News Comment

Thursday 2 October 2014

Middle class still screwed - for saving the country

Private-sector middle and high earners are the real heroes of our recovery, 
no thanks to 'insider' 
Ireland, says Eddie Hobbs

Eddie Hobbs

Published 03/08/2014 | 00:00

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JAILED: Former Fianna Fail junior minister Ivor Callely was sentenced to five months in prison for fraudulently claiming mobile phone expenses. Photo: Frank Mc Grath

Through seven years of crisis, the public has been fed a diet designed to anger; suggesting there is another way, that Ireland is an unfair place to live and rear a family, where the rich get rich and the poor get poorer. This is the mood music that scores the economic policies of the left, chief among which is the call to redistribute wealth through confiscatory taxes. The latest ESRI study has fatally undermined how the myth of Irish inequality is constructed - but you won't hear much about it on RTE, which rarely challenges high-tax champions.

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Although the ESRI cares not to highlight the material importance of this study in undermining a cornerstone supporting much Irish political capital, the truth is that Ireland - largely thanks to the progressive nature of a tax system that pre-dated 
the crisis and its social protection programmes - is a less unequal country, post-crisis, than is France, at whose high-tax altar Sinn Fein openly worships.

The ESRI study on 'The Distribution of Income and the Public Finances' indicates that Ireland has not only achieved fairer redistribution of income than France, but has performed more fairly than many other crisis economies by operating steeply progressive taxation and by maintaining social protection buffers, where the Irish middle classes have saved the country both financially and socially. Transfers to social protection programmes rose from 13pc of GNP to a peak of 20pc before the recent decline to 17pc, but, despite this, the risk of poverty, where incomes fall to below 60pc of the median, jumped from 40pc to 50pc.

This is not to say that Irish social programmes are either properly funded or fit for purpose - they are not capable of sustaining the population as it ages and faces an apartheid retirement, where most private sector workers will grapple with the risk of poverty. But Ireland's record over the crisis in accelerating a trend in the redistribution of income is an outcome that deserves much wider acknowledgement and respect than it has received.

Disposable income per head for the population fell by two grand a year - that's about 8pc - and sits at just under €21,000 a year. But this masks the much harder impact on those who lost their jobs when unemployment, all of it private sector, ballooned from 4.7pc to nearly 15pc of the workforce, before falling to an estimated 11.5pc for this year.

The huge shift of wage earners to jobless ought to have widened Irish inequality but it didn't - largely because of the devastation which the crisis has had on higher earners and the extra burden carried by the middle. One in every seven taxpayers earning over €100,000 a year fell from their perch, with the biggest collapse occurring for earners over €275,000, where nearly one in three were lost, leading to a decline in total income earned by this cohort of a staggering 39.4pc.

Over one euro in every five was lost from those earning over €100,000 a year and where average incomes declined 9.3pc.

This group, the favourite target for higher-tax advocates, entered the crisis paying 46pc of all income tax from a base of earning a quarter of all income.

The result of the huge shrinkage in the higher-earner base has been to put ever greater pressure on the squeezed middle, where the 35-to-50 age group has been hardest hit, largely due to the extra impact of debt servicing. The lowering of the poverty threshold flowing from the fall in incomes generally masks the very grave impact of those struggling with debt. By 2013, one-in-eight home mortgages was in arrears and one in five buy-to-lets. When all credit is taken into account, one in every five Irish households is in some kind of credit arrears, which is twice the EU15 average. And the number of people admitting going into debt to pay living expenses has doubled to 17pc.

Unsurprisingly, those who experienced the greatest increase in stress - up 70pc from pre-crisis levels - are the squeezed middle, typically earning €30,000 to €60,000 a year, those categorised by the EU as small employers and 'petite-bourgeoisie', who together with those in lower services, sales and technical sectors have stress levels closely converging with those who've never worked.

The self-employed in agriculture and the over-65s appear to have coasted through without increased stresses measured by challenges like the difficulty of making ends meet, which has risen from affecting a fifth of the general population to a third; the inability to meet an unexpected expense up from 38pc to 54pc, and the inability to save climbing from one in every two to two in every three.

The ESRI truncation of the general population, borrowing an EU economic tool kit, 
has failed, thus far, to make 
a dent in the most obvious inequality - the relative stresses that are experienced as between insiders and outsiders.

The report's silence comes in the same week that the General Secretary of the shambolic Department of Justice got to keep his elevated level of pay and pension entitlements. A devastating report of the kind just published is an event in the private sector that could have had only one outcome for a CEO. That Brian Purcell keeps his benefits and tells the public something profound about inequality that the ESRI does not.

Thankfully, in the same week, Judge Mary Ellen Ring reminded us of the value of excellence in the public service by making the odious Ivor Callely Prisoner 92995 
in Mountjoy, unimpressed that his defence for rifling expenses was that it was his right.

Perhaps the ESRI might study who among the population was most immunised from Ireland's Great Recession, who emerged with the strongest entitlements and, when the ship was deeply holed, which class most swamped the lifeboats.

Sunday Independent

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