The ‘Patriotic’ budget – ‘middle classes hit by wave of wealth taxes’
19 October 2008
The 2009 budget was announced by the Minister for Finance, Brian Lenihan, as ‘a call to patriotic action’, once again confirming Samuel Johnson’s remark that patriotism is the last refuge of a scoundrel. Commentators have likened the government’s action to a call to arms and, as in war, the first casualty is truth. Hence the stupid headline on the front page of the Irish ‘paper of record’, ‘The Irish Times’, which said of the budget that ‘middle classes hit by wave of wealth taxes.’
The article puts wealth taxes in inverted commas, meaning they aren’t really wealth taxes and, on inspection, aren’t really taxes on the ‘middle class’ either. These ‘middle class’ taxes include increased duty on a bottle of wine. Only the ‘middle class’ drinks wine? There is a new tax of €10 on flying out of the country. Do workers not have an occasional foreign holiday? And VAT is to go up from 21% to 21.5%. This last really is stupid, since even the most illiterate journalist must know that taxes on expenditure hit the poorest hardest.
Never mind. The newspaper sub-editor was simply joining in the campaign to represent the dramatic turnaround in economic fortunes as an occasion for us all to pull together in the national interest, for the benefit of the Irish people, undifferentiated by class divisions or conflicting interests. Classes in this world don’t exist, except as artificial arithmetical constructs made up of fifths, quartiles or other arbitrary fractions of the population. This leads to absurd, but deliberately misleading, analysis of the interests of ‘middle Ireland,’ which can include the vast majority of the working class, excluding only its very poorest sections, and the tiny layer of ultra-rich in whose interests the State and economy functions.
It is above all necessary to sell the idea that everyone is in this together all the more stridently when we so clearly aren’t.
Thus many measures in the 2009 budget have been made to appear ‘redistributionist’, but since this is a budget widely heralded to bring us back to the dark days of the 1980s, this involves only distribution of pain, not wealth. Even here such ‘redistribution’ is minute. For example the €200 tax ‘levy’ on second homes might seem progressive, but its import in the real world was summed up by one estate agent, Ken MacDonald, as “only a pinprick for people who own property. If you have quite a few properties, you can afford to pay it.” Likewise the 2% levy on incomes over €100,100 a year, in comparison to a levy of 1% below this level. This is a diversion from a much more significant aspect of the levy - it hits even the very lowest paid, being a tax on gross earnings before any deductions. It applies even if you’re on the minimum wage. It has been described by the chief executive of the Irish Taxation Institute as a major change in tax policy and as ‘particularly harsh’ by Alan McQuaid, a leading economist for stockbrokers Bloxham. Neither of these could remotely be described as militant left voices.
The budget is a clear attack on workers’ incomes and living standards, coming beside cuts in education, which will increase class sizes and may mean pupils being sent home for lack of substitute teachers. This will result in the Irish State having the most overcrowded classes in the EU - some legacy for the Celtic Tiger. These join effective cuts in health provision along with increased charges for treatment, plus cuts in children’s payments and increased fees for young people entering third level education, the return of fees in all but name.
The removal of the automatic medical card for the over 70s is particularly controversial and has been criticised as only leading to higher costs in the long run, as preventative medicine is replaced by acute admissions to hospital, which are much more expensive than an early and much less costly visit to the GP. This however is utterly naive. The visit to the hospital will not increase costs; no more patients will be treated, and the elderly will simply join an already lengthening queue.
Entitlement to welfare benefits for the unemployed and ill are to be reduced in duration. Tax credits have not been increased and the increase in the standard rate tax band is inadequate. Taxes go up on the old reliables – petrol, wine and cigarettes, but we are expected to accept our lot because we are all suffering in this together. After all, aren’t government ministers taking a 10 per cent wage cut? Isn’t the Taoiseach going to see his wage cut from €285,000 to€256,500, the Tánaiste from €245,324 to €220,000 and the President a cut from €325,508 and the governor of the Central Bank and Financial Services Authority from €368,703? Aren’t we all rallying round the flag?
No we’re not. These salaries are already very large. There will be no cut in undocumented expenses and pension entitlement will still be based on the pre-reduced salary. Their holders will see no significant fall in living standards. This populist measure demonstrates only that political leaders are prepared to make minor sacrifices for the rich classes they represent and the economic system that has generated the massive inequalities from which they have benefited. That they feel the need to do so is partly a result of panic and partly self-centred concern that the depth and unfairness of the budget is so obviously in part because of government incompetence. The fear is that it will generate real opposition among those most affected. Thus we must be persuaded that everyone is suffering some pain.
Except of course that it is so very, very obvious that all of us are not.
Thus the €10 tax will not affect those using executive jets. The €200 charge on second homes will not affect the property developers who haven’t sold their surplus properties. Stamp duty has been reduced, not on residential property, but for commercial property, from 9% to 6% in an attempt to woo foreign property investors into the Irish market, in the process no doubt helping out their Irish cousins. The very people whose speculation lies at the root of the extra dimension to Ireland’s credit crunch thus receive preferential treatment. And how could this be a surprise from the party of the Galway tent, the paymasters for the dig-outs for our recent, poor old Finance Minister and Taoiseach Bertie Ahern?
