McCreevy’s secret memo reveals plan for warfare on working class. Part 2

Joe Craig

13th October 2002

The fall in revenue that has caused the current fiscal crisis is the result of income tax cuts on the rich and a programme of cuts in corporation tax that has seen it fall from 36% in 1997 to 16% this year with a another reduction to 12.5% planned for 2003.  This reduction in corporation taxes is estimated to have cost €1.1billion over the first five years of the Fianna Fail/PD government. Companies in the International Financial Services Centre in Dublin and in the Shannon Free Zone will continue to pay a corporation tax rate of only 10%, until 2005, while qualifying manufacturing companies will be allowed to pay this rate until 2010.  Capital Gains tax has been halved to 20%, probate tax abolished and capital acquisition tax also reduced to 20% from a maximum of 40%.  On the other hand promises such as removing all workers below the minimum wage from the tax net have not been met.

Pundits and the government have congratulated themselves that the cut in capital gains tax actually saw a huge rise in the tax take but prefer not to dwell on the speculative bubble nature of the boom that this encouraged nor on the tax take that might have arisen had the rate stayed where it was.  Nor do they want workers to reflect now on all the tax scandals that have come out into the open – such as DIRT, where only 6,500 of the cheats have come forward out of a total of 50,000 bogus accounts, or the recent Ansbacher tax scam.  This is without being reminded of the tax amnesties.  For most of the 1990s the government had a cap on employment in the Revenue Commissioners even while it complained of ‘planned, systematic and widespread tax evasion.’

A week or so after the leak of McCreevy’s memo the report from the Comptroller and Auditor General shows that such things do not belong to the past.  While workers have no choice to pay their taxes through PAYE, business has numerous loopholes not to mention straight forward evasion.  The report notes one property developer who, after availing of the 1988 tax amnesty through an ‘inadequate’ payment which he nevertheless got off with, was faced with a €442,000 corporation tax bill in 1989 which he failed to pay and which was eventually written off ten years later because they couldn’t find him.  This and many others were the result of an investigative policy which, to anyone on the outside, would have appeared much worse than just ‘superficial.’  Clients were not checked on other related tax matters and nor was their file with their tax history checked!  In addition ‘the monitoring of Corporation Tax compliance appeared to have a low priority … in comparison with the high yielding VAT and PAYE.’ (IT27/09/02)

Workers should not be under the impression that income tax cuts have primarily benefited them.  A report from the Combat Poverty Agency (CPA) revealed that the richest 20% of the population received more than 40% of the Budget giveaways over the last five years while the poorest 20% received only 5%.  Not surprisingly an unpublished Economic and Social Research Institute report records an increase in inequality: households on under 50% of average income rose from 18.6% in 1994 to over 25% in 2000 while people on under 60% of median income rose from 15.5% to approximately 22%.  We have outlined this continuing story in our book ‘Prisoners of Social Partnership’ but it still inspires incredulity and anger that all this happened under social partnership between the workers organisations and the bosses and state.  Not only that, but ICTU leaders boast of the effect partnership has had on tax policy!

Propaganda

The government will rely on lies and hypocrisy, and evidence of what the real situation is being buried or forgotten or politically neutered by the leadership of ICTU.  They will also rely on the hired propagandists of big business, otherwise known as the economics profession.

A particularly blatant example of such propaganda followed the CPA report showing the government’s penchant for stuffing the pockets of the rich with money.(See IT 19/04/02)  First of all the author, the chief economist with the Bank of Ireland, tells us that relative poverty is not what we all really think poverty is.  In other words we should not really care about inequality.  ‘For example, if 80 per cent of people in Ireland were millionaires and the remaining 20 per cent had incomes of €400,000 would they be in poverty?’  As a contribution to the real life problems facing the vast majority of people in the state this is both irrelevant and insulting.

He then attacks the notion that tax cuts are ‘give-aways’ and are instead simply allowing workers to keep more of their income.  Unfortunately since incomes of the rich derive mainly from not working, or are the result of pay rates decided on by themselves or of monopoly conditions again determined by themselves, he feigns unawareness that taxation is one small way of compensating the imbalance that results from this plus ordinary workers having their pay determined by a market plus wage restraint imposed by their bosses, state and trade union leaders.  He also ignores the fact that taxation is the means by which unavoidably social provision of services is paid for, and that without such social provision most of the population could afford neither education nor health and welfare services.

The next assertion is that ‘no tax system on earth can give a person on low income more in tax reductions than someone on a higher income.’  This refers to the obvious fact that a ten percent reduction in tax for someone on €20,000 paying €2,000 tax might be only €200 while for someone earning €200,000 paying €20,000 tax it would be €2,000. This of course ignores the fact that it was a deliberate policy of successive governments to lower the highest rate of tax to give the richest the biggest tax reductions. He excludes from consideration a tax policy that lowers taxation on the lowest paid while increasing the tax rate on the richest.

Next comes the amazing assertion that ‘it is meaningless, therefore, to look at the absolute gains in any budget as it has to favour the higher paid.’  We could refer to the last sentence of the previous paragraph but we might also point out that absolute amounts of money are being cut from health and education budgets right now that have far from ‘meaningless’ consequences.  Even he, however, acknowledges that the poorest 10 percent received the lowest relative gain but bemoans that this ‘is lost in a sea of misinformation.’  The figures used by the CPA do not include the cuts in capital taxes that would make the picture even worse.

