Thursday 26 November 2009

4th Principle: Defend public services in health, education, welfare and housing

Slí Eile: In recent previous blogs I have suggested a number of high-level Principles to inform a progressive alternative to the current TINA.

Here is a fourth principle for debate, disagreement and action.

Next to a right to a basic income, every citizen of this Republic has a right to continuing education, health services and housing – regardless of their individual incomes. Such a scandalous notion is founded on human rights and the capabilities of societies endowed as we are with rich resources of human skill, community, institutions and physical capital. The notion of a right to a basic income or consumption of public service goods flies in the face of conventional wisdom which dictates (to borrow a McCarthy phrase) that ‘when the harvest fails the elders must take a cut in their allowance’. In other words, the conventional wisdom says that fairness or human rights is not the issue – it is down to ‘what we can afford’ and presently we cannot afford 2008 spending levels at 2003 levels of revenue flow. In this way of looking at things ‘what we can afford’ is a relatively fixed quantum determined – ultimately - by conditions in world export markets, the EXISTING DISTRIBUTION OF INCOME AND WEALTH (which is always a datum and not something to question) along with ‘market sentiment’ (be afraid you plebs !) and the gentlemen from the Ministry otherwise known as OECD, IMF and EU who have the poor to advise and punish – especially the latter two.

The pre-modern notion before the modern welfare state was founded stressed family, charitable societies and community should pick up most of all of the cost when harvests, health and employment fail. Well in theory, perhaps, but not in practice because not since in the real world families and communities don’t have the same access to the harvest.

In many ways, Ireland is bankrupt politically, morally and institutionally but it is not bankrupt in terms of its skills and communities. Even if national income (which is only one limited measure of human progress and well-being) were to decline by much more than is expected this year and next (plus 12% from peak Output in 2007), we can still continue to provide at least the current level of public service to citizens – if we chose to raise taxes through closing off specific reliefs, widening the tax base and increasing effective rates on capital gains, high salaries income and windfall profits in specific sectors. Cuts in the quality and quantity of public services in key areas would represent a devastating and unwarranted attack on social infrastructure – which as matters stood before the recession – was and is hugely inadequate. We risk undermining the very conditions for future growth in prosperity by failing to invest in a healthy and well-educated society for your children.

Public sector workers should be protesting not just over pay, jobs and pensions but together with private sector workers should all join together to protest over education, health and social welfare because at the end of the day we will know sickness eventually, vulnerability and the learning needs of a new generation. Consumers and producers need each others in public and private sectors to re-start the economy. And we are more than just consumers and producers. We are citizens of Republic meant to be founded on principles of solidarity and defence of the weakest.

Yes, we can create a more dignified society and one that is more just, caring and equitable founded on principles of democracy and genuine respect for human rights. The unrealistic ones are those who constrain choices to the Iron Law of the Market and imagine no alternatives. Lets shake off the pessimism, divisiveness and apathy engendered by the illusions of such an Iron Law.

11 comments:

Proposition Joe said...

if we chose to raise taxes through closing off specific reliefs, widening the tax base and increasing effective rates on capital gains, high salaries income and windfall profits in specific sectors.

My Mammy has a phrase of which she never tires: "you gets what you pays for".

The problem with the tax-raising message from the left is that its all bound up in the notion that when it comes to quality public services "you gets what the other guy pays for".

Low, average and even middling-high earners have been encouraged to think that they've a moral right to pay low rates of tax, as long there is someone a little richer that isn't paying "their fair share".

The reality is that the only way we can return to a sustainable income tax yield to is adopt the sort the of burden-spread that's typical across the western world. And doesn't involve absolving half the workforce of all income tax liability.

The more union leaders and left-leaning politicians persist in enticing people with the notion that there's a huge pool of someone else's wealth out there just waiting to confiscated, the further we get from the general acceptance of the type of tax reform that'll be required to provide really substantial additional yield.

The second issue is a matter of trust that the additional taxes levied will be wisely spent and produce measurable results. The evidence of the massive increases in spending during the last decade does not provide a strong case in this regard.

