Wednesday 18 January 2017

Thomas Molloy: So they'd rather break the country than their word

Published 16/06/2011 | 05:00

'IT is useless to hold a person to anything he says while he is in love, drunk, or running for office," quipped Shirley MacLaine. We don't know how many in Fine Gael and Labour were loved up or drunk last February, but we do know they were all running for office and therefore unable to stop telling porkies.

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Exactly 100 days since Enda Kenny was elected Taoiseach, expect to see much hand-wringing from the opposition about the many promises Enda and his colleagues have broken. Alas, the problem is much worse; the new Government is breaking far too few of the absurd promises made during February's election campaign.

Unfortunately for business, the Government has kept the mad pledge to restore the minimum wage to the third-highest level in the European Union, creating an artificial floor for salaries that will make it almost impossible to restore real competitiveness.

Other disastrous promises to be kept include the lacklustre jobs package which forced the Government to raid our pension funds.

Undermining one of the few savings vehicles that still enjoyed any measure of support among the public was a big price to pay for a vague promise of a few jobs.

The most bizarre promise to be kept is, of course, the Government's pledge to renegotiate the interest rate paid on the €67.5bn bailout. To have wasted so much energy and so much goodwill on this one problem when so many other landmines threaten to explode was always foolhardy.

Education Minister Ruairi Quinn, a man with a deep understanding of the country's finances from his years in Merrion Street, has shown his colleagues how to grow a little backbone. By agreeing to the limited re-introduction of university fees and a rake of other policies to modernise our schools, he has shown that even his own party's pet projects are not off-limits.

Mr Quinn's ability to push through reform, no matter how distasteful and unpopular, suggests that he has what it takes to serve as Finance Minister if the position should become vacant. Most members of the Government appear determined to break the country rather than break their word.

They would do well to remember American businessman Hal Geneen's advice that that words are words, explanations are explanations, promises are promises but only performance is reality.

Rationality needed in tax debate

BARACK Obama has said many times that he wants to press the reset button on relations between China and the US. It is time for Enda Kenny to stop copying Obama's speeches and start stealing his ideas. We need to do something similar with the EU.

Gassing in the Dail about how unfair the bailout agreement is, just six months after it was signed, is pressing the self-destruct button rather than the reset one. The Coalition's determination to stoke hysteria about threats to "our" corporation tax must also stop if we are to move on.

The truth is that almost every other European country wants to retain the power to decide what taxes companies should pay.

Nobody is threatening Europe with tax harmonisation.

What is happening is that Ireland's two biggest creditors -- France and Germany -- are suggesting that Ireland start raising taxes until the the gap between spending and income is bridged.

We must try to answer the French and German concerns with rational argument rather than waffle. A good starting point would be to admit that there is nothing sacred about charging all businesses a tax of just 12.5pc at a time when the country is skirting with bankruptcy.

We need to admit it may make sense in some cases.

Neither this Government, nor the last, have ever published figures to explain the rationale behind keeping one of the main taxes well below European norms. We hear again and again about how higher taxes would scare off US multinationals but we never get any proof.

There are some good arguments to be made for retaining corporation tax at 12.5pc but we aren't making them. Corporation tax isn't publicly costed properly or understood by the Government: so how can we expect anybody else to understand it either.

Tale of two countries shows us there was another way

ICELAND offers an interesting counter-factual alternative to the last Dail's decision to guarantee the banks. Both countries were brought down by banks run by a cosy cartel of amateurs. Here, we chose to nationalise bank debts and are still preparing to pay the bill. There, they let their banks go bang and put the prime minister on trial.

One problem; two different solutions. News that Iceland has successfully returned to the bond markets while we are years away is a stark reminder that there were indeed alternatives.

Many argue that Iceland is different to Ireland but the differences are often overstated. To be sure, Iceland has its own currency, but much of the debt taken on by the country's reckless business elite was in dollars and euros.

The real difference between the two countries is that Iceland is a real democracy and investors had real reason to fear that the descendants of some of Europe's most hardy Vikings would burn anything in sight, including a few bondholders.

Over in Ireland, investors had little to fear. Much has been made of the loss of sovereignty that followed November's IMF/EU bailout but the Icelanders' pluck shows that you don't have to give up all sovereignty when your economy implodes.

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