We can only be relieved that not many workers read the business section of Friday’s Irish Times but unfortunately such class propaganda informs all discussions on television, radio and the press and is usually not so stupidly simplistic.

Solutions?

If after almost ten years of the Celtic Tiger with unprecedented and never to be repeated increases in economic growth all the current state can offer is cuts in an already inadequate system of public services it is clear that there is something fundamentally wrong.

The problem is not just that the world wide shift to the right experienced in that last few decades means that there is no reformist party or movement in the State putting forward a programme of taxing the rich and profits to fund a real health and welfare system.  The problem is why is this the case?

Increasingly the Irish State is dependent on multinational capital which will move to another country if it feels threatened by an increase in taxation to fund social provision for the population it exploits.  The current crisis in the public finances has its origins in the current recession in this international capitalism.

Despite the extremely low taxation, multinationals make a significant contribution to the tax take.  It is not possible to pretend that taxes on these companies can be increased without much consequence for them.  In other words a reformist perspective that envisages going no further than modest increases in taxes on capital would involve a real challenge to the economic and political system and would have immediate ramifications beyond any limited perspective of reform.  All reforming political forces from ICTU to the Labour Party etc understand this.  They therefore draw, not the conclusion that a fundamental revolutionary challenge to the current system is required, one that is international in scope, but that it is impossible to make any reform whatsoever that might possibly upset multinational capital.

In 2001 the approximately 1,200 multinationals contributed €1.9 billion in corporation tax – over 44% of the total.  One company, Microsoft contributed around 10% of this total.  The pressure is not to increase taxation on these companies but to reduce it further!  ‘The differential in the tax rate compared with some other countries has certainly dropped in the last 10 years’ says Paul McGowan, the chairman of accountancy firm KPMG’s tax practice: ‘I think that in the medium term the rate will still be enough of an incentive to multinationals.  But Ireland doesn’t have an awful lot else going for it.  There’s no internal market and transportation costs are high.’

In 2001 the Irish State saw a 46% decline in its Foreign Direct Investment (FDI) according to a report in the ‘Sunday Tribune’ earlier this year (26/05/02), mainly from the US, while there was a 12% drop in US investment into Europe as a whole.  Despite a big push only 5% of new pharmaceutical FDI was attracted into the Irish State.  Scott Hodge of the Washington think-tank, the Tax Foundation, stated that ‘Ireland’s corporate tax rates is perhaps the most significant factor in its recent economic success…Companies coming to Ireland aren’t wage shopping, but they’re certainly tax shopping.’

Pressure is now being applied from the UK which has introduced tax credits on research and development expenditure.  McGowan states that ‘We’re going to have to lobby hard to get the Irish government to change the tax structure to compete with the UK in such circumstances.’

What Now?

The drop in FDI has shattered the myths of the Celtic Tiger which were essentially based on equally mythical visions of a new economic paradigm that had been peddled in the US.  The United Nations Conference on Trade and Development World Investment Report revealed that inward investment into the Irish State declined by 60% in 2001, from $24 billion in 2000 to $10 billion in 2001, and that this decline has continued in the current year.  When money put into the International Financial Services Centre is taken out it fell from €11.4 billion to €8.2 billion.  By contrast FDI flowing out of the State increased sharply and for the first time in 15 years there was a decrease in employment IDA assisted companies.  Over 10,000 industrial jobs have been lost in the year to June 2002, 8,300 of them from the electrical equipment sector dominated by US firms.

This has led to a drop in both corporation and income tax revenue with the former €700 m under budget this year with a shortfall of perhaps 20% next year and the latter down 10.5% this year.  The ESRI is therefore predicting a government deficit of €3.1 billion next year while others predict it will be nearer €4 billion.  Either way the forecast is for an assault on working class living standards.

Just as before the general election the governing parties and opposition conspired, either deliberately or through incompetence, to hide the true state of public finances, lying in the process, so today a repeat performance is being enacted.  This time the silence on what is going/about to go down is coming from the leadership of the trade unions.  ICTU has been conspicuously silent on the cuts in public services that are being implemented and those further ones planned because it is getting ready to sign up to another social partnership deal.  Even while the government leaks its strategy of dragging out talks on implementing the benchmarking report and stating that they were ‘unlikely’ to be finished this year, so delaying payment on even the initial promised amount, ICTU remains silent.  It would obviously prove more difficult to sell a new deal when promises from the last are being torn up.  Speculation is now rife that the benchmarking increases will not be paid in full and will be phased in – years after the claims they were supposed to meet.  Instead ICTU has taken part in a classic diversionary tactic, calling protests over redundancy payments.  This allows them to look tough and militant while selling out all the way down the line.

Fighting against the cuts revealed by the McCreevy memo is now a priority.  This would be greatly assisted if those organisations charged with representing the working class were not in an alliance with the government trying to implement them.  A real campaign against the next partnership deal is therefore essential.  As our recent book ‘Prisoner of Social Partnership’ demonstrates, if it is anything like previous ones it will fail.  The time for a genuine alternative to partnership and a genuine campaign to fight for it is long since due.  We shall return to what is involved in this on our web site and in our other propaganda.  In the meantime we would recommend that all militants and socialists get a copy of our book so that they can straightforwardly see the process of capitulation that is about to unfold in the next few months and how it might be fought against.