No matter what point in the economic cycle a country is in, the science of history gets a battering. But in recession times, history is just simply invented. Take Professor Mary Harney, TD, on Question & Answers the other night. She treated us to a yellow-note lecture on . . well . . . some country’s economic history, but certainly not our own:
‘Above all else, this economy cannot go back to a state it was in the 70s and in the 80s when in order to get out of the difficulties we had we borrowed, we taxed and we spent. We’re not going to do that . . . It’s low taxes on work, low taxes on business that has delivered the economic success we have experienced.’
In so few words a whole historical understanding is trashed. First, Professor Harney doesn’t explain how we got into the recession in the first place. The growth in spending accompanied by cuts in taxation that occurred in the late 1970s was the brainchild of Fianna Fail and, in particular, Martin O’Donoghue. It wasn’t some populist ‘to-hell-with-fiscal-policy’ vote-getting initiative. It was actually a well thought-out plan by the Government to stimulate indigenous Irish business through pump-priming the economy. The theory was that increased demand would stimulate native businesses to increase supply – thus increasing jobs, wealth, etc. Well thought out – and well wrong. For it assumed that the only problem with indigenous business was lack of demand whereas the entire history of the state showed there was something more systemic and more endemic at work. This gamble on indigenous business failed – inflation shot up, the Exchequer balance went all to hell, no substantial business activity was generated and the dole queues got longer. We paid for years gambling on native private sector growth.
Second, as every dog in the street knows, the economic boom was led by multi-national exports. Multi-nationals had been paying low-taxes since 1956. In the mid-1990s, almost all multi-nationals were either paying (a) 10 per cent under the Manufacturing Tax Relief, or (b) 0 per cent under the Export Sales Relief. Indeed, when the Rainbow Government phased in the new harmonised 12.5 per cent, it amounted to an increase in taxation on those very agents that were responsible for our economic boom. By all accounts, this should have knocked the boom off all the rails but it didn’t.
Likewise with personal taxation. For the first few years of the boom there was little downward movement in personal taxation. Increased living standards occurred through job creation and wages – the latter due to productivity gains. The slash n’ burn of capital and personal taxation only occurred well after the boom started. Instead of engaging in real tax reform (re-balancing the burden) and using the money to reinvest into the economy – both capital and social infrastructure – we let property and consumer markets rip.
A lot of commentators are at pains to say the situation today is far different than that of the 1970s/1980s. While in many respects they are correct, in one crucial respect they are ignoring a valuable lesson from history. Nearly 30 years ago we gambled on pump-priming the private sector and failed. In the late 1990s/early 2000s we pump-primed the private sector again (through tax cuts, tax reliefs, a free land market) and now look at the mess we’re in.
And now the government is at it again – slashing expenditure, beating up public sector workers and hoping that capital investment will pump-prime indigenous business in a weird ‘build-it-and-they-will-come’ gamble. We’re rolling the dice again. What a way to run an economy.
Professor Harney should study history a bit more.
Notes on the Front 
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