Economy and Austerity
I oppose austerity measures. Not only have these measures not worked in Ireland, they have proven to be a disastrous economic policy the world over.
This means that I oppose water charges and the privatisation of natural resources and that I support socialization of health and education, as well as measures to ensure affordable housing.
While the financial crash of 2008 was of a magnitude that necessitated Ireland to take drastic measures to stabilize the financial sector, these measures – the result of private debt and poor lending practices – cannot go to the long-term detriment of the public treasury or the nation’s citizens.
The policy of fiscal austerity imposed on Ireland by the IMF and European institutions is based on an understanding of economics developed by the so-called Chicago school. This type of economics is often broadly referred to as neo-liberalism, and it is predicated on the idea of the “invisible hand of the market” as developed by Adam Smith in his 1776 book The Wealth of Nations.
According to this theory, there should be no government interference at all in economic matters, either within or between States, because the invisible hand of the market will perfectly regulate all things. Thus, all goods and services should be privatised and government budgets should be cut to the greatest extent possible.
There is just one thing wrong with this theory: it doesn’t work. Even Adam Smith never endorsed the level of laissez-faire economics that is being enforced today. In the more then two hundred years since The Wealth of Nations was published, economists like Joseph Stiglitz, Thomas Picketty and Paul Krugmann, not to mention countless failed IMF programmes all over the world, have proven that markets are not rational and that excessive privatisation and social service cutbacks (that is ‘austerity’) damage economies rather than benefit them.
Details / Frequently Asked Questions
- But isn’t it impossible for Ireland to negotiate with the European Union, since we are only one country?
Even at the time of the original bailout Ireland could have held out for better loan conditions from the troika. In particular, Ireland should have insisted that bondholders take a haircut, i.e. a reduction in the value of their bonds. After all, taking a loss is the price of making a bad loan. This would have already resulted in an improvement in the debt burden and therefore reduced the necessity for cutbacks and increased taxes that have hurt ordinary working families. In addition, Ireland should fully seize the opportunity to work with other European countries to obtain a write-down of sovereign debt, such as Greece, and in the future, possibly Portugal and Spain. This is clearly not a message some of the other European countries will want to hear, but international relations is about getting the best deal possible for your own country, not about pleasing everyone.
- How would you pay for the current level of social services plus free education and health care?
Irish people pay quite high taxes and do not receive much for them in the way of social services. This means that unless the economy is growing significantly, the middle class gets squeezed badly. Like many countries, Ireland needs to reconsider how it distributes its tax burden, especially in times of economic crisis. In older civilizations, it was self-understood that the wealthiest members of society would simply bankroll the country through times of economic crises, not only because they had benefited the most from its past economic success, but because they were the only ones who could pay without bankrupting the country and setting its development back for years to the detriment of everyone, themselves included.Several measures could be taken here:
- Introducing a third tax band applicable to very high earners. The top 10% of Irish earners make ca. 135,000 Euro per annum, while the top 1% earn ca. 444,000 Euro per year. Thus, introducing a higher rate of income tax from ca. 200,000 Euro per year would generate increased revenues while slowing down the increase in the wealth gap. Well over 90% of all people would not be subject to this tax and it would be possible to reach an extremely high standard of living without being affected by it.
- Enter into dialogue with multinationals based in Ireland to increase both corporate tax rates and real payment of those rates. It is not in the interest of multinationals for Ireland to become a country of wealth extremes with poor social services, unreasonably high living costs and insufficient infrastructure, all of which ultimately impact their own ability to attract and retain skilled employees.
- Restrict the ability of banks to give mortgages on buy-to-let schemes, as this leads to artificial increases in housing prices to the detriment of those not yet on the property ladder.
- Introduce punitive taxes on second homes and luxury homes.
- Increase capital gains tax and financial transaction taxes in cooperation with other EU member States.
- Increase government efficiency of service provision and project planning to save resources. These can either be invested in new projects or translated into lower taxes.
- Wouldn’t rich individuals or multinationals reject these plans or leave the country?
Emigrating, either for an individual or a company, is not as easy as it is often made out to be. The economic reforms proposed here are both realistic and moderate. Some of the key provisions rely on cooperation with other European States, thus cutting off the escape route for fleeing capital. In addition, while money is important to most of us, there are considerable advantages to living in a country with more equitable income distribution and good social services for wealthy individuals and companies. These include freedom from having to pay heavy bills for education and healthcare, lower crime rates, better public infrastructure and an education system that produces qualified employees regardless of their social origin.