Saturday 3 December 2016

Why rules which favour the wealthy are unlikely to change

Published 01/07/2014 | 02:30

Arrears and non-repayment rates for investment properties are still very high by international standards.
Arrears and non-repayment rates for investment properties are still very high by international standards.

Economists tell their students there are four main factors of production in advanced economies which are used as inputs to create the outputs we use to make our lives better. These four factors are land, labour, physical capital and technology. I always add a fifth: rules. Rules create winners and losers, and the best place to be is to be the maker of the rules. It's why democracy is so very important. Those who make the rules have to be accountable to those who might suffer under them.

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Any rule is a resource to those who want to impose them. Take a simple rule like the property tax – you own some property, you pay a specific amount in a band related to the value of that property. Who wins? The State's coffers. Who loses? Your coffers, and whoever you planned to spend that money on.

Take another deeper, older rule like debt repayment. We insist in our society that if I enter into a contract with a lender I should pay the principal plus any agreed interest back in full. This rule is perfectly sensible until vast swathes of the population face levels of debt which can't be repaid. Ireland's household debt to disposable income ratio is 196pc, one of the highest in the world. This ratio has fallen by 17pc from its peak in 2008 even as tax rises and wage cuts have hammered disposable incomes.

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