Demand And Supply

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From top: Minister for Finance Michael Noonan, and Dr Rory Hearne

There’s been a rise in the number of people who, having experienced years of austerity, are demanding a more central role for the State and protective public services. This should be reflected in tomorrow’s budget.

Dr Rory Hearne writes:

Another opinion poll, this latest one from the Irish Times/Ipsos MRBI, shows that “a large majority of voters favour increasing spending on public services and welfare ahead of reducing taxes and charges”.

Tomorrow’s Budget should reflect this public mood and provide a very significant increase in investment in key public services and infrastructure, particularly housing, a reversal of regressive austerity measures and outline a plan for the restructuring of the Irish economy away from failed neoliberalism towards a more social economy model of development.

According to this latest poll in the Irish Times, when offered a menu of choices between tax reductions and spending increases and asked to pick one priority, “voters overwhelmingly prefer spending increases in a variety of areas, with by far the biggest preference being for increasing spending on healthcare”.

The aggregate support for tax cuts was only 19 per cent (including income tax at just 7 per cent and the reduction or abolition of the USC at 10 per cent). While support for increased public spending was over three times that, at 72 per cent (with healthcare the highest at 29 per cent and housing and homelessness next, at 14 per cent).

So this shows support for increased spending on healthcare is four times greater than that for cuts to income taxes and support for investment in housing is double that for cuts to income tax.

The most significant aspect of this poll is that it confirms a trend of the changing attitude amongst a majority of the Irish public towards our economy and the role of the state, expressed through attitudes to public services.

It shows that a new popular ‘common sense’ has emerged in Ireland where a majority of people, having experienced the harsh reality of crisis, austerity and a laissez-faire economy, are demanding a more central role for the state and protective public services.

For example, an opinion poll commissioned by TASC in June 2015 showed that 70% of people felt the government should prioritise investing in public services rather than spending money to cut income taxes (this poll also found that 50% of respondents were willing to pay higher taxes to improve public services, and 63% supported an increase in the tax rate for high earners (over €100,000 per annum).

Furthermore, a recent Eurobarometer poll, showed that the issues of main concern to the public in Ireland are housing (34%), health and social security (29%) and unemployment (32%) in contrast to tax (at just 9%).

The trend in these polls, expressed also as a key message from the public in February’s General election, is that the Irish people increasingly want to see accessible and high quality universal public services (particularly health care and housing) and they see investment in these as a priority over tax cuts.

These views are even more significant when we consider the lack of comprehensive, well-funded and universal public services in Ireland and the growing drive toward privatisation and commercialisation.

We have some excellent quality public services – in education, transport, areas of the health service and local authorities, and semi-state agencies such as the ESB.

But many citizens also have negative experiences of long waiting times to access these services (hospitals) or are excluded from them (e.g. social and affordable housing).

This is because we have the lowest level of public expenditure as a proportion of GDP in the entire EU. We also have the lowest level of investment in infrastructure in the history of the state.

And this public opinion is being formed in spite of the mainstream media, economics and government policy continuing to promote the Celtic Tiger obsession with ‘tax cuts’ and a ‘low tax’ economy as part of a laissez-faire, neoliberal, economic policies.

These espouse private market solutions, privatisation, minimising investment and underfunding of basic services, and promoting the monetisation and financialisation of public services by facilitating and supporting the ‘for-profit’ commercial private sector through PPPs and other mechanisms.

These policies have contributed to the multiple social and economic crises our citizens face such as rising poverty and deprivation, our housing crisis, lack of health care, unaffordable childcare, regional underdevelopment (through lack of public investment in infrastructure) and a lack of state investment in research and development and support for indigenous sustainable businesses (rather than an over reliance on foreign investment).

Budget 2017 is being introduced at a time of rising inequality in Ireland despite the so-called ‘recovery’, the legacy of the recession and austerity years (visible in 29% of the population suffering deprivation – with lone parent households, at 58.7% and children at 36.1%, most affected), a cost of living 25% above the EU average, a national housing emergency, precarious work, unemployment, and regional underdevelopment.

This Budget therefore, should reflect the public’s very sensible demand for greater investment in public services, and provide a ‘new deal’ for Ireland with a large scale public investment plan, beyond anything currently being considered, such as TASC has proposed in A Time for Ambition: Ensuring prosperity through investment.

This should go considerably beyond the narrowly defined (and misleading) ‘fiscal space’.

Restrictions of budgetary discussions to what is possible within the defined ‘fiscal space’ has foreclosed the discussion of the many real and viable alternative approaches to fiscal and budgetary policy that are available to the government beyond the fiscal space.

For example, we could substantially increase investment beyond the €1.2bn ‘fiscal space’ if the decision was made to retain the USC, or to introduce a wealth tax, close the tax reliefs that benefit the better off, raise employer’s PRSI, if the decision was taken to borrow for investment or use funding returning from the banks for public investment instead of debt repayments.

Flexibility on EU fiscal rules could be sought (and more are likely to be achieved given the post-Brexit and European and global economic crisis – see below) to facilitate this investment, if necessary.

There is growing support at European and indeed, global, level favouring such radical public investment plans to address the twin crises of stagnant growth and rising inequality.

This perspective was provided in the Financial Times recently. Firstly, a former US Treasury secretary wrote that,

“After seven years of economic over-optimism there is a growing awareness that challenges are not so much a legacy of the financial crisis as of deep structural changes in the global economy…concretely, this means rejecting austerity economics in favour of investment economics…Enhancing infrastructure investment in the public and private sector should be a fiscal policy priority…And the focus of international economic co-operation more generally needs to shift from opportunities for capital to better outcomes for labour.”

