The PDs have signalled that they will put tax cuts as the centre piece of their election manifesto. Placing themselves clearly out of step with their senior partner in government, the PDs have in effect signalled that they are putting policy and votes ahead of the pursuit of office. Or more accurately, it is emphasising a core policy issue in order to maximise its vote. The party is well aware of its tenuous grip on at least half of its Dáil seats. The party of insurgent liberalism seems to be writing off its chances of holding on to office. Survival as a significant political entity is now the key political goal. Finance Minister Brian Cowan has already indicated that tax cuts are low enough, pointing out that Ireland has the lowest tax regime in the Euro zone and the lowest tax wedge in the OECD. Fine Gael, Labour and the Greens would be even less likely to agree to further cuts in taxation.
A PD source is quoted as saying that while the government had moved to take lower paid workers out of the tax net there was "still scope for improvements for middle-income groups as well". So the party will pitch its electoral appeal to that niche of the electorate that voted it into existence as a parliamentary force nearly twenty years ago. Only times have changed and the salariat no longer feel the oppressive tax burdens that were once familiar to it back in the 1980s and 1990s. The post-materialist, quality of life issues now loom quite large in its consciousness and tax cuts won't have the same populist appeal they had back then.
In fact the PDs seem stuck in the 1980s groove of what was then termed the "new right". One of the best summations of the political ideology of Thatcherism and Reaganism came from the British political scientist Andrew Gamble who coined the phrase "the free economy and the strong state". This accurately depicts the PDs with its knee-jerk economic liberal panaceas of tax cuts and the mildly authoritarian, law and order populism articulated by the redoubtable McDowell. The party is often lauded as being driven by conviction rather than by the pragmatism of appealing to the median voter or the centre ground. Does the party really believe in shrinking the state? Are further tax cuts a way of perhaps permanently restricting the scale and scope of state intervention by eroding its fiscal basis?
Unless you're a true believer, the PDs low tax policy is economically and politically irresponsible. At the time of the PDs inception, the Irish state was facing a severe fiscal crisis. But the consensus that emerged after 1987 and the corrective measures put in place by the minority Haughey government, and continued thereafter, reduced the burden of taxation from over 42 per cent down to 35.5 per cent. Over the same period we moved from budget deficit to considerable budget surplus. This surplus, because it coincided with unprecedented economic growth, was allowed to be turned into substantial capital investment. We were lucky that we had the financial resources to expend on vitally important capital investment at a time when the tax cuts reduced, by nearly 40 per cent, the additional resources that would have been available to public expenditure.
Optimistic projections of growth well into the medium term future may well ensure a plenitude of resources to finance necessary and desirable public expenditure - not just in the obvious election issues like health and childcare but in a host of capital projects that would that would relieve the supply side bottlenecks that actually constrain further growth.
But the economy could be shot down in flames by a collapse of housing construction and/or by a meltdown of the US dollar caused by the Bush administration's failure to get a grip on the huge current US payments deficit. Therefore it is both stupid and irresponsible to reduce the volume of resources available for public spending by electorally opportunistic tax cuts. Or do the PDs actually believe their own nostrums? The party clearly does not worry about inequality, given the widening disparates in income and wealth to which the pursuit of the holy grail of low taxes has contributed so much.
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