Much progress has been made in regards to the state of Irish public finances, due in large part, to the recovery in economic activity in recent times. Taxes are flowing under many headings as unemployment continues to inch downwards and there is a broad-based recovery. Yet, many people are scarcely feeling a positive bounce in their discretionary spend. Though wages have been on the rise for most workers, by the time various costs and charges are factored in, what is left at the end of each week or month is not what it was before the crash of 2008-2013. Even with modest cuts to income cut and USC in the last three budgets, disposable income is still hardly increasing for many as housing costs, insurance and transport costs outstrip increases in income.
The much-talked-about ‘middle Ireland’ being under pressure. Many of those under pressure are young and relatively new entrants to the workforce who struggle to pay rent or save for a deposit on a house. The housing crisis (it should really be called an emergency) has gone from bad to worse. No immediate relief is in sight as the supply of new homes falls well short rising demand.
This is no time for unwise budgetary decisions to further expose Ireland to future economic shocks. Plans to further reduce the tax base and tax rates (whether on income or wealth) repeat the mistakes of the past when Irish tax rates fall well below sustainable levels and place us well below European norms of taxation and public service. Above all, we cannot sustain the public spending we need to make in children, housing, health, rural broadband and renewable energy, to mention just some areas of acute need, without maintaining and increasing the overall tax level. Few are prepared to acknowledge or honestly debate this in public.
Rising population, an ageing population and the winds of competition from outside leave us with little option but to bring Ireland more into line with other parts of Northern Europe. However, to maintain and improve fiscal health as well as accelerate investment in the key bottleneck areas, we also need to pay urgent attention to two areas:
- Reforming and improving our public services so that a greater social consensus around taxes and public expenditure is possible (‘where will all the money go if we just throw more money at health’ is a response from some commentators).
- Devise a medium-term strategy to up the game in small and medium-sized enterprises which are the backbone of the domestic economy and the mainstay of employment and tax revenue through those employed there.
To reach a public consensus on what is needed by way of public service is not difficult. We, already, have an excellent report on health (SláinteCare) which was the fruit of an all-party Oireachtas committee consensus and which advocated significant increases in public spending over the coming years to reach a single, public and integrated health service for all on the basis of need rather than the ability to pay. Less easy to arrive at is a consensus on how health services can be reformed and invigorated and how, exactly, the additional funding can be raised through taxes or social insurance.
Yes, it is true that ‘middle Ireland’ needs a break. It is reasonable to assume that the majority of Irish people believe themselves to be in the middle although it is inaccurately measured with reference to a particular tax threshold of earnings for a single person in work. However, the break ‘middle Ireland’ needs is policy delivery that can lower the cost of living and provide a comprehensive public service which enables families and communities to live, work, travel and study in a way more befitting a prosperous Northern European country.
The equivalent of two cups of coffee extra a week in the form of a tax cut would be welcome but would be lost in additional consumption. Better still is investment to relieve the pressure on household budgets as a result of limitations in key areas of public service. We need to focus on both hard and soft investment to equip Ireland for an increasingly uncertain and challenging world as well as an environment which is under huge pressure.
Compared to 2007, there appears to be a much greater public recognition that public spending and revenue are related. That people make this connection is borne out in a number of attitudinal surveys over the last two years including one targeted at self-employed who would be prepared to pay higher PRSI if it were linked to better unemployment and sickness benefits.
The choice is ours as we enter a new phase in our economic history. If Budget 2018 marks a change in direction away from a low-tax and low-spend economy (compared to the other EU States) to a European average economy with a long-term ambition of developing a stronger and more global domestic enterprise sector then we can raise hope and leave a better legacy to the coming generations.