Tuesday 15 October 2019

Dan O'Brien: 'Tax rarely far from top of the agenda - both at home and across eurozone'

Not one TD advocates prioritising tax cuts over spending increases. Dan O'Brien asks if the leftward shift of the political class really reflects public opinion

French President Emmanuel Macron in Berlin. Photo: Getty Images
French President Emmanuel Macron in Berlin. Photo: Getty Images

When pressed, most elected representatives say personal tax rates should be restored to their pre-austerity levels. If everyone from public servants to welfare recipients is having their pay and benefits restored to pre-crash levels, then why not those who pay for it all - taxpayers?

But to govern is to choose. The Government has very clearly chosen the restoration of spending over the restoration of tax rates, and for this it has wide support in the Dail. Indeed, there is not a single TD who has openly advocated prioritising tax cuts over spending increases. The political class, it seems, has moved en masse to the left. This raises the question as to whether politicians are reflecting what voters want, or if the political class has become detached from the electorate.

As it happens, an opinion poll published last week covering all of the euro-using countries cast light on the matter. It had some fascinating insights into Irish voters' views on taxation, and many other issues.

The Eurobarometer survey, taken last month, found that 87pc of Irish respondents favoured tax reform designed to boost jobs and the economy. That was the third highest level of support among the 19 countries in the single currency area.

The question did not ask people whether they preferred tax cuts over spending increases. As such, it would be to over-interpret the result to conclude that the political class is now to the left of voters. But a recent Ipsos/MRBI-Irish Times poll more explicitly asked about preferences and found that there was more support for tax cuts than for increases in government spending.

Another finding from the euro-wide poll also raised questions as to whether the political class's drift toward social democracy is a reflection of voter preferences, or a sign that it is decoupling from the electorate. Asked if they supported market reforms, including freer competition and privatisation, 78pc of Irish respondents were in favour, far above the Eurozone average and the fifth highest among the 19 member countries.

With the Government shaping up to hold a referendum on enshrining State ownership of water infrastructure in the constitution, this should give pause for thought. The general assumption among the political parties is that such a referendum, if it was ever held, would be passed comfortably given the depth of feeling that emerged over water charges. But that may not necessarily be the case if the Eurobarometer poll is picking up something beneath the surface. Moreover, referendum campaigns have a habit of developing a life of their own which no politician can control.

Yet another question in the euro survey raised questions about what has become economic orthodoxy among the political class - that is to spend every cent that post-crash budget rules will allow. A quite astonishing 91pc of Irish respondents favoured more government saving to prepare for the higher costs of health and old-age care that come with an ageing society. Support for prudence today so that the public finances might be better prepared for future challenges was higher in Ireland than in any of the other 18 countries.

The response to that question, and to others about reform of the pension and health systems, raises questions about whether politicians are correctly gauging the appetite of the public for change.

Despite Ireland moving earlier than most other countries to raise its retirement age, support among the public for further increases is the highest in the euro area, at 45pc. Although more opposed the idea (52pc), the gap was much smaller than in other countries or the average across the bloc.

On healthcare reform, 97pc of Irish respondents backed change, which was, again, the highest among the 19 countries surveyed. The cold calculus of the current government, and its predecessors, is that more votes are to be lost by upsetting healthcare workers and patients who would suffer from industrial unrest than are to be gained from those who would benefit from greater efficiency in a reformed system. If there is as much support for reform as the poll suggests, then it may be time to look again at the conventional wisdom underpinning the calculus against root-and-branch reform. There may be more electoral gain to be had by taking on vested interests in the health system than most observers believe.

If the poll shows no little discontent about the domestic status quo, there appears to be less about Ireland's place in Europe.

The same survey found that 85pc of Irish respondents believed that the euro had been good for the country, by a distance the highest level among the 19. A separate, recently-published survey covering all 28 members of the EU showed that in no other country are people more satisfied with how democracy works in the EU. It also showed that just 7pc of Irish voters would opt to leave the union if given the choice in a referendum. That was the lowest level of support for exiting the bloc of any member (unsurprisingly, the British were most favourable).

But if many of the responses suggest that the Irish are a nation of enthusiastic europhiles, some of the future-orientated questions show a degree of scepticism about centralising more power.

The survey of the euro-19 asked those polled about their views on "more co-ordination of economic policy". It could be argued that this is somewhat tendentious, as the term 'co-ordination' has little negative connotation.

Whatever quibbles one might have about the wording of the question, there is undoubtedly considerably less enthusiasm in Ireland for more policy 'co-ordination' than for the single currency itself and some unease about how far it has all gone. Support for "more co-ordination" among Irish respondents was the fourth lowest among the 19, while support for "less co-ordination" was the highest bar none.

This public view is reflected in the Government's position on such matters. Ireland has joined with other small, northern European countries in what has been dubbed the 'Hanseatic League 2.0', named after the medieval free-trading zone that stretched from the eastern extremes of the Baltic to the Dutch cities on the North Sea.

The grouping is sceptical of the sort of plans being driven by French President Emmanuel Macron that would see more decisions being taken at European level and a greater role in those decisions for the EU institutions (just nine days ago, he finally got his German counterpart to sign up to a plan moving in this direction).

There is a major question as to whether it is in Ireland's longer- term strategic interests to integrate further. On the one hand, the euro is structurally fragile. Its break-up would cause an economic calamity and threaten the wider EU project, including the single market upon which Ireland is so dependent.

On the other hand, deeper integration would eventually mean more 'co-ordination' on tax issues, something that sets alarm bells ringing across the Irish political, administrative and business classes. This, among other things, has caused Ireland to take a more sceptical view of deeper European integration than in the past. Discussion of future choices on Europe has been swamped by Brexit. Once Britain leaves, they might well move up the agenda quickly.

  • More of the findings from both opinion polls cited here are to be found on Twitter at @danobrien20

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