian Cowen’s face. Somehow it reminds me of that Newsweek Palin cover, you’ll
remember the one. But of more relevance is the content of the really quite lengthy interview – which is worth reading in full, particularly the parts that concern the economy. Now – remind me again – Cowen was our Minister for Finance… no?

Consider the following quotes about the current problems we face…

Q: You make it sound like there’s more unpleasant medicine on the way.

A: It’s taxpayers money we’re spending and therefore we have to get the best value for that money. It’s not an infinite resource, unfortunately. I’m confident that if we set out for the people what the realities are – and I intend doing that in a way that is clear and transparent as possible – then people are prepared to take the necessary adjustments so that, at the end of the day, we get back on track as soon as the world economy picks up again.

I beg to differ. One man’s adjustment is another’s financial catastrophe.

Q: Does the government intend to borrow even more next year.

A: We’ll be borrowing €13 or €14 billion next year, but that’s on the basis of a very significant public capital proramme, which is all about investing in schools and roads and hospitals and public transport. We are trying to protect to the greatest extent possible the very many achievements from the good times… Next year we face into another year in which economic growth will be very hard to create and that will have its impact on revenues again. The government has to pain this picture sufficiently vividly for people. Next year we are going to see an increase in unemployment – it could be over 70,000 at least. So if you tax too highly on that side you could be increasing the number who lose their work. Some people say, ‘Tax more!’ We are already increasing taxes by €2b in this budget, but obviously we have to keep an eye on trying to maintain employment to the greatest extent possible.

Q: Why not just raise the 41% rate to 42% or 43%?

A: The levy we brought in – the 1% up to €100,000 which excludes those on the minimum wage [it didn't originally], and 2% on those over €100,000 – is on gross income. In other words, that levy is the first call on all income, which means you get everyone to pay- including those who are well able to pay…

Wait… wait. Hold on a second. That doesn’t answer the question.

If we attempt to address this issue by simply increasing the rates you won’t generate as much money because what happens is people are able to shelter some of their income. There are various reliefs – mortgage relief, pension relief and various other reliefs – that would allow people to shelter some of their income before that tax rate is applied to what’s left of the income.

No, hold on another second. He talks as if the ‘reliefs’ are forces of nature, immutable and unyielding to any intervention by government. But it’s him and his government who stand over them. The reliefs? Well, hey, they did away (rightly in my estimation) with the higher relief rate on the MED1. So…er… why not on all these other areas? Or, be inventive, apply different levels of relief on these… Anyhow, continue…

The most effective way – and the surest way – of getting a proportional amonut from those who are well off is by imposing a levy on gross income, which is a levy on all income.

But even that doesn’t answer the question, or make much sense. The levy is actually wildly disproportionate. There is no distinction between the person just over the minimum wage (indeed I believe there is a ‘wedge’ effect there which when in effect dips a person in that situations income down below the minimum wage due to it’s lack of progressive implementation) and the person on €100,000. Then it goes up a paltry 2% for all above €100,000. That isn’t progressive, even if we consider the levy an efficient tool to prise money from people. If he were being consistent, and if he truly believed that the levy was an effective and sure way to raise such revenue, he would implement a version which ranged – say – from 1% on lower incomes to 1.5% on those who tip into the 42% bracket and on upward for every €50,000 of additional income, perhaps in increments of .5% up to a total of 3 – 5%.

Earlier when asked about the education cutbacks he suggests that ‘there’s an increase in teachers’ pay next year that the Minister has to provide for – it’s unavoidable’. No sense that something might be done on that issue to ameliorate the situation. None at all.

Q: But why not tax the so-called fat cats more? A lot of people made fortunes that weren’t taxed effectively during the boom.

There’s a lot of taxation going on in a lot of those areas. Look at the closing off of tax expenditures on property relief that happened under my watch as Minister of Finance.

Stop right there, a chara. So let’s get this straight. The levy was introduced because reliefs offer too many options for higher and very high income earners to evade tax, but these people are being taxed effectively because of his dealing with reliefs so it isn’t a problem? So reliefs are great except that they aren’t. I’m a little confused.

But he continues…

The tax incentive sector, of course, in the past served a purpose in trying to stimulate economic activity when we had no economic activity.

And there we have it. I think that encapsulates the real reason why this government will not countenance progressive taxation in any form. They’re mortally afraid that to do so will kill the economic goose. They are so wedded to the low tax approach that they’re simply unable to conceive any shift – even back to the status quo ante. Which is surprising because again he argues earlier in relation to teacher and education cutbacks that ‘…what’s being asked of the teaching profession, who I hold in high regards, is that we go back to the teaching schedule of September 2007 for the school years of 2009 and 2010 – that we increase the pupil -teacher ratio by one, both in primary and post-primary’. Well, as we know, that’s not quite the facts of the matter, not least due to the supervision issue and also changing demographics, but even were it so why is it somehow alright to return to 2007 in terms of teaching numbers but not the mid 2000’s in relation to the higher rate of tax?

And beyond the truth is, and he notes this later when discussing the upcoming commission on taxation report that ‘what sort of tax decision we have for the next 10 or 15 years…might be quite different from the ones we’ve had for the last 10 or 15 years because of the new demands and changing nature of the society we are living in…’. The complexity of the Irish economy has increased substantially as we have played catch-up with other countries in Europe.

This ideological blindness – even as the Western financial system crumbles into dust and government interventions become not merely normalised, but welcome – is indicative of an enormous failure of nerve and imagination at the heart of our polity. He is merely representative of a political and media elite who are literally unable to contemplate that there is an alternative. We’ve seen that before in this society in the past – perhaps most notably in the laissez-faire aversion to interventionism that informed our first few governments and arguably stymied national development for much of the rest of the century – and we have also seen how it had effects much wider than the merely economic in terms of a society that was crushed by failure. To see it expressed again is truly dismal. To see it expressed when all around are abandoning this model is utterly inexplicable.