To: New Left Government From: Tom Healy Date: March 2016 Re: Priorities to improve the economy and living conditions The danger, now, is that many lessons of the crash of 2008 and what led up to it have not been learned and mistaken policies are being pursued. One clear example of this is the widespread endorsement of the idea that taxation is too high and tax cuts for this group or that group is a necessary and good thing to pursue (usually this comes with the proviso that tax cuts must be for our group or interest but not for others). True, political parties do not win elections on the basis of promising tax increases. However, if we are to be honest with ourselves, we have to ‘join up the dots’ to establish priorities in areas such as health, education, childcare, transport, energy and increased poverty including poverty among those in work struggling with rising bills and charges of one sort of another. The debate in the lead-up to the next election needs to be informed by a vision of what sort of society we envisage and how we are going to get there. For the moment, a progressive political agenda needs to focus on four things: – Pay and welfare – Employment – quantity and quality – Public services – Homes What counts in terms of people’s economic and living conditions is access to employment, income and services built in a dynamic and diverse enterprise economy. 1. Recession and recovery have offered little for wages. The latest trends show a downward overall trend in average weekly earnings from the beginning of 2009 to the third quarter of last year. There was a sudden and sharp increase in estimated average weekly earnings in the last quarter of 2014. This pushed the average weekly rate back up to where it was at the beginning of the recession. While there can be some flux in quarterly estimates and the final quarter estimate is ‘provisional’ it does appear that the pattern of falling wages has come to an end – provided that the economy continues to recover. When inflation is taken into account (using the consumer price index which includes the effect of falling mortgage interest costs in recent years) ‘real wages’ have moved more or less in tandem with nominal wages since the beginning of 2011 (reflecting low inflation). The thin blue line in Chart 1 shows the movement in the consumer price index. There was a re-emergence of very mild price deflation in the second half of last year – reflecting among other factors the impact falling oil prices. The pattern of recovery in wages is very uneven across sectors and occupations (with some sectors and occupations faring worse than others. From peak real earnings (end of 2009) to the end of 2014 real average weekly earnings fell by just over 6% on average. Coupled with the impact of cuts in social welfare and increases in taxation the actual cut in livings standards for households mainly dependent on wage income was greater than 6% over that period. A key problem in Ireland is the unbalanced structure of the economy and the effect of that on pay and welfare. There is over-reliance on foreign direct investment and, as a consequence, a low share of wages as a component of national income. Add to this a growing inequality in wages (before taxes and social welfare payments). This puts huge strain on public finances and, at the same time, leaves Ireland extremely exposed to international shocks. Changing this will take time. However, a start can be made by focusing on: • The national minimum wage (currently €8.65 per hour). • Low pay just above the minimum wage (typically under €12.20 per hour) as well as precarious work contracts and conditions. • Social-welfare payments and eligibility where a tightening of conditions and a lowering of some payment rates took place during the recession need to be reversed, especially where poverty rose as a direct consequence of cuts to welfare. • Reform of the welfare system and a movement to reduce and eventually abolish low pay goes hand in hand with the establishment of the principle and practice of a living income that allows all persons and households to live with dignity (something that is surely not unrealistic in a relatively prosperous country such as Ireland). 2. Creating ‘full employment’ means creating enough well paid jobs that can sustain individuals, families and communities. This will require a co-ordinated approach to strategic investment, banking, lending to firms, upskilling and a growth in new forms of economic activity based on co-operative ownership and public and community enterprise. Moving towards full employment will mean creating enough full-time and part-time jobs for everyone who wants to work and can work on a living income with proper conditions. Investment in sustainable sources of energy could give an important boost to employment creation as well as move Ireland’s towards a medium-term goal of lower dependency on imported oil and gas. The potential for revenues coming from oil and gas off the Irish coast should be re-assessed and, where warranted, the rate of corporation tax on such profits raised. 3. Much of Europe taxes more and spends more money on social services than ireland does. The European Commission Taxation Trends shows that taxes (including social insurance, VAT etc.) came to 28.7% of GDP in the Republic of Ireland in 2012. The corresponding figure, in France, was 45%. However, there is at least one very significant difference – culturally, politically and economically – between Ireland and France. It is that enterprises, in France, spend a much larger amount by way of employer social security. The Republic of Ireland has an exceptionally low rate of employer and employee social insurance contribution. Chart 2 shows the total amount of social insurance contributions as a percentage of GDP. France shows that social insurance contributions account for 17.1% of GDP in 2012, whereas, in the Republic of