Tuesday, 22 December 2015

Neither Boston nor Berlin?

David Jacobsen: The main front page article in last week’s (20/12/2015) Sunday Business Post begins with Enda Kenny’s promise “to cut tax bills for households to bring them in line with ‘lower tax’ countries such as the US and Canada”. The particular target for tax cuts is the high earner bracket, where in Ireland the effective tax rate is 45% while in the US it is 29%.  It seems that we are back to that old dilemma of ‘Boston or Berlin’, with Fine Gael firmly in the Boston camp.

The dilemma was posited for Ireland in a speech by Mary Harney before the American Bar Association in Dublin in 2000.  In what she acknowledged was a simplification, she summarised the characteristics of the two types of systems:  Boston/USA depends more on “individual effort” and a minimum of government involvement;  Berlin/Europe has more “concern for social harmony and social inclusion, with governments being prepared to intervene strongly through the tax and regulatory systems.”  Her view on Ireland was that: “Geographically, we are closer to Berlin than Boston. Spiritually, we are probably a lot closer to Boston than Berlin.”

Actually the evidence is very mixed, both in relation to Irish society’s desired system, and in relation to the policy mix of the Irish state.  Let us begin with what people want.  It would not be a surprise if most better off people wanted low taxes, and were willing to put up with lower levels of public services.  For those less well off one would expect support for higher taxes and higher levels of public services.

Perhaps this is one of the reasons why Irish data reflects “split consciousness” (see Payne and McCashin, 2005). So, on the one hand International Social Survey Programme (ISSP) data have suggested that the vast majority of Irish people believe that the government has a role in provision of pensions, in reducing rich-poor income differences, and in providing decent housing.  On the other hand, actual levels of social expenditure have been below average (Payne and McCashin, 2005, Table 1).

In the context of comparative welfare regime analysis (Liberal, Social Democrat and Corporatist), Payne and McCashin (2005) conclude from more detailed analysis of the ISSP data that “it is possible that a liberal-individualist element has taken root in Irish public attitudes”.  However, they associate this with Ireland’s “exceptional prosperity” during the years of the Celtic Tiger.  This suggests the possibility of a more social democratic turn in the subsequent years of austerity.  They call for a more “multi-dimensional approach” to the characterization of the Irish welfare regime.

Using just such an approach, more recent work on European welfare regimes finds that Ireland fits better with a hybrid, southern European/Mediterranean  type of welfare regime than any of the three traditional Esping-Andersen types (see Minas et al, 2014).

What the split consciousness, hybrid and possibly variable-over-time nature of the Irish welfare regime suggests, is the potential for a consistent vision, one that is congruent with key elements of long-held Irish public attitudes, to contribute to the embedding of an appropriate regime type.

In contrast to what the Taoiseach seems to be arguing, an opinion poll for TASC in December 2014 found that 50% of respondents were willing to pay higher taxes to improve public services, and that 63% supported an increase in the tax rate for high earners (over €100,000 per annum).

David Begg, in his Annual TASC Lecture, provides an evidence-based vision more consistent with the wishes of the Irish people, one closer to the social democracy of the Nordic countries.  These countries survived the financial crisis better than most others – and certainly much better than Ireland – and despite various problems continue to maintain the principles of equality, efficiency and solidarity.

These are at the heart of the vision that, if realized in Ireland, would embed us into a trajectory more in keeping with a sustainable future for Europe than the haphazard path Ireland currently weaves.

Prof David Jacobsen is a member of TASC's Economists Network 

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