Estimates and Budget for 2004 – the fruits of Partnership

Joe Craig

14th  December 2003

‘The Estimates for 2004 make grim reading for anyone with a social conscience.  The Coalition Government is presiding over an outrageous assault on the living standards of the most vulnerable and impoverished sections of our society, as an alternative to higher income tax or more extensive borrowing.  Those unfortunate people who saw the fruits of the so-called Celtic Tiger pass them by will be forced into even greater poverty.  But those citizens with surplus cash in special savings accounts will still benefit from Government generosity.’

‘Reductions in lone parent allowances, rent allowance and supplement, the back-to-education allowance and child dependant allowance were amongst the 16 cuts announced by the Minister for Social and Family Affairs, Ms Mary Coughlan, last Thursday…It has resonances of the exercise conducted by Mr McCreevy when, as minister for social welfare in 1992, he introduced a series of cuts known as the “dirty dozen”.’

So spoke the paper of record, the ‘Irish Times’ after the spending estimates on 15th November.  That such an indictment can come from within the establishment is testament to the odious and gratuitously punitive nature of the attacks on the living standards of the poorest in Irish society.  They also, although this goes unnoticed, expose the nakedness of those who would claim to stand up for the rights and interests of the poor.  For these forces – the Labour Party, ICTU, Sinn Fein, etc can rival each other only in the intensity or colourfulness of their rhetoric of denunciation.  They put forward no strategy for resisting these attacks in the here and now and limit themselves to calls for future electoral support which would only result in their becoming coalition partners with the parties that are currently implementing the attacks.

The workers

The measures introduced in the budget and estimates reveal clearly the class nature of the Irish State.

What we are witnessing is the end of tax cuts – even for workers – in exchange for wage restraint, and a return to high taxation of even quite modest incomes.  At the same time it becomes even more necessary to offer inducements in the form of tax breaks to the rich and multinationals in order to compensate for inescapable cost increases and competition from other states for mobile international investment.

That this is necessary despite claims of an upturn in the economy demonstrate that the very limited concessions offered during the Celtic Tiger period have gone for good.  Of course the Government is planning on some concessions in a couple of years in order to help them in an election but there isn’t going to be a return to the State facilitating increased living standards for the majority of workers.  There will be no real gain after the pain.

The former government policy of facilitating growth in living standards through tax cuts is better understood as limiting increases through wage restraint even during the middle of an unprecedented boom.  (This resulted in increasing inequality at a time when rising employment should have procured the opposite.) The tax policy is now being reversed, resulting in a two pronged attack.  Firstly promises made on the spending side have been broken.  Thus the Health Services strategy is dead and the governments own anti-poverty targets will not be met.  This is why Bertie Ahern takes part in an unseemly disagreement over just how many poor children there are in the Irish State.

Secondly taxes on workers have to increase even as the ideological fig leaf of low taxes is maintained.  Thus we have the stealth taxes, price increases and charges introduced in the last couple of years, including at least €91m of stealth taxes introduced in the estimates in November.  I say ‘at least’ because they really are stealth taxes – it isn’t yet possible to find out the extent of the hit.

Since the beginning of 2003 we have seen an increase in the threshold for drug refunds for the sick, an increase in motor tax, third-level education fees and health insurance; a rise in utility prices, for example a rise of 10% in electricity prices in January and a further 5% next year, and an increase in the cost of availing of health services.  The erosion of health benefits even during the boom is shocking.  In 1977 nearly 39% of the population was covered by the medical card scheme, now it is 29.7%.  So low is the limit for cards that a GP visit and a €20 chemist bill could cost over 40% of the weekly income of a single person or nearly 25% of a family of four.  A ten day hospital stay could count for over 70% of a single person’s income or 40% of a family’s.

But all this is not enough.  Even while tax rates are kept constant, the basis of the claims by the McCreevys and Harneys of this world to stand for low taxes, the amount raised increases through failure to adjust tax bands for inflation.  The last budget thus brought well over 50,000 more people into the higher tax rate and so will this one.  The failure in the latest budget to index the personal tax credit means that one third of all taxpayers will be on the top rate, the highest for 20 years.  If one excludes those on so low an income that they avoid tax, half of income tax payers will be paying the top rate.  This will increase further in the future.

At this point it is worth noting one aspect of discussion which usually takes place around the nature and impacts of budgets that obscures what is going on.  Inevitably we are bombarded with information about what they mean for the ‘poor’, for one parent families, for those with below, average or above average salaries, for home owners, home buyers, those renting, savers, borrowers, etc etc.  What this obscures is the class impact of budgets.  The working class is divided into innumerable classifications all encouraging each to look at the role of the State in a purely individualistic way.  Even when we hear talk of the poor the reality that many are poor at some point of their lives is obscured or ignored, as is the fact that the plight of the poorest members of the working class is a threat to those above them. Workers who don’t obey can be pushed down the economic ladder. Similarly we are invited to envy the gains of better paid workers – who cares if some of them are paying the higher rate tax?  Again the role of this in depressing everyone’s income is obscured.  Small gains by one section of the class are set against wider and deeper attacks on others.  All the analysis that balances on top of the flood of detailed and confusing information that accompanies the estimates and the budget obscures the real shifts in wealth carried out by the State.

Only when we counterpose fast-tracked gifts of €15m to Punchestown racecourse that essentially benefits the millionaire tax exiles who visit it, or the prize money the State pays for their hobby horses, against the 16 social welfare cuts that cost as much do we see that the State is there to protect and advance the interests of the capitalist class.

