Like all budgets, the Government's consists of incomings and outgoings, taxation and expenditure. Lets look at both now and analyse what exactly has changed in three short years.
Taxation:
Ireland is generally considered to be a low tax economy. And this is true. In 2007, the tax take here was around 32% of GDP, compared to a euro zone average of 40%.Clearly, however, despite this relatively low tax burden, it was enough to keep our budget in the black 3 years ago. But no longer. The reason for this is because our tax take was disproportionately reliant on transient property-related revenues.
Look at the way in which tax was collected in 2007 here - 34% of the total was gleaned from taxes on labour, compared to an EU average of 45%. This is no surprise. We know that income tax was significantly lower here than in other countries.
36% of the total was made up by taxes on consumption (i.e. spending) compared with an EU average of 34%.
But the difference given rise to by the low labour tax burden was made up by a whopping tax take on capital taxes - 30% of the total, compared to a 21% EU average. Capital taxes are made up of stamp duty on second homes, capital gains tax on the disposal of assets, VAT on new properties etc.
Colm McCarthy reckons that €6 billion a year has been lost in this category, now that our property boom has gone bye-bye. This is equivalent to 10% of total revenues. Clearly a rebalancing of our tax system away from capital taxes is necessary.
Expenditure
1. Welfare: Spending on welfare is now up to €21 billion. It was €12 billion in 2005. It was €8 billion in 2001. Even allowing for the massive increases in unemployment over the last 18 months, it is clear that this area of public spending (roughly a third) has been allowed to get out of control. Even in boom times, over a 4 year period, the welfare bill increased by 50%! Insane! And most of this was child benefit related by the way.
2. Public sector pay and pensions: Now €20 billion. Doubled since 2001. CSO figures tell us that without getting into comparing like jobs for like, public sector workers have consistently been earning a 30% premium over private sector workers (ESRI did a like for like study in 2006, taking into account a number of factors like education and found a premium of 25% on average). Clearly, we can no longer afford to pay this premium. The most annoying thing of all is a lot of the increases that public servants were given, were given as part of a trade-off for increased productivity that was never delivered. Look at the consultants. We finally managed to get them to sign off on a contract that commits them to treating a certain ratio of public patients and they're still not doing it. Or what about paying the teachers every year to hold parent teacher meetings out of school hours, something they are also not doing.
Sure, public sector workers have already been hit by the pension levy (an average 7.5% reduction in pay), but there is still some way to go before their earnings reach a level that their employers (the taxpayers) can afford. The likelihood is, however, that in their €1.3 billion reduction next month, the government will mostly go after overtime and allowances (Gardai have over 100 that they can avail of).
3. Miscellaneous: The other third of public spending. There are plenty of things I could bang on about here but let's just pick one for now - quangos. Yes, those lovely unaccountable bodies that do so much for us. Like the Equality Authority which spends it time fighting golf clubs and other such evil groups. Not sure of the figures but I think it won 2 of its 30 odd cases last year and most of those 30 odd were Traveller related. That old chestnut again.
Or what about the amount of bodies that exist to create jobs? - Forfas, IDA, Enterprise Ireland, Shannon Development, Udaras na Gaeltachta....the list goes on.
There is so much scope to abolish and/or rationalise many of these pointless and costly projects.
To finish, here is a laundry list of necessary steps:
- Rebalance the tax take
- Rationalise and abolish quangos
- Rebalance child benefit spend to benefit those who really need it
- Look at wider welfare budget: evaluate value of community employment schemes, look at minimal difference between minimum wage earnings and jobseekers allowance
- Reduce public sector pay bill
- Look to encourage job creation by looking at minimum wage for certain sectors
- Do away with the current voting system to ensure that the buying of voter affection never happens again (but that's another article!)
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