Saturday 22 October 2016

Unwittingly, SF's Pearse Doherty gives us a valuable economics lesson

He didn't mean to, but with his USC revelation, he actually crystallised the reasons why we're moving on from daft populism

Published 28/08/2016 | 02:30

Sinn Fein Finance spokesperson Pearse Doherty meets the media to comment on Government tax hikes if USC abolished at Leinster House. Photo: Tom Burke
Sinn Fein Finance spokesperson Pearse Doherty meets the media to comment on Government tax hikes if USC abolished at Leinster House. Photo: Tom Burke

Pearse Doherty, the smartest boy in the Shinner class, was feeling very smart last week. Pearse is against the abolition of the USC. He believes that abolishing it for those earning up to €70,000 would be reckless. He believes that people who earn €70k a year are rich people, and he thinks they should pay more taxes, presumably to fund the entitlements of the people who Pearse sees as Sinn Fein's support base.

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So in Pearse's book, a household that has €70k coming in, with a mortgage and a few kids, is a rich household, and they should be penalised. That's a household with €4k a month coming in, out of which comes a mortgage or rent, property tax, possibly health insurance, a car and the running of it, a household that pays for everything from GP visits, bringing the kids to the dentist, medicine. Those people are not going to go hungry, but to describe them as wealthy would be a stretch. But Pearse wants to penalise them.

Pearse explained it all recently: "During the height of the boom, personal taxes were reduced to unsustainable levels. What the USC was doing was correcting that. The USC was a deeply regressive tax which impacted on people earning as low as €4,000 - what Sinn Fein has been doing over the years is making it more progressive, taking low earners out of the USC tax net."

So it turns out that Sinn Fein, which runs a mile from any suggestion it should take some responsibility and join a government, has actually been running the country for years, and it has been taking the lower paid out of the USC net. Who knew?

Interestingly, the USC was introduced in large part to broaden the tax base, because by 2010 half the people earning an income in this country were paying no taxes. Pearse has reimagined the USC to do the exact opposite of what it was meant to do. The lower paid have been taken out, the tax base has been narrowed again and Pearse approves now - USC is basically to be a further tax on the rich, or, as you or I might call a household earning €70k a year, the middle classes.

The USC is quite a simple, progressive tax. Pearse's super-rich, those who earn anything more than €70k, pay a USC rate on that extra income that is eight times the basic rate. Indeed, a businessperson who earns more than €100k in a year (a billionaire, as Pearse would call them) pays a USC rate that is 11 times the basic rate. So you can see why Pearse likes the USC and why the other parties don't. Because it puts more money in the pot for Pearse's voter base at the expense of Fine Gael and Fianna Fail's voter base.

Last week, Pearse must have thought he hit the jackpot when he asked the Department of Finance for any communications in the last year-and-a-half regarding abolition of the USC. It turned out that not only had there been a document, but it was the daftest document you could imagine. Someone had actually taken the time to figure out some other ways in which you could raise €4bn if you abolished the USC overnight.

Now correct me if I'm wrong, but there was never a plan to abolish the USC overnight, and neither was there any expectation that this would happen. Discussions around the USC had been quite nuanced, had involved raising taxes on the better paid as USC was cut, and had involved a gradual phasing out.

But some genius in the Department of Finance had actually spent time making up a paper of completely daft suggestions as to how you could raise the same amount of money. It is unclear whether it was supposed to be funny, or whether the person who did it was trying to be smart and prove a point. But, whatever, it involved things like increasing property tax by 600pc, or, in another combo, putting 18c on petrol, €1.50 on a pint, €1 on a short, and VAT increases across the board. Another scenario involved raising both tax rates by 5pc.

Pearse then came down from the mountain trumpeting this great find as proof the USC shouldn't be touched, because otherwise we wouldn't be able to afford a pint and our property tax would be more than our mortgages.

It got lost a little in the whole melee that these were not serious suggestions. You could equally have said €4bn a year could be gathered by taxing every man woman and child a grand each on Christmas every year to be paid in cash. It is technically another way of earning €4bn, but no one is suggesting it.

Indeed, no one is suggesting the overnight abolition of the USC. In fact, there is a serious bit at the end of that document that essentially says: "By the way, if you don't want to do all those crazy things, you could gradually phase out USC over time using the available fiscal space." Which was exactly what everyone understood the plan to be anyway. Why someone had to waste time making up the €1.50 on a pint stuff is somewhat of a mystery. But it certainly suited Pearse's narrative that the USC is a tax on rich people and if we get rid of it, it will affect the price of the pint for the regular Sinn Fein voter.

What Pearse mightn't have yet realised is that there was a far bigger narrative here, and it might not be one that suits him.

The real message of this week's foolishness over the USC was the notion that there are choices. And it is something that people are starting to realise more and more. We live in a country with very finite resources. As much as the Left can demand no one pay water charges and everyone get a free house and no one on a lower income pay any taxes, most people are starting to realise that everything has a price, an opportunity cost. If you give one person one thing, you take away an equivalent from someone else.

People have become much more sensible in the last six months. It almost seems that once people gave the last government, and especially Labour, a good kicking, they got the rage out of their system. Then water charges were parked, the housing crisis is seemingly being dealt with. There are more and more people in work - the numbers went up by 1pc in the second quarter of the year alone. People just aren't as angry anymore. And they recognise, too, that they can't just have everything, that everything has a price, and they are the ones who pay for it. And none of this is good for Pearse.

So it was good of him to give us that lesson in economics during the week. It's all about choices, and daft populism is not a policy. It's heartening, as we head into the reality of autumn, with this last touch of summer, that we are no longer traumatised, no longer lashing out, no longer mindlessly following unrealistic populist politicians. Perhaps we have grown up again and the pain is abating.

Heartening for most of us anyway. Perhaps not so heartening for Pearse and his friends on the Left.

Sunday Independent

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