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Against the Grain – Constantin Gurdgiev

Agenda for reform: a rightist programme.

The events of recent months have clearly shown that current policies only serve to maintain the status quo. This is the sole and unavoidable conclusion currently being reached by all independent analysts and commentators, whatever their ideology. It is a non-partisan concern that informs the rising tide of discontent within the Fianna Fáil and Green parties, recent changes within Fine Gael, the positions of all other opposition parties, and indeed of the entire electorate, as reflected in the opinion polls.
There is no longer any need to outline the facts that frame this reality – they are all around us. The tide of international opinion concerning the prospects for Ireland should the current policies persist has turned against us. The IMF (since April 2010), the EU Commission (since May 2010), markets-makers and participants – all have put out sceptical assessments of official Irish Government projections for the recovery. Irish banks – far from being repaired by Nama – just keep asking for more taxpayers’ bailouts with the frightening regularity of a drug addict returning to a methadone dispensary.
It is, therefore, time to challenge the prevailing policy consensus. It is time to put forward proposals for reforms, to debate real alternatives and to provide those political parties and individual politicians willing to champion change with new ideas to energise the electorate.
Here is my own set of ideas – the offshoot of the ongoing ‘Manifesto Project’ I have decided to run on my blog. Fine print aside, let me outline the backdrop to the policies – the backdrop of the specific crises we face as a nation. The Irish economy has been hit by a Perfect Storm that combines:
a deeply-rooted crisis in the public finances;
a structural collapse of the banking sector;
an unemployment crisis stemming from the collapse of employment and jobs creation;
a competitiveness crisis that is not limited to wages and labour costs, but the cost of living and doing business;
the crisis in the quality and efficiency of domestic services – dominated and restricted by the excessive market power of the incumbent State-owned and State-regulated oligopolies.
These crises have been exacerbated by Government policies since 2008. These policies have saddled ordinary families and individuals (regardless of whether they work in the public sector or private sector, are employed or unemployed, young or old) with the full cost of bailing out vested interests and élites. This manifested itself in a rising tax burden, falling provision of public services, and lack of reforms in the banking and public sectors. The resulting devastation of private entrepreneurship and businesses, contracting investment and availability of operating capital and a catastrophic lack of confidence in economy are the corollaries. The accompanying spikes in unemployment and businesses failures, and a hike in precautionary savings are additional manifestations of these.
The current crisis has clearly shown that the corporatist State – where vested interests, including Political, Business, Social and Environmental sectors collude with the State to set economic and social preferences and priorities – is morally, politically and economically bankrupt. I believe that Irish democracy cannot be surrendered to these vested interests, no matter how broadly-based or high-minded they might be.
There are only two possible futures. The first follows the path we are travelling – the path of a generations-long and painfully-deep crisis of stagnation and declining standards of living. The second one is a path of structural reforms aimed at realigning the current political system to serve the interests of the ordinary citizen.
This path is also painful and disruptive. To counterbalance an existing system that promotes pressure groups and élites, an agenda for reform must include changes to our systems of politics and governance, to the provision of the public services, to the private markets and, lastly, to our financial system. For the sake of brevity, I will focus on the first two objectives.

Changes to political and governance systems

Transparency, accountability and social partnership
The core changes to the political and governance systems must put transparency and accountability to the front. This will require the creation of systems of disclosure and control that are not susceptible to being tampered with by individual office holders. It also requires ending Social Partnership – delegating all authority and responsibility for developing, implementing and monitoring economic and social policies solely to the Legislative and Executive branches of the State.

In terms of transparency, the default setting must be public disclosure and unrestricted free access to all data not subject to State-secrecy considerations. Sensitive data should be published – with the exclusion, if necessary, of sensitive information and identifiers until the time when it can be published in full.

Accountability requires that performance and productivity metrics should be designed and refined through experience for all branches of the public sector. All earnings in the public sector should be linked to individual productivity.

Local authorities
Local authorities must be reformed, reducing the overall number of local authorities to, say, seven, covering: West & North West, South, Greater Cork, Greater Dublin, Greater Limerick, Greater Galway and the Border & Midlands.

Seanad and Dáil
The Seanad should be given the powers to be expected of a real upper chamber and be elected directly by the people of Ireland, with equal representation for each of the seven geographic regions outlined above. The Dáil should be reformed by reducing the number of TDs and to cover both local and national mandates. The former will preserve a number of seats allocated locally, while the latter would allocate some proportion of seats based on national polls.

