Good historical research requires seeing matters through documents or accounts generated around the time of events. Later accounts are likely to be written with the benefit of hindsight or influenced by the thinking of that later period.
The point has been made recently at the banking inquiry and elsewhere that in seeking to assess the policies pursued by government and opposition during the boom years before 2007, it is always necessary to appreciate things through a contemporary mindset.
For that reason I took some time this week to look back at a book I published in advance of the 2007 general election. Showtime or Substance sought to describe the likely context and issues for the election and the policies of the parties at the end of 2006.
The second chapter of the book focused on the economy. The headline indicators at the end of 2006 were extraordinarily good: unemployment about 4.4 per cent, 90,000 new jobs created in the year up to May 2006; and growth measured in GDP averaged above 4.5 per cent in the previous four years.
The chapter then turned to the prognosis for the Irish economy over the next five years. It noted that government and opposition politicians and all economists were forecasting a further prolonged period of economic growth.
The ESRI, for example, in its medium-term review for 2005-2012, predicted: “If there are no unpleasant surprises the economy could grow at just under 5 per cent a year out to 2010”. Some economic commentators were even more optimistic, suggesting that economic growth could be as high as 5.7 per cent.
Cowen positive
The chapter next noted that then minister for finance
Brian Cowen
in all speeches had been positive about the prospects of the economy. He had been careful to warn of external threats, including the prospect of an economic downturn in the US and international volatility in oil prices.
I also pointed out that the government espoused a general confidence that what Bertie Ahern had called the "Irish model", which survived the 2001/02 international downturn relatively successfully, would be robust against another slowdown.
The chapter noted that when it came to considering internal threats to the Irish economy, the main concern was about what some saw as a dangerously overheating property market and the over- reliance of our economy and exchequer on the construction sector.
Turning to the tax policies of the parties, I predicted (wrongly as it turned out) that while taxation policy dominated much of public political debate in Ireland in the 1980s and 1990s, it would unlikely be a big issue in the 2007 election. Income tax rates had been stagnant for most of the previous five years, and I thought that was unlikely to change.
In his 2006 ardfheis speech, Fine Gael leader Enda Kenny went out of his way to reiterate his party's commitment to a low-tax economy: "There will be NO rise in personal tax, NO rise in corporation tax, NO rise in capital tax". (The published script of his address had the word NO in capital letters, as shown.)
Down and stay down
Then
Labour
Party leader
Pat Rabbitte
, in his 2006 party conference address, stated that “taxes are down and they will stay down. In a successful economy, with buoyant revenues, there is no need to increase taxation, and Labour has no intention of doing so.”
Even the Greens adopted a policy at its 2006 party conference that included a commitment not to increase rates of income tax or corporation tax "for the foreseeable future".
As for Fianna Fáil, both Cowen and taoiseach Bertie Ahern had hinted that the party's election manifesto was likely to contain no changes in income, corporation or capital tax rates. Instead, it was likely it would promise to redirect resources to increase the tax entry point and the threshold for the top rate.
Before the end of 2006, the Progressive Democrats were the only party promising to cut income taxes – a reduction in the top income tax from 42 per cent to 40 per cent. They were also promising cuts in stamp duty. At that stage, Fine Gael had also indicated it was in favour of a reduction in stamp duty. That was how things looked at the end of 2006.
In the months that followed, however, a pre-election auction of tax cuts and spending increases broke out .
All parties participated, and it was even more intense than predicted. Labour and Fine Gael promised to cut the lower tax rates by 2 per cent and to abolish stamp duty for first-time buyers on properties up to €450,000. Fianna Fáil promised both lavish spending increases and tax cuts over the next five years.
As we now know, things turned out very differently from what anyone predicted.