The McHale Fiscal Plan Post author By Philip Lane Post date August 24, 2009 John provides an alternative fiscal strategy in today’s Irish Times: you can read it here. Categories In Fiscal Policy Tags Irish fiscal policy 12 Comments on The McHale Fiscal Plan ← Distributional Characteristics in more detail → Research and Innovation: A Middle Ground 12 replies on “The McHale Fiscal Plan” A plan that takes no account of the diminishing tax base. More a shot in the dark than a plan. “Let’s not cut too deep in the hope that it’ll be grand. We don’t want more of this pro-cyclical stuff”. It’s too late with the anti-cyclical. We must get the cost base of the state down. We must get the cost of health and education down. We must get the cost of local government down. These costs constitute an extra tax on the working population (since the non-working don’t have to pay). They are within government control. 60 euro for ten minutes of a doctor’s time to write a prescription for an illness you know you have. 75 euro per child per year for ‘free’ primary school. 800 euro for a ‘free’ third level education. Don’t get me started on the tax breaks – horses, dogs, private clinics, private nursing homes, private houses, investment properties, mortgages, private health, private pensions, &c But no. That best our brightest minds can come up with is to tax one of the three universal payments in the country. Why not go the whole hog and means test JB and the Contributory Pension? Bollocks to you if you work like a dog and pay your taxes, you’re entitled to nothing in this country. The social contract? My aras… I read it as a call for everyone to pull together and sure we’ll get through this… Fair enough, the social partners are all just looking after #1… But thats been the game for the past decade; just that FF threw money at them every time they asked….. Now the money isnt being thrown so they are sulking…. If they want some unity and selflessness (and thats whats needed) then those running the show need to start leading by example… Instead we see with NAMA, an organized theft of public money to pay back a golden circle’s debts… We still have serving politicians drawing pensions; earning more than countries 10 times their size; and on and on and on and on…. The leaders need to create the conditions necessary for people to pull together. People aren’t stupid, the efforts at faking leadership have failed. Introduce a maximum state payment which should cover wages, pensions, grants, etc etc etc…. Nobody in state employment can earn more than this… Introduce a tax band at this so private sector very high earners are taxes above this rate (everyone has to share the pain) and then from there adjust rates of pay downwards to reflect the loss of competitiveness and deflation that is needed to bring Ireland back to European cost averages….. We are at the start of the 21’st centurys great depression; and our leaders are looking to nickle and dime the population to shore up the position of a protected few. But the numbers dont add up. Bold brave moves are needed…. @Garry “the efforts at faking leadership have failed”. I wasn’t aware they had even been making that much effort (faking it) to show leadership. Has B Cowen ever even addressed the electorate and wrapped himself in the flag? Anyway, that’s by the by. I’m more interested in your other comment – “We are at the start of the 21’st centurys great depression”. Now I have a hunch we are but I don’t really have any proof yet. Do you? What makes you say that? Those are serious questions by the way. I’m not taking the rise or anything. @ Joseph Try finding out what the debt levels are in each country! Try Steve Keen. USA debt levels are worse than at any time during the 1930s. And throwing money away is only increasing debt. All these debts must be paid back. Unless the owners of the debt are liquidated. Banks will not lend when the economy is disimproving. While they do not lend, the economy disimproves …. A spiral is propogated. Consumer led economies are based on debt. Debt is bad now. Every year that passes debt will be worse and prices and wages will fall for all. Yet debts will continue to accumulate! Try reading the histories of the 1930s. This would all be high comedy if it weren’t such a tragedy! And insyead of explaining it, the economists are busy analysing details. But then none predicted the GFC, did they? Well some did. What do they say? @ Joseph Try finding out what the debt levels are in each country! Try Steve Keen. USA debt levels are worse than at any time during the 1930s. And throwing money away is only increasing debt. All these debts must be paid back. Unless the owners of the debt are liquidated. Banks will not lend when the economy is disimproving. While they do not lend, the economy disimproves …. A spiral is propogated. Consumer led economies are based on debt. Debt is bad now. Every year that passes debt will be worse and prices and wages will fall for all. Yet debts will continue to accumulate! Try reading the histories of the 1930s. This would all be high comedy if it weren’t such a tragedy! And insyead of explaining it, the economists are busy analysing details. But then none predicted the GFC, did they? Well some did. What do they say? Oops…forgot to say great post! Looking forward to your next one. @ Joseph What makes you say that? Those are serious questions by the way. I’m not taking the rise or anything. It’s what everyone’s afraid to think. It’s also fairly logical. The share of wealth going to capital instead of labour lost the run of itself, so undermining the ability of workers to consume without running up debts. Production moved east, with neither the appropriate nominal or real currency appreciation to balance the effects. So what we end up with is massive over capacity in