Analysis

Thursday 24 July 2014

Not everything Sinn Fein says is naive nonsense – but too much doesn't add up

Richard Curran

Published 27/05/2014|02:30

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Sinn Fein's finance spokesman Pearse Doherty. Photo: Tom Burke
Sinn Fein's finance spokesman Pearse Doherty. Photo: Tom Burke

Sinn Fein is on an upward trajectory. Its success in the local elections showed how hard work at grass-roots level can pay off. Its European successes were more about kicking the Government while also ramming home the idea that there was an alternative to the austerity years.

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But the economics behind the Sinn Fein plan look at best shaky and at worst misleading. Could Sinn Fein's proposals have delivered Ireland through the fiscal and economic crisis with less pain for most people? The truth is we may never get to find out.

Unless the Government implodes in the coming months (which can't be ruled out either), it is just one more tough Budget away from practically balancing the Exchequer books.

Sinn Fein may well find itself in power with another party after the next general election. By the time that happens, the gap between what the Government spends and takes in will no longer be €150m per week.

The country's economic challenges will not be over, but the emergency may well be. We can only judge the party on what it said it would have done if it had been in power. The actual policies it might implement in government in the future, could look very different.

The party's alternative Budget for 2014 was direct and largely, but not totally, costed by the Department of Finance. That doesn't mean it was workable. The party said it would manage to make a Budget adjustment of €2.4bn while delivering on a goody bag of measures including: abolishing the property tax; giving 86,000 carers €325 in their respite grant; taking 296,000 minimum wage earners out of the tax net; extending the fuel allowance; promising every unemployed young person access to a job or training; and tackling child hunger. It is also opposed to introducing water charges.

How was all this going to be funded? Sinn Fein had a problem here. How could it make massive savings in government expenditure while decrying vicious government cutbacks? The answer was to go after anyone and anything that looks like it earns more than €100,000 per year. Hit their wages, their pensions, their assets, their holiday homes, their inheritance, and their tax bill. It sounds fair on paper to someone earning the average industrial wage and struggling to make ends meet.

But the party ignores the possible consequences of these actions. It doesn't appear to grasp the implications for foreign direct investment, employment creation, investment and the fact that people who really do have lots of money can move it, and themselves, abroad very easily.

Its most high-profile initiative, which it originally estimated could raise €800m, was a wealth tax. Sinn Fein wanted it applied to individuals with net assets (after debt is taken into account) of over €1m. It would exclude agricultural land and business assets. But everything else would be up for grabs.

People who really have a lot of money are prepared to move it. Deposits held in Irish banks help fund loans to businesses. A modest €200,000 tax put on tax exiles in 2010 saw just 24 of them pay it. That fell to 14 in 2012.

But the document remains on shaky ground elsewhere, too. It wants a new 48pc tax rate for those earning over €100,000 per year, despite figures showing that a very significant percentage of the total income tax take comes from that group already.

It found itself on shaky ground when it promised to deliver €258m in savings on branded drugs by buying more generics.

This has already been set in train by the Government and is proving very difficult.

It promised to save a massive €205.9m by improving productivity, including "strategic purchasing". What does that mean?

It was going to slash consultants' pay by 15pc to 30pc. Hospital consultants are an easy mark on paper, but it could lead to a brain drain for decent specialists with those pay cuts.

It promised to save €76m on state spending on professional fees and general department spending.

That all looks fine, but slash what you pay in professional fees and you may find the companies you are paying have to let people go. Very often, the lower and middle paid employees in firms like these are the ones who get squeezed out.

Public servants earning over €100,000 would get a further pay cut. This time it would be 15pc, while those on over €150,000 would take a 30pc hit. This looks like a kind of neo-socialism aimed at trimming everybody – regardless of experience, qualification or level of responsibility – back towards a magical figure of €100,000. This is the figure that Sinn Fein seems to believe separates the elite from everybody else.

Some of what the party says seems naive or fails to take account of how an open economy competing in an international labour market, might suffer as a result.

But some measures could be easily implemented. These include higher tax on setting up discretionary trusts, or wealth trusts, increasing the betting tax or hiking taxes on gifts or inheritance.

The electorate may well be getting closer to giving Sinn Fein a chance to prove that its alternative way could work.

That may prove to be a learning experience for everybody.

Irish Independent

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