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Budget 2014 – The socialist approach

Introduction

The crisis faced by working people, the unemployed, students and pensioners in Ireland is a crisis of capitalism. While the crash in Ireland has had its own special features related to the property bubble and an historic over reliance on Foreign Direct Investment, this should not obscure the fact that capitalism, a system based on private ownership of key sections of the economy as well as economic activity being geared towards profit and not need and the absence of rational planning of resources, is a crisis prone system that has to be replaced.

Austerity is a weapon used by capitalism in the context of this economic crisis in order to place the burden of that crisis onto working class people and to restructure the economy at their expense. While Fine Gael, Labour and Fianna Fáil haggle over the exact amount of austerity to be applied in 2014, they are all agreed that austerity is ‘necessary’. The Socialist Party rejects that logic. Austerity is a political choice to place the interests of bondholders, bankers and big business ahead of working class people and the economy as a whole. It is not ‘necessary’. For example, if none of the planned austerity for 2014 took place, as the Socialist Party argues, there would be a primary budget deficit of only €1.135 billion.  

The Socialist Party in its pre-budget statement is motivated not to save the capitalist system nor to ‘restore’ Irish capitalism to its pre-crisis state but rather to point to the immediate measures that could be implemented to prevent further austerity, seriously address the unemployment catastrophe and to begin to lay the basis for raising the level of economic activity and reversing the damage done by a cumulative €71 billion  in cuts and impositions applied in successive budgets since the crisis began. We give a series of examples to illustrate how the wealth and capacity exists to stop austerity and reverse the attacks on working class people – it is simply how that wealth and ownership is distributed and the economy is organised that stops that happening.

None of the establishment parties would contemplate these radical policies, which would require a genuine government of working people to introduce them. They would undoubtedly be met with stiff resistance from the capitalist class who would do everything in their power to sabotage efforts to make them pay for the crisis. Therefore these policies cannot be seen separately from the need to break with capitalism as a system, replacing it with a democratic socialist alternative based on public ownership of the key sections of the economy. Such a break with the current system would also mean production and economic activity being organised to meet people’s needs and not profit and democratic economic planning at every level in society. This reorganisation of society would mean bringing democracy into the workplace with workers being brought to the heart of decision making on the management on the office and factory floor.

The policies advocated in this statement should be viewed as part of a programme for action by working class people. The Socialist Party sees fundamental change arising not from what takes place in the Dáil chamber but through a struggle in wider society through protests, strike action, and the struggle for political and economic power by working people. We need such a struggle to successfully oppose budget austerity measures, pay cuts, privatisations of our resources and utilities, repossessions of the family home, and also to positively fight for the nationalisation of our oil and gas reserves, for a significant increase in taxing high income and unearned wealth as well as fighting for socialist change.

Working class people in Ireland together with other workers on the periphery of Europe such as Greece, Spain, Portugal and Cyprus face a vicious assault on their living standards led by the institutions like the European Commission and European Central Bank together with right-wing governments. Workers in northern Europe also face downward pressure on wages and attacks on public services. A common struggle across Europe is necessary to effectively resist the attack.

This publication takes place in advance of a pre-budget protest that has been called by the Dublin Council of Trade Unions for Saturday 12th October. This protest and the active opposition to the water tax and every other imposition and cut need to converge into a sustained and determined movement against austerity that aims to bring this government down and fight to replace the current set-up with a radical left alternative. Socialist Party members in the workplaces, communities and colleges will continue to assist in developing this fightback.

The Socialist Party approach to the government’s annual Budget statement

The Socialist Party, unlike other parties who are currently not in power, does not present here an ‘alternative’ budget to that being delivered by the Minister for Finance on 15 October. His budget is grounded in the workings of the diseased capitalist system and the financial markets which caused the economic crisis and dictated the savage austerity now being imposed to try and rescue this system at huge cost to working class people and society as a whole. Any budget based on continuing with the policy of bailing out banks and bondholders and the paying of odious debt can only result in the continuation of savage austerity on low and middle income workers, pensioners and the unemployed. This also means the continuation of policies that would keep the economy hovering between minuscule and negative growth.

