Ireland is a peripheral economy of the Eurozone with no control over monetary policy. In the absence of a currency devaluation the only way to the manage the chaos in our public finances is through tax and spend – most of our spending goes on public sector pay and social services.
The only alternative to wage cuts is either a) leave the Eurozone b) raise taxes or c) more cuts. ‘Tax and spend’ – fiscal policy – is central to economic planning and needs to be at the heart of a new economic policy programme. Trade unions will not make this argument as it requires asking their members to reduce their gross take home pay – disposable income. So, who and what political actors can make the argument for an increase in direct taxation?
There is very little discussion of the overall tax take in Ireland. This is all the more ironic given that the gaping hole in our public finances is a direct result of a collapse in revenue. We have the second lowest tax take in Europe – akin to Romania and Estonia. If we want a high wage, high public service economy then we have to accept an increase in direct taxation. If we want a low wage, low public service economy that we have to accept poor delivery. The latter exists but to achieve the former requires a sea change in public opinion. It requires progressive political actors that are willing to challenge the short termism and policy populism that are the product of electoral cycles.
Labour costs in the Irish context are a tricky thing to measure. Wage costs in Ireland are slightly above the EU average – particularly for public sector employment in health and eduction (this is not an argument to reduce wages – it is just a reality – I am in favour of high remuneration in public services – but it should not come at the cost of massive inflation or funded in the absence of secure sources of revenue). Employers make very little contributions toward employing labour. Hence our below average labour costs in Europe. So, what fiscal policies can balance wage and labour costs, job and wealth creation?
Given the institutional stickiness of Ireland’s political economy it is hard to imagine a political alternative to repetitive boom-bust cycles, short term policy making and populist politics. But – our current crisis is opening up a new space to institutionalise an alternative. The Dutch-Danish flexicurity model is one possible alternative that suits the dynamic of our small open economy. This model, however, requires an explicit argument in favour of higher taxes, innovations in the delivery of public services, an overhaul of FAS – labour market interventions and publicly supported enterprise.
What it requires is a peoples charter – a broad political manifesto aimed at a new republic – one that can include specific policies (health, education, income and environmental issues) that are tailored to the reality of the Eurozone. I am sympathetic to arguments in favour of public investment. But, what most of these arguments lack is an appreciation of the EMU. Furthermore, they tend to resist policy changes in how the state raises revenue. Most progressive social democratic economies can only sustain their public investment programmes because of their high tax regimes. Regimes that have been institutionalised over 70-80 years. Only when an a secure revenue stream is identified in the Irish context can we make convincing arguments in favour of public investment.
This change in fiscal policy requires a radical change in how we do politics. Citizens will not support an increase in tax without radical political reform – without accountability in public bodies, state agencies and social services. A revolutionary change away from vested interest politics toward the general public interest.
We need citizens charter aimed at revolutionising the political future of Ireland – based on attainable but progressive public policies.