Brendan Keenan: The rich have gotten richer – but so has everyone else


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So, it’s farewell tax cuts, then. And good riddance.

Not that there is anything wrong with tax cuts per se, but crude politics have bludgeoned the concept to meaningless death.

The “end of tax cuts” was called by Labour deputy Joan Burton, who claimed that Fianna Fáil had dropped it as a pledge, and therefore nobody would be campaigning on that basis next time out. It may be too early to say, as well as a bit premature to claim that Fine Gael is no longer in thrall to tax cuts .

Despite evidence of itchy feet in Government Buildings, there may not be an election before Brexit. Like everything to do with Brexit, it is anyone’s guess what an election after the event would be about. It is impossible to believe it could again be about who would cut taxes the most, and where. Well, not quite impossible to believe, but if the campaigns were about something else, it would indeed be good riddance.

We shall see but, for the moment, a change of approach can be detected.

The government set the stage with its elaborate €140bn long-term capital plan. The scale of the housing shortage will make it risky for any politician to suggest money should be diverted to tax cuts – although it will take more than money to solve the housing situation and the other stuff is not in place.

That still leaves the near-philosophical conundrum as to what represents a tax cut in an economy expected to expand by €10bn next year. It would be good riddance if even a temporary pause would allow political discussion on what all the promises have achieved so far.

We could begin with the startling conclusion that all those years of fussing and fretting about tax cuts, regressive budgets, and favouring one group over another, amounted in the end to a hill of beans. Like the infamously bad poem about Queen Victoria, things are neither better nor worse – they’re much the same.

The conclusion comes from reading the recent ESRI report on the long-term trend of income and its distribution.

It is the latest in decades of research on the subject by a team led by Tim Callan, the results of which seem to have passed most politicians, lobbyists and commentators entirely by.

The results would be startling anyway, but are even more startling when compared with standard political discourse in this country. As well as using current CSO surveys, the paper used earlier data to go back as far as 1987.

It finds that the distribution of disposable income between rich, poor and middle, is the same now as it was then.

Almost exactly the same, which is little short of amazing. There was drama aplenty over those years but, like the dreary steeples of Fermanagh and Tyrone, when the deluges subside, the same pattern emerges.

Very quickly, too.

In 2007, at the peak of the boom, disposable income was shared in the well-established way, where the poorest fifth have less than 10pc of income and the best-off fifth get 40pc, with the remaining 50pc shared fairly evenly across the middle. There was of course a major jolt, caused by soaring unemployment when the crash struck. But by 2014, the old shares had been restored.

Before we get into whether this is an acceptable distribution (and if not, in which direction it is unacceptable), it needs to be said that it is not an unusual distribution in European terms. Ireland is not particularly unequal. It sits in the middle, where its nearest neighbours are France, Germany and the Netherlands.

It is the stability which is unusual. Governments come and go, arguments about tax cuts and spending increases rage, budgets are passed, ministers are accused of grinding the faces of the poor in favour of the rich (very occasionally, the other way round) but the end result shows it was all much ado about nothing.

That is not the same as doing nothing. The ESRI finds that if, as sometimes suggested, finance ministers were replaced by a passive index robot whose instructions were to change everything in line with inflation, poverty would be 50pc greater and the poverty gap double what they actually are.

The really big element is that earnings in Ireland grew so much more rapidly than in the rest of western Europe, or the USA. That meant that Ireland was able to buck the trend of increasing inequality which has received so much attention in the UK, US and the wider OECD.

The latter finds that as many as 40pc of the lower income groups in member states have seen no improvement in their relative position since the crash.

Much of the international comment has been sparked by the statistic that typical (median) earnings in the USA have barely increased in 20 years.

In Britain, they rose by 1.5pc a year but in Ireland the figure has been 3.23pc.

The 70pc rise in real wages since 1987 has been enough to raise all boats and reduce inequality in Ireland, while it increased in the two big English-speaking countries, and in many others as well in more recent years.

While the top 10pc of earners in the UK did better than the median with a 2pc increase, in Ireland they got less – an annual 2.8pc rise. (You had to be a really big earner in the USA to get anything).

Ireland is an exception. It is convenient just to assume that whatever is happening in Britain and America must be happening here. As a long-ago editor once said; just stick a green hat on the story and send it out. Often, though, things are happening differently here. Income distribution is one of them.

The report identifies the key triggers for the different Irish experience.

The main one is barely known now – the 1987 Commission on Social Welfare. In particular, its recommendations increased the lower rates of welfare benefits. Non- contributory pensions and jobseeker payments have risen by more than the 70pc gain in real wages, with most of the adjustment in the very dramatic years of 1987-1994.

The other trigger was indeed tax cuts, especially the reduction – nay, collapse – of the standard rate from 35pc to 20pc. That eaten bread is long forgotten and the low entry point for the higher rate which inevitably followed is now the focus of tax cut talk. Arithmetic says talk is all it will remain.

The entry point for income tax also increased faster than earnings were rising, under the somewhat unfortunate phrase, “taking people out of the tax net”; which makes it sound like something one is entitled to evade. So we are where we are or, to be more precise, more or less where we have always been.

Now we can get on to how desirable this is. Should policy aim to distribute income more equally, as in Denmark and Finland, or even Slovakia?

Or are things better arranged by having a wider spread, like Spain and New Zealand, even if the UK is a step too far?

The real issues go deeper than just income distribution. Ireland’s tax and welfare systems may leave it comfortably in the middle rank; but with almost the highest levels of private sector earnings in the OECD, matched by one of the biggest proportions of unemployed households.

The could produce the stuff of serious politics. There has been too much argument over statistics which are there for all to see, and not nearly enough over their causes and effects, not just on income but on general well-being.

Indo Business

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