Sheila Nunan, General Secretary INTO and President ICTU
The cost of Ireland’s economic collapse and the benefits of any on-going recovery have not been shared fairly across groups, sectors or regions in Ireland. Workers in particular paid, and most continue to pay, an enormous price in terms of jobs lost and incomes reduced. Living standards have plateaued but property prices, corporate profits and equity returns lead the way in recovery. The many have borne the brunt of the downturn; the few are reaping the rewards of the upswing.
The casualties and consequences of how we as a country dealt with the recent crash are numerous and prominent among them are:
Rebuild economic and social infrastructure
No single budget can deal with all of these challenges. However, Budget 2018 can be the first of a series of budgets to begin to address them if there is a shift of direction. Directing budgetary policy to tackle the deficits we face in housing, health, education and childcare will lay the foundations for a more dynamic economy and a fairer society if we see these as investments for the future as well as the present. In the context of the infrastructural deficits outlined, further income or capital gains tax cuts make no moral or economic sense, will slow progress towards sustainable public finances and are not affordable.
The Irish Congress of Trade Unions (ICTU) believes a different Ireland is possible based on a fairer distribution of income, efficient public services and a dynamic enterprise economy. The Nevin Economic Research Institute (NERI) projects the Irish economy to grow by over 4% in 2017 and then by over 3% in 2018. Increasing employment and rising average disposable incomes will generate additional revenue flows for government. NERI projects the government’s general budget deficit will be no worse than minus 0.5% of GDP in 2017 and only marginally in deficit in 2018.
As of last month, there is fiscal space of about €350 million available for use in Budget 2018 after accounting for the recently negotiated public service pay agreement. ICTU proposes that this amount should be increased through revenue raising measures by €1.65 billion to a total of €2 billion.
This amount, around 2.5% of current total government spending, should be used to rebuild economic and social infrastructure especially in education, health, transport and housing. This is not an optional extra. On a no policy change basis by 2021 Ireland will have the lowest public spending-to-GDP ratio in the EU which the IMF projects will be 25.8% compared to 46.6% in the euro area. Such a low level of spending has serious implications for the future provision of public services, national infrastructure and the sufficiency of welfare payments and could have significant societal and political consequences. Foremost of our challenges is the housing crisis.
The number of families in Dublin homeless for more than two years has doubled in eight months. Of the 1,037 families in emergency accommodation at the start of June, 54 were homeless for two years or more, 133 families were homeless for between 18 and 24 months and the number of homeless for more than six months was 661, or 63 per cent. Ireland’s housing crisis is getting worse.
In those families there are 2,560 children who daily see the relentless stress and tension experienced by their parents. Teachers see children bringing the strain of that lived reality to school, without a breakfast because families lack cooking facilities, without a good night’s sleep because whole families sleep in one room. Teachers also know how this will impact on their educational prospects and, ultimately, life chances.
Budget 2018 must start to wipe the stain of this policy failure from the collective social fabric. This is not the first time Ireland has faced a housing crisis. However it is the first time that government has relied on a developer-led model of housing that is not working. TASC predicts that at the current rate of house building it could take more than 40 years to provide permanent homes for the people currently on Dublin city’s housing waiting list. It urges a radical change in approach from the government which it says is currently making the housing crisis worse.
ICTU believes this can be done through a major, local authority led social housing programme providing stable affordable tenure to all who need it. Slogans like fair rent, fixity of tenure and free sale have as much resonance in the Ireland of 2017 as they did in 1879. If large scale local authority housing projects could be delivered by Irish government during the depression of the 1930s, the emergency of the 1940s or amidst the emigration of the 1950s then why not now?
Social housing policy must make affordable and secure rental accommodation available to a significant share of the population, while increasing the stock of homes in well-designed, sustainable neighbourhoods available to those on lower incomes. Land and vacant houses should be acquired through compulsory purchase order. A vacant site levy should be brought forward immediately and pitched at a rate of 6% instead of 3%. This and the proceeds from the sale of AIB shares should be used to solve Ireland’s housing and homelessness emergency, funding a new social housing programme which would provide homes for hundreds of thousands of people.
A modern functioning health service is only possible if Ireland moves to an adequately funded, publicly controlled and universally accessible single-tier national health service. Additional investment will be required to cope with an ageing population. Given demographic and technological pressures ICTU believes that a long-term target of 10% of GDP should be set for health spending. A central challenge will be to keep people out of hospitals and long-term care, where possible, by investing in quality community health care as well as health education and early diagnosis. The Oireachtas ‘Sláinte’ Report is a very welcome development even if much further work is needed in identifying how expenditure can be increased.
Education spending is far short of what is needed to equip children, students and workers with the skills needed for a fast-changing world. Adequate investment in education is a prerequisite for an equal society and a thriving economy. According to the OECD, expenditure per student across all levels of education relative to GDP per capita is amongst the lowest among OECD countries. Not only are our schools over-crowded and under-funded but areas like mental health services for young people, the psychological service and speech language interventions are severely compromised through under-funding. Children get one chance in primary schools. This chance must be top class.
Per pupil funding should increase in real terms over the next four years to at least the average of other high-income Western European EU countries. This implies an increased spend of €2 billion per annum. This would ensure free compulsory education for all children thus significantly increasing the social wage to Irish families. A target of 7% of national income should be agreed for the medium-term.
Ireland’s failures in the area of childcare can be remedied by raising investment to European levels. Childcare in this country is a major barrier to labour market entry and contributes to the loss of high quality skills, experience and knowledge within the workforce. ICTU proposes additional funding in Budget 2018 to expand the publicly provided and subsidised childcare.
