John Bruton

Opinions & Ideas

Category: Election 2016

PARTY RHETORIC, AND MANIFESTO SPECIFICS, TOLD VERY DIFFERENT STORIES………

irish-flagLITTLE REAL DIFFERENCE ON SPENDING AND TAX

The economist Jim O’Leary has circulated a postscript on the Irish General Election.
It is very good, says something new, and I am republishing it here so it gets a wider readership.
It shows that the description of the relative economic and fiscal policy positions of the two main parties, as set out in their manifestos, is completely different from the characterization of their policy stances during the campaign by the media and by one another.
It would appear that neither the media, nor the politicians themselves read, and added up the cost of, their own, and opposing party, manifestoes!
Here is what Jim wrote:
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“I’ve just been doing a bit of digging into the election manifestoes of our two largest political parties in order to get a handle on how difficult it might be to bridge the ideological chasm between them. After all, Fine Gael is a party that sits firmly on the right of the spectrum and wants to slash taxes even if it means compromising standards of public service provision, while Fianna Fail has reinvented itself as a social democratic party with a more measured approach to reducing taxes and a much stronger commitment to the public sector. Or, at least, that’s how the narrative of the last few weeks would have it.

Well, the thrust of that narrative receives some slender support from the respective parties’ plans for government current spending.

FF proposed to devote €4.8bn to raising current spending over the next five years; the corresponding FG figure is €4.2bn. The difference between them hardly amounts to a whole hill of beans however, equating as it does to just about 1% of the current expenditure base. (Indeed, by this standard, the Sinn Fein plan to raise current spending by €6bn by 2021 doesn’t look dramatically out of kilter.)

On the other hand, FG is the more ambitious party in relation to investment spending having proposed an extra €4bn for the capital budget for the 2017-21 period, compared with FF’s €2.7bn.

So, if we just add current and capital together (and ignore their differential impact on the dreaded ‘fiscal space’), FG’s plans would result in higher public spending than FF’s. A slightly surprising conclusion when set against the prevailing narrative.
Much more surprising (indeed ‘surprising’ is an understatement of how it struck me when I discovered it a few days ago) is the comparison of the cost of the two parties’ proposals in relation to taxation.

The cost of the FF proposals? Just over €2.9bn.

And FG’s? A bit less than €2.5bn.

In other words, FF was proposing to devote almost €0.5bn more to tax cuts over the next five years than FG. If you don’t believe me, check the two sets of numbers in their respective manifestoes.

So much for FG being the ‘tax slashers’. The cost of their commitment to abolish USC, at  almost €3.5bn over the 2017-21 period, was to be offset by a net €1bn of increases elsewhere, including a 5% levy on incomes over €100k, a range of base-broadening measures for high earners, a steep hike in cigarette duties and a new tax on sugar-sweetened drinks. In contrast, FF’s more modest plans in respect of USC, costing €2.6bn, were to be accompanied by a net €300m of tax reductions in other areas.

It seems to me that FG’s proposal in relation to a single tax, the USC, was adopted as shorthand for its overall position on taxation (and was taken as emblematic of its attitude towards public service provision), and the rest of its tax platform was pretty well ignored.

Lazy analysis perhaps, but what else would one expect from hard-pressed(!) political commentators (not to mention political opponents).

What is bewildering is that FG made no serious attempt during the election campaign to counter what proved to be a damaging narrative.

Not once did a FG spokesperson say; ‘Hold on folks, Fianna Fail are actually proposing to cut taxes by more than we are!’ Or am I missing something?  “

EVE OF ELECTION PROGNOSIS

cropped-irish-flag.jpgThe possibility of a Dail being elected tomorrow, where no feasible combination of parties will be able to form a government, is unfortunately quite high.

Party leaders were incessantly pressed, by the media and others during the campaign, into ruling out coalition options.
There was no space allowed for “constructive ambiguity”, although Irish people know well that, without “constructive ambiguity” in the short term, we might have had no peace process in the long term. Media interest and public interest are not always identical.

