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Ireland's political and cultural magazine
28June 2015
R
EMEMBER the Spring Statement? Main-
stream commentary reassured us that it
was ‘prudent’, ‘getting the balance right’,
providing ‘clarity’, ‘breaking with the
policies of the past’ and ‘anchoring expec-
tations in forecasts’. Some just suggested ‘nothing
has changed’. Then silence. It was of course a polit-
ical exercise but fundamental questions raised
by the Spring Statement got little attention.
In terms of process the Spring Statement is a wel-
come development. The macro-economic goals are set
out and the detail on how these goals will be achieved is
the business of the October budget. Previously, this was
done in reverse, with deals then being done with vari-
ous interest groups, which were added up to become
the macro-economic goals.
The Government’s “intention to examine the possi-
bility of establishing of an Independent Budget Office”
is also welcome. This Office would allow for independ-
ent costings of policy proposals from all political
parties and Groups in the Oireachtas. The Office of
Budget Responsibility in the UK and the Parliamentary
Budget Officer in Canada are both good examples of
how such an office can contribute to evidence-based
debate on the budgetary choices about taxation and
expenditure. It would have been reassuring to get
something more than an “intention”, however, and it
remains to be seen if it will materialise.
Most of the criticism focused on the ratio between
taxation and expenditure measures. The forthcoming
budget will see a modest expansion of €.bn to
€.bn that will be split : between expenditure
and taxation measures. More of the same can be
expected in the following years if growth forecasts of
-% are realised. The underlying assumptions associ-
ated with the growth forecasts and the impact of
external factors including low oil prices, a low-interest-
rate environment and weak euro, the combination of
which have reduced costs and increased competitive-
ness were also a focus for criticism.
However, it is the trickle-down model of develop-
ment that should have been the focus for criticism.
“Policies for Growth” is the dominant section. Six poli-
cies are identified as growth drivers including: a
growth-friendly tax system; access to finance for
SMEs; labour market policies; recouping the cost of
the bank bailout; reducing the drag from public
debt; and targeted sector specific intervention.
Sound macro-economic policies are a pre-condition for
sustained growth, employment and poverty allevia-
tion. However, focusing exclusively on growth and
assuming that its benefits will automatically trickle
down to different segments of the population may
undermine growth in the long run. This is one of the
findings from new research from the OECD: ‘In it
Together: Why Less Inequality Benefits All’.
The OECD research points to the importance of care-
fully assessing the potential consequences of
pro-growth policies on inequality. It also indicates that
policies aimed at helping to limit or, ideally, reverse the
long-run rise in inequality would not only make socie-
ties less unfair, but also richer. The central argument in
the report is that, beyond its serious impact on social
cohesion, high and often growing inequality raises
major economic concerns, not just for the low earners
themselves but for the wider health and sustainability
of our economies. Put simply: rising inequality is bad
for long-term growth.
Addressing the multidimensional nature of inequal-
ity and its impacts on different segments of the
population, therefore, matters for sustainable eco-
nomic growth. Inequalities arise for income,
educational attainment, health conditions and employ-
ment opportunities. All of these have become
important determinants of growth and wellbeing.
“Inclusive Growth” is a new approach to economic
growth that aims to improve living standards and
share the benefits of increased prosperity more evenly
across social groups.
Fostering “Inclusive Growth” is an important part of
a pro-growth agenda and the OECD research identifies
four main policy areas where action is needed: wom-
en’s participation in economic life; employment
promotion and good-quality jobs; skills and educa-
tion; and tax-and-transfer systems for efficient
redistribution.
First, though gender gaps in employment and earn-
ings have declined, they remain large and there is a
need for policies to eliminate the unequal treatment of
men and women in the labour market. Policy solutions
include affordable and high-quality childcare;
changing the dearth of women in senior positions;
measures aimed at reconciling work and family life;
and measures aimed at reducing the concentration
of women in jobs that are less valued and are paid
less.
Second, there is a need for more inclusive labour-
market policies which focus not only on the quantity
but also on the quality of jobs. This requires a focus on
earnings; job security; and the quality of the work
environment. In Ireland, low pay is a significant issue
in the labour market and is concentrated by gender and
in certain sectors of the economy such retail and hospi-
tality. The lowest earners lost proportionately more of
The Spring
Statement focused
on growth not
fairness
Springing backward
SINÉAD PENTONY
June 2015 29
their income over the five-year period - than
all other income groups (see Chart ).
