In a recent post I alluded to the deep philosophical problems associated with NAMA.  The aim here was to highlight the relationship between democracy and inequality when discussing the role of the state in modern democratic systems. The problems alluded to can also be applied to the recent budgetary announcements; particularly the lack of concern with reducing inequality. On the contrary, it seems that the government is intent on the reverse. The welfare cuts announced in the budget reinforce and deepen rather than reduce inequality. Strikingly, this is referred to as ‘making hard decisions’ in the ‘national interest’. Clearly then, ‘making hard decisions’ is more or less analogous to reinforcing and deepening inequality. It’s important though to understand what ‘making hard decisions’ really means and it’s pretty clear. It means the opposite of what a rational individual might expect. ‘Making hard decisions’ means making the least privileged and most vulnerable groups in society pay for the last ten years of recklessness. It means accelerating the redistribution of wealth from the general population to systems of private power and to the privileged. It means also the socialisation of risk and the privatisation of profit, contrary to market principles. Ultimately, ‘making hard decisions’ means that systems of private power, in particular, are never really threatened. In fact, power and privilege are protected and consolidated at all costs. That’s the reality of ‘making hard decisions’. Brian Lenihan now has the eminent distinction of being the first Minister for Finance since Ernst Blythe in the 1920s to cut social welfare payments. Back then it was pensioners who were targeted. However, fearful of the reoccurrence of ‘pensioner power’ on the streets of Dublin, this group was left well-alone on this occasion.  Luckily for him, these ‘hard decisions’ were avoided.

Public sector pay cuts aside, Lenihan let everyone know in his budget speech last week where the government’s priorities lay. First, he said he was not increasing income tax which is the only mildly ‘progressive’ taxation measure utilised by the state. Of course, one might counter that 2% of earners contribute 33% of the total income tax take. While this is true, it doesn’t tell the full story.  In 2009, income tax will account for only 36.3% of taxation revenue. For the current fiscal year, the remainder of taxation income will be via other forms of taxation primarily indirect taxation but also stealth taxation and other forms of non-progressive direct taxation. It’s pretty hard to talk seriously about a progressive taxation system when this is the case. In fact, the projected tax intake from VAT receipts alone in 2009 is similar (32.7%) to those for income tax. Thus, in the current fiscal year there is a similar amount of income generated from this form of tax as that generated from income tax. VAT is a highly regressive form of taxation, affecting the least privileged to a much greater extent than the most privileged. This means that those outside the income tax net and on social welfare pay predominantly regressive forms of taxation. This is without mentioning other forms of regressive taxation such as inflation which eroded the purchasing power of the least privileged to a greater extent during the Celtic Tiger economy years. Moreover, the Sunday Business Post notes that ‘almost one in five of those earning between €250,000 and €500,000 paid less than 5per cent of their income to Revenue in 2007’ while those earning between €250,000 and €300,000 ‘paid an average tax rate of just 5 per cent’ ; hardly ‘progressive’. But we should be thankful because ‘this is an increase on the 2 per cent they paid before the new rules [on tax reliefs]’ were instituted. In fact, the Department of Finance reported in July that even after the clawing back of some tax reliefs those earning over €500,000 only paid an effective tax rate of 20 per cent. Tax reliefs are of course another lift-up for the wealthy and privileged. Now all of this should be referred to for what it really is: ‘trickle-up’ economics; the transfer of wealth from the general population to the most privileged. Within this context, it’s pretty difficult to argue seriously about fairness in recent budgetary priorities.

Second, Lenihan made clear that the major sources of private power – corporations – would not be bearing the brunt of any adjustment because apparently our low corporation tax rate has become ‘our international brand’. So fierce is the belief in protecting corporations that it has now become dogmatic: ‘In a time of great uncertainty for international business, it is important that we send out a clear message. The 12½ per cent Corporation Tax rate will not change. It is here to stay.’ The message is pretty clear alright. In uncertain times, corporations will be protected as a priority; to heck with the uncertain times for the majority of the general population. They need to reduce their standards of living so that corporations can rent workers at a cheaper rate and boost profits. Workers need market discipline not corporations; they need state protection in these uncertain times. It’s referred to as increasing competitiveness. And the business community loves it with Mike Farrell of KPMG pointing out that ‘business will welcome the plan outlined by the minister’.  Of course they will; it now gives them the opportunity to discipline private sector workers even further and continue the race to the bottom.

There was a third priority which emerged after the budget speech. In Brussels, the day after Budget day, Brian Cowen came out and said that he was impressed that the budget ‘was well-received internationally’. What he means is that it was well received by investors and speculators. But is this a consideration in determining our policies? ‘It can’t determine totally our policy, but it is an important consideration for the country getting access to funds…’. There is little doubt that he is correct. From this year forth the virtual parliament of investors and speculators, who may have no vested interest in the nation, will vote Yea or Nay annually on budgetary policies. If the policies are satisfactory to investors then spreads on government bonds will shorten against German government bonds (the de facto comparable base rate within the EU); if they are not, then spreads will widen, increasing the cost of the national debt to the general population. So, the more we borrow the more we become reliant on our policies being ‘well-received internationally’. And by now we know exactly what that means. The deeply anti-democratic nature of this type of financial structure is more than worrisome. And it’s rarely mentioned in general discussion of macro-economic policy.

One striking thing about the coverage of last’s weeks budget was the amazing ability of mainstream commentators to apparently not notice the ‘elephant in the room’: that is, the correlation between cuts in wages and welfare and bank-bailouts and NAMA (the bailouts being ‘flood-up’ economics). The bottom line in all of this is that the poor and the vulnerable must pay for these incompetencies in the ‘national interest’. But that has a specific meaning also; the ‘national interest’ means Ireland Inc, not the general population. More ‘trickle-up’ subsidies. Moreover, the cuts are deflationary and will likely lead to economic stagnation. The notion that huge cuts in government spending will somehow create the conditions for economic growth is ludicrous. If the government really wanted to stimulate growth there is an easier way to do it: redistribute wealth to people who actually need to spend it; not protect the wealth of people who don’t know what to do with it.

Rather amusingly, the budget has been summarised as a ‘tough love’ approach. Again, the language used is interesting and it has real meaning. It was pointed out by Noam Chomsky some years ago with specific reference to the United States; but his analysis generalises. ‘Tough love’ means ‘love’ for corporations, vested interests and the privileged and ‘tough’ for everybody else, particularly the most vulnerable in society. Undoubtedly, there are some who will contend the reality of ‘trickle-up’ economics. How to explain then that inequality actually increased during the Celtic Tiger years?

Enda Murphy