The taxing problem of pay restoration

This week the Garda Representative Association’s executive committee voted for industrial action in pursuit of pay restoration. The biggest secondary school teaching union, ASTI, is heading in the same direction. Dublin Bus workers got an increased rise over and above the Labour Court recommendation following a series of one-day strikes.

In the absence of a social partnership agreement, it is inevitable that more and more public servants, in particular, are going to look for pay hikes. If we are to keep the recovery going, as Fine Gael would have it, all sectors are entitled to some relief from the pain inflicted over the last eight years. This aspiration has largely been expressed as a desire to have pay restored to 2008 levels.

The only problem is how to fund it all. Back in boomtime, the pay levels for most sectors in society — and hugely disproportionately for the better-off — were simply unsustainable. The party was funded by receipts from a property bubble. Everything and everybody was getting paid on the never-never.

So how do we get back to that point? Where is the money to come from if public servants are to have their pay restored and services brought up to a standard befitting a wealthy, modern State?

The simple answer is, more taxation is required. Nobody wants to hear this, least of all the politicians, largely because politicians dread being the bearer of inconvenient truths.

Alternatively, society can settle for a continuation of the low taxation model that currently exists. Yes, believe it or not, this is a relatively low tax economy.

According to Eurostat, the European Union statistics agency, Ireland ranks 23rd out of the 28 states in the union in terms of tax take as a percentage of GDP.

This means there are choices to be made. Is this to be a low-tax, low-spend economy, or a higher-tax, higher-spend on services economy? Eight years after the collapse, it would appear that large numbers of people still believe we can return to the fantasy economics of boomtime where such choices were never made.

Instead of grasping this reality, and attempting to advocate honestly for one of the choices, most political parties and entities are falling back into the favoured ideology of Irish politics — populism.

Fine Gael’s priority is a reduction in the “hated USC”. It is not clear whether the quality of this “hatred” is equivalent to the hatred some children might have for broccoli, or that which exists between rival football fans in the same city, but we are assured that the USC is indeed hated.

In reality, the USC is one of the more progressive tax measures which makes no allowance for any type of tax avoidance. But because the boys and girls in focus groups snarled at the mention of the dreaded acronym, Fine Gael honchos immediately scribbled down its abolition as a priority.

Fianna Fáil was the brand-leader in populism through the years of bubble and crash. Today, Micheál Martin affects a Canute-like pose, responsibly attempting to hold back the forces of both heartless Fine Gael to his right, and the motley crew of quasi-socialists to his left.

Martin and his colleagues topped the populist league recently with the declaration that the party no longer espouses the principle of charging for the use of water. Lately he has also been making serious noises about the crisis in third-level funding. On both these issues, he appears to be advocating that the necessary funds be drawn from “general taxation”. Yet you will wait a long time before he advocates increases in “general taxation” to a required sustainable level.

Fianna Fáil’s major contribution to the budget debate so far has been to advocate a €5 increase in the State pension. While pensioners have taken a financial hit in recent years, have they not been more protected than young people, who have had education, employment, and prospects slashed? Is the need to hike the pension more urgent than addressing the plight of the 130,000-plus children now living in consistent poverty?

Of course, pensioners vote in their droves, while those whose kids go hungry don’t. In such circumstances there is only one choice for a self-respecting populist.

While Fianna Fáil are old hands at populism, their rivals in Sinn Féin are learning fast. This party claims to occupy the left of the political spectrum, yet it advocates that the property tax be scrapped. Over the last few weeks, councillors from Sinn Féin up and down the country were fervently voting to reduce the property tax in local authorities by the maximum allowable of 15%.

The tax is progressive, ensuring that those with the biggest properties pay most. It is also an economic staple among all left-wing parties who live in the real world outside Irish politics.

Instead, the Shinners advocate that the money garnered from the tax should come out of “general taxation”. This particular coffer can be boosted by a wealth tax, the party claims, although in the best populist tradition the Shinners were careful to avoid any commitment to such a tax in the recent election.

Completing the populist spectrum are the parties and entities on the Left, most notably Anti Austerity Alliance/People Before Profit. Their real input in recent years was the successful anti-water charge campaign that hit a chord among a straitened population when its introduction was handled so appallingly. The solution most sought by the AAA-PBP to acquire better services is to tax the rich.

Is there any more populist policy? After all, who among the populace would define themselves as “rich”. They are so few that discommoding them will have absolutely no impact on potential voters, irrespective of how ineffective a policy it might be.

That, in broad brush strokes, defines the philosophy of practically every political entity now. Do nothing that discommodes any powerful or large constituency.

Throw shapes and repeat nebulous phrases like “lower and middle income- earners” and “families”. Do not raise tax. Under no circumstances introduce a new tax or charge. Constantly advocate that more resources can be magicked into life without any funds. Above all, do nothing that might force you to make a choice which will alienate you from one section of the electorate. The problem with populism is that, as witnessed eight years ago, a day of reckoning will one day arrive. Keep the head down and stay in by the wall.