Slí Eile said...

@Proposition Joe Thank you for your comments. Your second point about 'trust that the additional taxes levied will be wisely spent and produce measurable results' is an important one. Some areas of public spending have not been well managed and trust in institutions to deliver results is indeed a concern. The large sums of money invested in subsidising private health is a case in point.

I would question your claim about 'massive increases in spending during the last decade'. In fact for many years GDP shot ahead of public spending and increases in key areas such as education did not keep pace with GDP over a long period of growth from 1995 to 2008.

Regarding your point about 'absolving half the workforce of all income tax liability' - where does this fact come from? It is part of received truth by now. Can someone help me please to locate the relevant data from Revenue Statistics. Looking at (for example) Table IDS1 in the revenue 2008 Stats report does not match this story unless something is amiss?

http://www.revenue.ie/en/about/publications/
statistical/2008/
income-distribution-statistics.pdf
gives a different

Proposition Joe said...

@Slí

In fact for many years GDP shot ahead of public spending

That was true in the reality-based phase of the Tiger era (circa 1995-2000), but once the bubble started to inflate it ceased to be so. Public spending growth has actually out-stripped GDP growth every single year of this decade with the exception of the first.

Regarding your point about 'absolving half the workforce of all income tax liability' - where does this fact come from?

Well the source is none other that Brian Lenihan, who I guess would have the latest Revenue figures and projections into 2010 at his fingertips. He has repeated several times the claim that half the workforce pay no income tax a all, and only 10% pay anything at the higher rate. Maybe he means "little or no" income tax, or is excluding the 2% income and 4% health levy which kick in at a lower threshold than the PAYE standard rate (net of tax credits).

BTW those Revenue stats that you're linking to are seriously out-of-date at this stage, referring to the 2006 tax year. A lot of water under the bridge since then, including a collapse in tax-raising capacity.

Its disappointing that the Revenue haven't been quicker at getting the numbers for 2008 out into the public domain. Once the year is out, the data for 2009 will make for very sobering reading I'd suspect.

Not that I'm suggesting that the wealthy should be given a free pass in the necessary re-tooling of our tax model. They've seen an 8.5% increase already via the levies, and will be hit again without doubt. I'd whole-heartedly agree with most of the reliefs being closed off, with the exception possibly that I'd limit the amount of relief allowed on pension contributions as opposed to reducing the rate. The minimum alternative tax also provides us a proven mechanism for increasing the effective tax rate paid by the very wealthy.

However false hope is being given to people at the other end of the income scale with the constant talk of making the wealthy pay. The reality is that bringing our tax system into line with Western European norms will inevitably involve those within a standard deviation of the average income paying a lot more than they currently do. Either directly or indirectly. Otherwise we'll continue to be highly exposed to sudden falls in tax yield as we've seen over the past year.

Antoin O Lachtnain said...

I agree completely that the current level of services should be maintained. The question is, how do we maintain this same level of services, and improve upon it, using the much more limited resources we now have?

Slí Eile said...

@Proposition Joe You say that 'Public spending growth has actually out-stripped GDP growth every single year of this decade with the exception of the first.' What is your evidence for this? Chart 1.1 on page 2 of Volume 1 of Bord Snip shows a time series (on GNP) which stability around 38% for the 2001-2006 period (following a steady decline from 1993 to 2001). OECD Government at Glance shows that General Government Expenditure declined from 41.1% in 1995 to 33.8% in 2006 (indicator 4.2 -
http://dx.doi.org/10.1787/723433536816

In relation to the '50% of the workforce claim' - my point is that a cursory glance at the Revenue stats (for 2006) does not yield this 'fact'. With all due respect to those quoting the figure I would be very grateful if someone could cite the exact data source before we discuss the substantive issue further. Its amazing how many uncontested 'facts' are in the public domain at the moment.

An Saoi said...

@ Proposition Joe

The filing date for self-employed tax returns for 2008 was less than two weeks ago. You can hardly expect the Revenue to collate the statistics that quickly! The filing date for companies is 9 months after the end of the account year.