While, Wolfgang Münchau, the FT associate editor wrote:

“From an economic point of view there is nothing extreme in the argument for large investment programmes, especially after years of fiscal consolidation….the overwhelming consensus in favour of centrist libertarian economic polities is breaking down.”

Furthermore, public investment (and the necessary taxation to fund it) is not, as it is often portrayed, a ‘cost’ or ‘unaffordable’ as it provides many multiples of return on its investment (through various multipliers particularly in areas of housing, childcare, etc).

Public services such as health care, education, and welfare, along with public investment in infrastructure such as housing, water, and transport play a vital role in addressing inequality in society and are a key mechanism by which to achieve sustainable and socially inclusive economic development.

This Budget should, therefore, be used as an opportunity to change our dominant economic and fiscal policy which is worsening economic inequality and move it closer to that of countries such as Sweden and Denmark, that have substantially higher levels of investment in public services, and, as a result, have more stable economic growth, are much more equal and have less social problems.

Dr Rory Hearne is a Senior Policy Analyst with TASC and co-author of Cherishing All Equally 2016: Economic Inequality in Ireland

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30 thoughts on “Demand And Supply

      1. Vote Rep #1

        We pay very high taxes for rubbish services. Rather then throw more money at it, would it not be better to reform certain public sectors so that they are run more efficiently, such as the health service?

      2. Jake38

        Yes. Through accountability, service, organization and competence. Not through further confiscation of my hard earned money.

  1. Anomanomanom

    We genuinely don’t pay that much tax for the service standards we think we should have. Its unfortunate but most of our public services are in black hole of wasting money. That will never ever change, so unless we pay more tax so even with the waste we still have money for excellent services we are stuck with substandard.

  2. DubLoony

    This reads like there was a choice in austerity, another word for only spending what you’ve got.
    Our economy effectively collapsed and FF did a deal with the IMF/EC and ECB – the troika. That left extremely limited room to manoeuvre for FG & Lab govt.

    The budget tomorrow will be a fudge of FG, sop to Indos & fight over a fiver for FF tactic buying pensioner vote. Don’t expect any great social strategy in it.

    1. Harry Molloy

      spot on

      I’d love a little back but the vote buying is pathetic and there’s no massive returns for anyone

    2. rotide

      Our economy effectively collapsed and FF did a deal with the IMF/EC and ECB – the troika. That left extremely limited room to manoeuvre for FG & Lab govt.

      That is the most effective TLDR ever printed here. It should be turned into a rubber stamp and stamped onto peoples heads. It would cutdown on at least 40% of the outrage about the last govt

  3. Owen C

    “continuing to promote the Celtic Tiger obsession with ‘tax cuts’ and a ‘low tax’ economy as part of a laissez-faire, neoliberal, economic policies.”

    We have marginal personal income taxes rates above 50% for low middle class earners. We have fairly chunky rates of duty on things like property, fuel, alcohol. We have significant levels of VAT. We’ve had pension and insurance levies. We have relatively modest inheritance tax thresholds. We have high levels of tax on deposit interest. Only an illiterate could claim Ireland was a low tax country.

  4. Joe Small

    I’m happy for a reasonable increasing in spending and no hoping for any tax cuts etc. but I don’t really like the sentiment in the article that suggests we should decide a Budget based on the most recent opinion polls.

    We elect a government to govern. They have a mandate to pass laws and Budgets based on the greater good. I know it a little naïve to expect such noble behavior but at least in the first Budget after an election I would expect some semblance of good governance and sound sustainable spending to improve public services.

  5. Fact Checker

    I am agnostic on the SIZE of government spending as a share of GDP. Very-high income countries manage to spend quite different amounts on it. France at 57% and USA at only 38% by contrast. What I am more concerned about is the QUALITY of public expenditure.

    Real-world policy-making means lots of trade-offs and hard choices at the margin to give one programme relative priority over another. Assessing the quality of public expenditure is very hard, but this does not mean that it should not be attempted.

    Nevertheless, it is axiomatic in very large sections of the Irish commentariat that increases in spending inevitably mean increases in quality. Once this fallacy gets made I generally stop reading.

  6. Feidlim MacSásta

    Noonan thinks Michael O’Leary is a thoroughly decent chap and Ireland’s best business man.

    That’ll give you an idea of Noonan’s ideology which is tax the ordinary worker heavier than the rich and privatise every single revenue stream the state controls, giving over state assets to foreign merchant banks like Goldman and JP Morgan who don’t care a damn about people’s lives.

    That is a right wing ultra capitalist utopia where the small percentage of rich hold the vast majority of wealth and influence, cheered on by middle managers in cheap suits and low spec BMWs who are under the sad illusion that they are part of the controlling classes but are mere pawns in the decimation of their families prospects.

    1. rotide

      I see people giving out yards about MOL but I’ve never really seen a good reason why.

      I’m sure he’s as cutthroat as they come and he’s always looking ways to cut the bottom line, which is his actual job but at the end of the day he’s pretty much responsible for us all being able to actually fly places.

  7. nellyb

    With all due respect, Rory, everything you’ve said is old news, been chewed on for the past 8 years. McWilliams, O’Brien, Lucy, Varoufakis and +1000 more.

    Could you write a piece about tangibles? Like, name a legislation that blocks public service upgrade. If constitutional challenges are blocking reform – what are they? – Something informative and interesting, I am sure you can skirt defamation threat when you sanitize the facts.

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