It is no exaggeration to say that the political and economic landscape of this country for the foreseeable future will be shaped by how the government reacts to the demonstration in Dublin today.
Tens of thousands of people are expected to take to the streets united by their implacable opposition to water charges. There will be no shortage of politicians, particularly from the hard left, to rouse those attending with cries of ‘no to austerity’ and other seductive catch-calls.
The day will be high on emotion, but unfortunately short on cold rational analysis of the real lessons from this country’s very recent past.
Sinn Fein, the United Left Alliance, People Before Profit, the Socialist party and Brendan Ogle, from the Right2Water campaign, have all, at different stages over the past year, floated the idea of a left-wing alliance to fight the general election on a loosely agreed platform. They are hoping to harness the widespread opposition to water charges to bolster their support going into the next election. There is no shortage of anger towards the government, and particularly the Labour party.
This should not be the case. The Fine Gael-Labour coalition came to power in March 2011 when the country was facing bankruptcy. The unemployment rate had edged above 15 per cent; sovereign borrowing costs were close to 16 per cent and the fiscal deficit was more than 30 per cent including the cost of bailing out the banks.
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Unemployment is now down to 9.5 per cent and falling rapidly; borrowing costs are under 2 per cent; and the budget deficit is 2.5 per cent. The enduring unpopularity of the government is partly a consequence of years of swingeing cuts, and partly self-inflicted. Both parties promised a democratic revolution when they entered office in 2011. Apart from a few cosmetic changes, it was a pledge that was heavy on rhetoric and light on action.
Salaries for ministers’ personal advisers that exceeded the government’s own recommended limits, appointments of party supporters to state boards, the handling of the penalty points scandal and the circumstances surrounding the resignation of Martin Callanan, the garda commissioner, were redolent of the cronyism of Fianna Fail in previous years.
The establishment of Irish Water became a focus point for all these disparate grievances. At a time of lacerating cutbacks, the government spent €80m on consultants to set up a new utility, which has been beset by one mistake after another. The opposition parties and alphabet soup of independents tapped into this backlash, boosting their poll ratings with soothing promises of scrapping water charges and ending austerity.
The Fianna Fail-PD government of 2002 to 2007 narrowed the tax base to unsustainable levels. There were no state charges for water, property or other local council services and more than 800,000 low-paid workers were taken out of the income tax net. The national coffers were bloated by property-related taxes such as stamp duty, and we know how that ended.
The country’s tax base needed to be widened as part of painful reforms introduced from 2008 onwards. Every other OECD country has property taxes and water charges. Ireland now has the second most progressive tax system in the OECD, according to its 2014 annual report. The top rate applies to all earnings over €32,500 and 10 per cent of the highest earners pay 58 per cent of the total take.
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When the parties of the hard left promise to end austerity by “soaking the rich” it is not clear how this could be achieved without doing real damage to the economy.
Scrapping water charges and property taxes would mean another €900 million would have to be raised through general taxation every year. The left, on this basis, is proposing a narrow base of its own, reliant on income taxes combined with high levels of spending.
The bulk of this burden would fall on people earning above €70,000 annually. The people in this cohort tend to be well-educated and mobile. If Ireland’s tax system becomes uncompetitive compared with other countries, then middle-class emigration will surge.
Of the political parties that will go before the electorate, the government coalition has the most sensible approach to balanced economic growth. Water charges pose the biggest barrier to re-election. There is no doubt that there will be a clamour among backbench TDs to make further compromises. This would be a mistake. The country needs a water utility that is not funded through general taxation.
Unfortunately this is a message that will be lost in the noise and anger that will sweep through the streets of Dublin today.