Friday 27 April 2018

Some advice for our watchdogs - less bark, more bite

The glow of media coverage IFAC enjoyed last week will be cold comfort if it is proved badly wrong on tax cuts

Ceann Comhairle, Sean Barrett.
Ceann Comhairle, Sean Barrett.
President Michael D Higgins
Marc Coleman

Marc Coleman

Funny things, watchdogs. Sometimes you need more watchdogs just to keep an eye on them. The Department of Finance was supposed to be the watchdog for the economy. But when we needed it to bark in the boom, it didn't. So we created another watchdog: the Irish Fiscal Advisory Council (IFAC).

But what if we need a watchdog for IFAC too? Things could start to get confusing.

Since being created on foot of the Fiscal Compact Treaty, IFAC's job has been to check whether government is sticking to its deficit and debt target and - if it isn't - to raise the roof. Despite modest resources, it has done a good job. Until now.

Last week, it decided to oppose the Government's plan for tax cuts. But having decided to bark, the question is whether that particular bark is headed up the wrong tree. As one who called for the establishment of an independent fiscal council as early as 2004, and who supported IFAC's work to date, I strongly suspect that IFAC is now entering dangerous waters and taking a huge gamble with its own reputation.

On the face of it, it looks like it is just doing its job by speaking truth unto power. But look closer. The cynical zeitgeist may give credence to anyone shouting stop. And the commentariat's narrative on IFAC last week - "Enda is unpopular, Enda wants tax cuts, so tax cuts are a bad idea and IFAC are heroes for saying so" - was predictable. But to see just how dumb that was, just replace the words "tax cuts" with "a cure for cancer".

IFAC must be judged not on Enda's unpopularity but on adherence to its mandate and its judgement and skill in exercising it. On those criteria, the assessment last week is less than positive.

However popular IFAC is amongst the twitterati and commentariat, its long-term standing will matter far more. It may feel a warm glow of positive comment in relation to its "brave stand" last week, but that will be cold consolation if its opposition to tax cuts turns out to be completely wrong-headed. And so far that is exactly how it is starting to look.

That Enda is the subject of flak right now doesn't make him wrong on tax cuts. Nor does it make IFAC right. In fact, with the economy growing at rates of 7.7pc (GDP) and 9.0pc (GNP) on the back of last year's shift towards a tax-cutting strategy, IFAC is already starting to look wrong - not only in what it said about budgetary leeway last year but also in its choice to oppose tax cuts.

Whether deficit and debt targets are being met is IFAC's call. How this is being done is above its pay grade. Instead of sticking to the "whether", IFAC chose to comment on the "how".

This will risk its reputation and give hostages to fortune. So far, it has lost the argument on tax cuts. Last year, IFAC opposed budgetary leeway but while supporting that to a point, this column (October 6, 2013) said that if it were used to cut taxes, some leeway could improve growth and fiscal performance. Budget 2014 took that advice and implemented €500m in tax cuts to stimulate the supply side. Thousands of new firms were set up, creating tens of thousands of jobs and contributing to recent impressive growth rates. Tourism is a particular example of how tax cuts have boosted demand, jobs and - crucially for IFAC - tax revenues. IFAC suggests tax cuts could see a return to boom/bust. Nothing is further from the truth.

Tax cuts may have helped the boom, but they didn't cause the bust. Compared with a few billion euro in tax cuts between 1997 and 2007 the €200bn tsunami of credit between 2004 and 2008 was the real culprit. And opposing tax cuts to maintain the "revenue-raising capacity of the state" raises issues - issues of ideology and possibly self-interest. IFAC's job is not to defend any given level of "revenue-raising capacity of the state" but to ensure that deficits and debt are cut. If they are cut by cutting taxes and stimulating growth then IFAC should welcome that. Defending a high tax burden as a share of GNP given our young demographic makes IFAC look like it is really defending a Keynesian ideology that is hostile to taxpayers and has become far too prevalent in other think tanks.

IFAC's motives may well be sound. But the optics are not good. That a chorus of opposition to tax cuts is coming from other state-funded bodies makes those optics worse. Describing tax cuts as 'populist' and 'ignorant' (as one media outlet did) is bad enough. Implying - as the same editorial did - that tax cuts would lead to homelessness is moral blackmail. If the homeless budget is cut this is not the consequence of tax cuts but of continued waste and overpay in state spending, and scapegoating hard-pressed taxpayers for this is moral blackmail.

President Michael D Higgins's warning against "consumerism" last week is also curious. A decade ago, in the era of SSIAs, low mortgage rates and 110pc mortgages he might have been right. In our era of stressed borrowers, squeezed taxpayers and private sector workers living in daily fear of job losses it looks insulated from reality.

And how ironic that a secular President and media are now transforming our former Catholic guilt complex over sex into guilt over tax cuts. But tax cuts are far from sinful. For many they could make the difference between having enough food and heating this winter or not. And however well-meaning IFAC and our President are, as net beneficiaries of a tax system funded by a majority who don't enjoy its benefits (pay, pensions and job security) they arguably need to show far more judgement.

As for other opponents of tax cuts - the left-leaning trade-union-funded Nevin Institute and TASC - they clearly have a dog in this fight. As for IFAC, its sole focus on research and PhD skills is becoming questionable. It will have to tread carefully and avoid making the wrong enemies. And it should heed good advice: Pick too many battles and you'll lose enough of them to the point where you get ignored. And for IFAC, getting ignored will be fatal. Or, as the old Irish adage puts it so well: "The dog that barks the least is the most feared".

Marc Coleman presents 'The Marc Coleman Show' every Sunday from 9pm on Newstalk 106-108fm

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