The questions asked by moderators, in the leaders’ debates, seemed to focus heavily on catching leaders out about things they said, or did, in the past, rather than on their thoughts about the future, which is what is really important now.

Some of the issues pursued were trivial, like the appointment of a member to the board of an art gallery

It is almost as if the moderators, in the debates, wanted to ask questions about the past, because they were, themselves, uncomfortable dealing with challenges about the future, like

+ the ballooning cost of health services, relative to resources available
+ the looming pensions crisis, where numbers at work will decline relative to numbers on pension
+ the changes required of Ireland to meet its climate change obligations
+ what the leaders would do, next June, if the UK leaves the EU
+ the shape of the 2017 budget ( all the focus was on what might be possible in 2021!)
+ what the leaders would do if, when the Dail meets, no combination of parties, willing to coalesce with one another, could attain a majority
+ how long could we go without a government, if one is not elected on 10 March

These are not very original questions, but they are the ones voters should be thinking about.

CAMPAIGNING IN THE IRISH GENERAL ELECTION

Screen Shot 2016-02-20 at 20.31.20I have been doing quite a bit of door to door canvassing in the Irish General Election, mostly for my brother , Richard, in Dublin Bay North, but also for the 4 outgoing Fine Gael TDs in Meath, Damien English, Ray Butler, Regina Doherty and Helen Mc Entee.

Tonight I am speaking at a rally in Carrick on Shannon in support of Gerry Reynolds and his running mates, John Perry and Tony McLaughlin.

There is widespread committed support for all the five candidates I have canvassed for. They are well known for their consistent local work rate…..not just at election time.

There is also a high level of recognition of the fact that, in the past five years, 135,000 people have been added to the number at work, and that the growth rate of the Irish economy is now the highest in Europe. On the other hand, there is not enough recognition of the fact that keeping high economic and employment growth rates requires that we maintain competitiveness.

Some voters question whether the extra 135,000 jobs are well paid enough, and my answer is that many of them are well paid, and that the taxation contributed by all these extra workers is essential if there is to be an improvement in health and education services. Without that extra tax revenue, planned service improvements would be impossible.

Other voters complain that services in hospitals and schools are not good enough and mention particular cuts that have taken place. But these restrictions were the logical and necessary consequence of gradually getting the government’s budget back into some sort of balance. This was essential, if the country was not to follow the path of Greece.

Even as things stand, this year the government is still spending slightly MORE than it is collecting in taxes.

To reduce the debt to the sustainable level of 60% of GDP, we need to reach a point where revenue is growing faster than spending. Unless we do this, we are simply financing today’s services at the expense of tomorrow’s taxpayers.

A government that did that on an ongoing basis would eventually get into trouble.

WHY A MAJORITY GOVERNMENT IS NEEDED

The risk of political instability is not an abstract concept. If the government formed in the new Dail does not have a secure majority, that brings the possibility that annual budgets would not be passed, or could only be passed if all sorts of vested local interests, associated with “independent” TD’s, were bought off.

Lenders would worry about lending to a government that was in that situation.

Eventually that would lead to higher interest rates.

That would in turn feed through into mortgage and over draft rates, which are already too high for some borrowers.

Political instability, and uncertainty about budgetary policy of the Portuguese government, has already led to an 100 basis point increase in Portuguese bond rates.

Interest rates are currently being kept very low by the ECB……artificially so.

That policy is helping us, as a borrower nation, but it is also making it difficult for pension and insurance funds to invest profitably enough, to protect the interests of their policy holders and future pensioners.

We cannot count on that lax ECB policy lasting forever, so we should try to get our debts down to manageable levels, while the going is still good.

That is why it is right that the two government parties are emphasising fiscal prudence, and why a Dail full of independent TDs, pursuing sectional rather than national policies, could be a dangerous luxury for the country.

COPYRIGHT JOHN BRUTON & CONTENT

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