Within the straitjacket of this system it is simply not possible to meet the needs of the big majority in society in terms of employment for all with decent incomes and working conditions and the provision of homes and public services that meet the needs of all.

Only on the basis of radical socialist policies can the economy be reorganised to overcome the crisis.  This means that the financial system and major production are in public ownership and run under democratic control in the interest of the majority rather than for private profit.

We do, however, outline clearly choices which the Fine Gael/Labour government absolutely refuses to consider rather than continue to put burdens on the shoulders of low and middle income workers, pensioners and the unemployed. While continuing with cuts and taxes that hit working class people they resolutely refuse to shift the burden to the minority which has substantial wealth, major corporations and those on the highest decile as regards annual income.

Using official sources and the reports and analysis of authoritative institutions we show how massively increased resources could be found to develop major new capacity in the economy to meet the needs of the majority.

Repudiate the debt

In the government’s Stability Programme Update  forecast for 2014, with the €3.1 billion of austerity then envisaged, Ireland moves into a ‘primary surplus’ of €945 million. What this means is that the government then expected to take in almost €1 billion in tax revenue than it spends next year. This single fact demolishes the key rationale put forward by the government for austerity, namely that we are ‘living beyond our means’ and that the state is borrowing huge sums of money in order to pay public servants.

The truth is that the state is borrowing huge sums of money to pay off debts that have grown exponentially since and as a result of the crisis. The key political decision taken by this government is to place the paying of these bondholders before protecting social welfare rates, employing Special Needs Assistants or investing in jobs. This decision should be reversed.

National debt stands at 125% of GDP.  Given the likelihood of stagnation or low rates of economic growth, this level of debt is unsustainable. It will grow and grow and eventually some form of default is inevitable. The question here is not whether Ireland defaults or not, it is whether the economy and society are further destroyed first in order to enable the bondholders to squeeze every last drop from working people.

In 2007, Irish general government debt was €47.4 billion.  Today it is €204 billion.  This increase results from the costs of the bank bailout combined with the precipitous decline in tax revenue as a result of the bursting of the property bubble and the economic crash. The responsibility for this massive increase does not lie with working people who are being asked to shoulder the burden – it lies with developers, bankers and establishment party politicians.

The Socialist Party argues that an immediate moratorium on payment of debt is imposed, with repayment of debt only to those with proven needs (pension funds, private savings of workers etc). Because who this debt is owed to is not publicly available, it would be necessary to establish a debt audit commission to investigate this odious debt to decide who would be paid.

Nonetheless, previous work that has been done in examining who is owed Irish debt  suggests that the vast bulk of debt is not owed to ordinary households, but rather to banks and financial institutions, the large majority of which are located outside the state. It is reasonable to estimate that this would result in a reduction of the total debt to at least the pre-crisis figure of €47.7 billion. At an average interest rate of 4%, this would result in interest payments of €1.9 billion next year, as opposed to the €8.5 billion which the government is budgeting for.

Those who defend austerity will declare that refusing to pay debt in this manner is madness. Madness more accurately defines the policy of continuing with austerity despite the devastation of the Irish and European economy. There have been hundreds of defaults and debt restructurings around the world since the early nineteenth century.  Refusing to pay the debt is the only sane policy if it is viewed from the point of view of the interests of the majority of people as opposed to those of the big bankers and bondholders. The clash that would flow with the bondholders, including the IMF and the ECB, is inevitable if a left government were to represent the interests of working class people in Ireland as opposed to bowing the knee to the interests of capital.

Implementing a debt repudiation strategy as outlined above would reduce national debt payments in 2014 from €8.5 billion to €1.9 billion – a saving of €6.6 billion.

Invest to create jobs

Despite the government’s increasingly self-congratulatory tone on jobs, the truth remains that a major unemployment crisis continues to destroy people’s lives, driving one person every six minutes to emigration  and undermining any prospect of a lasting and sustainable economic recovery.

