Telling EU to get lost is not the answer

The real challenge our economy and society faces is to restructure our revenue collection so the wealthiest pay the piper, writes Vincent Browne

The Left is hiding behind indignation over the injustice of the bank rescue. Indignation over what has happened and the rank injustice of the people of this country being inflicted with massive debts for which they have no responsibility is, of course, entirely appropriate. But hiding behind that to avoid awkward questions about where we go from here just worsens our predicament.

Let me be clear: if I was sure we could survive a strategy that involved telling the International Monetary Fund (IMF) and European Union, including the European Central Bank (ECB), to get stuffed, I would rejoice. If I thought we could survive telling the bondholders, guaranteed and unguaranteed, to get stuffed that would be great too.

I don’t know what would happen now if we told the EU to get lost. Nor do I believe that the likes of Joe Higgins, Richard Boyd Barrett, Gerry Adams, Mary Lou McDonald, Pearse Doherty and Séamus Healy know what would happen were we to tell the EU to get stuffed. Their confidence that the bond market would welcome us back to the financial bear pits seems surprising to me – as far as I know, none of them has any experience in financial bear pits and haven’t a clue what would happen were we to default.

Others, such as Shane Ross, David McWilliams, Stephen Donnelly, Paul Sommerville, Brian Lucey and Peter Mathews do know more about these matters than I do, or Joe Higgins et al. But, at most, what they are doing is guessing. None of us can know what would happen were the ECB to pull the plug on us for that has never happened previously. Yes, maybe the ECB might not pull the plug on us but that’s something else we can only guess about.

What is certain is there is a real risk that defying the ECB at present could be calamitous for the people of this country, most especially for people living on the margins. It is one thing to take risks with our own livelihoods but most of us baulk at taking risks with the livelihoods of our families. And shouldn’t we baulk at taking incalculable risks for the welfare of millions of our fellow citizens? Incalculable, for we simply don’t know what the consequences of a unilateral default would be.

Yes, we should seek an agreed default and perhaps that will happen and there is reason to believe the new Government was pusillanimous in its dealings with the ECB in its first days in office. But that is not now the issue I am addressing: it is a unilateral default, telling the EU and IMF to get stuffed.

It is fine for the Left Alliance, Sinn Féin and the independent monetarists to strut about default, for it sounds good, wins applause but, crucially, acts as a cover for some real decisions that we need to take and an option they don’t want to address: redistribution. Yes, the Left talk about appropriating the wealth of the super-rich, which is just more sloganising. The real issue is redistributing the wealth and income of the top 20 per cent of this society, so that they – and not the bottom 20 per cent – pay for the crisis.

The gap between the State’s income and expenditure, including interest payments on the debt, is €18.5 billion for the current year. We need to pare a further €13.5 billion from this over the next three years. The Government, as did the previous government, sees its way of doing this primarily through expenditure cuts on social welfare, health and education, and probably on public service pay as well.

There is another way of closing the deficit.

Ireland has one of the lowest government revenues in the EU as a percentage of GDP (see Euro indicators published by Eurostat on April 26th). Our government revenues in 2010 comprised just 34.6 per cent of GDP (the following is the relevant statistic for selected EU countries: Belgium: 48.8; Denmark: 55.3; Germany: 43.3; Greece 39.1; Spain 35.7; France: 49.2; Italy: 46; Netherlands: 45.9; Austria: 48.3; Portugal: 41.5; Finland: 52.3; Sweden: 52.7; UK: 40.6). Assuming that with the universal social charge, Ireland’s revenue take will be about 37 per cent for 2011, increasing that to 42 per cent, still well below the income of the most successful economies in Europe, would yield an additional €7.6 billion.

There is room for public expenditure cuts on all public service pay above, say, €100,000, and the closure of tax breaks, for instance on pensions, would close the gap.

These calculations are crude but they do suggest we can get out of our difficulties, primarily through increasing Government revenue to about the EU average of the most successful economies.

The top richest 10 per cent of households have a disposable income more than 10 times that of the poorest 10 per cent (€2,276 per week as compared with €210 per week, according to the Survey on Income and Living Conditions of last December).

The second richest 10 per cent of households have disposable incomes of seven times the poorest.

Those of us in these deciles should pay. All of it.