The economy is working - let's get society working as well, argues Paul Sweeney. We have the most unequal society in the EU
The Irish Congress of Trade Unions regularly welcomes groups of econo-tourists keen to learn from the economic success of the Celtic Tiger. Industrialists, trade unionists, and policy-makers from Singapore, Latvia, China, Hungary, US, Korea have visited in the past few months.
But we were surprised when Swedish business people recently arrived on the same quest. Ireland is the most unequal society in Europe. We should be visiting the Swedes.
Yet Ireland's economic success over the past decade has been phenomenal and so it is not really unexpected that the Swedes think they might learn something from us. But, having achieved what we have on the economic front, we have far more to learn from them in terms of social - health, education, public transport - equality than they can possibly learn from us.
Ireland's greatest success, in my opinion, was to create an additional 724,000 jobs in just 11 years, a staggering 59 per cent growth since 1994. We moved, from high unemployment and mass emigration in the 1980s, to close to full employment.
The second achievement has been very substantial increases in real disposable incomes, for most people. The Government's debt is way down; we are running budget surpluses when the pensions fund is excluded; investment is double the EU average. The economic outlook is excellent.
The growth has allowed us to spend more, while cutting taxes - current public spending has risen by an average of 5.8 per cent in real terms each year since 1994. It was not the other way around as conservatives assert - that tax cuts created jobs.
With fewer on welfare and 60 per cent more at work, paying taxes, the Government was able to cut direct taxes on incomes dramatically. Income taxes are the lowest in the developed world. Tax rates on companies have also been reduced and capital, including property, is hardly taxed.
Many really wealthy people pay little or no income tax. In this country, some of the rich and powerful throw a few bob into their favourite charity as a "voluntary tax" and are applauded by sycophants. Contrast this with Sweden, where such gross inequity and anti-social behaviour is not tolerated officially or socially.
While public spending has risen every year, it has reduced as a proportion of GDP, from 40 per cent in the early 1990s to 29 per cent now. In comparison, Sweden is at 55.3 per cent. Irish current spending is now very low by international standards. Adjusting to GNP at 33 per cent for 2005, it is substantially below the 43.3 per cent average of the original 15 EU member states.
This reduction in public spending was at a time when population, incomes and expectations have grown. It was a mistake to cut taxes so steeply when so many things need to be done.
People are dissatisfied with many public services, but you get for what you pay for. Conservatives assert that public money is being wasted. While there may be room for improvement in public sector performance, even a hyper-efficient public service cannot deliver the 10 per cent gap between spending here and in Europe, which would be equivalent to € 13.6 billion this year. Public services need more money not less - health and education are very labour intensive.
We cannot have European-style social, health, education and transport systems if we spend 10 per cent of GNP less than the EU average - or 42 per cent less than the Swedes. Such spending requires more taxes and these can be raised from the tax exiles, cutting most so-called incentives (loopholes) and curbing widespread tax evasion, especially in the building industry. But once economic growth slows - which it inevitably will - we will have to pay more in taxes. However, the good news is that we would not have to raise taxes to Swedish levels to make Ireland a much much better society.
We could have done a great deal more with the fruits of economic growth than we have achieved. The political decision to cut taxes so dramatically has meant that we are poorer in many ways. For over a decade, money has not been an obstacle to completing the Irish success story. We have not been at all successful in addressing many social issues. This is not for want of trying by successive governments which spent additional money, but it was not enough.
The problem stems from the fact that many of our leaders and policymakers do not have a vision of the kind of society we need. Most decent politicians appear to be afraid that the middle class will not vote for them if they actively promote a European-style society, that is, one which requires more taxes. The tiny but powerful group of conservatives have a clear vision - a small State, little public spending and low taxes.
Most Irish people do not subscribe to this minimalist vision of the State, when they consider the options. They do not want the current health crisis to continue, nor for their children to be educated in rundown school buildings, with high childcare costs and poor public transport.
Ireland could learn a lot on the social side from Sweden and the other Nordic countries. Congress has called on the Government to undertake a study of those countries and to shift the focus from growth maximisation to the social, now that the economy is humming. The economy is working. Let's get society working.
Paul Sweeney has written two books on the Celtic Tiger, his latest being Selling Out? Privatisation in Ireland. He is economic adviser to Ictu