Saturday 24 February 2018

Emmet Oliver: Start grieving now for death of election pledges on tax

ELECTION promises can get ditched in many ways. Sometimes they are discarded without anyone noticing, sometimes time does the work as the electorate forgets they were ever made, and occasionally they are dispensed with by using clever semantics.

If really stuck, the last line of defence is to cite the economic circumstances.

It is not clear which method Fine Gael/Labour will opt for in December's Budget, but there is now little doubt the catchcry of the election -- no increase in personal income taxes -- will sound awfully hollow the morning after the Budget.

Like someone trying to carry on an illicit fiscal affair, the Government appears to be giving different messages to its two partners -- the taxpayers and its lenders, the IMF and the EU.

It might be forgivable if done at least subtly, but so far there is an impression of clumsiness.

This is what the Programme for Government says the administration is committed to: "We will maintain the current rates of income tax together with bands and credits. We will not increase the top marginal rates of taxes on income.''

Even more stark was the Fine Gael election manifesto: "Fine Gael will fix Ireland's budget deficit by prioritising cutting waste over raising tax. This way jobs are protected while discretionary public spending is reduced. Cutting waste will form the biggest portion of the fix and income tax will not be increased.''

Now shoot forward to the end of July, and this from the agreement signed with the IMF and EU.

"Revenue measures to yield €1.5bn in a full year will be introduced, including: a lowering of personal income tax bands and credits."

This appears, on the surface, to be the death of the election promise on tax, although the official funeral may not happen until early December.

A fig leaf, of course, will help to preserve the Government's modesty. The Government will argue that it simply said it would not raise the rate of tax.

But rates of tax are no longer that important and do qualify as semantic excuses. Last year, for example, changes in tax credits drummed up an astonishing €585m in additional revenue for the then Cowen-led government.

The new universal social charge on its own will yield about €420m this year, and technically it's not even categorised as an income tax charge.

With the household charge bringing in only a pitiful €150m for now, the changes in tax credits and bands will have to do a lot of the work in December -- so much so that a rise in the actual rate of taxation would probably have been preferable for most taxpayers.

Everyone knows the promises of the election will be torched come December, but it will still be interesting to see how exactly the Government incinerates them.

Don't expect any real action against Fingleton

Michael Fingleton's spacious Abington residence in Shankhill, Co Dublin, must be receiving a lot of post these days.

First came papers from Ulster Bank seeking a judgment against Mr Fingleton last year over a land deal in Cavan, now the former Irish Nationwide chief finds himself receiving correspondence from Anglo over a €1m payment and an €11,500 watch.

Of course many will enjoy the discomfort Mr Fingleton finds himself in as Anglo demand the watch and money back. But there is a whiff of populism over the approach of Anglo on this one.

Mike Aynsley, the CEO of Anglo, must know there is virtually no chance of the money (or the watch) being returned. Legally neither transaction is problematic and tax bills that arose on the watch transaction have already been settled.

Mr Aynsley is effectively shutting the stable door after Mr Fingleton has bolted and while it generates glowing column inches for Anglo's enforcement team, none of this activity even remotely touches upon what happened at Irish Nationwide in the final years of the boom.

The lending practices and loose risk policies that were part of policy in Irish Nationwide in the final years of the Fingleton era are not being ventilated in the only forum that would actually matter -- a court.

Why is this? Surely members of Irish Nationwide who've seen the value in their institution wiped out can hurt Mr Fingleton and his former colleagues by taking a civil action for damages, based on Fingleton et al breaching fiduciary duties in their stewardship? (This column must emphasise strongly that it has no idea whether such an action would succeed, or even be justified).

But the glaring problem in Irish law is that such a civil action would have to come from the firm itself, not the shareholders.

So as Anglo is now the owner of Irish Nationwide, that kind of meaningful, but expensive and risky, action would have to come from Mike Aynsley.

Tea Party based debt campaign on a basic lie

According to the mythology of the American Tea Party movement, the Tea stands for 'Taxed Enough Already'.

Upon this core but mistaken belief, this movement has managed to push the US economy to the brink of default and leave its prized AAA credit rating vulnerable to a downgrade.

While bond vigilantes have yet to push US borrowing costs up to nosebleed levels, already the country's chief lender, China, has talked about diversifying its global holdings away from dollar assets. The reason is simple -- debt levels approaching those not seen since World War Two.

This is, in some ways, not remarkable. The US dug itself out from under that burden and even Ireland dug itself out of a debt-to-GDP burden of over 100pc in the 1980s. To do this, you ideally need three things, and most certainly two of these three things.

Ideally, one is growth; second, a willingness to cut spending sharply; and third, a political consensus to enact taxation increases. The US is unlikely to get the first anytime soon, it plans to make a weak and fuzzy attempt at the second, and there is absolutely no consensus -- thanks in the main to the Tea Party -- about the third requirement.

This is maddening for the rest of the world, which is so dependent on the spillover growth only the US is capable of creating. But its even more maddening when the whole resistance of the tea partiers is based on a fallacy.

The members of this movement represent some of the most under-taxed citizens of the western world. With the exception of Mexico, Slovakia and Turkey, the US has the lowest tax burden of any advanced economy in the world, according to the most recently available OECD figures.

Whereas the likes of Germany, the Netherlands and France all have tax burdens amounting to more than 35pc of their GDP, the so-called 'taxed enough already' USA is down at 28.3pc. Yet the movement increasingly associated with Sarah Palin and Michele Bachmann keep talking about a US economy drowning in taxes. They then add that this means taxation can play no part in reducing the US budget deficit. Hence a downgrade becomes a real possibility.

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