Article published on www.journal.ie on Thursday 8th of December 2011
By Senator Katherine Zappone
One could be forgiven for being concerned that the focus of the multiple cuts that we have heard over these past two days are largely about meeting the requirements of the Troika’s external agenda. Budget 2012 was the first quintessential test of this Coalition Government’s ability to bring all of us onto a significantly stronger foothold to generate individual and collective recovery, social and economic sustainability.
Within the parameters of EU-IMF-ECB agreement there is scope to make certain choices. The government decided that Budget 2012 must save €3.8 billion in cuts. While there was pressure to go higher, remaining at the original €3.6 billion figure would have demonstrated our government’s determination to re-structure bank debt in the long-term, so that we halt eventually the socializing of losses at the expense of privatizing gains. While we do need policies of austerity up to a point, these are being distorted by inordinate efforts to ‘save’ the banks at great personal cost to Irish citizens, and necessarily lead to lower output and lower tax revenues. In my view, it is economic nonsense to believe that someday we will be able to ‘pay it all back’ even if the Germans and French insist that we do.
In the context of this extraordinary budget adjustment for 2012 we must ask ourselves what are some of the prime ingredients needed at the macro level, to make the right choices? In my view, there are at least three. Firstly, that we take the right amount out of our national budget in order to adjust our way towards fiscal responsibility, strategic investment for recovery and a solid social fabric. The Government chose to cut spending on public services by 58% and increase taxes by 42%. As there are extensive arguments, and evidence referenced, for both the ‘cut more’ formula and the ‘spend more’ formula, I think that it is rational to conclude that this was an ideological choice by Government and one could question whether this choice will lead to a more inclusive as well as recovered nation. Why didn’t the government opt for a 50/50 split? In the absence of irrefutable evidence surely this would have been the fairest, most sensible way to proceed.
The ESRI has provided solid evidence that the current VAT system is highly regressive. At 21% we have evidence lower-income households pay a higher proportion of their income in VAT relative to the higher income households. An increase to 23% will hit the poorest households the worst. To make the right choices about this budget I think that Government ought to ensure—through its taxation, social protection and investment decisions—that those with wealth or economic security share more of their resources with those experiencing poverty or economic insecurity. This is the true meaning of equality and fairness. It is also a solid formula for economic prosperity as countries such as Finland and Norway demonstrate. If income tax is to remain untouched there are other options open to the Government in this respect, for example, the government could have reduced income tax relief on pension contributions to the standard income tax rate. This could have saved 500 million euros, equivalent to the amount Government may save on the VAT increase.
The focus on monetary and fiscal rectitude has to be balanced with a very clear articulation by our government of the vision for Ireland that we have at this time. Who is holding a cohesive vision of what kind of Ireland we are creating by cutting large chunks of investment in the social fiber of this land? The articulation of this vision for a new Ireland could include a call, a voluntary call, on those who have enough or indeed who have plenty at this time, to share with those who have least. I would ask Government to start speaking of an ethical vision that stresses values and that demonstrates that behind all these facts and figures and cuts, that someone is holding a cohesive vision as to what a new Ireland will look like. Furthermore, within the current debate about closer European fiscal union, Ireland ought to bring the following message to the European table—that we will seek closer union only if it means an increase in social solidarity as well as fiscal rectitude. The Tanaiste has indicated that re-structuring of Ireland’s debt will also be raised at today’s (Friday 9th) meeting of European leaders. This is an opportunity for Ireland to regain our sovereignty sooner, in time for Budget 2013. We must be able to make the right choices for our future and our society. As the Statement of Common Purpose from the Government’s programme for National Recovery concluded, ‘There isn’t a moment to be lost.’