Thursday 3 February 2011

Questions for our Politicians

I just watched an utterly shameful display of political fuckwittery of the highest order. We had senior(ish) representatives from what are now apparently our four main political parties (FF, FG, SF & Labour) gracing our National airwaves in order to catastrophically fail to explain what their plans would be for tax increases and expenditure cuts if they happen to get into power. They seemed to prefer to call each other names and bang out shrill party slogans with obviously no intention of actually communicating anything substantive.

In the interests of getting this straight for myself (my numbers may be off by a billion here or there, it doesn’t make any difference) I took a look at the numbers.

We are currently running our country by spending €14bn more than we make. We make €33bn. In the long term a 3% (or ~€1bn) deficit is more or less OK so we’re searching for a way to tax more and spend less so that €13bn difference goes away by 2014 or thereabouts. Now this is down from a €17bn problem prior to December if I recall correctly. But that extra few billion will only remain saved if the incoming government does not backtrack significantly on the measures already taken by the outgoing FF crew.

So all of our friends on TV tonight needed to say where they will find that €14bn and none of them could offer up anything that convincingly demonstrated more than a few hundred million worth of ideas. At best they were talking about stuff they might do this year, not how they would actually get us out of this.

To put that number in some perspective, these are the important taxes and expenditures for 2007, 2010 and 2011. Between them they account for about 75% of the whole equation.

 

2010

2011

2007 (!!)

Income Tax

11.1

11.5

14.3

Corporation Tax

3.8

4.1

6.7

VAT

10.2

10.7

14.6

Excise\Stamp Duties

5.5

5.9

9.9

Education

-7.9

-8.4

-7.6

Social Welfare

-13.2

-14.2

-7.4

Health Services

-10.8

-10.6

-10.6

 

The 2007 numbers show just how extremely trashed the economy has been by the collapse – at that stage the four main sources of income exceeded the three main expenditure items by a more than 80%. Now income from them is 20% lower than the expenditure on those three alone.

Now ask yourself how any tweaking of the system can find €14bn in there without causing levels of hardship that are sure to cause a revolution.

Nobody is addressing this elephant in the room with any honesty – the numbers can be made add up but it’s got to be a combination of savage cuts in areas that haven’t seen real cuts yet (Education\Health), savage cuts in social welfare along with massive increases in Income tax, VAT and Excise. Corporation tax is a bust much as I would prefer it to be otherwise, any significant increase there will simply lead to offshoring of profits or disinvestment.

The problem with this is that the Irish population simply will not vote for someone who tells them that even if it is true and even if someone actually does manage to go so far as to implement it there will be blood on the streets. Note how outraged people are with the impact of the 2011 Budget, and just look at how trivial those changes actually were in the context of the immediate problem.

The other elephant in the room is that while growth could help make these numbers a lot more attainable the debt and interest burden required to fund ourselves until we get this into balance adds significantly to the problem – we’re running on a treadmill that’s accelerating there. And don’t forget that each €2bn in savings in expenditure translates into at least a 1% reduction in GDP if not more. So that’s another treadmill on top of the debt one that we have to race against.

Until someone puts some realistic numbers on genuine alternatives (wealth taxes that take into account the inevitable flight of wealth as a result, real property taxes, levies on natural resources (those gas fields off Mayo spring to mind) I can’t see how there’s any way out of this.

And I sure as hell don’t believe that any of our politicians have a clue how to do it either.

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