The Irish Crisis: This budget is about political choices based on priorities of class

by | 8 Dec 2011

As we are forced to look at the budget over two days, a particular unnecessary cruelty, it’s worth emphasising, as those in the ULA and Sinn Fein have done, that this is a budget based on political choices. It is depressing to watch seasoned politicans like Pat Rabbitte claim pathetically that if they didn’t make the choices that they made that the EU/IMF would punish us severly. Last night on RTE’s Frontline Rabbitte claimed that if Ireland did not do what France and Germany wanted that they would forced to it anyway, citing the treatment of George Papandreou, the former PASOK Greek prime minister as evidence. Mary Lou McDonald then made the point that Sinn Fein met the Troika and ‘set out their stall’ which included a wealth tax and the closing of various tax loopholes, as well as a dedicated fiscal stimulus based on state led investment in infrastructure, education and health. She claimed that the Troika said that it doesn’t matter how you do it, as long as the numbers, in terms of deficit reduction, remains the same. The finer details of Sinn Fein’s proposal can be argued out, but its far far saner than the route being taken by the present government. It’s costed, it’s reasonable and it would work.

So the political choices being made by Fine Gael/Labour are based on two simple questions:

  • Will it allow us to cover all bank losses by placing the full responsibility for the debt on public finances?
  • In doing so will it still be possible to protect corporate profits and the income of higher earners?

This political decision reflects the philosophical point of view of those who run the two largest economies in the Eurozone, but it is not imposed by them. It is not surprising that the solution that France and Germany have come up with involves a copper-fastening of neoliberal austerity into the political structure of the European Union. It is not surprising either that a central part of the announcements made by Merkozy yesterday include a protection banks so that they would not be required to share sovereign debt burdens that they ultimately created.

According to the Financial Times:

“In an apparent concession, Ms Merkel agreed that private sector bondholders would not be asked to bear some of the losses in any future sovereign debt restructuring, as she had insisted this year in the case of Greece’s second bail-out.”

And as Richard Murphy correctly put it:

“So we know that this deal is for the benefit of banks and their owners.”

France for its part continues to apply pressure on Ireland to increase its Corporation Tax rate. Ignoring all the absolute nonsense around this (France is forcing this on Ireland, even though effective tax rates are lower in France than in Ireland blah blah blah), it’s worth noting how Eamonn Gilmore is so willing to stand up to France on this issue (”The position of the Irish Government is absolutely clear. We are retaining our rate of corporation tax,” he said.), but his colleague Pat Rabbitte is saying that we have to cut child benefit and disability allowance, increase VAT which will impact on lower earners more, reduce the health budget to boost private health care and rip the education budget to shreds or else…

A little history provides us with the perspective to get beyond the shallow political rhetoric that gets so readily churned around budget time. Today Manus O’Riordan tells us about a time when he heard Eamon Gilmore boast at the Desmond Greaves Summer School in August 2007 that “we’re the Party that gave you the 12.5 per cent corporate tax!”. Manus continues:

“As the “Irish Independent” rather uncharitably reported: “Labour leader hopeful has his comrades up in arms… Down the back, a delegate interjected with a ‘Point of Order’ that Mr Gilmore should have given a different speech to one he would ‘give to the American Chamber of Commerce boasting about reducing corporation tax’.”

I could be even more uncharitable and say that Gilmore considered that if he was to become Labour leader he had better ensure that he let everyone know that he is firmly behind supporting foreign financial capital and those in Ireland who benefit from administrating it.

As a forthcoming article in a lefty magazine will no doubt explain in more detail the 12.5% corporation tax rate was originally proposed by Fine/Labour/Democratic Left in 1997, but it wasn’t until the announcement in the 1998 budget by Minister for Finance, Charlie McCreevey that he would introduce the legislation for a phased introduction of a new regime of corporation tax that it eventually was put in place.

Before that a broad 10% tax rate existed for manufacturing, including for the IFSC, while a 32% corporation tax rate remained for other sectors. The reason for changing it, we were told, was to make the rates more in line with EU competition guidelines which disagreed with one sector being given more favourable terms than another. But it might seem odd that in order to rectify the differences between 10% and 32% that they brought the higher rate down so low and barely increased the lower rate. It’s not only odd from our perspective now, it was considered rather odd at the time too. Not by radical critics of the Irish government, but the fusty old Dept of Finance.

As Paul Sweeney says in this article from 2003, the new 12.5% rate:

“…. was of immense benefit to owners of companies in the non-traded domestic sector, transferring around IR

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