The government has launched two Action Plans for Jobs and announced the success of its 2012 plan, with apparently 92% of its targets being hit. This ‘success’, despite unemployment remaining at 13.4% , demonstrates that there is something fundamentally wrong with their strategy. The essence of their strategy is seeing unemployment as an individual rather than a social problem, thus trying to solve unemployment by schemes such as JobBridge, to get people ‘near’ the workplace. In addition, it is based on hoping that incentives will cause the private sector to employ people, despite the massive collapse of investment. Finally, they are based overwhelmingly on a view of economic recovery driven by increasing exports by lowering wages, ignoring the somewhat separate nature of much of the export activity, the knock-on reduction in domestic demand and the difficult economic conditions in the countries targeted for exports.

The two key reasons for the continuation of the deep unemployment crisis are the collapse in domestic demand (over 20%  since the start of the crisis) and the collapse of private sector investment. A secondary reason for many small businesses has been the unavailability of credit. Reversing austerity, engaging in public investment and taking real public control of the banking system and directing credit to small businesses is needed to seriously tackle the jobs crisis.

A radical socialist approach is needed, which tears up the mantra that “governments don’t create jobs … but create the environment for jobs to be created”  and recognises the collapse of private sector investment that bears an important responsibility for the continuation of the crisis. Gross Capital Fixed Formation in 2012 was €17.4 billion, down from €48.5 billion in 2007 , a collapse of 65%. As a percentage of GDP, it is at 10.6% – the lowest rate in the European Union, which has an average of just under 20%. What’s more, it is so low that the rate of depreciation is higher than the rate of investment, meaning the capital stock in the economy is diminishing.  The IMF projects that in this regard Ireland will continue to be bottom in the EU up until 2016.

If Irish investment were to reach the EU average as a percentage of GDP, investment would need to increase by €13 billion. The private sector has not and is not going to drive this investment. It must be driven by a rejuvenated, democratised public sector, together with public ownership and democratic control of the banking system to fund public works and direct credit to small businesses. Fundamentally, this collapse of investment, which is mirrored across Europe if to a lesser extent, while the hoarded cash of business reach unprecedented levels , illustrates the irrationality of the capitalist system from the point of view of working class people. Democratic planning of investment and the economy as a whole, through democratic public ownership of the key sections of the economy, is necessary.

The centre-piece of any serious plan to tackle unemployment must therefore be a “RealJobs Programme”, involving direct investment by the state to create real jobs. These need not be only in the public service or in construction programmes, but in a range of areas that will benefit society and the economy. They should not be run by political appointees or quangos, but instead should bring the workers and those affected by its operation to the heart of their management with real democratic control.

Research published by NERI  suggests that an investment stimulus of €1bn for one year would create approximately 16,750 jobs (an average of between 8,000 and 12,000 directly and the remainder indirectly). The net cost of a €1bn investment is €575 million, because of greater tax revenues as a result of higher GDP. Therefore at a net cost of €5.175bn per year over three years, 150,000 jobs could be created (90,000 directly and 60,000 indirectly)

Examples of the sort of projects that could be initiated and illustrative figures if 90,000 workers were to be directly employed include:

35,000 construction workers / apprentices in a major public works programme of completing all planned Local Authority Regeneration Projects; replacing all non-compliant water mains throughout the state; developing a national rainwater harvesting programme; developing sustainable urban drainage and completing all necessary flood relief systems; replacing or upgrading all cesspits, septic tanks prioritising connections to effluent treatment plants in rural areas; constructing new road base and wearing coarse to survive weather extremes; retrofitting all public buildings with insulation and proper ventilation. Also to develop public transport, broadband and tourism infrastructure, community and primary care, education, arts and culture projects, renewable energy projects, agri-food and forestry.

15,000 childcare workers to operate publicly owned crèches and 5,000 SNAs and Resource Teachers to meet educational needs

20,000 workers to build new homes and adapt NAMA owned homes to provide direct Council homes

20,000 workers to be employed in developing Ireland’s wind and wave energy sector to its potential. The jobs potential of the renewable energy supply  chain in relation to development of our ports, marine services, fabrication of towers,  blades and offshore platforms, foundations  subsea cables , engineering services and may other areas will not be realised in this country if it is left to the private sector.

