The Economic and Social Research Institute has entered the growing political debate on whether tax cuts should take priority over increased spending on social services and infrastructure. In a new book, published to mark the State-sponsored economic think-tank's 40th anniversary, three of the ESRI's senior researchers argue that economic growth over the next 10 years will allow increased spending and tax cuts. But they warn that neglecting social spending will have longterm negative consequences.
Significant differences have emerged between the Labour Party and the other main parties in recent weeks over which should now take priority - tax cuts or social spending. Earlier this month Labour launched a policy document - New Direction, New Priorities - which calls for a shift away from tax cuts and a £3 billion increase in spending on health, education, childcare, housing and transport. The document, which essentially sets out Labour's platform for the next election, has been savaged by Fianna Fail and the Progressive Democrats. Both of the Government parties are still committed to economic programmes that are led by tax cuts.
"The scale of economic growth and the demographic dividend over the next decade may make it possible for Ireland to . . . improve services by increased social spending, while still reducing taxes," according to Profs Brian Nolan and Philip O'Connell of the ESRI. The third author of the paper - which is published in Bust to Boom? The Irish Experience of Growth and Inequality - is Mr Christopher Whelan. The three researchers warn that a policy which maintains the current low levels of social spending relative to national income will lead to problems. The differences that will develop between the level of service provided by the State and those available in the private sector will become hard to bridge.
Recent rapid economic growth and the development of social partnership have weakened the State's traditional role as redistributor of wealth and opportunity, they argue. During the period of social partnership the State has maintained a minimal level of social protection, but did not focus on tackling the deeper structural causes of inequality, they say. "Inequality of opportunity in terms of social mobility, educational opportunity and risk of poverty has remained stubbornly high," according to the ESRI researchers.
Experience in other rich countries suggests the achievement of real equality of opportunity requires a highly interventionist State investing in a substantial upgrading of social services, they say.
The levels of economic growth that Ireland is currently experiencing may make it possible to increase spending in this fashion and reduce taxes. The researchers also predict wages in Ireland will have to rise significantly in the short term.
"Slow growth in wages relative to productivity has contributed both to rapid economic growth and to the decline of the wage share, and some reversal in this latter trend appears to be inevitable: the question is how fast it can happen and how far it can go without derailing the engine of economic growth," they write.
"Irish society and the institutions of social partnership are now confronted with very fundamental issues about the distribution of the fruits of growth . . . How those issues are tackled will be crucial to the continued sustainability of the distinctive Irish model," according to the researchers.
