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More from the orthodoxy on the household charge, water charges… and the current political context December 29, 2011

Posted by WorldbyStorm in Economy, Irish Politics, The Left.
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Stephen Collins most recent piece in the Irish Times was of a sort to genuinely make me wonder does he get it at all. I mean consider the following. For him there is nothing but the usual right wing shibboleths and a neat line in…well, read on:

There is some irony in left-wing TDs being so trenchantly opposed to a property tax.

No there’s not. Not when the tax is not progressive in form. He makes the lazy comparison with the TV license fee:

It would be interesting to see how the State broadcaster reacted if a group of TDs organised a campaign for non-payment of the television licence fee of €160 a year.

Not the same thing and the rationale for campaigns around the household charge as against such licenses is dealt with in yesterday’s post here.

And then there’s this:

The experience of the 1980s has taught us that, insofar as it is possible, extra taxes should not be imposed on work but on fixed assets like property. The Commission on Taxation, which reported in 2009, was in no doubt that this was the correct approach and it recommended that €1.2 billion a year should be raised through a comprehensive property tax.

This is incorrect. The actual tax situation in the 1980s and 1990s was as noted here as follows in respect of an earlier Collins column making much the same point

At the start of the 1980s the top rate of tax was 56%. Okay.
But, according to CSO figures [by way of ICTU] in 1992 the top level of income tax was 52% in 1992. In 1993 it was 48% where it remained until 1999. It then dropped to 46& in 99/00 and then to 44% in 2001. In 2002 it dropped further to 42%.

And…

That delicate creature, the Celtic Tiger, somehow survived an entire decade of the 1990s where the top income tax rate was in the 50s through to the high 40s. And Collins seriously expects us to believe that increasing tax to – say a median point of 46 -48% would somehow constitute 1980s rates?
Moreover if he doesn’t believe that growth is possible at higher rates, he should again peruse the CSO figures and note that in 1994 [Top Income Tax Rate - 48%] growth was 6.3, the next year 8.3, the next year 7.8, the next year 9.7, the next year, 1998, 7.9. Two years later at 46% it was 10.2. Indeed inconveniently for his thesis [and I make no great claims for absolutely causality here, but am merely taking it on the terms he frames the discussion] in 2001 when tax had dipped to 44% growth fell to 3.8. In 2002, at 42%, it fell to 01, and thereafter was 2.5% and 4.3%.

And…

Just for clarity, the standard rate of tax was 30% in 1990, fell to 27% by 1992/3, remained there until 96/97 when it was reduced by 1%, then reduced by 2% in 1998/9, 2 % in 00/01 and then stabilised for the rest of the decade.

In other words we could increase taxes from where we currently are to mid 1990s levels when the economy was growing significantly. To suggest that the only alternative is massively higher rates of taxation or what we now have is frankly disingenuous.

Then he treats us to another classic:

The €100 household charge is just a fraction of the kind of property charge recommended by the commission which proposed that the lowest rate of tax for houses worth less than €150,000 should be €188 a year with more than €900 a year for middle-range houses.

Except we know that that’s not the level that the household charge will stay at, though curiously and tellingly the government is remarkably vague on just what levels (and structures) it will actually have. One thing we can be sure of is that it will be higher than currently set.

The Government is highly unlikely to endorse a property tax on that scale, as it would certainly impose a crippling burden on a lot of people who would be unable to pay such steep charges. However, some form of property tax is necessary. not only to raise revenue but to limit property prices in the future. The flaw in the flat rate €100 charge is that, modest as it is, the same rate applies to every house, big and small.

Which is precisely the point. However he sees light on the horizon.

That state of affairs, however, is likely to last for just a year with a graduated system taking either valuation or size, or a combination of both, coming in to replace it, possibly as early as 2013.

‘Likely’, ‘possibly’, all very vague and profoundly unsatisfactory given the regressive nature of the interim measures.

And then we are treated to a further classic:

The irony is that there would be far less fuss if income tax had been increased in the budget on a scale that would have brought in 10 times more than the household charge.

But the point is that income tax increases would be at least progressive and based on ‘ability to pay’. That Collins can’t see this suggests he can see nothing in relation to these matters. But for him it’s not his own short-sightedness that’s at issue but rather as he puts it in a portentous fashion.

That is a reflection on our political system and the shallowness of so much of the debate about the state we are in.