And it is not only this section of the capitalist class that escapes the cuts, on the contrary receiving yet more concessions and State support. Brian Lenihan made it clear that it is not possible to tax the millionaire tax exiles who parade their Irishness, their patriotic colours, but avoid Irish taxes (low as they are) like Dracula faced by a cross, garlic bulb, sliver bullet and a Mediterranean sunrise. New companies will have a three year remission from paying corporation tax to the tune of €40,000 per year, and R & D tax credits to companies are also to increase. Above all there will be absolutely, absolutely no change in the low corporation tax rate – except perhaps in a downward direction.
The class nature of this budget could therefore hardly be more clear, even taking account of the populist, window-dressing ‘sacrifices’ of a fraction of the political class.
Yet this is not all; something more ominous looms. These are by no means the only cuts that are to be made. Just like the bank bail-out, this process is not over, it has only just begun.
The recession will be worse than the government has forecast; it will be deeper and longer. The measures already taken are not even enough to deal with their current expectations of economic difficulty. The budget deficit, according the government’s own calculations, will only be reduced from 8% of GDP to 6.5%. One economist reckons it could go back up to 8% next year, necessitating yet more attacks on workers living standards. Both increased interest payments on the burgeoning debt and increased unemployment will cause it, and this is before any actual payments to save the banks. The cash reductions in the budget, and reduced expenditure estimates before it, are estimated to amount to €5 billion. Should even a fraction of the bank guarantee need to be paid these cuts will just be a sharpening of the knives before the kill.
The only way to defend living standards of workers is to reverse these cuts; but to do this would mean to seize hold of State power, using it to make the rich pay, while reorganising the economy with wholly new priorities. This of course is the Marxist solution, although we know it is not about to happen any time soon. Before this workers can learn that this is the way forward by organising to defend themselves against the attacks that are coming their way. Public opinion may reverse this or that measure by this or that amount, the removal of medical cards for the over 70s has been particularly unpopular, but the court of public opinion will not reverse them all. Cuts in one place will simply be replaced by cuts in other places. Already sections of Fianna Fail and its erstwhile supporters have performed their usual role of being the opposition to this measure as well as the government implementing it, all the better to contain it within safe boundaries. The official opposition, Fine Gael, is led by a man responsible for the high cost of the scheme in the first place!
What we need is to be able to turn to the organisations that are supposed to defend workers’ living standards, particularly the trade unions. The ‘easiest’ method in doing so is to fight for bigger pay increases to compensate for reduced living standards brought on by the tax changes, increased State charges and cuts in public services. This is a poor substitute for actually reversing these measures and could only be woefully inadequate, but it would be something, and it might help push forward the necessary socialist alternative.
Here however we find a problem. The leaders of the trade unions do not want to fight for this, precisely because they have no fundamental opposition to the present system and do not want to push forward any alternative, or even give space for such to raise its head. They too have a big problem however. A major focus of their campaign to win support for the latest pay deal has been its meagrely extra half per cent increase for the low paid. This has now been more than wiped out by the unprecedented 1 per cent levy on even the lowest incomes. David Begg of ICTU has given voice to the union leaders difficulties: “If people are voting by way of a referendum on the Budget, then I think we could be in trouble on it.’ Just who exactly is ‘we’?
The union leaders give every indication of being as alarmed as the bankers and government. Impact described the budget as “rough” but then amazingly said it should not influence how its members vote on the deal! SIPTU has reflected the pressure of grass roots anger by delaying its national executive meeting to Wednesday. Unfortunately this tactic of delaying decision-making is one used by SIPTU so often in the past it carries no threat. Its leadership is no doubt hoping the reversal, partial or otherwise, of the removal of the medical card for the over 70s, as part perhaps of a range of minor concessions, will help them out. If this doesn’t happen it will make no difference to their support for the deal but they may be more circumspect than Impact.
This budget broke new ground in many of its measures. It is nevertheless inadequate for the purposes to which the government seeks to put it. It will therefore be followed by more draconian measures unless stopped. It is a budget openly based on class principles, in which property developers and foreign investors and multinationals are protected and given yet more subsidies while the most vulnerable and weakest of the working class are hit hardest. It is naked class warfare from those who claim to represent a mythical ‘national interest’ shared by all the people.
Populist measures will not wash. Calls to patriotism will be widely seen as hypocrisy. It is however taking the next step – to understanding that this is because there is no national interest standing above that of classes, and that the problem is not therefore one of ‘equality’ of pain, but is one of which classes will pay for a systemic crisis, which is at issue. There are no left populist alternatives to the populism of the rich which will address the real problems which everyone now acknowledges exist.
The government’s incompetence in economic
management, its panic descending into farce in dealing with the bank bail
out, its ham-fisted selling of the budget and rush to the ground of false
patriotism all signal weakness. This weakness is bolstered only by
the greater weakness of the opposition both inside and outside the Dail.
There is an alternative, if a strong and united voice can be built to shout