| 13.5°C Dublin

James Fitzsimons: We're biggest fools in EU for sticking with austerity

Austerity is not easy to live with. But if those calling the shots get what they want, it will become our way of life. The IMF thinks we are being too easy on ourselves.

Sorting out the budget deficit is no longer enough. We made it look easy and now it wants even more. It would have us adopt an eight-year plan to cut welfare and wipe out public waste. It still thinks our public servants are overpaid and the Croke Park Agreement doesn't make sense anymore. Even our own Fiscal Advisory Council doesn't think we are doing enough. In its latest report it looks for another €1.9bn in tax and spending cuts by 2015.

If they get away with it, we will be paying higher taxes for the rest of our lives and we will be getting fewer services in return. We cannot afford to pay off the national debt or the foreign banks that helped create it. Cushioned bureaucrats at the top fear what might happen if we ease up now. We need a break from austerity and we've earned it. It's a pity the Government can't see it. Are they actually negotiating a better deal behind the scenes or are they still pandering to our paymasters in the EU?

The Greeks could see what was coming. The Spanish and the Italians were having none of it and the rule book was rewritten for them. We are the biggest fools in the EU and the Government appears to be fighting hard to maintain this. If we can achieve so much with so little, imagine what we could do if the rest cut us some slack.

Some of the IMF demands make more sense than those of our own Fiscal Advisory Council. It can see who is overpaid in the public sector and it makes sense to stop when we clearly cannot afford it. The Fiscal Advisory Council just wants us to pay more, because we have shown that we can. Austerity makes sense if it is building something for the future. But it's not. It's filling the holes created by the mistakes of the past. And they were not all our mistakes.

When the IMF made its outrageous demands last week, some government ministers said no. Joan Burton said we would listen to what they have to say, but the final decision is ours. But that's not the case anymore. The EU has the final say now. When the IMF looked for €1bn from the property tax, Michael Noonan said that decision was not up to them and he was having none of it. But we all know that in time Mr Noonan will look for even more. It might not happen next year, but it is coming soon. And the IMF wants higher income tax too. It has the agreement of the Fiscal Advisory Council.

Hospital consultants are the highest paid public servants, and they have one of the strongest lobby groups. Until now they called the shots when they negotiated their pay. They are the elite and they expect to be paid as such. They defend their position on the basis that we don't live in an egalitarian society. But they ignore the fact that they are paid more than their counterparts in EU countries which are not broke. Pay cuts won't solve our problems, but it must be part of the solution.

The Minister for Public Expenditure and Reform, Brendan Howlin, cannot deliver what he led us to expect. The outrageous allowances and increments remain. The experts say cut services and increase tax, but the Croke Park Agreement will protect the rest. The IMF thinks it's ludicrous, but even the Taoiseach, Enda Kenny, has pledged to follow it through. There are too many skeletons in the closet, preventing them from doing what is right. Up to now cuts in public sector pay came by cutting jobs. Many of them were already redundant. They were part of the waste. There have been cuts in pay, but not enough, at least not where it counts.

Austerity is working for the ruling elite. They keep what they have. The National Treasury Management Agency raised €500m in new treasury bills (short-term bonds) last week. The rate of interest was less than half what it was in the last auction in July. But we shouldn't read too much into it. When we can raise €150bn at the same interest rate over 30 years we will have something to sing about. But we will still be indebted for the rest of our lives.

Our economic prospects are no better than they were four years ago. We have more debt than most could have imagined. The global economy hasn't improved. We are a small country and it wouldn't take much to restore balance. It won't happen until the Government makes some tough decisions. It should know what it has to do.

The likes of U2 and Denis O'Brien have been criticised for structuring their tax affairs to minimise what they pay. But given the opportunity who would not do the same? Even Michael O'Leary, who pays tax in Ireland, has threatened to leave if income tax gets any higher. The tax system may be among the most advanced in the world but it is not delivering what we need.

In January it was revealed that even those in the system, with State pensions, were not paying the right tax. It doesn't matter whether the system failed to collect it, or the individuals didn't pay. The result is the same. The system broke down. While it is inefficient, the rest will pay more. An individual who earns more than €32,800, annually, pays tax at the top rate (41 per cent, 52 per cent including PRSI and the USC). That doesn't leave a lot to pay the bills, or cut unmanageable debt. Most will just struggle on. The only light at the end of the tunnel is personal insolvency and to start all over again.

If the tax system was progressive, it would take more from those who have the most. But whether you earn €32,801 a year or €1,032,801 you pay the same tax on your last euro. In fact, on the higher income, you are more likely to pay nothing at all. Everyone must pay something, but some can afford to pay more. Property tax is not the solution, but it is all the Government is looking at. If the Government listens to what the IMF is saying, it could work out better for us.

Eliminate waste, cut unreasonable pay, tackle the black economy and limit welfare. There is little prospect of recovery being sustainable until consumers are let off the hook. The pension time-bomb awaits us. We need to do something about that before it is too late. Half the country hasn't made provision at all. If we keep listening to strangers, we will waste what we have.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Sunday Independent