Confessions of a Political Animal

September 28, 2008

When Irish eyes stop smiling

Filed under: Conservatives,Economy,Ireland,Public spending,Tax — Political Animal @ 9:03 pm
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British right-wingers have spent much of the past decade or so constantly turning their eyes enviously towards our neighbour across the UK’s only land border. Now that the Conservatives and their ideological fellow travelers are no longer required to see the Republic of Ireland as some kind of state sponsor of terrorists, they have noticed that this is a county which in many ways must appear as a kind of centre-right utopia.

Two right-wing parties, with significant historical differences but few contemporary ideological variations, alternate in constant government, with the ultra-free market Progressive Democrats often featuring in coalitions (albeit by all accounts the party will soon cease to exist). The three left-of-centre parties combined achieved less than 22% of first preference votes in 2007 elections. Ireland has the lowest levelof public spending as a proportion of GDP of any of the pre-expansion EU member states (35.2% compared to an EU-15 average of 48.5%) and saw phenomenal levels of wealth growth. The easily-made, albeit false, link between these two facts appeals to the right, especially if the effects of decades of vast EU grants are ignored. Regulation of industry is kept to levels about as low as EU requirements will allow: after all, perhaps the most famous Irish commercial export (after Guinness) is the union-banning, discriminatory, complaint-ignoring Ryanair.

And then of course, there is the matter of tax. The Republic of Ireland has managed to effectively establish itself as the tax-haven of the western European Union, something which has raised the hackles of many other EU nations. In particular, the Republic of Ireland’s corporation tax levels are amongst the lowest in the EU: compared with the UK’s main rate of 30%, Ireland charges just 12.5% on trading income and 25% on non-trading income.

And, if the right are to be believed, this is the secret to Ireland’s economic success – ‘the Celtic Tiger’: a mixture of small government, low regulation and ultra-low taxation. So long as you choose to ignore the worrying rise of an underclass, disastrously low expenditure on pensions and crumbling infrastructure beyond that upgraded using EU cash, there would appear at first glance to be some basis to this claim. Like Britain, Ireland effectively sat out the last wave of recessions to sweep across Europe. And there has been no shortage of right-wing politicians urging Britain to guarantee its position by emulating the Irish model in full. As recently as the end of August this year, the man who will probably be the next Chancellor of Exchequer (or one after next), George Osborne, bemoaned losses of previously-UK based multinationals to the Republic and demanded a cut in corporation tax levels.

But suddenly, Ireland is ahead of the curve in a less enviable fashion. To little fanfare on this side of the Irish Sea, Ireland last week became the first eurozone country to officially slip into recession, following two quarters of negative growth. Whilst there can be no doubt that other EU member states, almost certainly including the UK, will be following suit within the next twelve months, the fact that the Republic is suffering as much, if not more, than its counterparts puts lie to the claim that the low-tax, low-regulation economy of Ireland has in some way fire-proofed it against the effects of global economics. Nor is there any expectation that Ireland’s pain will be any more short-lived than that of other nations. According to the Chief Economist of Ulster Bank

I think there is going to be a further slowdown in the third quarter of this year, and this will be even bigger than the slowdown we’ve seen so far.

Indeed, the pattern of the downturn in Ireland looks depressingly similar to that being experienced elsewhere on both sides of the Atlantic. Slowing housebuilding, declining investment and a deteriorating labour market are very much shared factors. Ireland’s recession will be just as bad as Britain’s, or that of France or Germany, and no amount of neo-liberal taxation and spending policies is going to help it.

So can we expect some form of re-assessment from those politicians and economists who have championed the Irish way as some sort of panacea that would cure all the ills of the allegedly bankrupt European social model? I’m not holding my breath.

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