“A major contributor to boom and bust has been the spending of every penny of taxes generated by recent and forecast economic growth. Similarly, when economic buoyancy reduces actual and forecast government expenditure, those savings are spent. So, my first initiative will be to abolish official economic forecasting. This will free up economists to spend time figuring out exactly where the economy is today rather than pointlessly forecasting an unknowable future. Every budget from now on will assume GDP growth of 2 per cent. That will anchor the budgetary process in a long-term setting. If unexpected booms or busts occur that disrupt the fiscal arithmetic we will be able to introduce appropriate measures at the time.
“We will run a balanced budget on the current account over a full cycle. It makes no sense to borrow, permanently, to pay for public-sector wages and social welfare. The tax system must be able to support the level of current expenditure the Government of the day deems appropriate.
Myths
“I will dispel the myths about our tax system peddled by the Opposition. We do not have a low-tax economy. We have low corporate taxes and employers’ social-insurance contributions. Taxes on incomes only modestly above the average are high. Taxes on average (and below) incomes are low. The top tax rate for a self-employed person is 55 per cent. When all of the other indirect taxes are taken into account, many hard-working people are effectively handing over to the State up to two-thirds of each additional euro that they earn. This breaches the social contract.
“A leading British economist recently called for a new and radically redistributive UK fiscal policy, arguing that their tax thresholds should be lowered such that anyone on more than €90,000 should be taxed at their top rate. We are already twice as radical. Our top rate kicks in at €42,800. For those who never see a tax they wouldn’t raise it is important to remember that we already have had significant tax hikes in recent years and we already have one of the most redistributive tax and welfare systems in the world.
"Ireland has made decisions about corporation taxes in the interests of job creation. The optical illusion of a low tax economy reflects a conscious decision by a country on the fringe of Europe to boost competitiveness and employment. It is disingenuous to then say that in order to have Scandinavian levels of social provision, income taxes must rise to fill the gap left by low corporate taxes. Ever higher taxes on work risk destroying the jobs created by the low corporation taxes. Such a fiscal policy would be utterly incoherent.
“Our Syriza-style socialists have a sinister message. The 38 per cent of workers who don’t earn enough to pay income taxes are tempted with promises of handouts made possible by increasing taxes on the 62 per cent of workers who do pay income tax. The left’s electoral prospects depend on the 38 per cent remaining on low incomes. And their divisive polices will achieve this.
Social cohesion
“This government is proud of the numbers we have taken out of the tax net and will continue to increase tax allowances such that even more people don’t pay any tax. But our longer-term goal is this: we want the low paid, eventually, to earn enough to pay some income taxes. That’s social cohesion.That means growing our economy. We have clearly demonstrated that we know how to do this.
“Fourth, I will propose to my European counterparts that national capital budgets be handed over to a supranational agency. Just as monetary policy is dealt with at a European level, it is time to move towards fiscal integration. Starting with capital spending is timely because of near zero borrowing costs. Free money is there to spend on infrastructure: it isn’t really borrowing, more an asset swap.
“The revenues from new broadband networks, ports, bridges and toll roads can be ringfenced, eventually to pay back the debt – or the assets may ultimately be sold. There are many investments that would yield a positive excess return for the exchequer. Handing over capital budgeting to technocrats will allow for increased Government spending without raising doubts about profligacy.”
Not obtained under the Freedom of Information Act.
