Higher taxes AND higher growth are not incompatible

[patslatt]

Exports soared purely due to MNCs and FDI, which can be laid squarely at the feet of the low corporate tax rate. Even today 90% of our exports are from multinational corporations basing their European HQs here. Also worth noting is that seven of the top ten largest exporters on earth are first world countries, including Japan, which knocks our wages into a cocked hat, so to speak.


Surprisingly large amounts can be raised through efficiency measures and leveraging information infrastructure to cut down overheads. Singapore for example has a fully centralised electronic patient information database, which reduces administration overheads, by comparison, from approximately 40% in the US to 2% in Singapore, according to several reports I have read.

Similar saving could be made in education, to the extent that we could conceivably licence out a centralised software system to other countries - imagine if most of the education system paid for itself?

There are many areas where savings could be achieved.

As another poster pointed out, correlation does not equal causation. Low taxation represents increased fluidity in the private sector, which will be vital for growth. Of course if there is no demand there will be no growth, as people squirrel away cash under the mattress, actually making things worse.

I might be in favour of increased taxes, if and only if the influx of capital could be targeted towards infrastructure and domestic industrial projects, public works projects, enablers for the greater economy to grow.

Why weren't our exports soaring in the 1980s? Our costs then were not attractive to the MNCs.

Japan's exports grow because of high productivity PER UNIT of production and the fact that its economic management is very exports biased with still relatively undeveloped consumer and services sectors.

[Dios]

Why weren't our exports soaring in the 1980s? Our costs then were not attractive to the MNCs.

Lower corporation taxes were only introduced in 1994 under Quinn, along with several other packages to attract FDI.

Japan's exports grow because of high productivity PER UNIT of production and the fact that its economic management is very exports biased with still relatively undeveloped consumer and services sectors.

So the clear conlusion is that we need to develop our industrial base to a greater degree, using the highly productive methods developed by the Japanese. Wages need not suffer, as they have not in Japan.

[patslatt]

Well Scandanavian countries have high taxes, high quality ofl ife, high quality public services and high quality politicians and standards.

I don't think people mind paying higher taxes except they want to know they are not wasted and they want transparency. THey won't get that in Ireland which is why people resisit more taxes.

Until FF go through spending line by line and cent by cent and also change the mentality of how the government spends money they nothing is going to change in Ireland.

You'd think we would be learning from successful small/medium economies with similar demograhics to us like Denmark or the Netherlands or Austria or Israel instead of kidding ourselves we are the same sort of economy as the UK or US.

Our extreme form of proportional representation with multiple member constituencies biases our government towards incoherent local and regional spending at the expense of the national interest,so we will never get high level economic management. Hence, it is best to keep the government relatively small,especially compared to the bloated governments of the EU advanced states.

[wombat]

Hence, it is best to keep the government relatively small,especially compared to the bloated governments of the EU advanced states.

Are we living in the same country? or do you not consider Quangos to be part of the "relatively small" government?

[patslatt]

Are we living in the same country? or do you not consider Quangos to be part of the "relatively small" government?

You are correct. But until taxes rise fully in response to the huge deficict this year,I will be lulled into complacency like many others.

[fiannafuddy]

Ah Anto Leddin....how it brings me back to the lecture hall of Macroeconomics...Speaks a lot of sense, but can be overly into believing his own spin because it has come true in the past against the expectations of ever single other Irish economist.

Not saying the argument is wrong though.

[stringjack]

Our extreme form of proportional representation with multiple member constituencies biases our government towards incoherent local and regional spending at the expense of the national interest,so we will never get high level economic management. Hence, it is best to keep the government relatively small,especially compared to the bloated governments of the EU advanced states.

First, we do not have an "extreme" form of proportional representation. We have a system that is (reasonably) proportional. If the system were less "extreme" (or "proportional", if you will) it would simply cease to be a form proportional representation.

Second, multi-member constituencies do not, in themselves, result in clientalism or localism.

[wombat]

Second, multi-member constituencies do not, in themselves, result in clientalism or localism.

The U.S. Congress is as good an example of clientalism as exists on the planet and they are single member. The problem is with us, not the electoral system. We get what we vote for.

[grapes of wrath]

You mention have a income tax levy until 2012, you are still thinking in the old ideology. Our tax system needs to be changed and permanently, that includes higher income taxes permanently and applied to all, public and private.

..

I suggested 2012 because it is after the next election and the parties would have to address how they would address the public finances during the election campaign. I think we need all the parties, or at least Fine Gael as a sort of Tallagh strategy, to support corrective action immediately. I fear Labour are playing politics even if that is very understandable. We are due a report on taxation later this year but I do not think we can wait until then to take corrective action which I believe will require "cuts" and reform of the public service as well as increases in taxation.

I hate to have to copy George Bush's time-limited approach to tax changes which he used for tax cuts for the rich but the time-limited tax changes have a lot to recommend them. Levies have tended to become permanent in Ireland but time-limited tax increases would be more acceptable, I think, and would force all the political parties to address the issues before the next election.

[sandar]

Thats taking several arguments as non-sequitors. Firstly, the lower tax rates may have helped to cause the property boom for the very simple reason that if you cut the taxes of the rich, they are more likely to save(or invest like in property) than if you cut the taxes of the less well off, who need all the income they can get for day today expenses. With the tax bands as they are many middle class people fall within the higher rate, and it wss those people who at least partly drove the property boom by buying investment properties. Obviously the higher rates of employment and lower interest rates also drove the housing boom. The low level of corporation tax had very little to do with the housing boom, of course it kept money circulating in the economy and so had an impact, but not directly. The low rate of corporation tax helped to fuel what you call the 'genuinely impressive' first phase of the boom which was export led, because it helped to attract more FDI here. This increased employment dramtaically and so helped to fuel the housing boom because of course people in work can buy houses.
So low corporation tax rates help to grow the economy in every way.
The problem with the housing boom side of it can partly be explained by the menntality of where Ireland has been historically, an agricultural society where owning land is the source of wealth, so Irish peeople invested in land or property to the exclsuion of all else. The third cause of the bubble was simply Ireland's development as a consumer society, prior to the mid nineties, there were few enough of the major chain stores in Ireland, beacsue the market wasnt seen as worth entering, the first phase of the boom gave people much more disposable income, which made this a market worth entering, the result was that chain stores wanted to come here, and those with money in the economy found that if they built a retail park they had a ready market for it and easy money from the rents, disocuraging any other kind of development.
There are several things which could have been done to alleviate this. But they were not sone because the government didnt care about developing the economy only about the headline figures which said in the short term things were fine.
The definite implication fi what I said above is that cutting income taxes for the higher earneres ultimatley had a negative effect on the economy, and that is my contention. Howver a tax rise would not have caused more growth, it could still have caused less growth, because more money would still be coming out of the economy. What was needed instead of a tax cut on income for higehr earners,was to freeze their tax rate, and cut VAT and other charges, this would still have benefitted them but would have meant that they would only see the benefit by consuming, rather than by saving or investingg which is what happened with an inciome tax reduction, and helped to enhance the property bubble.