OUR unemployment problem has two quite different aspects on the one hand there is a need to minimise financial disincentives to work for those out of a job but able and qualified for employment; but there is also a different social problem of helping long term unemployed to overcome barriers of under education, lack of skills, or other factors which may stand in the way of recruitment.
And in the Irish case these two aspects of unemployment have to be tackled in circumstances where, despite the fastest rate of employment growth in the industrialised world, the backlog of unemployment, and especially of long term unemployment, is on a scale that in practice is incapable of resolution within any reasonable time scale - no matter what mix of policies is adopted.
Unfortunately there seems to be an almost universal reluctance to accept the existence of all three aspects of "the unemployment problem. The fact of the tax/social welfare dilemma is quite widely accepted, and is the subject of much right wing rhetoric - but so far no party has been willing to take the kind of action necessary to resolve it, e.g. the substitution of taxes on energy and/or property for some of the existing taxes on labour which operate as a disincentive to employment.
The problem of long term unemployment has recently received belated recognition, and has been the subject of increasing attention by the Government. But as is clear from this week's report on long term employment initiatives by the National Economic and Social Forum, the scale of action so far remains inadequate.
And, finally, all parties ignore the fact that whatever action may be taken to tackle unemployment, we shall still be left with a residue of long term unemployed - with all that this implies for the future of their children. The universal political pretence that long term unemployment can effectively be eliminated over a reasonable timescale enables all parties to ignore the urgent need to find ways of relieving the social deprivation of the families of those who will not be re employed.
IN terms of political debate, by far the most popular aspect of unemployment is the need for tax and social welfare reform to eliminate poverty traps that make it unprofitable for many unemployed to return to work. It is worth considering how this problem arose and why so little has been done to address it.
The problem arose in the first instance because of the urgent need in the early 1980s to reduce an Exchequer borrowing level which since 1977 had been rising to around 22 per cent of GNP. In addition to spending cuts the Government that I led had to raise taxes significantly, affecting both average and marginal tax rates.
Since then income tax has been reduced. But post 1987 governments chose to concentrate tax cutting efforts mainly on the better off. This can be illustrated by comparing the positions of taxpayers earning respectively the average adult male industrial wage and twice that amount.
As will be seen from the table below, someone earning twice the average adult male industrial wage (viz. £32,000) now has a much lighter tax burden than a person in 1981 who then earned twice the average wage (viz. £14,000 at that time). Thus in the case of a married man at these income levels, the proportion taken in tax is now 26 per cent against 36 per cent in 1981.
By contrast a single person on the average adult male industrial wage (currently £16,000) still has to pay the same proportion of his income in tax as in 1981 - viz. 25 per cent - and a married man on this average wage is still paying a one fifth higher share of his income in tax than was the case back in 1981.
Similarly with marginal tax rates: 48 per cent of all additional earnings of workers at the lower level is now taken in tax - compared with 35 per cent in 1981. By contrast single workers at double the average adult male wage have had their marginal tax rate reduced from 56 per cent in 1981 to 48 per cent.
It will be seen from this table that much the greater part of the tax changes that have led to this perverse situation were effected within a single three year period between 1989 to 1992 during which income tax reliefs were given that had a yearly cost of more than £650 million in 1996 terms. What happened during that period was that personal allowances were left virtually unchanged and instead of applying available resources to a tax reform that would remove ordinary low paid workers from the higher tax band almost the whole weight of these expensive tax changes was concentrated on reductions in tax rates which mainly benefited the better off. Today's legitimate tax grievances of lower paid workers, and especially of those who are single, derive from the costly and perverse tax policy pursued during that period.
Those three years were the period when the Progressive Democrats were in coalition with Fianna Fail. This is the back against which last Wednesday on
"this page Mary Harney chose to assert that the Progressive Democrats believe that tax reform has a vital part to play in employment creation and employment protection" and to complain that we "imposed a marginal tax rate of 56 per cent (including PRSI) on anybody earning more than £247 per week.
NOW, if the Progressive Democrats in government with Fianna Fail had opted to use even half of the £650 million of tax relief, money to remove lower income groups from the 48 per cent tax band rather than concentrating almost all of it on reducing tax rates, the poverty trap about which the PD leader is now complaining would be much less of a problem.
Moreover, if between 1989 and 1992 the annual increase in the volume of supply service expenditure had been held to the 2.5 per cent figure currently being achieved, instead of rising at three times that rate, an additional figure of no less than £1.35 billion would have been available for tax relief during that period. This would have trebled the amount actually applied for that purpose by that FF/PD government.
It may be recalled that the 7.6 per cent annual volume increase in public spending by the Fianna Fail/PD Government was the highest rate of spending increase by any government in the past 25 years and was probably the highest by any government in the States history. In fact it was five times greater than the rate of inflation during that period, despite which Mary Harney in her Wednesday article feels able to propose that government expenditure should not exceed the inflation rate at all.
We often expect more from our politicians than they can deliver. But it is not unreasonable to suggest that when in government as a junior partner an avowed low spending, low tax party should have been able to keep the rise in spending down to less than three times the rate of increase currently being achieved by a Government with two left wing parties as junior partners - especially as the rate of inflation was even lower between 1989-1992 than it is today.
Nor does it seem unreasonable to express some surprise that the party that chose not to use £650 million available for tax relief to remove poverty traps should be such a strident advocate of just such a reform when in Opposition four years later.