News Marc Coleman

Wednesday 17 September 2014

Angry voters want money back – but in tax cuts only

Taxpayers aren't being heard in the media because they don't have a trade union.

Published 27/04/2014 | 02:30

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Jack O’Connor of Siptu has called for pay rises in the private sector before pay restrictions in the public sector are lifted.
Jack O’Connor of Siptu has called for pay rises in the private sector before pay restrictions in the public sector are lifted.

'We want our money back." If you were allowed only one sentence to say to canvassers on the doorsteps in this election season, then that would probably be it.

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Overtaxed for public services that are seen as too expensive, deprived of a pay rise since 2007 and living in one of the highest cost economies in the world, we all want our money back.

So do low-earning public servants who have taken three pay cuts since 2009 – and some of whom still earn less than the average industrial wage.

But who can really claim that the money is "ours"?

The phrase belongs to Public Service Executive Union (PSEU) president Brendan Lawless, who was supporting PSEU general secretary Tom Geraghty's call for public servants to come first in the queue for pay rises ahead of any tax cuts. As far as they are concerned the first fruits of recovery belong to their members. Siptu General Secretary Jack O'Connor is a bit more generous: he wants private sector workers to come first in the queue. But he agrees that pay rises must come before tax cuts. Ibec politely disagrees.

Who is right? Are Tom and Jack correct in saying that pay rises should come before tax cuts? And if so, should public pay rises come before private pay rises, or vice versa? Last but not least: are both trade union leaders counting chickens that may not hatch?

The case for any pay increases at this time – whether they precede tax cuts or not – is a weak one. Far from being a low-wage economy, the most recent Eurostat data puts Irish gross hourly earnings at the highest level in the eurozone and, after Denmark, the second highest in the EU. Even when our high cost of living is accounted for that remains the case.

With average earnings a third higher than the EU average and unemployment over 10 per cent – and with new jobs being created in low-wage sectors of the economy – the argument for a general pay rise is weak. With GDP per capita in decline, the productivity argument is weak also.

There is an issue in relation to real earnings – ie, earnings when the high cost of living is taken into account.

With food prices 18 per cent above the EU average, alcohol prices 62 per cent above the EU average (exploding the myth of allegedly "low" alcohol prices) and the cost of tobacco 99 per cent above the EU average – not to mention high electricity and telecommunication costs – an across the board effort to cut the cost of living would be a more lasting way of putting real money back in workers' pockets. And unlike increases in nominal pay it would not erode the hard-won gains on the competitiveness and jobs front.

By contrast, the case for tax cuts is strong. In Germany the top marginal income tax rate is 44 per cent and is paid on incomes over €250,731.

In Ireland our effective rate is 52 per cent and kicks in at €32,800 for a single person and €41,800 for a married couple. Our VAT rate of 23 per cent is among Europe's highest, as are excise duties. Motor tax and Vehicle Registration Tax rates are also high by EU standards.

So while Tom Geraghty and Jack O'Connor mightn't like to hear it, the case for tax cuts is far stronger than that for pay rises. But let's assume for a moment that they were right: as regards the public versus private pay rise argument, Jack O'Connor has a strong case. And that case also touches on an issue raised by Tom Geraghty earlier last week when he argued that cutting taxes was inconsistent with maintaining public services. That is not so.

Unlike other EU countries, tax in Ireland focuses less on maintaining services than maintaining pay and pensions levels that – despite pay cuts trade union leaders always refer to – remain the most generous in the eurozone. So generous that, according to CSO earnings data, average public sector pay remains – in spite of cuts – 46 per cent above average private pay.

Trade unions justify this by pointing to "higher qualifications". But this argument is defeated by the fact that in countries where public sector qualifications are just as high (Germany) public pay is lower than private pay and yet public sector performance is higher. And by the fact that the only other country with a similar differential is Greece.

By shifting the emphasis in our public sector from having fewer workers and services and higher pay – as at present – to having more workers and services on more modest pay, we can maintain services and raise equality in a public sector where income inequality remains among the worst in Europe (something union leaders should arguably be concerned with).

But an intriguing question is why, given their stronger case, taxpayer voices aren't being heard in our media. Simply because they don't have a trade union.

As far as our media is concerned– particularly RTE – if you are not part of the mostly public sector or publicly funded "civic society", you don't count.

This delusion – that published opinion is the same as public opinion (it isn't) – is warping our politicians' understanding of what voters think, amplifying the voices of minorities and disenfranchising the majority to the point where across Europe voter anger is like a pot coming to the boil. In four weeks' time the lid just might blow off that pot.

Marc Coleman presents 'The Marc Coleman Show' on Newstalk 106-108fm each Sunday from 10pm

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