Monday 16 January 2017

Marc Coleman: Modern Labour emerges as real victor in Budget

The split between spending cuts and tax increases is ultimately in Labour's favour,

Published 09/12/2012 | 05:00

First of all, let's dispense with the biggest myth about Budget 2013 – that Labour was the loser in this budget. Tales of Labour TDs crying into their pints and well-choreographed protests aside, this Budget was a slam-dunk victory for Labour in every way possible. Actually, I should qualify that – it is a victory for modern Labour.

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To see why, consider the Budget's most striking feature. Of every €3 reined in last Wednesday, two were supposed to come from spending cuts and one was supposed to come from tax increases. Roughly in line with the relative size of Fine Gael and Labour parliamentary parties, that split was supposed to represent a 'fair' balance between the options.

Two out of three ain't bad, so the logic went. Except that it is. All the evidence shows that to stimulate growth and reduce debt, budgets should focus solely on cutting spending and on the most wasteful spending of all. Between 1987 and 1989, spending fell by 10 per cent of GDP, resulting in an average growth rate of 5 per cent. In the December 2009 budget, current spending was cut and tax rates were left alone, leading to a recovery in GNP growth and tax revenues. Last but not least, there is the experience of Latvia, which cut spending by 30 per cent in one year. Latvia is now growing faster than any other EU country. Against the overwhelming body of evidence, the case was for focusing fully on spending cuts. But even the 2:1 ratio of cuts to tax increases has not been achieved.

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