James Fitzsimons: The system is failing us, so the Croke Park Agreement has to go
PAYE workers are being bled dry in order to maintain a bloated public sector, writes James Fitzsimons
Councils are threatening to turn off the street lights to balance their budgets. What other choice do they have when they cannot cut staff or the enormous pay bill so that they can work within their means? If this goes ahead, we will be paying for services that we don't get at all -- not that this is new.
The savings under the Croke Park Agreement only highlight the waste that existed. Now it prevents meaningful change that we need to balance the books.
Simon Coveney, the Minister for Agriculture, justified cuts in departmental expenditure to balance the books. But he stopped short of supporting restriction of third-level grants for farming families through a means test which would take account of the value of their farms. He claims that entitlement should look only at income.
Meanwhile, middle-income families in negative equity and whose PAYE income is not enough to pay the bills, get nothing. Yet they pay most of the tax.
There is little difference for the self-employed generally. Their businesses were worth something at one time -- if not any more.
But valuing a business would be more difficult than valuing a farm. Then there are those who have substantial non-business investments and wealth. Who do you give free education and grants to and who should be left out?
PAYE workers have already shot themselves in the foot by working extra hours and holding down second and third jobs to pay the bills. The extra income makes them ineligible for Government support, even though they pay most of the tax.
Fine Gael and the Labour Party may once again be at loggerheads over whom the State should help. The Labour Party would have grants means-tested, based on wealth and taking account of business assets and savings. It has focused on the principle anomalies in the system, even if it has it the wrong way around.
Labour TD Colm Keaveney suggested on TV3's Tonight programme that anyone with savings of less than €1m should be entitled to a grant. I wonder what Mr Keaveney has on deposit. Imagine what the rest of them in Leinster House must have, if this is their standard.
The only people making money out of these reforms are the quangos and expert groups that pontificate over the problem. Even if change is proposed, it will take years to implement.
It stirs things up but doesn't solve the problem. We'd save more by turning off the lights in Leinster House and channelling the hot air that comes out of it into the national grid.
It demonstrates an inordinate waste of energy and resources when the country cannot afford it. They are cushioned in their jobs with the guarantee of outrageous pensions when they retire. Why would there be any urgency in changing this? Meanwhile, the most vulnerable will be taxed to pay for it, until the system is rationalised.
I recommend to the ministers involved that they burn the midnight oil until they, and their senior public servants, come up with something that works and that we can afford -- without victimising the vulnerable.
Families who are taxed on everything they earn are excluded from free education and grants, when others who can well afford it have everything paid for.
Start by levelling the playing field. Give every citizen, irrespective of their means, free education. If maintenance grants are to continue, pay them only in the most needy cases -- and never when the families can afford to pay.
We can't keep borrowing €20bn a year to bankroll this madness. If those who pay the most tax (those who declare the most income) don't qualify for State aid, who does? We could tolerate higher taxes if the money was used wisely.
The same should apply to health and social protection. If the tax system was efficient, there would be enough to pay for what we need. The rich could pay more tax if they didn't have to waste it on private healthcare and other services where the system doesn't work. The State should only step in to provide what the rest cannot afford to pay.
That has been the problem up to now. The system is full of leaks. There are too many vested interests. Those whom the State should be protecting lose out every time. They are overburdened with the cost of the downturn that was not of their making.
Look what happened last year when businesses and homeowners with impaired loans asked for help. The Government hung them out to dry. They'll save reckless bankers and insurance companies that failed to comply with the rules. But those whose livelihoods and expectations were ruined when the Government didn't do its job will be forced to pay for someone else's blunders for the rest of their lives.
The system doesn't work. It isn't much different from anywhere else in the world. But that's no reason to accept it. You might survive a crisis such as the one that struck in 2008, but you won't work your way out of it without some help.
People who tried to build a life for themselves are being screwed by an ineffective administration that has too much to lose from the changes that we need.
The black economy is alive and thriving and nobody is doing anything about it. The top one per cent can move their money around to keep it out of reach, so they cannot be asked to help.
Our tax system is based on legitimate tax-avoidance schemes which were not regulated or controlled when it really mattered. Now we cannot even collect enough tax to cover public spending. For many businesses, things are not getting any better. If they were not bad enough at the start, they will get a lot worse now. It's bad enough that they are still struggling to pay tax, but interest and penalties will become more prevalent as we go forward and add to the heavy tax burden that is already too much to bear.
For every extra euro of tax revenue the Government seeks to collect, it loses 10 times that to the black economy. Wealth has been moved out of reach. Those who have it don't want to see it wasted by bureaucrats. The top one per cent and companies are all that's left. If they support the current administration, they can afford to pay a social dividend to help the rest. We can't recover until struggling homeowners and businesses are given help.
Economists claim that more tax on income is a disincentive to work and enterprise. In reality, it is an excuse for not being able to cope with the black economy, while the rest struggle to pay what tax they can. We were told that property tax was the solution because they had it everywhere else. It is becoming clear that it is just another money-making racket for the Government to pay for its mistakes.
Taxing people's homes is not the way to fill the hole in the public coffers. And certainly not when the money is used to pay for foreign bank debt.
A property tax on homes is income tax by another name and it won't work. It's the experts' solution to avoid the wealth tax that we need. If the rich won't pay and the poor can't afford it, there is no alternative but to cut public spending. And the Croke Park Agreement is the place to start.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning