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Talk of 'Payback Time' demonstrates we've learned nothing from the crash


Enda Kenny

Enda Kenny

Enda Kenny

Two hundred and sixty-two days. That's all it took from the country exiting the bailout to the first front-page newspaper headline declaring 'It's Payback Time, Enda'.

We've never been great at learning from past mistakes in this country. But, after all we've been through these past six years, was it too much to hope that things might be different this time around? Or, at least, that it would be a few years down the road before we forgot?

Clearly it was. The growing consensus across the political parties and the media is that it's time to give something back, in the shape of tax cuts to workers. This is the starkest evidence yet that we're destined to once again fall into the boom-bust-boom-bust cycle that has always dogged Ireland.

We're barely out the woods, but old habits are dying hard.

Of course, people out there are struggling. There's no question of that. And it's understandable workers will find the notion of 'payback' highly appealing.

But if we're serious about not falling into old traps, the hard question we need to ask all of ourselves is: 'Payback' for what?

It's true taxes have risen sharply in the past five years. The Universal Social Charge has been brought in. And we now have property taxes and water charges. But we were coming from a ludicrously low base. The reality is that in the boom times, it was unsustainable 'bubble' revenue from stamp duty and VAT that was allowing us to pay our way. Once the bubble popped, that revenue disappeared and we were left with a €20bn annual shortfall between taxes and revenue. To borrow a phrase from Charlie Haughey, we were collectively living away beyond our means.

At the peak of the Celtic Tiger, a family with three young children with an income of €80,000 was getting almost as much from the state in child benefit and the €1,000 annual support payment per child as it was paying in income tax.

None of us like paying tax. But nobody can credibly claim that was sustainable. If well-paid workers were barely paying income tax, how do we fund essential services? Bar perhaps countries awash with oil money, it wasn't replicated anywhere else in the world.

The restructuring and widening of our tax base after the crash was certainly painful. But it was both unavoidable and progressive (in terms of the better off taking the largest burden). And even now, our tax take isn't particularly out of sync with the rest of Europe. In fact, our overall tax burden as a percentage of GDP is below the EU average. Almost four out of ten workers, meanwhile, don't pay any income tax at all.

There is certainly a problem with workers hitting the top rate of tax too early at €32,800 - for comparison, in Britain the threshold is £150,708. That needs to be addressed at some point. But given that we're still borrowing nearly €800 million a month to make ends meet, is now really the time to do so? Particularly, when our undoubted economic recovery remains quite fragile.

The Eurozone is struggling to generate any kind of growth and there are concerns that the British economy may have peaked. There is also the fear that events in one of the numerous trouble spots around the world could escalate and do serious damage to the global economy. As a tiny and very open economy, Ireland is extraordinarily vulnerable to such developments.

Given all these factors, prudence surely dictates the government plays it safe and holds off a year or two before tweaking the taxation system. We might need that buffer.

Government figures have been arguing that a modest cut in taxes is psychologically important as a means of demonstrating to workers the worst is over and that it's OK to spend again, thus generating growth in the economy. Perhaps. But it's difficult to see how tax cuts of €400m - the maximum surely the government would risk introducing - would have that big an impact spread across nearly two million workers.

What they will do, however, is copper-fasten the narrative that people need to get something back. Individually, there will be many workers who will passionately make that case. But, if we look at the national picture, the facts - as in the budgetary numbers - clearly contradict that. We mightn't like it, but the reality is that, as things stand - after all the pain - we are now simply on course to break even, to pay our way. No better than that.

Of course, there's no political capital in pointing that out. Ministers have been at pains to play down expectations of tax cuts in the budget. But the suspicion is that that's more about managing expectations and ensuring an element of surprise on budget day. With the general election less than 20 months away, the political reality is that we'll see two tax-cutting budgets between now and then.

The Coalition regularly derides former minister for finance Charlie McCreevy's line that "When I have it I spend it and when I don't, I won't", but they're on course to fall into the same trap, except they don't even have it to spend. But they'll probably be rewarded by the electorate for doing so.

In the meantime, people queue for days to buy homes in Dublin and there's not a sign of a plan to tackle the total lack of supply of houses. God knows what they make of it all in Germany.

Shane Coleman is the presenter of the Sunday Show on Newstalk 106-108FM

Irish Independent