The Capitalists

While workers faced increase taxation the capitalist class welcomed the budget.  The decision to grant tax credits for research and development expenditure was hailed by the American Chamber of Commerce Ireland as ‘a bold move.’  The Federation of International Banks in Ireland ‘warmly welcomed’ the proposal to exempt capital gains on the sale of subsidiary companies and the expansion of double taxation relief on dividends paid to parent companies.  The Irish Hotels Federation approved the extension of the Hotel Capital Allowance scheme.  The removal of stamp duty on intellectual property and the extension of the Business Expansion Scheme, Seed Capital Scheme, urban renewal tax relief scheme and section 481 tax relief for investment in film production all contradicted the speculation that McCreevy would close tax loopholes and stand in stark contradiction to the 16 social welfare cuts.  To quote the paper of record again: ‘Mr McCreevy has sucked up to the business community big time.’

Some of this was excused on the basis that the costs will be small, which is true only if you ignore the global impact of the rush to the bottom of social provision in pursuit of stuffing the richest companies in the world with money.  The army of professional apologists for the rich who inhabit the accountancy, legal and economist professions are not wrong when they claim that their use of ‘loopholes’ is simply availing of rules set by the government.  While in 2002 the Revenue audited 16,186 cases the Department of Social and Family Affairs carried out a total of 341,000 reviews of those on social welfare.  While dozens of bin tax protestors were jailed for protesting over charges that were hundreds of euros no one was sent to jail for tax evasion amounting to thousands.

The real cost of such loopholes is never part of the calculations supposedly proving the benefits of a ‘low taxation’ regime.  Thus the tax relief on private pension contributions has led to a massive expansion of property speculation in Britain, Eastern Europe and southern Portugal.  In the past three years at least €4.5 billion has been spent on British properties by the Irish rich yet still all the incentives and loopholes are justified in terms of promoting ‘job creation’.  While building workers have to go on strike to bring attention to companies who refuse to make contributions into their mandatory pension schemes the government extends the property-based tax incentives that encourages this export of capital by the Irish rich.  Thanks to such measures a 1999 survey by the Revenue Commissioners found that 30 of the top 400 earners paid no tax at all and a further 64 handed over less than 10% of their income.  Meanwhile even some on the minimum wage will still pay income tax.

These are by no means the only ways in which the State subsidises the capitalist class.  While many complaints have been made over the cost of infrastructural projects all the political parties, business lobby groups and ’experts’ have united in supporting continued spending on roads etc.  And while value for money has been promised again and again by McCreevy every action indicates that one important objective of such spending is putting money into the pockets of the construction bosses.  One such is the promise to increase the share of money going to public/private partnerships from 3% to 15% of infrastructural investment despite the admitted failure to produce a formal evaluation of such schemes.

The estimates in November promised government spending of €33.6 billion between 2004 and 2008 on infrastructure, around 5% of GNP and twice that of the average of the rest of the EU.  The financial results of construction companies for 2002 show where much of this money will end up.  Pre-tax profits at Ascon builders went up 28% despite a fall in turnover while SIAC Construction reported a 141% increase in operating profit while its turnover only increased by 10%.  Turnover in G&T Crampton fell by 28% while its profits after tax and minority interests went up by 43%.  Profits in John Paul Construction Holdings went up 47.6% while turnover went down 7%.  In other words these companies have been making more money while doing less work.  Billions of taxpayers’ money, i.e. the working class’s, will go to fatten the profits of construction companies.

How?

This has been McCreevy’s seventh budget and he has continued the policy of blatant inequality.  Now the boom is over there is nothing to hide the policy of taxing the working class to pay for poor public services and subsidies to multinationals and the native rich.  After all the hype of increased health expenditure the minister for health Micheal Martin could only say after the budget that ‘I’m not giving any guarantees in relation to anything.’

Yet the confidence and brazenness of the government is unabashed.  So unabashed that we are told that this budget was even constructed as a means of securing another social partnership deal with the unions!  Far from being seen as a declaration of war on the interests of the working class all these measures are presented as a means of securing them!  This is a comment not on the perceptions of the government but on the abject role of the so-called leaders of the trade union movement.  After all, what did ICTU ask for before the budget?

ICTU asked for a ‘fairer tax system’: for increased taxes on business and the wealthy including increased corporation tax and capital gains tax; strategies to tackle child poverty, investment in lifelong learning and closing tax loopholes that benefit the rich.  All it got was minimum increases in some social welfare rates.  On the other side of the ledger stacked up all the concession to capital I have already listed plus a cut of 2,000 in the number of public servants and negative changes to the retirement age for some public sector workers (both additional costs of benchmarking ignored by media and union bureaucrats alike).  No pretence of negotiation in these measures or in the decentralisation proposals which are to be implemented with no payments to staff for the disruption to their lives.  ICTU did ask for alternative health service funding but this turns out to be €63.5 million to the VHI to assist its privatisation!

A trade union movement founded on defence of the working class would have immediately responded by breaking with social partnership and dismissing as unthinkable any new deal.  That hasn’t and will not happen.  It won’t happen because ICTU have made it clear for over 15 years that they are partners with the State.  This means that they are partners in the attacks which the budget represents.  This is why we say that those criticising the budget, supposedly on behalf of workers, have no alternative.  They have no alternative because they are part of the system and policy that demands one.  An alternative could only be an alternative to them.  The left protests to ICTU to do something and ICTU protests to the government to do something.

The full import of all this has been lost on the left who continue to view trade union bureaucrats as figures to be pressurised into leading the working class into struggle.  Pressure means the politics of protest which ironically means the left only echoes the verbal protests of ICTU when the fruits of partnership such as the budget are rammed home.

This relationship of the trade union bureaucracy to the State and of the left to the trade union bureaucracy has been analysed many times by Socialist Democracy.  The latest budget and estimates provide but the latest example.  They provide yet another reason to break from the politics of partnership.