Gerard Howlin: We have learned nothing from the Celtic Tiger crash

The next election offers little choice between the three larger parties and several smaller ones. Sinn Féin’s alternative budget is distinctive, but it rounded off competing offerings of riotous spending from the governing parties. Labour and the Social Democrats are travelling with the herd. Whatever the electoral outcome, what lies ahead is a de facto national coalition committed to different degrees of imprudence. It is a season of splurge and spend, and who is in or out won’t change the wrong direction of policy.
The Greens offer a clear stance on climate action, supported only with pale enthusiasm or outright insincerity by others. The far left of People Before Profit–Solidarity offers a sharply different economic model but no likelihood of delivering it. Political focus is on when an election is called, and whether an alliance of Fine Gael and Fianna Fáil can prevail over Sinn Féin. But that is the politics of runners and riders, and it hardly matters if they are nearly all running in the same direction.
The circumstances are different, but there is one ghost-like memory of the economic crash of 2008. Its ultimate cause was not a property bubble but a thought bubble. I don’t believe an economic crash is imminent, but I am certain that a similarly second rate, self-referential, and mutually reinforcing miasma has enveloped our critical faculties. We are splurging again on “fair weather” taxes. On the eve of a budget that is the precursor of an election what passes for policy difference is little more than betting tips.
It is not the spending itself that is necessarily wrong, it is that current spending is over-reliant on corporation tax that has ballooned in scale and is at least partially insecure. That is a well-rehearsed fact, and one that most of the brightest and the best in official Ireland are inoculated against. What matters more is the refusal to broaden the tax base in ways that lessen dependence on corporation tax and ensure a sustainable base for increased spending in a downturn.
Sinn Féin’s alternative budget at least nodded towards the fact that more spending requires more tax. Elsewhere there is almost complete opposition to widening the tax base, which was supposed to be an abiding lesson of the economic crash. The conspicuous exception is carbon tax, which as part of a suite of environmental taxes raised €6.8 billion in 2023. Even that modest exception was the object of sustained political opposition.
More generally, but especially from Fine Gael, the narrative is consistently about reducing tax. There is nothing necessarily wrong with cutting tax or increasing spending. What is completely wrong is the dysfunctional way the two have congealed in the political conversation. The level of spending is the true level of tax. There are never any unbalanced budgets because everything is eventually paid for in tax upfront or in debt and inflation later.
Talk about cutting tax, and an occasional modicum of doing something about it, has been accompanied by an inexorable increase in public spending. The final figures won’t be in until next year but this Government has increased spending by well over 50 per cent in five budgets. Current spending such as universal payments on child benefit and energy credits fuel domestic inflation even as headline inflation decreases. They do least for those who need it most. In a red-hot rental market tax relief for renters is a straight subsidy for landlords, and the list of improvident spending goes on and on.
In 2006 corporation tax, stamp duties and capital gains tax accounted for 30 per cent of tax revenues, up from 8 per cent in 1987. By 2008 they had reduced to 20 per cent. In 2023 corporation tax alone accounted for 27 per cent of total tax revenues. Closely related to that fact is another: the top 10 per cent of earners pay about 63 per cent of all the income tax and USC, while the top 1 per cent pay 24.4 per cent. It is not that it’s tough at the top but those at the bottom depend on them. Top earners in Ireland disproportionately work in the same multinational companies that pay disproportionately large amounts of corporation tax or they work as the professionals who service them.
On public spending we are double dipping on the same bet and splashing the cash in ways that are shockingly wasteful. It would only take an economic shudder, not a shock, for remorse to be inflicted. The irony is that we are well placed to face our challenges if only we were clear about what they are. In a single word our problem is capacity. Physical infrastructure is an example of that. But behind that, as in every bubble, is a lack of thought leadership. The underlying lack of capacity is administrative and political.
Apart from the back-of-an-envelope suggestion for a new department of infrastructure there is little by way of new ideas on how we can do things better, as distinct from just spending more money. Lacking the political will to reform or invest scarce political capital in the tedium of doing it, public servants are the preferred whipping boys for failure. In turn politicians perform the same service for a disgruntled public, who understandably have no respect for leaders who give them what they want.