Thursday, 26 May 2016

In this Programme – “There’s One for Everyone in the Audience.”

Paul Sweeney: This Programme for government is quite different from previous programmes. It is 160 pages where is the last programme was a mere 60. 

The many promises are a recognition of the vulnerability of this new minority government. It has to be more open to the views of others. In turn, this means that it will be much more difficult to be decisive in policy implementation. Yet, this handicap may lead to better policies. One of the downsides of social partnership was that issues took a long time to resolve, but the benefit was that better decisions were made in the long run, because many had contributed, foreseeing the downsides and strengthening policy. 

”Social” finally Beats “Economic”
On first sight, the programme looks like the Late Late Show – “there’s one (promise) for everybody in the audience”. Indeed from TASC’s perspective, with its equality brief, it should be happy.  

The word “fair” appears no less than 49 times; “equality” 23 times; “fairer” 8 times and “inclusion” 13 times; “just” (as in fair) appears 5 times, as does “Quality of life”. “Opportunity to” appears no less than 17 times.

Most interestingly, the word “social” appears no less that a staggering 91 times.  In contrast, the word “economic” appears only 54 times. This must be the first triumph of “social” over “economic” in mainstream Irish policy!

Always the social was told “we cant spend until we pay for it, wait for economic growth.” This programme seems to recognise that the social and economic are intrinsically linked. 

There is promised reform of the Budget process, but there is no promise of a methodological poverty-proofing of new subsidies/ incentives or anti-enterprise promises like the inheritance tax give-away.

Four Foundations:-

It sets out four foundations for what it calls the social economy. These are;-

  1. 1 Sound public finances and a stable and broad tax base 
  2. 2 A supportive environment for enterprise and employment. 
  3. 3 More investment in economic regional and social infrastructure.
  4. 4 A just and fair society and a more inclusive prosperity.
These are very reasonable foundations, but there are already contradictions in the Programme. It will not meet number 3 on investment and as James Wickham pointed out in an earlier blog in this series on the programme, it is already tearing up foundation number 4 ie for a fairer society and undermining foundation two, with the promise to almost double the inheritance tax threshold.

Merit gets Second Place to Privilege

“Everyone is given an opportunity to succeed” (p 10) but children of the wealthy will be put in the fast lane (p37) with at least the price of say a Bentley Mulsanne thrown in to speed them along life’s path.

Thus the CAT tax-free threshold may be doubled so each child/adult will pay no tax on a sum equivalent (€500,000) to the gross income of the average industrial worker over fifteen years of hard work. These workers will also have to work for this income, whereas the inheritors will not have to do a hand’s turn. 

Yet the same Programme also promises to “reward work and support enterprise and employment”. This is simply untrue. 

On the economy, it promises to adhere to the Growth and Stability Pact restrictions on spending, but there are major current spending plans. There is a conflict between aspirations to perform and ability to do so under the EU rules and no imagination on investing of the banks’ privatisation proceeds.

Spending vs Investment

While the word “investment” appears no less than 84 times in the Programme for government, it is used incorrectly in many instances. It talks of “investment” in the guards, in children and so on, but it actually refers to increased current spending. 

The real disappointment on the economic side is the lack a decent increase in capital investment. The last government had an unambitious investment programme. Virtually every commentator and indeed even the last government itself admitted that the 2015 investment Plan was lacking in ambition. It was no sooner published than they said it would be revised upwards. 

This government will be spending substantially more on the current side, if and when all the promises are added up. However, it only plans to increase capital expenditure by €4 billion in the years to 2021 on top of the €27bn (under 15%) proposed in the Plan.

It was seen in A Time for Ambition, a TASC critique of the last Plan, that public investment in Ireland fell to its lowest level in 50 years in 2013, at 1.8% of GDP. It was so low it was not even covering depreciation. This is Banana Republic economics. The infrastructure is depleting.

Then the new Plan investment reduced investment (as a percentage though not the absolute sum) to a lower 1.7% of GDP for the first year, 2016. Of course it can be argued that the figure declined because GDP growth was so high, but it is so low that future development will be reduced below trend.

TASC proposed that around half or €15bn of the capital from the privatisation of the shares in the banks should be directly invested in Ireland’s infrastructure and skills over the coming years. This would be in addition to the €27bn proposed. This would bring average public investment up from a low 1.8 average to 2.8 % of GDP a year. Some like IBEC think it should be 4%. 

In a serious policy error, it has been decided by the last and new government that the capital from the banks is be used to accelerate the repayment of the national debt. 

The debt is being repaid anyway from taxation; interest rates are a very low; we get a return on such investment and we would get to use the assets. 

Housing is the Big Issue, not water charges

Housing is the big issue in Ireland. While housing does get priority, what is being promised will not resolve with the problem. As Nat O’Connor and  Rory Hearne have shown in their comments on this Programme, much more needs to be done, never mind promised.

It is a long programme with some detail and if half of the promises were implemented, it would be good, though again that may depend on which half is delivered. The emphasis on social progress is welcome, but the big disappointment is the lack of ambition on public investment especially on direct state investment in housing - Ireland’s most pressing problem. 

Paul Sweeney is Chair of TASC’s Economists’ Network.

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