Tuesday sees the budget, a by now largely meaningless piece of set piece theatre. The old days when ministers were afraid to speak a word for fear of leaking have, thankfully, gone. Yet the setpiece remains, and it is a high point of the political year for the minister for finance to deliver the plans for the coming years.
Our political system favours strokes. The death of Liam Cosgrave should remind us of the events of 40 years ago. Fianna Fail swept into power on the basis of a massive plan of tax cuts. Domestic rates were abolished. Admittedly domestic rates were a very crude mechanism for taxing property values, but they at least existed, and provided the basis for the funding of local council provided services. 40 years on we are still paying the price, politically socially and economically, for that decision. First-time buyers grant or in economic terms a subsidy to property construction was introduced. Across a wide range of other taxes, from personal to transport, rates were cut and bases were abolished. Fianna Fail swept into power. Their successful appeal to the population set the template for Irish political life ever since. While economically disastrous the 1977 program was politically triumphant, changing the landscape forevermore.
We persist in this country in believing our own myth that we are a uniquely highly taxed nation. This is not the case. In comparison with the countries in the northern tier of Europe the Irish state takes a small percentage of the national wealth, individuals pay a small percentage of earnings, and corporations pay a small percentage of their earnings. We have no effective wealth tax. Ireland is possibly unique in the western world in that it has hard-left Socialists, the solidarity party, who are against taxing the major form of wealth possessed by most people mainly residential property. Council after Council has reduced the residential property tax, rendering it a bit player in the extreme. Solidarity, proclaiming to be socialists, have allied with the local populists (whether they are Fianna Fail or Fine Gael or Labour is irrelevant) in cutting local property taxes and then demanding increased local services. It is entirely politically rational for them to do so.
Nobody likes paying taxes. But we have a political system which is absolutely incapable of telling the people that if they want the kind of services which they consistently demand, they have to pay to provide. They can either pay at the point of use, a private provision; they can pay through deferred consumption in the form of loans, or they can pay through deferred consumption via taxation. There is no magic money tree.
The budget on Tuesday would be pretty predictable.There is an ambitious and praiseworthy capital program, and this will be continued. There is an ongoing need to fund the activities of the state. We are earning enough and taxes to pay our way. But the legacy of crisis, and the legacy of the 1977 political earthquake, means that it is extremely unlikely that we will see anything bold or exciting. We should not expect political vision from the government which was quite happy to yield up hundreds of millions of Euro through not collecting the taxes that are owed to us from multinationals. Whatever the ultimate outcome of the Apple tax case right now apple have a tax bill of €13 billion. A large chunk of that no doubt will eventually be paid to other countries, if it is ever collected. Before that happens however we’re engaging in reverse Father Tedonomics – money is not resting in our account. 1% of €13 billion is €130 million. That’s a good chunk of the available ”fiscal space” which the government has to play with. As of its latest quarterly accounts Apple had in excess of 65 billion Euro in cash and short-term securities. They can quite easily pay this bill, Without blinking. There Is no question about them leaving Ireland should they eventually be forced to pay this money. The Irish government has gone to extraordinary lengths, even let us recall not collecting tax legally due to it, to stay on the side of apple. €130 million, which the government has foregone, is approximately the same amount as is spent by local authorities on social housing. Fitting into a further year of homelessness as a crisis it’s good to know that the government can afford to forego this money.
The government almost certainly won’t announce on Tuesday that is going to collect this money due to it. That will instead spend an equivalent amount of money in ensuring that the optics of tax reduction are maintained. There will be ritualistic denouncements of the government from the opposition, ritualistic muttering from the silent partners of Fianna Fail, and all sides will compete to demand more services but simultaneously demanding that the government is taking less resources to pay for it. Continuing to feed the myth of Ireland as a high tax Society, commentator after commentator will breathlessly pore over the entrails of of minor adjustments, The media will provide infographics showing how three euros here or €4 later will be added and subtracted to various hypothetical taxpayers, and the system will sludge on.
Published as a column in Irish Examiner, 9/10/17