Michael Taft: ‘Folks, the money ain’t there. There is no untaxed honey-pot of rich people to be taxed. Put top rate taxes up to where they were in the 1980s (we are more than halfway there already, by the way) and see how much money we raise. It won’t make a material difference and might just make things worse. Explain to the public sector that they were hired, with the best of intentions, on a premise that proved to be false. The money to pay them just doesn’t exist. That does not mean they are not valued or that they are not doing a superb job in a dedicated way.
The ‘no cash’ constraint is, unfortunately, absolute and binding.’
No wonder the debate over the economy is so degraded - if this is the quality of commentary we are getting from our broadsheet media. Let’s examine this ‘no-cookies-in the-cookie-jar’ argument that Chris Johns, chief executive of Bank of Ireland Asset Management, put forward in the Sunday Business Post.
First, there are cookies for Anglo-Irish - up to €20 billion cookies that will never be repaid.
Second, we will pay (and it is we – through Government guarantee) approximately €50 billion for largely under-performing, if not downright worthless, assets from the banks.
One may argue these expenditures are necessary; or that we could have achieved the same thing for less cost (the Government is already reconsidering the option of closing down Anglo-Irish over the long-term – an option they initially dismissed). One may argue that we had to clean up the banks’ balance sheet (but we could have paid a lot less if we were willing to take larger a stake in the banks). One may argue a number of things – but one thing is certain: the ‘no-cash’ constraint is, in these cases, neither absolute nor binding.
Third, the ESRI estimates the Government will have nearly 30 percent of GDP – or nearly €50 billion – in Exchequer cash balances and National Pension Reserve Fund assets. Yes, we need a large liquid buffer, especially as the Government’s deflationary policies have failed to protect the integrity of Irish sovereign debt. And, yes, some of this money is tied up in bank recapitalisation. And, no, this is not an argument for raiding the cookie jar. What it shows, however, is that there are some free-floating cookies that could be put to use: investing in the economy, generating jobs and growth, increasing tax revenue, reducing unemployment costs and, so, reducing the deficit. We may debate how much; but the ‘absolute and binding’ argument is not so absolute when we lift the cookie jar lid.
Let’s look at the ‘honey-pot’ assertion. The Commission on Taxation, to take just one small example, stated that of the €700 million spent on mortgage interest relief expenditure (in essence, a cash subsidy), nearly half went to the top two income deciles which, according to the EU Survey on Income and Living Conditions, averaged €140,000 in gross income. A question arises: if ‘the money ain’t there’, why are we subsidising high-earning households to the tune of over €300 million a year?
Or take the current exemption from the Health Contribution Levy enjoyed by rental and dividend income; Fine Gael estimates this subsidy costs €89 million. This, again, is likely to benefit the top income deciles – at a time when the ‘money ain’t there’.
Or take Labour’s proposals to limit the tax relief for pension contributions for high income groups. They estimate this subsidy costs €350 million – a lot of money to be paying those on high incomes there ain’t no money.
So the money is there – through these subsidies – for certain folk. It just depends on one’s priorities.
Probably the most disturbing thing about this analysis is its rejection of investment as a tool for growth and revenue generation. For instance, the Irish Times reported on an internal HEA report:
‘The HEA report says an investment of over €4 billion will be required to upgrade dilapidated buildings and provide space for a 30 per cent surge in student numbers.’
Clearly, this would be a wise investment – not only in our future knowledge capital but in getting people back to work now on productive activity. What if we were to take that money in just those three examples I’ve used (there are lots, lots more – see TASC’s report on tax expenditures) and redirected it into upgrading our third-level institutions? A back-of-the-envelope multiplier calculation indicates that it would boost tax revenue by nearly €900 million over a six year period while employing thousands of workers directly and creating thousands more jobs downstream. It gets even better when one factors in reduced unemployment expenditure.
From just this one small example, building on small examples, we see how redirecting money that is being foolishly spent (and subsidising high-income groups in a recession is about as daft as you can get) into productive investments exposes arguments based on ‘no cookies in the cookie jar’.
The fact is that money is there. It depends on priorities. We can argue the toss over how much and how best it should e spent. I’m sure Mr. Johns would agree that state investment in Bank of Ireland is a good investment based on the probability of return and the protection of our banking system. Clearly, Mr. Johns would say that the ‘no-cash constraint’ is not absolute and binding in this case.
If so, then how much more the case for the economy and growth and employment.
Michael Taft @notesonthefront
Michael Taft is an economic analyst and trade unionist. He is author of the Notes of the Front blog and a member of the TASC Economists’ Network.