Monday, 13 July 2009

Challenging the narrow ground

The only reason that the government can still borrow on international markets to finance the day-to-day running of the country - some €24 billion this year out of a total spend of €60 billion or so - is that the markets believe a) that the government will stick to its commitments to cut spending, and b) that the European Central Bank stands behind Irish government debt. But the price for the ECB’s implicit guarantee is controlling our deficit, and that means cutting public spending.

Michael Taft: The above, written by Pat Leahy in the Sunday Business Post, encapsulates a lot that is wrong with the current debate over the economy. Leave aside the issue of why the NTMA has been so successful in selling Government debt, whether short or long-term. It’s enough to say that redemption yields on 5-year and 10-year bonds remain the same today as it did on February 1st – long before the Government engaged in cuts and taxes (never mind the suspicion that Mr. Leahy has not actually interviewed the spokespersons of the institutions who have so readily bought our debt to find out why they have done so).

The defining characteristic of the current debate is the way that commentators have treated economic issues in a reductionist manner. For instance, we are constantly being invited to view the economy through budgetary tables and only through budgetary tables. To bring the fiscal deficit ‘under control’ we must either cut spending, increase taxes or a combination of both. Never are more fundamental questions admitted into the debate – the effect of the recession itself, the collapse in domestic demand, the fiscal toll that unemployment is taking, the impact of lower consumption, etc. To admit these questions might lead us away from the parameters of budgetary tables and on to the fact of economic decline itself (e.g. wage maintenance, job-retention, direct employment creation, state-led investment and consumption – in other words, stimulus). It might lead to alternative analysis and programmes.

Now, Mr. Leahy takes this reductionism one step further. The issue is no longer ‘controlling the fiscal deficit’. It is narrowly and squarely about cutting public expenditure. That this overlooks the findings of the ESRI’s multiplier tables – that tax increases are, on the whole, less economically damaging and more Exchequer-friendly than spending cuts – is neither here nor there for some commentators.

The space in which the economy is being debated becomes more constricted all the time. No doubt the eventual publication of the An Bord Snip report will narrow the ground even further. All responsible debate from now on must be solely concerned with the efficacy of cuts on lowering public expenditure. Those outside that consensus are condemned as ‘fringe’ or spokespersons for interest groups (e.g. trade unions, social organisations, etc.).

The task facing progressives is to challenge not only the prescriptions of the Right; it is to challenge the very viability of a debate that is taking place far from where the economy operates. Unless we do that, we’ll be allowed to move the chess pieces on the board – but they’ll all be the same colour. And they will only move backwards.


Brian Woods said...

Fair comments - except I find the concepts of 'left/right' and 'green/red' ideas to be most unhelpful. In fact they are archaic religious relics and should be promptly dumped - except of course they are regarded as 'Comfort Blankets' in which case ... ...

Humans are animals. We behave, mostly, according to learned (or perhaps received) patterns. Hence much of the comment about the current economic downturn: the commentators know no other manner in which to respond. Attempting to modify your responses away from your established pattern is both challenging and unwise. Suggesting that persons actually should change, to even suggest that they consider alternatives, is a direct challenge to their intelligence and will be strongly resisted. Let them be. They are in for a very unpleasant shock.

We need to re-organize the way we use tax resources - our spending We are facing a significant decline in revenues - our income.
Cutting social welfare and primary/secondary would be an act of national treachery. Healthcare will have to be trimmed. Too many chiefs - not enough indians!

How much of our income is 'foregone' on allowances, reliefs, incentives, etc. etc.? How about we abolish all of these scams, no exceptions. Tax all (gross) income, from whatever source, at xx% (someone can compute this).

Would this be a less disaggreable option to taking on an increasingly onerous national debt burden?

Brian P

Michael Taft said...

Brian P - your approach would actually be most agreeable; in particular, highlighting the role of tax expenditures. Unfortunately, data on the regressivity of tax expenditures is uneven and relies less on government reports/analysis than on the work of individuals and groups (an excellent example is TASC's Gerry Hughes' work on the regressive impact of pension tax relief). There are some estimates as to the global cost of tax expenditures. Revenue Commissioner reports suggest that headline expenditure (i.e. the main categories) make up one-third of current public expenditure. This, of course, includes necessary expenditure such as personal tax credits. But within that 15 billion Euro price tag (in 2005), there is considerable scope for reform and savings. One might hope that the Commission on Taxation will subject all tax expenditure to a rigorous income-decile impact analysis. While this will not turnaround our fiscal crisis, it can provide new tax revenues will less deflationary impact, while setting the groundwork for a more equitable tax system. And I won't call this 'Left' or 'green' or even 'progressive'. Let's just call it common sense.

Brian Woods said...

Michael T - thanks for the update. I suspected that the info might be difficult to come-by. Hope someone can get an estimate that will be robust enough to ward off the 'me-too' hyneas.

Ah, if only they sold packets of common sense ... ...

Brian P

Fergus O'Rourke said...


You say "this overlooks the findings of the ESRI’s multiplier tables – that tax increases are, on the whole, less economically damaging"

From a quick look at that ESRI document, I am not sure that it really supports such an unequivocal conclusion.

This quotation from the same document I did fancy, though, and maybe you will, too:

" ... competitiveness, both measured in terms of labour costs and a much broader definition, is not a policy lever available to governments"