If you were given a choice between lower taxes and the elimination of hospital waiting lists, which would you take? Or if the alternative to lower taxes were first-class public transport? Or State-funded pre-school care? Or lower house prices?
As international bodies offer directional advice on our economy and, implicitly, our social priorities, the choices remain ours, not theirs. We elect the Government. The social partners, at least in theory, represent us. In this run-up to a general election, we have crucial collective decisions to make.
We already have a good record of taking collective decisions and sticking with them. Think of the North, think of the genesis of social partnership.
The last big collective decision we took on the economy was 14 years ago. In 1987, in the birth of social partnership, we agreed a formula by which wage moderation would be traded for tax cuts; in that straitened time, this inevitably meant big cuts in social spending. It seemed to work. The price was closed hospital wards, the prize employment growth. In the 1990s more jobs were created than in anyone's wildest dreams.
We agreed this painful formula at a time of desperation. The Republic appeared as much a failed economic entity as the North was a failed political entity. In the 1980s the State's income was falling. The population was falling. More than 200,000 people emigrated. One person in every six was out of work. That has all changed. Today, we struggle to accommodate the immigrants and the growing population which our labour-hungry economy devours. What a turnaround.
Did tax-cutting cause the turnaround? The Government appears to believe so. Although the Republic has the lowest level of State spending and the lowest overall tax take in the EU, the Government wants to cut taxes and spending further. Last year, the Republic spent just under 35 per cent of GNP. In contrast, the average EU state spent more than 45 per cent of its income. The Government has the stated target of reducing spending further to below 30 per cent of our income. There is an alternative view which places greater emphasis on the long-term reasons for our success. This view sees it as the payback for the introduction of free secondary education in 1967, for the strategy of wooing foreign investment in industry and, crucially, for our membership of the EU. These were all State-driven policies; in the case of education and industry, very much so. The ideologues of this Government would, in contrast, paint the boom as a consequence of private initiative, the unleashing of enterprise due to lower tax rates.
This is an important argument because what you believe or profess to believe about the genesis of our success affects what direction you think we can now safely choose.
Fourteen years later, is there any good reason to remain wedded to the formula of 1987? The OECD thinks not. Last week, it suggested that tax-cutting commitments should be removed from the formula. Social partnership should apparently revert to good old-fashioned centralised wage bargaining.
The EU Commission has cautioned again about the inflationary consequences of combining tax-cutting and higher spending (as the Government did in the last Budget, electoral concerns having apparently temporarily derailed its goal of lower State spending). The Central Bank shares the EU's concerns.
Given the intoxicating effect of general elections on governments in general and Fianna Fail governments in particular, this cautionary chorus is not ill-timed. Combining big tax cuts and spending increases at a time of boom is daft and there is no harm in the Government being reminded of the fact.
But this is an argument for today, for now, an argument about the aftermath of this Budget. What about future budgets? What about the next social partnership deal? How do we divide and spend the fruits of our success? In giving people more money in their pockets and driving up house prices? Or in keeping these resources to build services which we can all share? Having achieved EU average income, do we plan to build EU average services?
The Tanaiste, Mary Harney, accused the Labour party late last year of proposing "tax and spend" policies which would risk "turning the clock back to the dismal days of the 1980s". Labour's new fiscal policy had stated unequivocally that tax-cutting had reached its limits and that the next social partnership agreement should stabilise the tax burden, so that tax relief for the low-paid would be financed by other taxes. Labour argued for social investment in public services such as health, education and transport. Labour is not alone in this. Already the ESRI has recommended a new model of partnership which better divides the fruits of growth and gives greater priority to social spending, issues which are "crucial to the continued sustainability of the distinctive Irish model".
In its Bust to Boom volume last year, the ESRI described how tax-cutting since 1987 had been regressive, achieved largely through the reduction of tax rates which favoured those on high incomes. Consequently, our rate of relative income poverty was one of the highest in the EU.
Now the Combat Poverty Agency has published a volume entitled Rich and Poor, which concludes that "further reductions in the tax burden are unnecessary" and likely to increase inequality.
The battle lines are drawn. Mary Harney happily champions continued tax cuts in opposition to "tax and spend" Labour. But Labour is only one element in a growing coalition of interests from which a new consensus could grow.
mawren@irish-times.ie
