Seize the nettle - or be stung by Europe

Taxes on those with higher incomes will have to go up if we are to manage our own mess rather than let Brussels and Frankfurt call the tune, writes Vincent Browne

We need to get serious about our politics now – for we have to make choices between policy options, all of which are dismal, but some less dismal than others.

Whether Morgan Kelly of UCD or Joe Durkan of the ESRI are right (Kelly saying confidently we are heading for economic ruin, and Durkan saying we will probably avoid ruin), we have to take some tough decisions on how to extricate ourselves from the economic crisis and the banking fiasco.

Principally, the decisions will be over how to deal with the €18 billion deficit between public expenditure and public revenues.

Either we ourselves will take the decisions required or the EU-ECB will do so, and the politics of the latter would ordain that those least able to bear the pain of the adjustment be required to take the pain, or most of the adjustment.

Not that this is not the instinct of the present Government – to inflict pain on those least able to bear it – but at least we have some influence over what it does. We think we have, anyway.

The agenda to be forced on us would be huge cuts in public service pay and pensions across the board; forced redundancies in the public service; and a massive cut in social welfare for unemployed people to force them back into low-paid jobs and off the State’s payroll. There would probably be big cuts in other areas of social welfare as well.

There is another consideration. The spectre of three, four or five more years of austerity is, in itself, dispiriting. Were we to decide we would resolve that fiscal deficit problem in two years flat – by the end of 2012 - there would at least be the prospect of better days ahead in the foreseeable future, rather than ongoing despondency. So herewith an immodest proposal.

We can raise an additional €10 billion-plus in tax revenue. We can raise €7 billion of that by increasing our tax take to around the same proportion of national income as applies in France and Germany (or 42% – it is around 35% at present). This can be done by increasing income tax on people earning more than €80,000 or couples earning more than €120,000, or by way of the universal social charge, increasing the rate for people in these income brackets.

We can raise a further €1 billion by way of property taxes (for properties valued at more than, say, €500,000, where household income is more than €60,000). There could be water charges on water usage above a reasonable provision for families of five, and further revenue from credit card transactions, mobile phone text messages and excise duties.

Also, there could be the extension of income tax to all income earned in Ireland, irrespective of the residence of the earner (this to catch tax exiles and others).

There could be public expenditure cuts of €5 billion through further cuts in public sector pay on everyone earning more than €60,000; an increased levy on public sector pensions; means tests on old age pensions and children’s allowances, and the virtual elimination for a few years of the capital programme.

There could be an accelerated programme of redundancies in the public sector, with added incentives – this would cost more in the short term, but mean substantial medium/long term savings.

The social consequences of such a programme are daunting. The increase in taxation would be substantial, and the adjustment required by relatively well-off people would be considerable. But surely this is better than social welfare payments being slashed, and those least able to pay being required to do so? This strategy could also enable us to return to the financial markets, thereby ending our subjugation to our masters at the ECB. It would also give us flexibility on banking policy, enabling us, if we wished, to ditch the impositions forced on us by our “partners” in Europe.

And yes, it would be deflationary, leading to higher unemployment. But the prescriptions of massive public works to take people off the dole is just more leftist strutting, for where would we get the funds to permit that? The strategy I suggest, I think, would enhance the chances of returning to employment growth quickly.

Maybe it is naive to think there would be public support for a strategy such as this if it were to be explained why it is fair to spare the poorer section of this society from the further ravages of adjustment. But maybe that support would be all the stronger, since there would be public confidence we were grappling with the crisis and there was an end in prospect. It is not as though we have soft alternatives.

There seems to be a view that there will be a painless structured default in a year or so, and the EU will come to our rescue – with no pain and lots of gain. The politics of Europe has turned rightwards. There will be no painless structured default, and before that is ever agreed there will be the agenda of plunder which will ravages millions of lives here and destroy this society for generations.

It is possible to avoid this and, on the way, make this place a fairer society, marked by solidarity. But time is short.

This column also appears in today's edition of the Irish Times