Higher taxes AND higher growth are not incompatible

[Dios]

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.

Except for the third to a half of the population that historically lived in urban areas in Ireland. You can pretty much replace the sentence above with "people needed to own homes because of nineteenth century rental regulations which meant you and your family could be turfed out by a landlord on a whim".

The other causes were market sentiment ("you can't lose on property", "get on the ladder while you still can"), but mostly it was the banks throwing cash at anyone that asked for it. Unregulated lending was the root and primary cause of the property boom, backed by the removal of said regulations by the government.

The mini boom in the late 90s could have been said to have been caused by increased affluence, but that was dying out by 2000. When the international money markets went mad in 2001, it gained a new lease of life which extended it far beyond its natural lifespan.

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.

This is good thinking. Encouraging spending among those most likely to save is a positive thing.

[grapes of wrath]

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.

You are stretching my brain cells but your full post seems to be making reasonable sense. However, I was mainly focussing on the problem in the public finances and I wanted to bring up what I strongly feel is the intellectually dishonest argument that somewhat higher income taxes might inhibit growth. The macro-economic effects of the various alternative approaches are important in the medium term and we need much better analysis of them than we have had over the last decade. I think I recall a report of Charlie McCreevy refusing the take on an economic adviser early in his tenure in finance because he knew it all already.

Right now I have sympathy with the focus on the public finances by the government but whatever changes they impose need to be accepted as fair by the population as a whole and they should be consistent with economic development in the medium term as well being effective in addressing the crisis in the public finances. Scapegoating the public service will probably not meet the first and last of these three objectives.

[sandar]

Except for the third to a half of the population that historically lived in urban areas in Ireland. You can pretty much replace the sentence above with "people needed to own homes because of nineteenth century rental regulations which meant you and your family could be turfed out by a landlord on a whim".

The other causes were market sentiment ("you can't lose on property", "get on the ladder while you still can"), but mostly it was the banks throwing cash at anyone that asked for it. Unregulated lending was the root and primary cause of the property boom, backed by the removal of said regulations by the government.

The mini boom in the late 90s could have been said to have been caused by increased affluence, but that was dying out by 2000. When the international money markets went mad in 2001, it gained a new lease of life which extended it far beyond its natural lifespan.


This is good thinking. Encouraging spending among those most likely to save is a positive thing.

Would it be a fair presumption that a large section of the population which lived in urban areas moved there from more rural areas to get work, or perhaps that their parents did, and that the reason that they moved was becasue if they didnt inherit the family holding(not nescessarily the farm, could also be the 'half and half ass they used to be called) there wasnt any other way of earning a living in rural ireland, so they moved to the urban area but remained conscious of the value and power and secuity which owning ground brought. This attitude passed down through several generations.

Grapes of Wrath:

The reason higher income tax is perceived as having a negative effect on economic growth is that it reduces people's spending power, which is bad for businesses, which then dont create jobs etc.
There is a counter argument which is that increasing taxes and the govt. spending the money to create jobs. In my view there is a problem with this, which is that a chicken and egg scenario happens, the government create jobs, and people spend their wages in the shops helpingt he private sector as well, but the tax increases mean that people not working in the government sector have less to spend in the shops, so perhaps the money they cant spend and the money spent by new government employees casncels each other out in the short term.
I agree with you in general about the public service, their are hysperical ideologues on all sides, and so there are in relation to this issue. There are those who believe that wielding an exe to the civil service will solve everything, but they say this not because they intellectually believe it to be true, but rather because they are ideologocally committed to keeping government spending low and dislike the government employing anyine, and also they have stereotypical views that all civil servants do nothing with their time and dont provide any value.
In my view, all bearacracies create waste, and it is this waste that I believe we should trim before we do anything else. It would be very wrong to assume that this means cutting lots and lots of jobs, the first thing to look at is quangos, with part time boards running them, these should be cut. As should the expenses regimes.
I also posted on here about waste in the department of defence in relation to their new building, while another poster mentioned decentrallisation will cost hundreds of millions and e-voting machines which are still costing money but not being used. All of this would make a significant difference in the short term, and because it is waste and not contributing value, wont have consequences in the medium term.
Actually cutting jobs for civil servants will ahve a negative impact in the meduium term, in my view agin, there is waste, and there are areas where people could be lost, but again if its dealt with cleverly the negatives can minimised and the benefits maximised. I would offer long serving employees early retiremnet and replace them with their young colleagues, and move the staff who have nothing to do around.
There is an immeidte need for a plan in this economic climate, then a medium term plan, they will need to achieve complately different things but must compliment each other, and every proposed short term solution must look at the long term implications
'

[Dios]

This attitude passed down through several generations.