Both chambers along with the Executive should accord no privilege to their members that will put them above the ordinary citizens of the State. This will require the abolition of unvouched expenses, enforcement of the benefit-in-kind principle of taxation and removal of un-provisioned pensions entitlements.

On-line purchasing
All State purchasing should be effected on-line, made public and transparent, and subject to annual audits by an independent external board.

Stop the Government providing services
Reforms should include the separation of the provider of services from the supplier of services. This means that the Irish State should aim to be a purchaser of services, e.g. healthcare and care for the disabled, for those who cannot afford them. But the State should not own service-providers. Instead, public services can be supplied by mutual, private for-profit or non-profit providers. Transition to such an arrangement will require significant training and logistical support for current employees.

Higher education
Higher education should be based on fees set by universities and overseen by the Department for Education. The State should set up (with the participation of charities and other private agencies) a number of funds that would provide financial aid to students based on need (with the objective of creating equal opportunity for all qualified students) as well as merit (with an objective of rewarding real achievement). A further system of State-guaranteed student loans should be set, subject to independent oversight and audit.

The State should focus significant resources on provision of universal early, primary and secondary education in order to achieve maximum equality of opportunity for children independent of the social and/or economic status of their parents.

Changes to fiscal systems

There is a need to rebalance the burden of taxation in the economy to deliver on three core objectives. First, the taxation system should be fair, transparent and protected from abuse. Second, it should involve participation from all agents in the economy. Third, it should not attempt to pick winners and leave in its wake the losers.

Income and corporation taxes
With these objectives in mind, I would suggest adoption of a flat-rate income-tax with a single personal standard deduction plus a children’s allowance, potentially linked to the level of unemployment benefits. All discretionary tax-breaks should be removed, including any tax incentives for farming and any other economic activity. Non-residency limits should be set to reflect the needs of Irish citizens working abroad and commuting home – e.g. a maximum 124 days annually to cover all weekends plus standard vacation. A move to a single rate income and corporate tax would deliver full equalisation in taxation between workers, entrepreneurs and businesses.

Indirect taxes
The existing Byzantine system of indirect taxes and levies should be simplified so that all such charges should be based on ‘the user pays’ principle and be fully ring-fenced to cover the cost of the service provided and to mitigate adverse externalities (e.g. environmental degradation etc) generated by these services.

There is a need for strong, but life-time capped, welfare provisions. This would provide sufficient insurance cover for all able-bodied working-age adults to a cumulative maximum of 7 years over a life-time. Provision of welfare supports to those unable to work due to health or family circumstances (e.g caring for a disabled relative etc) should be exempt from life-time limits.
The basic social-insurance pension reform should ensure that the elderly are covered by a sufficient safety net, but that the working-age individuals are also encouraged to privately invest in their pensions.

Public pay
Wages for politicians and senior public servants should be tied to the National Disposable Income in order to create a direct link to the overall levels of welfare in society (including that of the unemployed and socially vulnerable). There should be no bonuses or discretionary pay; and all public sector pensions should be converted to a Defined Contribution system with generous matching from the employer.

Government spending should be benchmarked to a specific range of GDP (for example 35-38%). A balanced budget should be maintained over every 3-year period. This would allow for small emergency spending boosts in recessions, but prevents spending sprees before the elections and other abuses of the public funds.

All quangos, except those with immediate independent oversight authority (e.g FR and Competition Authority) should be abolished and their functions transferred to the relevant department. Responsibility for governance and management must rest with the Government.

Property tax
There is a need for a fully transparent tax on land values (LVT) to fund public infrastructure and local services, including environmental protection and improvements. I would suggest that the revenue from LVT should be split 50:50 between central & local authorities. Local authorities should be allowed to vary their rate of LVT within reasonable parameters. For example, if LVT were levied at 1% pa, the local authority should be allowed to charge between 0.25% and 0.5% as it deems suitable, while central government would collect 0.5%.

After three years of ever-deepening crises in the political, economic, and banking spheres, Ireland now faces a stark choice between two alternatives. We can, as a nation, elect to either follow the status quo that leads to stagnation. Alternatively, we can choose to challenge the existing policy consensus to champion the rights of ordinary citizens – consumers and taxpayers.