What is the role of business in the forthcoming general election campaign? Of course “ business” does not speak with one voice – the views of the SME owner will be different from those of the multinational employee, for example. But businesses in general, via their national lobby groups such as IBEC, their chambers of commerce or just their vote will have a role to play.
I would expect that the first message from business will reflect the old medical maxim: “First, do no harm.” Business lobbies should not get pulled into the fight for election “goodies,” some of which may never be delivered. The recovery is under way and, in recent months, has spread more widely into different sectors and different regions. After a long, long period in the doldrums, consumer spending has finally started to pick up.The key message from business to the political parties should thus be: “Don’t mess it up.”
Assumption of growth
And this cannot be taken for granted. Apart altogether from the possible difficulties of forming a government after the general election – and the uncertainty this might foster – the parties are polishing down their promises on the assumption that the extraordinary period of growth and low interest rates we are seeing is set to continue indefinitely.
Forecasting these kind of things is a mug’s game. But you would have to take some account of the extraordinary outperformance of our economy in terms of growth, compared to the very lacklustre recovery elsewhere, particularly in the euro zone. This week’s exchequer returns look set to show another boost in tax revenue, driven again by a sharp increase in corporation tax and receipts from the self-employed. This is welcome, and gives some considerable leeway in the figures for next year. But the danger is that it adds fuel to the fire of an election giveaway debate which is already gaining steam.
USC debate
A lot of this will centre of the USC debate. If USC is to be abolished, then we will have to spend less on public services, or raise more in other taxes. It now appears Fine Gael is mulling restricting the gains of this to higher earners, though presumably it will stick to its commitment to reduce the marginal income tax rate to under 50 per cent – meaning there would be gains for all earners.
Lower income tax will please business lobbies and particularly the IDA, understood to be strongly signalling that this is now an issue in attracting new foreign direct investment. But it all has to be set within a realistic framework for the public finances – and the fiscal advisory council warned last week that this will not be easy.
IBEC in its pre-election “business manifesto” calls for lower taxes on incomes, but says they must be compensated for by higher taxes and charges elsewhere. The risk in the election campaign is that everyone will be promising the cuts but few will put forward plans for any revenue- raising measures or outline what it will all mean for public services.
The really key issue for businesses, with confidence still fragile, is that there be no risk that budget policy might have to go back into cutback mode over the next few years, as this would be hugely damaging.
Rebuilding investment
Businesses have also called for a range of other policy changes, some of which qualifies as joining the scramble for additional resources which may or may not appear. However there should surely be one other priority on the business agenda – a rebuilding of investment levels.
The IBEC document argues that private-sector investment could fill some of the gaps but that higher State investment is also essential, to the tune of an additional €1 billion a year or so. This is serious money, for sure, but the problem is investment spending was savaged during the crisis and huge gaps are appearing – from housing to transport, schools, hospitals and parts of our road network.
The risk for business in the election camp is being drawn into the debate about who gets what from tax cuts in a debate that could quickly descend into absurdity. Business will have views on tax to be sure, but the key messages which need to be drummed home are the need for stability and investment. Not very exciting, certainly, but the previous political recipe of dolling out tax cuts and current spending increases didn’t end to well.