No it is not, it’s a reflection of the fact that the current proposal is regressive and consequently unfair, that it is the thin end of a wedge, that the experience of bin charges demonstrates that supposedly iron-clad waivers for those on lower incomes are easily jettisoned when it is expedient to do so. And all he does is point up the now fetishistic attachment of much of the commentariat, our largest political formations and indeed the upper middle class to avoiding income tax increases at all costs.

Of course they’re right from their perspective, because progressive income taxes will, by definition, require them to make a greater contribution than they currently do. That they do everything that they can to wriggle away from them tells one all one needs to know about where they stand in this conflict.

It’s intriguing how the information on the water charges is beginning to emerge.Though again it is tellingly vague. There won’t be a ‘flat charge’ for usage, that much we are told. But what will there be? The Irish Times suggests that it will be set between €250 and €400 per annum with a level below which there will be no charge incurred. But this seems like a recipe for distortions and contradictions. Households with larger numbers will use larger amounts, and how is that then tallied with income? So this too seems likely to be profoundly regressive – particularly if the spread of charges is only between €250 and €400 [not to mention the contradiction inherent in the rationale extended by Collins et al that such taxes are revenue generating/broadening the tax base and the supposed need for them to cover the costs of utility supplies]. And as with the household charge the concept of ‘ability to pay’ appears to have been largely stripped out, bar its most cosmetic application, from the issue.

********

On a related note one has to smile at Noel Whelan’s thoughts in the same edition of the Irish Times. Is he merely being provocative when he argues that the Government should ‘ignore polls and take bold measures’?

Or is he presenting seemingly plausible, but politically combustible advice, on behalf of his former political colleagues? Either way when one considers the unhappy history of the previous Coalition it seems dubious that ‘bold measures’ will resonate with the public.

But as entertainingly, in a grim sort of way, is the following:

Our new Government has a massive parliamentary mandate. As long as it can agree between the two parties, it is assured of a full five-year stint in power. It has the advantage of being able to think and act in at least the medium term. It should be frontloading the implementation of their programme for government. It should be leveraging the economic crisis as a basis for effecting radical reform in the public sector and political system.

Given that all these latter measures are effectively short hand for ‘cuts’, because that’s the badge of ‘courage’ in our contemporary system, at least on the centre right, it’s intriguing to compare and contrast with the latest advice from the IMF issued this last week or so which which points to Ireland’s ‘fragile’ economy and the necessity to eschew any further cuts in order to stimulate growth.

Yeah, that’s a great strategy Noel. Just great.

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Comments»

1. CL - December 29, 2011

‘The planned amount of fiscal adjustment should be maintained in the event of adverse developments to avoid amplifying policy procyclicality.’-David Lipton, First Deputy Managing Director, IMF.

http://www.imf.org/external/np/sec/pr/2011/pr11471.htm

Lipton recognizes that the current policy is ‘procyclical’, and that it ‘should be maintained in the advent of adverse developments’.
The main ‘adverse development’ is the procyclical policy itself. This is hardly a policy to stimulate growth. (Of course to describe the economic calamity occurring in Ireland as ‘cyclical’ is inaccurate.) Mass unemployment is necessary to implement the IMF/Eu/F.G./Labour policy of ‘internal devaluation’, and this is happening.
Lipton, along with his cohort Jeffrey Sachs, formulated the neoliberal transition policy for Russia after the fall of communism. The Russian people are still trying to recover.

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WorldbyStorm - December 29, 2011

Excellent analysis, CL, and I think what you say about this not being cyclical gets to the heart of the problem of the response from the orthodoxy.

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ejh - December 29, 2011

According to Wikipedia Jeffrey Sachs was last seeen advising PSOE in Spain, which gives you some idea how near-total the neoliberal has become. (Granted, Sachs has himself had some changes of view since he caused so many Russians to freeze to death, but not that many. Ken Rogoff similarly.)

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CL - December 29, 2011

Here’s a piece by Doug Henwood on Sachs. There’s also a photo of Sachs with his arm around a guy who looks awfully familiar but I can’t put a name on him.

http://lbo-news.com/2011/11/26/introduction-to-jeffrey-sachs/

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2. Rising Boats, Trickle Down Economics And The Politics Of Regression « An Sionnach Fionn - December 30, 2011

[...] Reform to wag his tail over. Ah… “Finance”? “Public Sector Reform”? Now we get it. Good one, [...]

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