Notes on the Front

Welcome to the new government, same as. . well, the old government. At least when it comes to the economy. Much commentary has focused on what the Greens got, didn’t get and if what they got is really what they got. This has, understandably, been confined to little more than bullet points, as the full Programme for Government has only been recently published. In any event, such Programmes are like budgets – one needs time to fully comprehend the wider landscape. However, concerning the economy, it appears on first reading that its business as usual. And the Green input into the economic aspects of the Programme is virtually nil.

The economic centre-piece is, surprise-surprise, the National Development Plan. This is wholly Fianna Fail’s creation from the last administration, underlining all aspects of the programme – referred to no less than 19 times under headings such as the Economy, Health, Agriculture and Food, Marine, Children, Sports, etc. It constitutes the guiding economic principle, built on the premise that ‘if you invest in the infrastructure, the wealth will come’ (give credit to Fianna Fail’s chutzpah – in the Programme they admit, just as they did in the NDP, that: Ireland is now an income-rich country. However, we are still poor in terms of our public wealth due to decades of under-investment in infrastructure. Which begs the question – just who the hell has been in power for 17 out of the last 20 years.). This non-strategic, hands-off approach to enterprise development and co-ordination is the hymn sheet all Government ministers will sing from. The presence of the Greens makes no difference to the choir.

On the budget, the Programme reproduces the usual nostrums: low tax burden, balanced budget, increasing ‘work-incentives, etc. This would have caused little problem for the Greens. In their manifesto they, too, committed themselves to reduced Government expenditure – maintaining it at 33% of the GDP. That this would have necessitated cuts in public spending of the order of €1.2 – €1.5 billion in 2006 (health? education? social welfare? ) seems to have gotten lost. To be fair to Green members, they would no doubt have been unaware of the implications of this policy – which places them in close proximity to the PDs on this issue.

Transport 21, Business Expansion and Seed Capital schemes, Knowledge Acquisition Grants, Competence Centres, Consumer Codes of Conduct, Labour inspectors, Competency Development Programmes and on and on – we’ve been here before, read the reports and balked at the t-shirt.

On taxation, the issue gets slightly more interesting. Not that the Greens had any impact on Fianna Fail’s tax-cutting obsession. There is the standard rate tax cut and the lopping off of 1% off the top rate. There is the stamp duty cut. Strangely, there is no specific commitment on indexing credits and bands – just a vague commitment to keep low and average earners out of the standard and higher tax bands respectively.

What is particularly worrying, though, is the hatchet job that is proposed on social insurance. Acknowledging that PRSI as currently operated is regressive owing to the contribution ceiling, the Programme (well, actually this is all Fianna Fail policy) proposes to levy PRSI on all working income. That’s good – very, very good. But then it turns bad, very bad. The Programme proposes to slash the PRSI levy by 50% for employees (from 4% to 2%) and by 33% for self-employed (from 3% to 2%).

Though I will develop this issue in a subsequent post, let’s be clear about the implications: it will have the most detrimental effects on social protection. Social protection expenditure in Ireland is one of the worst in the EU-15 (and we wonder why we have such high poverty). While social protection is more than just social insurance, including as it does expenditure on housing, child-related payments, health, education, etc. – clearly, social insurance is an essential element. To cut what is already one of the lowest social security levies is, well, to undermine social security – that whole ‘happiness economics’ and ‘uncertainty avoidance’ thing that was ironically championed by green-friendly economists and social scientists. With rising costs from increasing old age payments, this is a recipe for doing near-fatal damage to the Social Insurance Fund. The Programme even admits this by stating that the Exchequer will fund the shortfall – because the extra resources resulting from the abolition of the contribution ceiling will go nowhere near compensating for the levy cuts. So PRSI will be cut but extra expenditure will come from other tax sources to make good the deficit. Peter and Paul how are you.

There is steel in this proposal. It is privileged above the income tax cuts, which will only get a look-in after butchering the Social Insurance Fund. And the Greens? Well, their manifesto also wanted to slash PRSI – though by a lesser amount. They certainly weren’t going to hold any fort over 1% since there seems to be either an unawareness or an agnosticism about social insurance.

The Programme does propose a new Commission on Taxation to look into discretionary tax reliefs, the balance between direct and indirect taxes and local authority financing. Hard to know where this came from since it doesn’t appear in either the Fianna Fail or Green manifestos. Nonetheless, it is welcomed and could be a useful forum to debate new approaches to taxation and reform of reliefs that are now quite regressive. Could be, though, is the operative word for the Programme already commits itself to increasing mortgage interest relief – a regressive relief that will do little to help average earners with their increasing mortgage payments. The Commission hasn’t even been appointed and discussion – on this issue – has already been precipitated.

And now for the Greens unique contribution – the carbon tax. Media commentary stated unequivocally there would be some manner of tax introduced over the lifetime of the Dail. But they didn’t have a chance to read the fine print. On the general tax front, the Programme specifically states that the priority is the indexing of credits and bands. Then comes the PRSI cuts. Then, and only then (‘Once these commitments are met’), will other tax issues be assessed. And one of those others is the carbon tax. Further, the introduction of the ‘carbon levy’ will be subject to the ‘controlling economic and fiscal framework’ – and Brian Cowen will be the comptroller in this area. And, in another section the ‘carbon tax’ will be the subject of investigation and recommendation by the Commission on Taxation.

Maybe I’m a bit conspiratorial but does the interchangeable use of ‘levy’ and ‘tax’ suggest a lack of urgency or even flippancy on the part of the draftspeople? In any event, there are enough locks here to keep the carbon tax firmly in the closet and it is doubtful that the Greens would bolt from Government on the issue of introducing a new and regressive tax.

That’s why I hope the lock stays. While I intend to address this issue in a subsequent post, a carbon tax has the potential – certainly on the basis of the Greens’ proposal – of being extremely regressive, impacting much harder on low-income households than on higher income ones. It would violate social equity and have potentially little behavoiur-modifying incentive for the higher, wealthier consumers of carbon.

And that’s really about it. The lack of a green footprint on the economic aspects of the document, however, is not a reflection on the Greens per se. To be fair, they campaigned on a number of issues of dubious progressive content. In any event, the lack of an alternative economic analysis is not confined to them: Labour’s Pat Rabbitte, during the election, ceded almost the entire economic ground to Fianna Fail (‘A strong economy . . .’ began one sound bite) while Sinn Fein did somersaults over their economic policy for purely tactical, and not ideological, reasons. It is one more twist in the sorry story of progressives’ failure to engage in the wider economic debate – a story that reaches out from Ireland and encompasses huge swathes of the European Left and Progressive traditions.

Still, there might be some areas to clawback. Certainly, Minister Eamon Ryan’s brief will clearly deal with the vital questions of the communication and energy infrastructure – there is plenty of ground here to bring fresh, progressive thinking. Even Minister John Gormley’s brief could provide important impetus – local government development could entail revitalising local authorities as engines of economic growth in their areas, especially at it includes the Cinderella of development organisations – the local enterprise boards. But all this remains to be seen.

At the end of the day the Greens shouldn’t have done it. But they did. We can only be constructive in our critiques, pointing out the pitfalls and the shortcomings, and giving more fruitful directions. And if it all goes wrong? Progressives will still need the Greens to build an anti-conservative consensus in society. We can only hope that the Greens will realise that – if only for their own benefit.