In order to overcome the collapse of investment, major projects of public investment alone, while necessary, would be insufficient. What it clearly points to is the need for the key sections of the economy (e.g. construction, transport, energy, major industries) to be taken out of private ownership. Their decisions about investment are made based on short-term profitability, regardless of the cost for workers and society generally. With genuinely democratic public ownership, a democratic plan of investment could be developed in order to ensure environmentally and economically sustainable growth.

End to the JobBridge scheme, which facilitates the exploitation of unemployed people and pushes wages and conditions down.

Free access to third level education – cost of €180 million

Investing in a three year RealJobs programme at a yearly cost of €5.175 billion could create 150,000 jobs.

Establishing real public ownership and control of the banking system would allow use that control to be used to ensure that credit at reasonable interest rates is directed to small businesses and farmers.

An emergency millionaires’ tax on wealth

The government is implementing what it calls a ‘property tax’ but is in reality a ‘home tax’, again hitting ordinary people hard. At the same time tens of billions of net household wealth concentrated in the top 1% is virtually ignored.

The Central Bank of Ireland Q3 bulletin published on 25th July 2013  gives a figure of €461bn for Net Household Worth for Q4 of 2012. Neither the Central Bank nor the Central Statistics Office produce figures estimating the distribution of wealth in Ireland. The last credible estimate available, the Bank of Ireland Wealth of the Nation Report – Update 2007  estimated that the top 1% possessed 20% of the nation’s wealth.

Applying that distribution to the latest figures available from the Central Bank gives one a total of €92.32bn concentrated in the hands of 34,000 individual adults who make up 1% of the adult population which corresponds roughly with the country’s 33,000 millionaires estimated by the Bank of Ireland.

Allowing a threshold of €1 million for each individual would mean that €58.32 billion would be subject to wealth tax. This would mean €583.2 million raised for each 1% in taxation. For example a 5% emergency tax in 2013 could raise €2.9 billion.

Such a proposal will predictably be greeted by the billionaire owned media as beyond the pale. In these quarters it seems that not enough has been taken off those on low incomes and those dependent of public services to warrant the same kind of outrage. Strict capital controls would be required to combat evasion by the rich who will do whatever it takes to avoid paying for the crisis in their system.

Increase income tax on top 10% of earners

The Nevin Institute has produced statistics showing the distribution of household income by bands of €1,000 in 2009 using information from the EU-SILC CSO . These figures include social welfare, employers PRSI and pension contributions. These figures show that the top 10% of households (all taking in €110,000 or more) received 30% of all income.

Total household income for 2011 was in the region of €88 billion . Assuming a similar distribution as for 2009, that would mean €26.5 billion in income concentrated among 166,000 households. Tasking the Revenue Commissioners to devise a graduated increase on the top 10% highest income households ,with due consideration for dependents, made up of a combination of cutting tax breaks and income tax rises but averaging at a 10% or €15,000 increase in effective tax per household would yield €2.65 bn

Make the corporations pay their taxes

The voting down of the proposal, in July this year, made by Joe Higgins and others on the Oireachtas Finance Committee that representatives of the likes of Google, Facebook and Starbucks be invited to address the committee and account for their tax avoidance sums up the servility of the establishment parties when it comes to the multinationals. While even pro-capitalist politicians in the US and Britain have made a big show of criticising some of these companies to their faces for depriving their exchequers billions of tax dollars and pounds the government in Ireland and the Fianna Fáil “opposition“ maintain the taboo around discussing increasing the corporation tax take in this country.

The scam of profits either made in Ireland or routed into Ireland being recategorised as royalty or patent payments to parent companies as a means of avoiding tax has been blown wide open. In 2010 these payments amounted to €11.7 billion  reducing corporation tax revenue by an estimated €1.46 billion.

Calculations of the effective corporation tax rate in Ireland range from 6.2% according to Social Justice Ireland   to the disputed  claims of Price Water House Cooper who cite 11.9%  as the effective tax rate

Conservative Economist Seamus Coffey calculates Ireland’s Implicit Corporation Tax rate somewhere in the middle of this range at 8% compared to an EU27 average of 18%

Using this middle range estimate which is based on Eurostat figures, the end of year exchequer  figures for 2012 say that €4.2 billion was taken in in corporation tax. This means that for each 1% increase in the effective rate €525 million could be raised. If the Irish headline rate of corporation tax at 12.5% was also the effective rate, an extra €2.36 billion could be raised. If the EU27 average of an 18% rate was applied that would be an additional €5 billion (similarly with a similar rate to Finland (20.1%) or Germany(27.3%) an additional €6.3 billion and  €10.1 billion could be raised).

