The Green Paper - From sprint to marathon
THE SHORT RUN stimulus to the economy by the measures taken in the Government's first twelve months in office cannot be sustained. The illusion of abolishing rates, cutting income tax, abolishing car tax, abolishing wealth tax and cutting social insurance tax on those with low incomes, while simulltaneously increasing public expenditure, is over. By Sean D. Barrett
On many levels the sprint for growth idea has been a success. Consumer deemand is buoyant, hotel occupancy rates are up, car sales are booming and businessmen are more optimistic than at any time in the past five years. Politicallly the identification of Fianna Fail with progress and the Coalition with recesssion must be gratifying to the Governnment.
On the cost side however the spendding spree has left the Government with a borrowing requirement of £88Im, that is 50% higher than the maximum borrowings in any year under Mr. Richie Ryan, whom economists used to regard as the last of the big spenders. Indeed, it could be argued that much of the reecovery in the last year would have happpened anyway due to the rise in exxports. It must also be said that much of the extra demand in the economy reesulted directly in govern men t ind uced increases in house and land prices.
The requirement that public sector borrowing be reduced occupies much of the Green Paper. It also illustrates the basic dilemma facing Irish public finance currently, This is a desire of many of our politicians to have their cake and eat it by proposing tax cuts without listing the required cuts in pubblic spending. The same problem is mereely put another way when extra public services are proposed by politicians who neglect to say where the cost will come from and indeed often seem to give the impression that they pay for their pet schemes out of their own pockets.
A consistent politician campaigning on a platform of retaining our present level of public services without public sector borrowing, would have to seek to increase taxes by 40%. These policies have been followed with high growth rates of national output in the Scanndinavian countries. The economist as an economist cannot say that the policies of Mr. Wedgewood Benn are more or less likely to increase economic growth than the policies of Mrs. Thatcher. The contradiction between Wedge wood Benn type spending policies and Thatcher type taxation policies being pursued simultaneously is one which must be pointed out however.
A major issue in the next two years will be the way in which the conflict between high government spending and low tax policies can be resolved. Here the Green Paper pursues a middle course between "some increases in taxation," promised on page 73, and a long cataalogue of disagreement with the spending policies of its prodecessors in governnment.
The catalogue of disagreement with the spending policies of previous addministrations shows up some particularrly glaring examples of ways in which measures intended to help poorer people have expanded, although inncomes in the country have been inncreasing. One must ask then if poliiticians have sought election as men with "pull" to get benefits from the public purse, if the civil servants in charge have expended schemes to expand their emmpires, or if unintended beneficiaries have freeloaded on schemes intended for the poor.
Despite the massive increase in the value of farm output and in land values since 1967, the number of people claimming small farmers' 'dole increased from 7,000 to 24,000 this year.
Despite increasing incomes, the nummber of people in the general medical serrvices increased from 29% of the popuulation in 1972 to 39% in 1978. The number of employees in the public health services rose from 41,500 in 1972 to 54,000 this year. There is no evidence that this vast extra committment of resources has increased the health status of the community.
The Green Paper shows also an unnprecedented increase in the numbers claiming disability allowance. This inncrease was 25% between 1971 and 1977 while the numbers insured rose by only 13%. The Paper states on page 77 that "more than one married woman in three is in receipt of disability benefit in any week, as against one married man in ten. The comparable figure for single women is about one in sixteen and for single men, one in thirty."
The proposal to increase the proporrtion of the cost of university education borne by fees above 17% "would seem eq uitable ", according to one of the under statements of the Green Paper. Despite the evidence that "free" seconndary education as introduced in the sixties mainly benefitted the parents of those in fee paying schools which joined the scheme, the Green Paper supports the "far-reaching egalitarian conseq uennces" of the measure.
In housing, the approach of the Green Paper is broadly in line with the NESC in pointing out the need to help most those with lowest incomes, while a strong preference for reducing presssure on public housing by increasing owner occupation is indicated.
Discussions of demand on the public purse lead eventually to CIE. While proomising to implement the Manifesto prooposal for a National Transport Authorrity to formulate transport policy, the Green Paper presents CIE's shopping list with a rather cold commentary. The req uirements are £29m for the mainnline rail service, £41 m to electrify the Bray to Howth line, and £220m for the Dublin rapid transit system. When one adds to this the annual losses of £35m projects now in the CIE pipeline could cost the taxpayer £400m. Is it time to block the pipe or at least publish the studies which would hit the taxpayer's pocket so hard if implemented?
Strict surveillance of public spending is essential if the Irish economy is to attain the employment targets which are so important to an increasing populaation. The target is to cut the borrowing requirement of the government from 13% of the GNP this year to 8% in 1980. This policy will be a very sharp reversal of the sprint for growth policy in the past year. The economy must now face employment creation targets which are "no more than the first part of a major national effort that must be continued in later years." The planning process, of which the Green Paper is the second part this year, has brought to the attention of the Cabinet research and studies which had little impact previoussly. The work of NESC and the ESRI on the implications of our population growth and development problems now provokes a response at government level. That in itself is some success.
The alternative to the Green Paper is a continuation of high government borrowing with eventual tax increases which would make the 1975 tax rises seem very mild. Huge waste in public expenditure would continue as we asspired to emulate EEC countries with inncomes two and three times ours. High unemployment would continue as our small productive sector struggled under the weight of a large public sector. We don't yet have a map of the marathon course to full employment in Ireland, but the training schedule in the Green Paper is harsh. The consequences of not trying at all make the Green Paper a welcome document.