NEW YEAR, NEW Oxfam report bleating about the inequalities of the nation. We’re told that wealth is overly concentrated and that the vast majority of people are concerned about it.
This, despite the fact that Ireland is actually a more equally divided society than the European average – with one of the most progressive taxation systems. We must have an “Equality #1” campaign with colourful banners and simplistic slogans to fix this non-problem. There must be an election on.
In the pre-bust election years we were able to forget, given the walls of cash arriving in the Department of Finance as if by magic, that you usually have to hurt one group in society to pay for things another group wanted.
We’ve returned to normality and in this, the first election in an era of slightly expansionary budgets after a deep recession, we have political parties and advocacy groups talking up their various special interests in search of a few quid. Every major political force in the country has said that they will jack up taxes on one group whilst delivering tax cuts and welfare increases to others.
Unequal or Progressive?
On the matter of inequality, let us first consider the facts. A few left wing brain boxes have said in their time that “Ireland is the most unequal country in the OECD”, having the highest Gini coefficient in the bloc of developed nations.
The Gini coefficient is a ranking of equality in the country, with a score ranging from 0 (complete income equality) to 1 (1 person has all the money). Usually when someone wants to peddle the message about Ireland being really unequal, they selectively look at our ranking before considering taxes and social transfers.
This is, of course, a ridiculous way to look at income equality, because those with high earnings lose a lot of it to tax; which is then transferred to those with low or no earnings in the form of welfare payments. Without taxes or transfers, Ireland does indeed look an unequal country; right at the bottom of the rankings with the Scandinavian welfare paradise Finland next in line after us, as it happens.
When you look at Ireland after taxes and transfers are taken into account, we are more equal than the European average, slightly more equal than France and slightly less equal than Germany. That is not bad. To make this happen, we have the single most progressive taxation system in the OECD; and social transfers reduce the income gap more than in any other OECD country.
Economics of envy
Ireland is set to become more equal again after our current election, because all the major parties are proposing that the “emergency” USC tax will be retained or raised on people earning over €70,000 to €100,000 depending on the manifesto.
This cash will help to pay for increases to welfare payments that are also promised. It is tragically amusing to watch political parties say that they will hire more doctors to fix the health service, whilst inviting them to come and live and work in a country where their incomes will be specifically heavily targeted to pay for it. Indeed, Sinn Fein wants to introduce a top marginal rate of 62% on incomes over €100,000 that is sure to attract the doctors in a world where there is a global shortage of medical talent.
The language around hitting higher earners speaks to a political class that can only think in black and white. In between elections, the IDA constantly warns us about high personal taxes playing a role in investment decisions, because companies consider how much their own executives would be hit if they came here to help set up operations; and the trouble it creates bringing in other talent. Yet, we hear that USC tax cuts will be “clawed back” from higher earners, who will be “penalised” for… What, exactly? The audacity to do well in life?
We are running on the economics of envy, and there are a variety of political groups who would cut other taxes, abolish water and property taxes, build 100,000 new social homes, expand the health service and hire more teachers and gardai… and pay for it all with an increase in taxes on the 5% of taxpayers who earn more than €100,000 a year. That doesn’t seem like a sensible, sustainable approach.
Why bother being successful?
Another trope thrown around by leftie brain boxes is that the rich got off lightly in the recession. Actually, as pointed out by the right wing brain boxes of the Hibernia Forum during the week, the richest 10% of Irish people saw the biggest drop in their incomes over the past number of years. Admittedly they’re followed by the poorest 10%, but then the income drops show a much flatter and smaller reduction for everyone in between. Most groups lost between 7% and 10% of their incomes in the 2009-2016 period.
The richest 10% lost 14% of their incomes and the bottom 10% lost 12.5%. It is right and proper that the lowest paid in society should be the first to get money back in good times, but it is wrong to say that the richest got off easy. However, it seems that the narrative suits some, and the top income earners shall have to eat more and more taxes for the foreseeable future.
The question becomes, why bother being successful in Ireland if you can keep half or more of your income by moving somewhere else? And why would you move to Ireland, as a doctor or an executive looking to invest or a highly skilled individual helping drive our economy, if you could take a job elsewhere and earn more after tax?
All around the emotive politics of inequality we hear about the rich this, the disenfranchised that. Another plank of Oxfam’s inequality campaign is to point out that women still earn 14% less than men in Ireland. Boo, hiss, etc. Naturally, 92% of women and 74% of men believe this is unfair when asked about it. What the pollsters fail to mention is, women earn 17% more than men… before they have children. This is mostly thanks to the better educational attainment of women in the workforce and the type of jobs they seek.
Women pay a steep penalty for having children, but at the same time it is difficult to reconcile this in the real world of work. If two colleagues of equal outlook and ability, two women say, start a job as graduates on the same day and work at the company for 10 years; but one of them has three children and takes nine months out for each, how can you justify them receiving the same opportunities over that time when one works 23% less time than the other?
Yes, we need to do more to facilitate affordable childcare; but simply saying “that gap should be equalised by law” is as ridiculous as me asking for a 17% pay increase to match my better educated, childless female colleagues.
Our society has its troubles, but boiling them down to a simplistic argument about income inequality usually leads one to simplistic and unworkable solutions. We need to contemplate where we actually stand on inequality, and find solutions to our problems that go beyond “tax the bejaysus out of them rich fellers to pay for it all.”