Labour and the budget


The story goes that, when asked to evaluate the long-term impact of the French revolution, a student replied that it was too early to say. The long-term implications of Budget 2009 (Round Two) will as hard to assess as the impact of Round One last October. One detects a subtle shift in public mood – on the street, on the bus and in the workplace (for those still in employment) – from a predominant mood of intense anger to one of anger plus fear, with the latter beginning to swamp anger. Whatever the political (and electoral) implications of recent Government economic and fiscal policies, it is clear that ‘Ireland’ is deeply divided on where we go from here. Political leadership is called for. On the left of the political spectrum the two main parties – Labour and Sinn Féin - are enjoying a boost in the polls. Enjoy it while it lasts, say some on the Government benches.

Could we even see the emergence of a real choice between two competing visions for society in a general election some time in the next few years? – one pointing towards a high-skill, high-productivity, high-wage, high-tax, high social services, competitive social market economy – the other towards …. a continuation of the present paradigm? Some argue that the Irish people have never had a real choice in any general election since Labour first contested in 1922.

So, what is Labour saying?.....

On Thursday 2nd April, Labour published Building a New, Better and Fairer Future – Labour’s Priorities for the Emergency Budget.

In summary:

  1. Labour is cross that detailed information on budget trends and forecasts has been withheld;

  2. Labour argues for a comprehensive and multi-annual approach to the fiscal problem;

  3. It warns against too fierce a fiscal adjustment in the next 9 months which might only place us on a further deflationary slide (there is evidence that the Department of Finance’s overly-conservative fiscal stance in the 1950s was a major break on economic development at the time).

  4. Labour settles for a target reduction in borrowing of around €2.8billion in a full-year term from this April – which is no small fry.

Read on ………

To be credible, Labour needs to spell out its key priorities and how it would seek to move from where we are now to one of sustainable recovery. People ‘on the street, on the bus and in the workplace for those still in employment’ are concerned about Jobs, Jobs and Jobs. Just listen. It is the economy ….. as the saying goes. Labour’s pre-budget submission does offer important clues:

  • Employment creation and upskilling are given number one priority

  • Fairness determines the adjustment in the tax base and rates

  • ‘structural adjustments’

More specifically, the document proposes a range of measures, including labour market activation, a new NDP and a top-up of €1b to the National Training Fund (from bank fees for the Guarantee scheme), pre-school education roll-out with a reversal of some recent cuts in public spending (such as, for example, special education). Costings are given, but the underlying specifics are not spelt out.

Where would the adjustment of €2.8b in a full-year come from? The bulk of it would come from tax increases – capital, tax relief reductions, carbon taxes, excise taxes, higher top tax rate, targetting of tax exiles. Some estimates are given for each proposal. Good stuff as far as it goes. By contrast Fine Gael does not go near the 41 and 20 tax rates. FG is calling for 15,000 voluntary redundancies in the public service (it is not clear how this would save money in the short-term).

Courageously (for Labour) the document addresses a number of thorny public sector issues including insider labour market practices and restrictions (regarding recruitment, mobility and promotion), as well as the issue of the widening spread of pay over time (pointing out that top civil servants earn over 10 times what is earned by a lower-paid worker in the public sector compared to a ratio of 6:1 twenty years ago). Labour comes down, clearly, on the side of reducing the public sector pay bill. If this is to be done – within the context of maintaining social services – there are only two options:

  • Reduce average pay and/or

  • Reduce numbers employed.

The first option, above, can be loaded on public sector workers above a certain threshold. The document estimates that a cap of €200,000 per year on top-level salaries in the public sector would yield a saving of €100m (this must be an error or typo?). If that were true, this saving would pay for a cervical cancer vaccine for all teenage girls five times over, plus a Cystic Fibrosis Treatment Centre.

Reducing numbers would be fraught since, to begin with, by OECD country standards Ireland has a lower proportion of workers employed public sector.

Like Sinn Féin and Fine Gael (‘Rebuilding Ireland a NewEra for the Irish Economy’), Labour is calling for some type of semi-state bank tasked with lending. In this case, Labour is proposing a National Development Bank to 'fund infrastructure projects'. As with CORI, Labour calls for a discontinuation of a wide range of tax reliefs (including relief on trade union subscriptions which would save €11m per year). Tax reliefs, shelters and 'non-standardisation' of reliefs are really a type of 'low-hanging fruit', and it beggars belief that the Government has not accelerated reform here instead of referring to a time-wasting wait on the Commission on Taxation to report (although it doesn't beggar belief when you consider how, for example, the private pensions lobby is upping the case against reform – see Attacks on Pension Relief short-sighted and reckless)

But, does Labour chart a way forward in terms of a fundamental shift in the balance of economic and social power along with the distribution of income and wealth? It seems to me that a coherent, well-thought-out strategy must identify:

  1. immediate costed, realistic steps to address - as best as possile – the five 'crises' referred to by NESC

  2. a medium-term strategy to re-build the economy and society, and greatly strengthen the quality and level of public services; and

  3. a long-term strategy to realise a new society based on principles of equality, solidarity and community.

The school report might say this plan has good potential but that 'the student needs to work harder'.

Posted in: EconomicsEconomicsLabour marketPoliticsFiscal policyTaxation

Tagged with: stimuluspublic spendingborrowingbudgetLabourtaxation



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