Put your fingers in the wound. See the table opposite. This is what it was like the last time Ireland chose to tax its way out of a borrowing crisis. It took 12 years before the books balanced. That's from 1975 to 1987. It failed because, by the time it was done, Irish debt/GDP had shot up to 122% and Ireland was out of road. The marginal tax rate had peaked to over 70%, close to where Labour would like to take it again. It took Austria 14 years and Spain 15 years to achieve balance, both increased taxes as a percentage of GDP, they also increased spending. Finland, Germany, Canada and Norway all cut Government spending as a percentage of GDP and were in balance in 2 to 4 years.
The message is increase the tax take and you'll spend much longer in hell. Alternatively, when you lighten the burden on the real economy of carrying public spending, the economy flourishes. Knowing that taxes won't increase, people stop hoarding cash and start spending it.
Government says one thing but does another
Despite the rhetoric, the Irish Government has, so far, filled the hole with higher taxes because it is politically easier to do. Meanwhile, parties of the left are today telling the Irish public lies. By going light on cuts, by ring-fencing those on strong pay in the public sector and by proposing to increase taxes, they condemn us to a decade of failure. Look, this is hard to digest, but it is the truth:
- Decreasing income tax as soon as possible is the way to go.
- Filling the hole in the public finances by cutting is better than increasing taxes.
- The longer the austerity period is stretched out, the worse the pain we will endure.
- Five years of Labour-dominated policy would be catastrophic.
That's the internal solution. Cut and cut, but protect the most vulnerable and tax revenues will recover quickest to rebuild what has been lost or delayed.
The external solution has to be to relieve Ireland of the burden of the excess debt. We can't repay bank bondholders and the ECB. Ireland must launch a diplomatic offensive led by our most able European experts to support an E-Bond, transferring that excess to the centre. Those opposed need to be directed to the overwhelming academic and economic support that Ireland is receiving from international heavyweights who are convinced that Irish citizens must not be punished to underwrite poor banking decisions.
Get a gun
You can achieve more with a nice smile and a gun than just a smile. Ireland should explore refinancing elsewhere through bilateral loans from non-EU sources like the Chinese Government, who may be seeking an economic base for expansion into Europe. If we have to threaten to bring down the house of cards that is the unreformed Eurozone and, with it the EU, then we must be prepared to do so.