Taxpayers also have up to four years to claim refunds and while most of those will do so shortly after the end of the year of assessment, some may wait longer.

The Revenue records show that approx. 50% of those who were registered as working at some stage during the year were below the income threshold to pay tax. I agree that this is a good example of the old adage, "lies, damm lies and statistics" as it equates the school going child working for a few weeks in a shop with a full-time employee. There is also a problem with many business owners listing their children as employees while actually in full-time education.

Additional interim information is provided by way of written answers to members of the Oireachtas. I would suggest for example you look at Dáil record for the 3rd November last when you will find substantial information provided in this manner to Deputy Joan Burton and others.

For example, in response to question 38073/09, the Minister estimated a cost of €877M for interest relief against just one source of passive income, rents for 2007.

An Saoi said...

Further to my points above there is a table included in a response to one of Deputy Burton's questions on the 3rd November last providing an analysis of earnings for 2007. The question no. was 354 on the day and the reference is 38669/09. The figures are skewed as the "employed" seem to also include those in receipt of occupational pensions as there is a generic phrase, "income earners" used.

Antoin O Lachtnain said...

OK, look at it another way if you like - 1.1 million people (the total according to the table you refer to who earn less than 30,000 euros per year (see http://www.kildarestreet.com/wrans/?id=2009-11-03.1262.0&s=38669%2F09#g1263.0.q) who at a quick tot are paying less than 400m euros of tax between them per year. This is less than 380 euros per person. This is very low, whatever way you look at it.

The view that Ireland has a very high proportion of households who aren't in the tax net is just not controversial.

For example, check out table 1 of http://www.iser.essex.ac.uk/publications/working-papers/euromod/em2-02.pdf

Page 10 contains the following observation. Note that it is an observation about households, not individual employees. "half of Irish households pay less than 6% in net taxes with just under
20% having their incomes entirely unaffected by the tax-benefit system."

Proposition Joe said...

@Slí

That apparent paradox is easily explained.

GNP grew faster than GDP over the period 2001 to 2006, the ratio of the one to the other rising from 83.8% to 86.3% (my source is also the bould Dr. McCarthy, table 4 of the paper he presented to the SSISI the other evening).

So a static proportion of GNP becomes an increasing proportion of GDP.

With respect to the OECD figures, the problem here is the coarse-grain of the data, spanning 11 years and two entirely different phases of economic development. The proportion of GDP spent did decline over the period 1995-2000, but the trend reversed in the period 2001-present.

For reference, here are the figures I calculate for the years you've questioned.

The GDP numbers I've taken from here, whereas the public spending figures comes from the annual Exchequer Statements.

Year|GDP|Public Spending
2001|9.2|10.5
2002|6.4|9.9
2003|4.4|5.0
2004|4.7|7.0
2005|6.2|8.9
2006|5.4|10.7
2007|6.0|10.3
2008|-3.0|9.3

Slí Eile said...

Clearly we must be drawing from different data sets. The CSO website shows GDP and GNP growing by about the same rate in 2002-2006 (GNP growing a bit faster in 2002-2008 at 6.4 compared to 5.7% for GDP). (Table C on page XV of
http://www.cso.ie/releasespublications/documents/economy/2008/nie_2008.pdf
I find no evidence that total public spending as a proportion of total national income has increased in the period to 2006. In fact, as the OECD data show it fell between 1995 and 2006.
Hence, your claim that 'Public spending growth has actually out-stripped GDP growth every single year of this decade with the exception of the first.' does not hold up.
Where do your Excheqer data come from? The public spending figures I mentioned were from Bord Snip vol 1.
In regard to GNP and GDP - the ratio stood fairly steady at around 85% for most years except 2001 when the ratio dipped to about 82% (GNP as a ratio of GDP).

Proposition Joe said...

@Slí

My error was that the GDP data I used were adjusted for inflation, whereas the public spending numbers (lifted directly from the annual Exchequer Statements on finance.gov.ie) were not. D'oh!