Watch the British general election campaign and press the fast-forward button for the kind of debate we are going to have here in a few months’ time, without the Oxbridge accents of course.
Take the House of Commons this week. Labour leader Ed Miliband tried to catch out David Cameron by calling on him to clarify whether a new Conservative government would increase VAT. Cameron took everyone by surprise, including members of his own government, it appears, by ruling this out and throwing back a question on whether Labour would increase national insurance, a charge on income similar to PRSI. Miliband fudged, but a few hours later Ed Balls, the shadow chancellor, came out to deny this would happen and to make further pledges on not increasing income tax.
Cameron had “won the day”, the political analysts declared. However, as the Institute for Fiscal Studies said, the two main parties have now “boxed themselves in” by ruling out any significant increases in taxes responsible for £6 out of every £10 in revenue collected.
The Conservatives’ only tax-raising mechanism now is that old fraud that parties regularly put into their election sums: a crackdown on evasion. Watch out for that one, now, in our campaign.
No one is willing to break out of this game of political chicken, for fear of upsetting some group of voters. So the UK election debate inevitably moves away from the actual details of policy and becomes a political Punch and Judy show about who the voters trust.
Post-Irish Water, we will have a similar election debate here. Sinn Féin, the Socialist Party and some of the other left-wing groups support higher income tax on those earning more than €100,000 and some kind of a wealth tax. Beyond that, no one will rock any boats. Everything that might create even a whiff of controversy will be ruled out. This limits options for the future – though, of course, promises can be ditched – and leaves nowhere to go if growth slows for some reason and money needs to be found.
Property tax bills
Take the idea in this week’s IMF report on Ireland that we should allow property tax bills to rise along with house prices. The Government is already moving to guarantee that this won’t happen, and no one else will touch it. (Some local authorities are cutting the tax, while also complaining that they are short of cash.) Nor will any party explore other IMF suggestions, such as raising VAT revenues, or – and you can hear the shrieks of dismay already – taxing child benefit or restricting medical-card availability for the over-70s.
Now these aren’t all necessarily good ideas. But the point is to join up the dots. Spending more, or taxing less in one area, generally requires a decision to raise or save money somewhere else. If you increased the take from property tax, you could cut income tax or increase spending somewhere else. Taxing child benefit could pay for more spending on tackling disadvantage.
Yet no party will go near these areas, for fear of alienating some voters. Instead, they try to divine what voters want – USC cut, for example – and promise to deliver those, without considering what implication that might have for the tax base.
Talks on public pay will start after Easter, with the Government nodding gravely and saying there isn’t much to spare. But we all know this is about the next election and that the Government will give a bit.
Growth gives a bit of leeway, in good years, but is our whole debate on tax and spending to confine itself to the very limited possibilities this will offer? We are meant to have moved away from the old Charlie McCreevy 2001 dictum: “When you have it, you spend it.” Aren’t we?
In fact, this is still exactly where we are, and discussions about Fine Gael and Labour priorities for October’s Budget – USC and tax cuts versus public pay rises – will focus on how the available resources will be divided up, and not on any strategy of how public pay should be managed or how the tax base should evolve.
EU budget rules
A new factor has also entered the equation: the EU budget rules to which we are now subject, having left the bailout. These put a priority on reducing deficits and debt burdens and are intended to ensure that governments don’t inflate economies already growing at full capacity. In future, even when we have it, EU rules may not allow us to spend it, a matter of serious frustration to the current Government and probably to whoever comes next.
Minister for Finance Michael Noonan is correct to make his case in Europe for the rules governing our budget sums to be tweaked. The rules are based on an unrealistic view of our economy. They could leave very little room for manoeuvre next October and, more importantly, limit options to rebuild public investment levels in the years ahead in key areas.
Noonan looks likely to win the fight in Brussels to get a bit more leeway. He could probably apply this cautiously, while still aiming to reduce the deficit to well below 2 per cent of GDP next year. But can the Government resist packaging this all up as a pre-election sweetener? Maybe that’s just politics.
The point is that, in the years ahead, the combination of our still vulnerable public finances and the new EU rules – even if tweaked – will leave limited room for old-style budget giveaways. Growth helps, of course. But politics today, on both sides of the Irish Sea, is not about reform, it is about how to use what money there is left to spare on budget day to try to give something to “everyone in the audience”.
Anything smacking of reform, and thus likely to prove controversy, is ruled out.
Twitter: @CliffTaylorIT