A round of tax cuts would prove a popular move in the next budget. But it should be avoided at all costs, writes Paul Allen.
Since the economy fell through the floor in 2008, we have survived through economic hardship. Now there appears to be a glimmer of hope and the end is in sight. The tough times we’ve lived through have allowed us to regain credibility around the world.
We have been able to come out of the bailout programme while re-entering the bond markets. At the start of the month Standard & Poor raised Ireland’s credit rating to A- based on the belief that the economy is poised to grow quicker than first thought over the coming two years.
Since 2008 the Irish Government has administered staunch budgetary policy to get us to this position. Now, wary of the rise Sinn Fein and mindful of public opinion, the Fine Gael-Labour coalition appears to be preparing to loosen the purse strings too soon.
“Leeway” for cuts
The Minister for Public Expenditure Brendan Howlin was quick to join the chorus, encouraged by Finance Minister Michael Noonan, claiming we have “leeway” for cuts, in the face of warnings from the Irish Fiscal Advisory Council to the contrary.
No doubt his stance was shaped by the hiding his party took at both European and local elections. But to undo all the good work that’s gone on through the last six years, to just serve up tax breaks to appease the masses, could turn out to be a terrible mistake. Although Ireland’s economy is doing well right now the road ahead is less certain.
Ireland is still burdened with high personal debt levels, however the big question mark is Europe’s economy. There is serious doubt over Spain, France and Italy’s chances of shaking free of recession, and if any of these massive economies fall it could spell disaster for the Eurozone. Consider for a moment the effect the tiny countries Portugal, Greece and Ireland had on the European Union, then think about the impact of a top European economy collapsing. Ireland’s economy is small and open, it would feel the effect more than any other country in the Eurozone.
Meeting our deficit targets
If Ireland’s economy hits any road bumps in the next year following the proposed tax cuts, Ireland could fall short of the deficit target for the next year. This would undermine international confidence in our economy and ensure additional years of austerity just to realign our finances all over again.
Our leaders have been forced to makes some tough choices, however the outcome is an economy that’s now a leading example of how to turn a country around. To roll the dice in this situation would be foolish considering that one more year of prudent governance will essentially ensure a smooth transition from austerity.
It won’t be a popular decision, but dodging tax cuts with this budget is the right thing to do. Governments that attempt to win voters by folding to public pressure can end in disaster. Look back to Fianna Fail’s time in power just as the Celtic tiger was approaching its tipping point: the best thing to do was to slash spending and increase taxes to try to cool down our economy. But that would’ve spelled disaster for their 2007 election performance. In the end they delivered what the voters wanted — tax cuts and increased spending. They cruised to victory and the Irish economy collapsed.
This Government, with time up their sleeve before the upcoming election, should take heed of the Fianna Fail lesson and the words of Joss Whedon: “Don’t give people what they want, give them what they need.”
Originally published in TheJournal.ie