The hubris of the noughties is back with a bang. We have lost the run of ourselves and forgotten what a paltry sum the €13 billion coming from Apple is. Some €114 billion is allocated in public spending this year; the State pension alone costs more than €10 billion annually. If we weren’t so foolish as to give it out to every 66 year old, it might stretch further.
There has been merriment calculating how many children’s hospitals or bicycle sheds you could build for the €14 billion, which includes interest. Less attention was paid to the fact that year-on-year public spending is 13 per cent higher than last year. The legacy of this government will be public spending at least 50 per cent greater than it inherited. Making allowance for Covid, Ukraine and inflation, this represents a loss of fiscal discipline not seen for a generation. It is a long time since €13 billion was big money to the State.
Ireland is not a failed state. It’s not a poor one either. Our problems are that our success is undermined by inadequacy, and hubris. We are at the end of a five-year political cycle, and at the top or close to it, of a rollicking good time economically. Our immediate challenge is not money, it is capacity. We lack the people and infrastructure necessary for current demand. We throw enormous amounts of money at our problems, with varying degrees of success. These feed demand faster than there is capacity to cope with. The Central Bank estimates the Government has thrown so much money around that it has inflated the domestic economy so that it now costs a typical household an extra €1,000 per year to get by. Yet more fuel is intended for the fire.
Before Apple’s €13 billion arrived, corporation tax was 28 per cent up on last year and, at €16 billion so far this year, is now four times the total take in 2012. It is not numbers that are important, however, it is words. And one word that has utterly disappeared is “choice”. The idea of the Government, and parties that want to be in government, making choices is gone. After passing mention of prudence in the immediate wake of Wednesday’s European Court decision, the Taoiseach was announcing a new State infrastructure for preschool children. It may be a good idea, and it aligns well with the third-level sector – which is essentially a tax-dependent, State-run enterprise.
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The State is now dependent on corporation tax, which derives as much from intellectual property held here as activity performed here. There is little danger in the short term of an exodus of foreign direct investment from Ireland. Activity based elsewhere but taxed here may prove more mobile, because the intellectual property underpinning it is here. Right now, Irish-based multinational companies are disadvantaged when bidding for further investment within their own global companies because of our lack of capacity in infrastructure and housing. Tax is no longer our key offering; the overall attraction of Ireland has lost focus. In the meantime, we are so dependent on the tax generated that the Irish Fiscal Advisory Council estimated in June that, excluding excess corporation tax receipts, a deficit of €2.7 billion is forecast for this year. But the only talk politically is of more spending, much of it current. That is the equivalent of paying for the groceries with your credit card.
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The Government is spending on a scale far beyond what Sinn Féin promised in 2020. Sinn Féin is promising to double child benefit payments in October and December in its alternative budget. For children in poverty, this universalism is grossly wasteful: evidence shows that what helps best is targeted services. Ironically the Sinn Féin initiative is a return to when the Progressive Democrats stymied the rollout of early-years care for children, the better to ramp up a one-size-fits-all child benefit payment. The good old days are back with a bang.
These are not decisions without consequences. The political cost of postponing any consideration of containing and strategically focusing spending is more lost years. It runs together with a blank refusal to rebalance the tax base – despite our current over-dependence on labour and corporation taxes. Those foreign companies account for a big chunk of income tax too. The heist to reduce inheritance tax is about forestalling any effective tax on wealth or property.
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The victims of all of this include the State’s poorest children. Over the longer term, it is an unhoused, under-pensioned younger generation who will have to carry the burden of ever more older people. In October, the Government must send a medium-term fiscal plan to the EU Commission. In theory, that is a guard rail for the future; in practice the fiscal rule it set for itself of a 5 per cent increase in spending is in tatters. Political parties emphasise their differences. In reality, they are marching in lockstep to the same drumbeat.. The Apple money is a tizzy about small change while the big issues are avoided.