Though Cowards Flinch

The Irish government have decided to raise taxes and cut expenditure, in a bid to plug the huge deficit worked up by the largest economic contraction in Europe – estimated to be set at 8%, up from 2.8% in 2008. I found some of the comments from Brian Lenihan, made in Leinster House this afternoon, to be most enlightening.

Lenihan declared, “With up to 40% of income earners paying no income tax at all, we can no longer meet our fiscal needs…The challenge is to spread the burden in a fair manner to a wider range of income earners while avoiding economic disincentive effects.” What I want to know, Mr Minister, is to whom you are referring?

The Irish Republic has a generous system of tax allowances, especially for the creative arts, which exempts playwrights, authors, composers and artists from income tax on the sale of their work. There are also tax credits for things like being a part of a union, for paying the Bin tax, for having dependent relatives and so on.

As a result of allowances and tax credits, one in four Irish workers doesn’t pay income tax; the combined total of allowances and credits stands higher than the exaction of a 20% flat rate of earnings up 36,400 Euros. Is it this group which Minister Lenihan aims to target then? I’m no economics expert, but I think it is.

Lenihan has declared that at the next full budget, income tax grading will increase for higher pay brackets, but in his interim measure, increasing the Income Levy, each of the boundaries have been reduced (the lowest to 15,028 Euros, bringing some minimum wage earners into the net) and the lowest bracket has been doubled to 2%.

Admittedly capital gains and acquisitions taxes have also been increased, but the point stands that the Irish government is now taxing some of the least able to bear it in order to (as I heard one Irish government official on Radio 4 put it) “reassure investors”. It seems that the anti-capitalist or “capitalism is forever changed” movements have some ground to make up, because this looks just like the sort of response we’d have expected in 1970s.

Lenihan has promised that tax increases will stop the government having to cut services, but on that note Lenihan sounded a warning about public sector wages. While he did his best to aim for the populist jugular, declaring war on ministerial expenses and “highest level” wages, I suspect, given the record of this Irish government, that those further down the pecking order will be far from immune.

Britain has been saved such measures – so far – because our economy isn’t receding as rapidly, and wasn’t quite so dependent on a property bubble, but I will bet my bottom dollar that what we’re seeing from Mr Lenihan is only the iceberg tip of the sort of measures David Cameron’s government will be spearheading when they get the keys to Number 10.

Probably with New Labour flunkeys in the train.