Notes on the Front

Fine Gael’s Finance spokesperson, Richard Bruton, wants to be Minister for Finance. If so, he will have to up his game.

In response to the Estimates he issued a statement containing two revealing and misleading assertions. First, the current Government is a high-tax, high-spend one. In a comparative sense is this the case? No. Mr. Bruton knows it, the fiscal dogs in the street know it. That, of course, doesn’t stop the Right from peddling this nonsensical line. Ever since we were treated last year in RTE’s Rip-Off Republic to the highly questionable sight of children being corralled in front of the camera to read from a cue card, ‘low tax Ireland is a myth’, this particular myth keeps doing the rounds.

There is one verifiable way to measure taxation in the economy – compute it as a proportion of the total wealth. The recent OECD report (I have adjusted for GNP) shows that in the EU-15 Ireland is almost bottom at 35.6%. The average is considerably higher, 41%. Ireland is currently 11th, fractionally ahead of Spain and Greece and only a ½% ahead of bottom dweller Portugal. If this were a league table, Ireland would be in danger of relegation.

We would have to raise taxes by €9 billion a year just to reach the average and to reach the EU top-5 average we’d have to raise over €16 billion extra. We are clearly a long ways from even being a moderately taxed economy, never mind high.

Maybe Mr. Bruton was musing on our own historical figures. If so, he is again well off the mark. In 1995, Irish tax revenue was 36% while in 2000 it was 36.6%. If anything, it has declined marginally.

Then again, maybe Mr. Bruton was comparing us with Mexico, the least taxed country in the OECD. If so, then he is on a winner. Mexico citizens are taxed at nearly half the rate of Ireland. But of course they have nearly half the living standard never mind an appalling poverty rate, which even Minister Seamus Brennan couldn’t deny.

The second even more dubious statement was Mr. Bruton’s contention that taxation over the last 5 years had increased by 53%. This is a smoke and mirror figure. Since 2001 the top and standard tax rates fell by 2% points each while the income at which we start paying tax has more than doubled. Corporate tax fell from 20% to the current 12.5%. So what’s all this about a 53% increase?

Of course, Mr. Bruton was actually referring to tax revenue. Tax revenue is up substantially over the last five years. This is due, of course, to the fact that there are nearly 300,000 more people in employment, thus more taxpayers; wages have increased; there are more enterprises creating more profit; there is more spending: it is the increase in economic activity that has increased revenues, not taxes.

We expect in the give-and-take of debate that each side will use statistics to flatter themselves and damn their opponents. But when debate turns into manufacturing assertions that have no basis in any fact, then the result is public cynicism and potential apathy.

As the leading Left party, Labour might have been expected to challenge Mr. Bruton’s distant relationship with the truth, showing why it is the only real alternative to this Government. Even in the context of a pre-election pact, we might expect them to have a quiet word with him, especially as the political logic that flows from his criticism is to actually cut tax revenue and drive Ireland further down the EU-tax tables, thus starving the economy of desperately needed investment. We can be both hopeful and doubtful at the same time.

The whole issue that Mr. Bruton raises deteriorates quickly into a sham. For even if the pact succeeds and he becomes Minister for Finance, he won’t cut tax revenue. He won’t want to and if it occurs it will be due to a downturn in economic activity (e.g. rising unemployment, cuts in consumption, a decline in housing output). He won’t ‘cut taxes’ in any serious way beyond adjusting bands and thresholds – not with Labour sitting in cabinet. And, if anything, Ireland’s proportion of tax, as a % of the GNP, will remain pretty much the same as it has for the last 10 years.

For the economic consensus of a low-tax, low-spend economy, has all three main political parties firmly in its grips.  At best, the changes will be so fractional that no one will notice. If Mr. Bruton and Fine Gael expect us to take their ‘Value for Money’ campaign seriously, then they will have to give us ‘Value for Arguments’.