OVER the coming weeks an army of snake-oil salesmen will try to seduce the citizens of Ireland on their doorsteps by offering all sorts of promises in return for their vote. We'll need to be very careful about what we believe.
The facts on the Irish situation are very clear. The economy is still in the middle of a very difficult situation; public finances are unsustainable on the basis that we spend too much running the country and the base from which we collect taxes is too narrow; the ECB is providing the funding that is keeping our banking system alive; and the conditions of the IMF/EU bailout fund has put very strict constraints on the manner in which the economy will be run during the potential lifetime of the next government.
In short, there are no easy options -- and anyone who says there are is living in cloud cuckoo land.
The key criterion under which the incoming government will have to be judged over the next two years will be the trend in employment. If employment increases, that means success, if not, that represents failure. The key contribution that any new government should make to the citizenry of the country is to secure existing employment, and construct an environment where new employment can be created. If that is not achieved we will just end up continuing to export our best and brightest young people. Socially and economically, that would be disastrous.
Therefore in any consideration of the economic policy manifestos that will be presented over the coming weeks, the potential impact on employment should be the guiding principle. In this context, the economic policy platform presented by Sinn Fein does not fill me with confidence.
On personal taxation, the proposed introduction of a 48 per cent tax rate on all earnings over €100,000 would raise the effective marginal tax rate for such earnings to around 59 per cent, from 52 per cent, for all workers at the moment.
The effect of such a penal top tax rate would be to destroy incentives to work to improve one's own circumstances, and would not make it easy to attract the sort of talent from overseas that we require as we try to rebuild things. It would be a particular issue for the multinational sector. Such a tax structure would also just encourage those with ability to go elsewhere. That would not be in the best interests of the economy. We tried such policies in the 1980s -- they didn't work then, they won't work now.
The proposed increase in the Capital Gains Tax rate to 40 per cent would prove totally counter-productive. When this rate was originally cut, it immediately resulted in a surge in tax revenues as capital transactions increased.
By increasing this tax as suggested, it would just destroy activity and would be more likely to reduce rather than increase the tax take. It might make Sinn Fein people feel good about themselves, but the economic and fiscal impact would not be positive.
A number of the other proposals are also flawed.
Would a cap of €100,000 on ministerial salaries and €75,000 on TDs' salaries attract the type of people into political life that we require? Would the introduction of a one per cent wealth tax on assets worth over €1m improve incentives and generate economic recovery?
There is very little in Sinn Fein's economic policies that would encourage people to start up business, create employment or encourage greater effort and entrepreneurial endeavour.
There is no suggestion that the cost of running the public sector should be addressed in a meaningful way, or that local government should be reformed, or that the cost and distortionary effects of the social welfare system should be addressed.
People with get up and go would just realise that if they make more effort to better themselves and create wealth, they will just end up being sucked into running an expensive and largely inefficient public sector system.
Sinn Fein seems intent on punishing those who work hard, take risks and create employment. That is not the way to generate economic recovery. I also don't believe that Ireland could unilaterally default -- entirely or in large part -- on bank debt. That has to happen, but not in the way that Sinn Fein is suggesting.
The bottom line is that the generation of economic activity is the only way to raise the revenues necessary to fund health, education and social welfare.
If economic activity is weakened, then fewer resources would be available, and society would be much worse off. Based on what we know about Sinn Fein's economic policy platform at this stage, there is very little in its policies that would encourage economic activity and employment creation.
All Sinn Fein's sacred cows are protected -- but risk-takers, entrepreneurs and employment generators are vilified and demonised.
If Sinn Fein's policies were to be implemented, we could take it as a given that two years down the road, Ireland's employment would be lower than it is today, the government deficit would be higher -- and those with initiative and ability would have fled.
Sunday Indo Business