In preparation for a summer podcast series, I’ve been rereading the accounts of the tumultuous period that began in 2008 when the global financial crisis crashed over an unsuspecting Ireland. They would make your hair stand on end.
Most readers will need no reminders of the crash and the years of grinding austerity. For those who do, a brief summary: it was horrific. At this time of year in 2008, just after Bertie Ahern exited the taoiseach’s office following a tenure of 11 years (a coincidence? I think not), the country experienced the first stages of a sudden and colossal economic shock.
The construction sector was hit earliest and hardest (we are still feeling the effects); then the banks, rescued from instant ruin by a €400 billion Government guarantee, a move that would ultimately doom the country to insolvency and a painful bailout two years later; and then everyone else. The country sank into an economic depression. Tens of billions of euro of wealth was destroyed, throughout society, at every level. Despite slashing public spending and jacking up taxes, the Government lost control of the public finances as the receipts from taxes plummeted while welfare bills soared. The Government stuffed cash into the banks to save them; it was never enough. When Ireland could no longer support itself, help came in the shape of loans from the “Troika” – the European Commission, the European Central Bank and the International Monetary Fund – but at the price of years of austerity.
Tens of thousands emigrated, some never to return. Half a million people lost their jobs, and many lost more than their jobs. As argued here before, when a country loses control of its public finances, you can measure that in rows of numbers on the budget documents – €1 billion here, €5 billion there. The real human cost is less measurable but in many ways more real – the raw distress of lives blighted, relationships ruined, life chances sabotaged forever, depression, addiction, ill-health, suicide.
The air of gloom and fear that enveloped the country is hard to describe and impossible to forget. The novelist Donal Ryan probably captured it best. “Every bollocks is going around cribbing about the country being fucked,” says builder Rory in The Spinning Heart. “It’d wear you out so it would. The country’s fucked, the country’s fucked, the country’s fucked; the same bollockses that were going around cribbing that the whole country was gone mad for money a few years ago.”
Ensuring that nothing like that is ever again inflicted on the country should be the single greatest priority of every party and politician in Leinster House. But it is the human condition to forget past miseries. And there are few political advantages in advocating for prudence – not when there are so many obvious pressing needs in the provision of public services and infrastructure and so on. That’s why leadership means prioritising: what needs to be done now and what will have to wait? What is essential and what is not?
Our political and media system rewards those who clamour the loudest. But the loudest voices or the most insistent lobbying or the cleverest political campaigns are not the same thing as the national interest. Identifying that requires leadership, judgment and courage.
Those were qualities sorely lacking in the Fianna Fáil-led Government in the period running up to 2008. Now there are some worrying signs that the same mistakes could be made again. This week the Department of Finance warned that US tariffs at 10 per cent would cut growth and job creation here; a higher tariff – which may arrive when President Trump’s current pause elapses – would have greater impact, while an out-and-out trade war would threaten a huge economic shock. Even before the impact of tariffs, the department is warning that corporation tax revenues are likely to shrink this year. Investment decisions everywhere are understandably on hold.
[ Two ways to look at corporate tax takeOpens in new window ]
Last weekend, a Business Post investigation showed that almost $1 trillion of intellectual property assets are held in the country by multinationals, part of sophisticated tax avoidance schemes that are entirely legal but also a bit hookey. Tech and pharma companies are not going to move factories and thousands of workers out of Ireland; but they might change their tax arrangements and pay billions in corporation tax elsewhere. The prospect of a multibillion euro hit to corporation tax is real and it is scary.
So what should the Government be doing? That’s a column or two in itself. But they should certainly not do what the governments of 2004-2008 did: assume the good times would continue forever; narrow the tax base; court cheap popularity by expensive giveaways; ignore warning signals; stick their heads in the sand; and finally, refuse to act until it was too late.
There are, whether we like it or not, parallels between those governments led by Bertie Ahern and Brian Cowen, and this and the previous administration. The recent Fianna Fáil-Fine Gael-Green coalition was unable to resist the temptation to throw money at every problem. Current spending has rocketed. The corporation tax base is dangerously unbalanced, relying on a small number of companies. On income tax the picture is similar – 60 per cent of all income tax is paid by less than 10 per cent of the highest earners.
The gathering international storm clouds do not appear to be having much effect. Mandarins tell me there has been absolutely no change in the attitude of Ministers to living within their budgets, and overspends are expected in a number of departments. “There is,” says one senior official, “no sense that the political system understands the danger we are in.”
I don’t like the look of this at all. The case for budgetary discipline has never been stronger.