Ireland’s annual childcare public spend is among the lowest in the EU and so the average Irish family spends 34% of household income on childcare, double the European average. Again such a measure would increase the social wage to families. Given that employers will benefit from reduced childcare costs and higher labour force participation, their PRSI rate on salaries in excess of €100,000 should rise to help fund an increase in state spending on childcare.
Protecting the vulnerable
Many of the austerity cuts affecting young people, pensioners and lone parents can and should be reversed. ICTU is arguing for welfare payment rates to be increased in Budget 2018 by a higher percentage than projected price increases in 2018. This will help insulate the most vulnerable groups in Irish society from worsening deprivation and poverty.
The cuts to Jobseekers’ Allowances payable to new entrants under the age of 26 must be reversed. The full Christmas bonus should be restored and money should be set aside to compensate those adversely affected by the changes to the One Parent Family Payment.
Finally, ICTU which has consistently campaigned to achieve a living wage as a minimum for all workers, wants the hourly rate of the minimum wage (€9.25) to be increased to the rate of the Living Wage (€11.50).
Budget 2018 should also address income reduction for workers entering retirement and increase Job Seekers Benefit at age 65 by an amount sufficient to offset the loss of the Transitional Pension at a cost of €5m or €24m if was applied to all social welfare recipients.
In line with Congress’ support for a just transition to a zero or low-carbon economy, ICTU accepts that such a transition will have consequences for workers in the energy sector. We propose the creation of a retraining and upskilling fund to provide workers with the skills necessary to thrive in the changed industrial context.
Brexit poses huge risks to the Irish economy, especially if it involves a departure from the Customs Union and/or Single Market. Budget 2018 needs to begin a process of retraining and upskilling workers especially in sectors most vulnerable to Brexit. We need to invest in transport hubs to tackle diversified trade flows, in research, innovation, marketing and organisational capacity to develop new products or services and locate new markets and improve economic efficiency.
Public capital spending should be increased from its current low level of 2% of national income to 4% within 3 years. This should be funded through a combination of flexible borrowing within medium-term fiscal adjustment goals, joint ventures with the European Investment Bank to equip regions, sectors and firms to meet the challenges of Brexit.
Revenue raising measures
Neither the economy nor society can flourish without a sustainable, sufficient and progressive tax system. While the wealthy and high-income households will need to contribute more in the future it is important that we avoid the mistakes of the recent past by resisting calls to undermine the tax base. What is politically expedient in this instance is neither economically sound nor morally justifiable.
Overall taxation has to be increased over time in order to pay for a growing and ageing population, to eliminate the existing under-spends in various areas of public spending such as education and infrastructure, as well as to meet new challenges and risks.
These are some of the tax measures advocated by ICTU in Budget 2018:
A minimum of €180 million should be raised through the reform of capital taxes and tax expenditures, with particular attention paid to those reliefs available at the marginal rate and the suite of reliefs related to the inheritance and gifts tax. A small wealth tax should be introduced focused on households with net assets in excess of €1 million. It should aim to collect €275 million in net additional revenue during 2018.
At least €150 million should be raised by increasing the employer PRSI rate to 13.75% on incomes in excess of €100,000. Targeting employer PRSI contributions on just the portion of salaries above €100,000 will affect relatively few employments (less than 50,000) and would not affect the marginal tax rate on employee salaries.
Congress proposes that Budget 2018 should introduce an income taxation reform so that the personal tax credit is gradually withdrawn from higher income earners and entirely eliminated for those with incomes in excess of €100,000. NERI argues that this reform would avoid labour market disincentive effects and raise an additional €120 million in tax revenue from the top of the earnings distribution.
Government should remove the temporary VAT reduction for the hospitality sector. The reduction was estimated to cost €2.1 billion over four years up to the end of 2015. A conservative estimate of annual revenue loss in 2017 is likely to be well in excess of €700million. Given the significant recovery in tourism numbers and activity in this sector since 2011, the case for retaining this tax cut is very weak. Recent times have seen a substantial increase in profits in many areas of the Accommodation and Food Services Sector. Even still, according to the latest available CSO statistics, three out of four workers in that Sector earned less than €400 per week in 2014.
Other tax reforms
The income tax rebate incentive ‘Help to Buy’, introduced in Budget 2017 for first time buyers, should be abolished at a yield of €50 million. The ‘Help to Buy’ scheme is a wasteful use of public money that only increases house prices to the benefit of the seller. The money should be given instead to Local Authorities and used to expand housing supply and, thereby reducing prices for first-time buyers.
Resources should be further increased to tackle taxation non-compliance at a yield of €50 million. Budget 2018 should amend the Vacant Site Levy so that the rate increases from 3% to 6% for land left vacant for a number of years. Congress proposes a broadening of the tax base through an increase in the online betting tax sufficient to yield €75 million and an increase in the excise on tobacco and tobacco products sufficient to yield €60 million.
All in all, these measures will raise an additional €1.65bn bring fiscal space to €2bn for Budget 2018. It could of course be more if bold decisions based on long term sustainability and equality were made rather than on short term political expediency. However that’s for another day.
In conclusion we need to broaden and lengthen the discussion and have an honest conversation about all forms of taxation in Ireland in the long term.
Can we continue to defend our international reputation indefinitely on the global corporate tax avoidance front? Can we continue to try and have lower taxes on income or capital than our EU colleagues? Can we continue a relatively light corporation tax policy at the expense of households? Can we simplify indirect taxes such as VAT and excise duty? Can we even discuss the topic of carbon taxes given our success with water and waste charges?
Finally rather than over-thinking each year’s Budget and talking about what are relatively small changes in each individual budget, could we have a mature, evidence-based debate about reshaping Ireland’s taxation and public services over a 10 year period? In that context total fiscal space might be, as Tom Healy of NERI suggests, the greater part of one trillion euro if you add up total annual revenue over a 10 year period and allow for some growth in GDP.
Now that would be a space worth discussing.