These dramatic figures compared to the reality of what is taken in each year in Ireland shows the extent to which big business is protected by the Irish establishment while massive burdens are placed on working class people.

If the regime of allowing before tax profits being recategorised as royalties and patents was curtailed over several billion more could be raised based on the 2010 Revenue figures.

There has been a global shift in the debate around multinational profits because of the scandals that have been exposed over the last year. There is now wider acceptance that corporations should not be permitted to take us for a ride. The repeated argument that all of these companies would vacate the country is an argument against maintaining Ireland’s dependence on foreign direct investment as the route to the economic redevelopment of the country as opposed to a justification for imposing austerity on the majority of society while leaving the profits made on the labour of working people untouched.

Tackle the dictatorship of the financial markets – introduce an FTT

In the past year, while the government has imposed swingeing cuts and an onerous property tax on working class people, IFSC registered companies in 2012 paid only €456 million  in corporation tax, despite over €2.5 trillion worth of assets being administered in Ireland . Successive governments have written the tax code in such a way as to facilitate Ireland being used as a tax haven by the likes of Apple, Google and Facebook and many other corporations. This must be ended with legislation to end the “Double Irish” tax avoidance scheme, an end to the “tax competition” strategies which only benefit the corporations and a commitment to make those corporations pay their taxes.

The Socialist Party believes that the dictatorship of the financial markets, which has been demonstrated so clearly in the course of the crisis, needs to be broken. This can only be done by taking the major financial institutions and hedge funds such as those that operate out of the IFSC, together with the massive funds they control, into democratic public ownership and run in the interests of society. In this way, their resources could be funnelled into investment into projects that can  develop the economy in a sustainable way and providing access to credit to small business and farmers.

The fact that the government accepted all of the austerity diktats from the European Commission but refused to introduce a Financial Transaction Tax is a clear illustration of the fact that austerity is a political choice of the government. The EU’s proposal for a FTT (of 0.1% on transactions of bonds and shares and 0.01% on transactions of derivatives) is extremely minimal and inadequate. However, the government will not even accept that. The ESRI and Central Bank of Ireland estimate that the amount raised by an FTT in Ireland would be between €490 and €730 million   i.e. at least the same if not more as the hated the property tax.

Reverse the cuts and taxes on working people

A cumulative €71 billion in cuts and impositions has been overwhelmingly loaded on the backs of ordinary people since the crisis began. It would cost an estimated €24 billion to reverse the cuts and impositions since the crisis began. Among the most urgent cuts and burdens to be reversed are: the property tax – €500 million; Haddington Road cuts 2014 – €350 million;  health cuts 2013 – €780 million; social welfare cuts 2013 – €390 million; education cuts 2013 – €90 million. The Universal Social Charge amounting to €4.1 billion each year is a major burden on low and middle income earners that needs to be reversed.

Major additional resources from wealth, major profits and the highest earners have been identified in this Statement – emergency millionaires’ tax – up to €2.9 billion at a rate of 5%; Increase income tax on top 10% – up to €2.65 billion; additional corporation tax from €2.36 billion at an effective rate of 12.5%, €5 billion at the EU 27 effective rate or higher amounts if levied at the effective rates of other member states; financial transaction tax – €500 million; repudiation of interest and capital payments on odious debt – up to €6.6 billion.

If these resources were used to develop the capacity of the economy by reversing cuts and major job creation as outlined in this statement the basis would be laid for a fundamental transformation of the economic and social life of the country, moving in the direction of full employment, meeting the accommodation needs of those seeking homes and superior public services like health and education.

While this country is shackled to the demands of the financial markets and sees investment only if major capitalists see the possibility for their private profits to rise, the crisis will continue for ordinary people. That is why the socialist approach outlined in this statement needs to be urgently fought for.

 

 

 

 

 

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