production due to grossly underpaid labour and, hence, massively indebted consumers, and the enforcing mechanism of currency misalignment. Now in order to facilitate this stroke of genius, this corporate subsidy called arbitrage, a behemoth of a financial systems was created. And to that financial system, credit was given. Negative real interest rates, the removal of its regulatory belts, the elastication of its waistline. The decision by governments to use all their resources to maintain over capacity and protect this financial behemoth, and a complete misdiagnosis of the problem by almost all economists bar one or two scattered here and there, leads me to think that yes the most likely outcome is a depression. It also leads me to think that we’re just at the beginning, because, as of yet we haven’t seen any real defaults. Leverage has yet to be destroyed. But ironically, this may be one where a certain degree of protectionism may actually be helpful, but only between currency blocks, for it would serve to effect the exchange rate appreciation so long required. Similarly, as Garry aludes to, inequality must be greatly reduced. This is a global imperative, not just national. An unequal society runs an unbalanced economy. Concentrated wealth chases returns, not products; assets, not homes or offices. An unequal society with high wealth concentration is a colonial economy. An export led economy without highly progressive redistribution is a colonial economy. It destroys the internal market, and focuses only on serving the external market, and it’s few wealth holders. If you don’t agree with me, or think my language is too strong, look long and hard at the efforts to placate the international markets. Pragmatic sure, if it doesn’t kill us, but as they say, we are where we are. Furthermore, and finally as Pat says, we should learn from the 30’s. And what resulted was a massive reduction in inequality, the introduction of welfare economies in the west, and a drawback from globalization. Cutting spending won’t work on this occassion! Read also, Robert Reich. And one last final, final thing. Anyone who heard about NINJA loans, or knew of the extent of commercial property lending, in particular with Anglo, or heard about 30% year on year increases in property prices, and didn’t see this coming, should resign, because they’re incompetent. Liam – any chance I could persuade you even to add an initial to your name to avoid confusion. There are a fairly small number of regular contributors and commenters to this blog and by now each of them is largely distinct whether anonymous or not. fair enough Liam. Apologies sorry, should have added a H there @Joseph No proof, a hunch based on the debt numbers…. plenty of good points by others here. It may turn out to be very different to the 20’th century one or similar, who knows… it may not even happen. My guess is it will happen and the result is we will see a new landlord class in Ireland…. The banks and other insiders who are now being bailed out (and will be free of debt obligations through cronyism and corruption) may well end up owning swathes of repossessed houses and land, after the depression here works its magic on stretched mortgage holders. Anyways…. I think the bursting of a huge bubble, with current debt levels and feedback loops point that the default result is a depression… Maybe the question should be “How can it be avoided”… Which brings up all kinds of global questions and conflicts of interest between creditor and debtor nations. Dont get me wrong, I’d like to see green shoots and it is possible that it can be worked out or even postponed again… but till I see green shoots myself I’ll remain skeptical @Garry It’s the debt thing that is at the centre of my hunch. I guess there’s a ‘tipping point’ figure somewhere – maybe related to the number of unemployed more than 12 months and one or two other parameters – where it all goes really sour…. but could the banks being hit by a second wave of debt problems such as household mortgages and unsecured lending (loans, cards, etc.) actually end up drowning them too if there’s no money left in governments’ coffers after the first phase of bailouts and stimulus packages? Not much help to repo a lot of houses that are going down in value/just not selling and there’s no way you are going to get any money out of the mortgage holder – no matter how many times you take them to court or throw them in jail (in Ireland anyway) – because they are plain stoney broke. They’ll be screaming for another bailout then alright. Just imagine the problem if only 50,000 people could no longer pay their mortgage in Ireland. What if it were 100,000? What if it were 200,000? These are not unrealistic figures. A lot of people have been put on the dole in the past year and have gone from incomes that could support the mortgage and a reasonable lifestyle to simply putting food on the table (no matter what some say about the terribly high benefits here, it still doesn’t actually buy you very much). I fear that the worst is yet to come. It depends on how long they can keep the sticking plaster on I guess. Later this year? Early 2010? Things may well start creeping out of the woodwork that we would rather didn’t. I saw some figures on the USA recently which suggested that the mortgage problem there is going to explode. I see just now that they’ve also upped their predictions for unemployment and they foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May, which is only 2 months ago. Most forecasts seem to have gone for the birds in the past 12 months. @Liam, Pat – thanks Its one possible scenario… Im looking for others …. but time will tell These things have a way of moving far slower than anyone can think possible, and yet manage to catch us all by surprise. Comments are closed.