Research from NERI (Quarterly Economic Observer,
Spring ) shows that a quarter of employees earn
less than the Living Wage threshold of €. per hour
and almost a third (%) earn below the EU low-pay
threshold of €. per hour. The newly-estab
lished Low Pay Commission will have an important
role to play in raising the wage floor. There also
needs to be focus on illustrating the contribution of
wage-led growth to greater equality and inclusive
economic growth.
The quality of the work environment can be
improved by strengthening the rights of workers
through collective bargaining and the introduction
of legislation on the right to collective bargaining.
This will hopefully start the process of reversing the
trend toward precarious low paid employment.
Thirdly, lack of investment in skills and education is
a key transmission mechanism between inequality and
growth. While there is always a gap in education out-
comes between individuals with different
socio-economic backgrounds, the gap widens when
people in disadvantaged households struggle to get
quality education. This implies large amounts of
wasted potential and diminished chances of improving
standards of living and quality of life. In particular,
low-skilled temporary workers face substantial
wage penalties, earnings instability and slower
wage growth. This should be reversed.
The lack of investment in a comprehensive early-
years education system and the impact of budget cuts
to education in general over the last number of years
are likely to have made it more difficult for people to
use education as a route out of disadvantage. The OECD
Skills Outlook found that Ireland was the fourth
lowest out of OECD countries for average numeracy
and literacy proficiency among young people aged
- years-old in .
The fourth area of an effective policy strategy to bal-
ance more equality with economic growth relates to
taxes and transfers. These policies constitute the most
direct and powerful instrument to redistribute income
and most countries make substantial use of income
taxes and cash transfers to reduce income gaps. At
the same time, the OECD has also found that public
expenditure tends to lower inequality and increase
economic growth.
The Government has signalled its intention to reduce
taxation measures related to labour and marginally
increase public expenditure in the Spring Statement.
Ireland’s tax take in was .% of GDP, com-
pared to the EU average of .%. Ireland’s public
expenditure in the same period was .% of GDP,
compared to an EU average of .%. While the tax
base has been broadened, much more could be done
to eliminate or scale back tax deductions, which
tend to benefit high earners disproportionally, and
to reassess the role of taxes on all forms of property
and wealth, including the transfer of assets.
This is particularly important in Ireland, where the
share of wages continues to decline as a proportion of
our total income. In , the wage share in Ireland
was % of GDP, compared to the EU average of .%
(see Chart ). Multinationals must also pay their fair
share of tax. It appears that measures aimed at
increasing transparency and international co-opera-
tion on tax rules to minimise “treaty shopping” will be
introduced at EU level in due course.
The very modest increase in public expenditure
promised will result in virtually no change in the provi-
sion of public services when demographics are factored
in, given our growing and ageing population and the
growing demand on existing services. It appears that
under-investment in the economy is set to continue,
affecting the economy’s capacity to grow to its full
potential. The Spring Statement is not congruent with a
vision for “Inclusive Growth”, which is what we need to
embrace if we are truly going to break with the policies
of the past. •
Chart 1: Change in Average Real Incomes by Decile of Equivalised
Disposable Income 2008 – 2013 (after housing costs)
Chart 2: Adjusted Wage-Share as a % GDP (1996 – 2014)
Source: ESRI (April, 2015) Working Paper No. 499: ‘The Great Recession, Austerity and Inequality: Evidence from Ireland’
-10
-20
-27.2%
-19.3%
-16.9%
-16.3%
-16.4%
TotalTo p98765432Bottom
-15.4%
-17%
Source: NERI (Spring 2015) Quarterly Economic Facts
65.0
Wages as a % of GDP
EU28
60.0
55.0
50.0
45.0
40.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Rep. Ireland UK USA
Ireland’s tax take in
2013 was 34.8% of
GDP, compared to
the EU average of
45.3%. Ireland’s public
expenditure in the same
period was 40.5% of
GDP, compared to an EU
average of 48.5%
“
