Marc Coleman: Welfare and PRSI make easy targets
But the Croke Park deal and high cost of living should be targeted ahead of any welfare cuts and PRSI hikes, writes Marc Coleman
ADMIRATION for a genocidal maniac (Lenin) aside, Enda Kenny's speech last Sunday was quite a good one. It reminded us of Michael Collins's strength and vision.
It also reminded us how losing those qualities left us in the hands of decent but lesser men. As his leadership gave way to deep divisions and a dysfunctional civil war party split, government in Ireland was crippled by petty clientelism and corruption -- the results that still haunt us.
The old civil war divide is fading. A new one -- between the sheltered and non-sheltered sides of our economy -- is opening up. And last week's exchange between Joan Burton and Brian Hayes -- over whether to raise PRSI or cut welfare rates -- looked to be the first shots in a new civil war. Yes, a new divide is opening up. But if you look closely you will see that, deep down, Brian and Joan are on the same side.
In 1922, farmers and professionals were economically dependent on good relations with Britain and supported Collins's treaty. For smaller farmers and the rest, however, the treaty was a sellout of a cause of hated annuities to old masters. On this divide, eight decades of political life in Ireland have rested. Although a minority at first, the Thirties depression made the anti-treaty Fianna Fail party the natural party of government until last year.
Now new masters and treaties are upon us. The troika requires the payment of proverbial annuities to bondholders. And our internal masters have decreed a "Croke Park treaty" and exacted higher taxes to pay for it. As in 1922, a divide is opening up. An older generation in positive equity has gained from a younger majority in negative equity to whom they sold property. Likewise, those in permanent pensionable employment are paid for by a private sector that lives daily in fear of job loss.
The old divide is like a dormant volcano, a place for curious sightseers and historians. But molten new lava is making its way up from the core, ready to tear the crust of our political landscape in two.
But it hasn't happened yet, and the Joan versus Brian debate was a mere preliminary tremble. Like the Insurance Compensation Fund, public pension liabilities and more besides, our social insurance fund is in shortfall. For Joan, raising PRSI rates is the answer. Brian on the other hand favours cutting welfare. But while appearing not to agree, they actually do. Lava always finds the weakest point in the earth's crust to break through. Governments under fiscal pressure are no different. They might be different constituencies -- one more Labour and the other more Fine Gael -- but welfare dependants and PRSI workers share a vital characteristic: they are large in number, diffuse in representation
and devoid of insider power. In other words, easy prey for budgets.
Sure, in nominal terms our welfare payments do look high compared to EU norms. But when the basic cost of living is accounted for, the picture changes. As for PRSI, the contributions ceiling has already been abolished (highly unfair given the limited benefits funded), self-employed PRSI has been raised (again unfair as many self-employed can't benefit from welfare) and PRSI relief on pension contributions has been scrapped (while lavish public pensions remain taxpayer funded). Raising PRSI further would bring us back to Eighties-style marginal tax rates of 60 per cent or more, killing all hope of recovery.
Besides, tackling the social insurance fund is nowhere near as important as reducing the €29.9bn promissory note obligation, the even larger amount paid annually to fund the highest public pay bill in the Eurozone and our €108bn public pension liability.
On these fronts, there is less and less time for delay. On Thursday, the Markit Purchasing Managers' Index showed the Eurozone re-entering recession this quarter. Our fiscal situation will soon follow suit. Of course the Social Insurance fund must be affordable in the long run. But in the short to medium term, targeting welfare dependants and PRSI workers before the promissory note obligations, the Croke Park deal and our chronically high cost of living have been comprehensively tackled, represents a false dichotomy and false priorities: until the cost of living is cut, welfare rates shouldn't be either. And until the Croke Park deal is revisited, neither income tax rates nor PRSI rates should be touched.
But perhaps Enda's Lenin quote signals a shift to the left in Government. It was after all Lenin who gloated how he had "liquidated" Russia's middle classes and farmers. Compared to Lenin's approach of mass killing, rape and starvation, the left these days prefers more financial methods of "dealing with" the middle classes. But protecting the pay, perks, pensions and increments of its favoured Croke Park cadres remains its top priority. And they can be ruthless: a former DIT lecturer who worked in Tanzania, Joan Burton favoured her erstwhile colleagues in DIT preserving their pay and pensions in the last budget while cutting aid to Tanzania.
As for Brian, he said last week, "If we tax the hell out of people, it's a disincentive to work." But cutting welfare for the unemployed while preserving pay and pensions for those in secure state employment is as Leninist as it gets. IPA research from 2010 shows top public pay in Scandinavia is 3.8 times pay at the bottom. In Ireland the ratio is 7.7. Given its collective nature, pay differences in the public sector should be as low as possible. If ruthless Leninist liquidations are called for, here is where they should start.
Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 10pm on Newstalk 106-108fm; follow @marcpcoleman