Writing in The Irish Times yesterday, Mr Turlough O'Sullivan, the director general of IBEC, the employers' confederation, described as "self deluding rubbish" the argument that increased spending in the economy might help to save jobs. It may be that he had Congress in his sights for this indeed is part of our pre-Budget submission to Government.
We believe that it is a wholly rational thing to seek to increase consumer spending at a time of downturn. When the economy goes into cyclical recession governments should act to put more money into the economy through fiscal adjustments and increased public spending. It is exactly the position being taken by the US government who are currently going through the process of mounting a $100 billion stimulus to the US economy.
I acknowledge Mr O'Sullivan's stated desire to improve social services but I think his analysis of recent history and the role of corporation tax and PRSI needs some serious qualification. In the mid-1980s this country was in a terrible state. The social partnership project was created to try to rescue the country and it worked - at least to a degree and at a price. The question of degree arises in as much as we have raised income levels to European standards, we have reached close to full employment too but our infrastructure and social provision is far behind Europe. Also we have levels of inequality in our society which parallel the UK and US rather than mainstream Europe.
The price paid was that the share of national wealth taken by profits rose from 22 per cent to 38 per cent, while that taken by wages declined correspondingly from 78 per cent to 62 per cent. To be sure this was part of a conscious decision to encourage investment by moderating wages and underpinning them with tax adjustments. In effect this was a State subsidy to profits.
It was the right thing to do at the time because it created a virtuous circle of investment and job creation. However, the result is a level of public spending way below the European average and a consequent underprovision of health services, education, childcare, housing and infrastructure. Yesterday, Mr Charlie McCreevy published the book of Estimates. The budget must be seen in its historical context and there are two important points to be made. Firstly, Ireland has cut its current public spending dramatically as a proportion of Gross Domestic Product from around 50 per cent for many years to just 30 per cent today, which compares poorly with the rest of the EU where it is around 43 per cent.
Secondly, we have been extremely fortunate over the last few years with large exchequer surpluses and a rapidly falling national debt. Even today while the Government may appear to have an exchequer deficit, by international criteria, it is still running a surplus, because it is setting aside around £1,000m for the pension fund. The Minister believes that he is proceeding with "caution and prudence". However he is being counter-cyclical - with the downturn, he is holding back public spending - at a time when a good increase would help boost domestic demand. While the increases in day-to-day spending on health and education in 2002 are welcome, they are partially at the expense of cutbacks in other areas.
On the capital side, the Government is barely keeping pace with inflation which is expected to be over 3 per cent. There is widespread agreement that in times of economic downturn governments can afford to borrow for capital spending, that is to invest in the future. This is particularly true in Ireland today where there is such a crying need for investment in infrastructure that it will pay for itself in a short time.
It is disappointing that the increase in social housing is under 4 per cent in real terms, when housing demand is so high and when public housing investment has been cut back so much in recent years. The increase in investment in public transport and roads, barely 5 per cent, is also disappointing when there is such demand for a decent public transport system and for good roads between our cities and towns. The poor quality of these is reducing growth levels.
On the question of corporation taxes we have the most lenient system in Europe. It is easy to see why that is attractive to investors but the tax foregone to enhance profits either has to be made up by ordinary citizens or we have to do without the hospitals and schools this would help fund.
My own view is that one has to be practical about this. We do not want to discourage investment but is 12.5 per cent critical? Could the traffic not stand a few percentage points higher? Even allowing a judgment that it could not, I fail to see why banks, for example, need this encouragement. The argument would make more sense if the lower rates could be confined to the manufacturing sector.
Congress takes a direct contrary view to IBEC on the matter of PRSI. PRSI goes to support the insurance fund out of which most benefits are paid. We would like to see the Government improving statutory redundancy payments to cushion the impact of unemployment on those unfortunate enough to lose their jobs in this downturn. For this reason we do not wish to see the integrity of the insurance fund undermined.
The ESRI in its recently published Medium Term Review has emphasised the fundamental strength of our economy and the good prospects for a strong recovery in the second part of the New Year. There is no trade unionist who wants to endanger that recovery but neither do we want to be taken to the cleaners by unscrupulous employers determined to avoid a squeeze on their profits at all costs.
David Begg is General Secretary of the Irish Congress of Trade Unions