Op-ed: To Restore Our Financial Credibility Tough Decisions Must be Taken on Croke Park 2
Apr 26, 2013
As the fallout from the Unions’ rejection of the Croke Park 2 deal rumbles on, it is important to take stock of the situation and assess where we are as a country and an economy.
Ireland continues to borrow €1.25 billion every month, an amount that is unsustainable at any phase of the economic cycle.
Unemployment has increased by 8.2% since the first Croke Park Agreement and would be even higher if it wasn’t for emigration.
We must restore our financial credibility and, in order to achieve this, tough decisions must be taken.
The Government has very limited room for manoeuvre and any alternatives to the proposals put forward by the Labour Relations Commission must be credible and feasible.
SIPTU’s suggestions that an off-balance-sheet stimulus programme and increased taxation on the wealthy could be used to reduce the deficit simply do not make sense.
The idea for a stimulus programme is based on the belief that the promissory note deal, achieved in February 2013, allows for increased investment and spending. Unfortunately this is not the case; while the promissory deal reduces Ireland’s level of debt repayment in the future it has no impact on the Government’s need for funds now.
In fact, the Fiscal Advisory Council has said that the impact of this deal only reduces the projected 2015 deficit by 0.6% of GDP. As a result, while it is very welcome, it will have very limited near term impact on budgetary considerations. Essentially, SIPTU is proposing to spend money that does not exist.
The idea of increasing taxes on the wealthy is flawed for a number of reasons.
Firstly, Ireland’s marginal rate of taxation for those earning over €100,000 is already over 50%. Any further increase in this rate threatens foreign direct investment which in turn reduces job creation.
Secondly, what is required is not increased taxation of one group but a broadening of the tax base. This is already being achieved through the Local Property Tax and (eventually) water charges.
Ireland has one of the most progressive tax systems in the OECD. 71% of all USC, PAYE and PRSI taxes are paid by the top 20% of workers. This is the group that, all being well, will create new jobs in the future.
While there are very few alternatives to the spending cuts being sought, there is a corresponding need to stimulate the economy. However, this will not come through the investment of money that doesn’t exist but through measures that support businesses and Small and Medium Enterprises (SMEs) in particular.
This sector accounts for over 99% of all businesses in the State, employing over 70% of all people. This is the group that should be encouraged to grow and create new jobs. More than anything it is this job creation that will increase the tax take, reduce the pressure on State services and get our economy back onto a sustainable footing.
Chambers Ireland has recently published ‘An Alternative 10 Point Plan for Micro, Small and Medium-Sized Enterprises’. It includes a range of measures that, if implemented, could create in excess of 30,000 jobs. This would have a major impact on any economic recovery.
It is essential that the Government and the Unions do everything required to achieve agreement over the renegotiated Croke Park deal; a deal that can help in delivering smarter, more productive government services that are focussed on cost effective front line delivery at an economically sustainable price. Furthermore, this will ultimately maintain the jobs of all public sector workers.
This should be the core agenda; not seeking tax increases to fund a system that we can no longer afford while also taking even more money out of circulation in the economy.
The savings it will produce are essential. However, at the same time everything that can be done to support existing businesses must be pursued. Getting people working and getting them off the Live Register will always be a more attractive option that either spending cuts or tax increases. We need to encourage our job creating entrepreneurs, not tax them into leaving the country.
This op-ed by Sean Murphy, Chambers Ireland Deputy Chief Executive, originally appeared on thejournal.ie on Friday 26th April, 2013. The original article can be viewed here.