If I Was Finance Minister

Jim O’Brien delivers yet another tour de force

The Finance Minister of any government is to implement and sustain their country’seconomic and banking policies. Choose to have a regressive (boo), or a progressive (yay) taxation system. Invest in parameters for growth such as human capital, physical capital and R&D. Now, since I’m unfamiliar to financial economics and banks (don’t laugh), I will discuss my opinions and vision the current or future government could implement to make a fairer and productive economy and more importantly, a sustainable society.

Taxation:

The period under Bertie Ahern, the ‘socialist’, consistently cut direct taxes such as income
taxes, which aided to the present situation in Ireland, but not solely to, higher income
inequality. The emphasis was then placed on indirect taxes, such as VAT, excise duty, stamp duty etc. It is widely evident that such taxes are regressive because whether a lawyer buys a litre of milk, or a cleaner, pay the same amount of tax on that product. Now, I am not a fan or have not jumped on the socialist bandwagon since the downturn, where many people argue that since capitalism failed us again, we must revert to other economic systems. Hitler and Stalin started such a debate in their respected countries. So let’s begin with the changes.

1) Increase capital gains tax in line with income tax so wealthy individuals cannot reduce their tax bill by claiming their income as investment income.

2) Increase income tax to normal levels, i.e. pre-Bertie era, to approximately 45%, which was hinted at by Jim O’Leary last year and described as progressive. Jim, like many of the other conservative economists in Ireland did not applaud the tax cuts of the late 1990s, because they argued, and rightly so would reduce revenue and insufficiently fund public services.

3) Reduce consumption taxes such as VAT (value-added tax) to reduce the cost of living
for many families and low-income households.

4)Increase the tax take from individuals with sufficient earnings, while taking those
from the bottom of the scale out, which would have a positive impact in the local
economy, the real economy.

5) Dismantle USC (Universal Social Charge), which taxes individuals who earn at least
4k per annum. NONESENSE. That seems to be more of an accounting initiative
rather than an economic one, since revenue has unexpectedly risen this year.

6) We need to incentivise people to save for a rainy day.

7) A direct revenue stream to fund a universal health system, instead of allowing
private agents dictate the health provision of individuals, which is currently being
implemented by Fine Gael

To conclude with taxation, people should not think that I am a Socialist, a Sinn Feiner, or to
the other extreme, a capitalist. The right attack such proposal because it destroys wealth. This country has never created large scale wealth since the 1990s, where assets exceed liabilities, and taxes were up to 52%. I do believe it is equally unjust for those who work hard, take risks and generate wealth, which benefits everyone, should see such earnings be totally wiped out.What would be the point in working so hard? Also, I believe that everyone is unique, some are more able than others and that we make career choices based on interest, where we are fully aware of our future earnings. Utopia is purely hypothetical and academic.

Public Expenditure

The boom years saw historic investment in education, health and infrastructure as a
percentage of GDP. However, little of microeconomic surveillance and accountability existed to state whether such investment gave sufficient returns to our economy and society. FAS, HSE, and the National Roads Authority come to mind.

Universal health care, paid for through taxation, such as a national insurance tax,
recommended by TCD economists many moons ago would bring consistency and assurances to our hospitals. It can be designed where the more you earn, the more you pay, and where we would also broaden the tax base, something being aired since the downturn begun, yet more regressive taxes were implemented (Property tax). The main areas for concern in this article are education, R&D, and infrastructure, which would make our economy more productive and attractive.

Education – Investment in early childhood education establishes a prosperous and bright
future for all children, increasing their capacity to compete in the labour market, reduce
crime and reduce the need for SNAs. The first ten years of a child’s life, particularly for
boys, is paramount to their future and the wider economy. Such should be concentrated
on by government which can reduce and/or eradicate many social taboos like exclusion,
poverty and inequality. Now, how can we prioritise this with diminishing investment in
third level education, increasing student/pupil ratios etc.? Tuition fees implemented within a means tested platform would insure those who can afford to pay will, since the abolition of fees in the 1990s reduced the tax bills of the most affluent in Ireland. There is also a policy pursued in Scandinavia called the Triple Helix model, whereby government, universities and industry cooperate and integrate to fund a universal, non-fee paying system. Such networking has been well documented in Ireland in how there is so little of it, I suggest look to these countries.

R&D – The last point corresponds with this section in that all knowledge actors within the
economy work together in research and coming up with ways to be more innovative and
supplying highly educated graduates with more practical work experience.

Infrastructure – Maintaining our national roads, ports and airports ensure businesses can be more efficient and productive, and not just an avenue for immigration. But infrastructure goes beyond this. It also includes broadband, ICT, and energy. Renewable and cheap energy reduces utility costs for households and companies and also being socially responsible. (Always knew there was a bit of Green in me)

What I have discussed is not complex or unjust, but reasonable, straightforward and
achievable, IF, government listens and puts their priorities straight and not thinking that if
you cut taxes, it will pay for itself. This policy added to the US’ national debt and increased
income inequality. The recession opened many of our eyes in how extra euros in our back
pocket is not as good then a lack of trolleys, nurses, and doctors in our hospitals or prefab
schools. There are other policies to ensure these challenges, such as public sector productivity and efficiencies, value for money which can and probably help against negative public reaction to tax increases and arrogant public sector unions. If you do not agree, comment on this article or simply tweet.

James (Jim) O’Brien, @jimobrienMSc

jobrien.mgmt@gmail.com

http://ie.linkedin.com/pub/james-o-brien-msc/26/798/456

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