Rather stretching things a bit there? It sounds a bit like Dev's comely maidens dancing at the crossroads to be honest.

[sandar]

Rather stretching things a bit there? It sounds a bit like Dev's comely maidens dancing at the crossroads to be honest.

Not really, I just believe growing up I always heard people of every social strata say that bricks and mortar are the best investment, I grew up in rural Irelad so my experinec of it is mroe in relation to that, but also living in London as I do now and mixing with Irish people of aolder generation, almost all of them over here who acquired money either bought buy to let property or a pub, and I wonder if the same mentality does not exist among that generation in Ireland as it does in Britain

[Dios]

Not really, I just believe growing up I always heard people of every social strata say that bricks and mortar are the best investment

Yes but "can't lose on property" is a different prospect to some sort of generational inclination based on a rural background. Up until 2006, in fact, "can't lose on property" was a fairly accurate description of the Irish property market, historically speaking.

[grapes of wrath]

The mini boom in the late 90s could have been said to have been caused by increased affluence, but that was dying out by 2000. When the international money markets went mad in 2001, it gained a new lease of life which extended it far beyond its natural lifespan.


.

In my original post I referred to Leddin and Walsh describing the 1994-2000 period as being led by exports, investment and consumption. The drop off in exports is the most worrying aspect of our recent performance. The devaluation of 1993 plus the worldwide dotcom boom which we were well placed to exploit during the 1990's probably were the main reasons for our performance at that time.

Our loss of competitiveness in the last decade is very worrying. How we address that as well as dealing with the problem of the public finances is the governments biggest challenge. I fear they may focus only on the public finances which are solvable but we may just trundle along with poor growth unless the future competitiveness issue is also addressed. We must do better than spouting cliches about moving up the value chain in the knowledge economy

[grapes of wrath]

I am very pleased to see that Alan Ahearne recognises that income taxes will have to increase in his outstanding article in todays Irish Times. He refers to a top rate of 48%. We will need to raise the low rate also and we probably should move to lower the entry point into the tax net. Single people with no committments should start to make a tax contribution earlier than they currently do. All the carousing in Temple Bar and its equivalent each weekend indicates that there is plenty of discretionary spend out there among sections of the population. Those with heavy mortgage committments and perhaps childcare probably deserve some concessions to set against the overall higher tax rates.

There are many refinements that require attention but we must accept that we must substantially increase income tax, based on ability to pay, with many of the loopholes closed etc etc. Other taxation changes plus reform of spending will also be required. Let us have a serious debate and get on with the required decisions.

[sandar]

The problem, Grapes of Wrath is that we need people to spend their discretionary income to preserve jobs, at the moment we need people to spend as much as possible, while the government reins in its spending. The idea being that the government cut their costs but increase their revenue(from the tax gained in VAT etc. from people spending more) Gnerally speaking the higher the upper tax rate the lower the tax take from that bracket. I would be in favour of increasing the consumption taxes on those goods or services which do not rweally benefit the economy like new car sales, and ciggarettes, but generally if things ae managed radically but correctly tax increases shouldnt be needed, not on income tax anyway.

[grapes of wrath]

The problem, Grapes of Wrath is that we need people to spend their discretionary income to preserve jobs, at the moment we need people to spend as much as possible, while the government reins in its spending. The idea being that the government cut their costs but increase their revenue(from the tax gained in VAT etc. from people spending more) Gnerally speaking the higher the upper tax rate the lower the tax take from that bracket. I would be in favour of increasing the consumption taxes on those goods or services which do not rweally benefit the economy like new car sales, and ciggarettes, but generally if things ae managed radically but correctly tax increases shouldnt be needed, not on income tax anyway.

We have several problems. Our budget deficit is so large that we cannot have the stimulus package that many countries are using - except that I accept Brian Cowens point that the capital programme is a stimulus package. Extra spending by the consumer in Ireland will very largely go on imports - much more than in the US for example. The notion that higher tax rates reduce the tax return I cannot accept. Our experience with capital gains tax provides come evidence for your point of view but the timing of the realisation of capital gains is much more under the control of the individual than the income tax stream is. Income tax increases now seem inevitable; we may not like it but they will not stop growth in the economy. Other tax sources need to be examined also. Even more so the loophole that have been used by the high income earners to reduce or eliminate their income taxe liabilities need be drastically reduced or eliminated. We need some action now, not when a taxation commission reports. We can modify our approach then but action now is essential on taxes as well as on reform of the public service etc