Source credit: www.irishnewsarchive.com

Irish Emergency Budget 2009: On June 05, 1997, the Irish Independent famously ran its front page editorial titled  - - "For years we have been bled white - now it's payback time" - - a day preceding the general election and on Tuesday, the beneficiaries who have brought economic ruin in the interval, will deliver a payback to the people. Ignorant politicians, aided and abetted by vested interests in a democracy of many shortcomings, travelled on the road to perdition and blew the best opportunity ever, to put the Irish economy on a sustainable course.

Labour Party Finance Minister Ruairí Quinn, in January 1997, had introduced a budget, which provided for a surplus. The top rate of income tax was kept unchanged at 48% and the standard rate was reduced by 1% to 26%. Quinn had also negotiated with the European Commission on cutting the standard rate of corporation tax to 12.5%, to provide for the end of the zero rate on export profits, that had been introduced in 1956 by Fine Gael Finance Minister Gerard Sweetnam, in the first budget, that was prepared with T.K. Whitaker as Secretary of the Department of Finance, and also the expiry of a tax of 10% on the manufacturing sector, which had been in force since the early 1980's.

Fianna Fáil's finance spokesperson Charlie McCreevy, in his response to Ruairí Quinn's 1997 Budget, acknowledged that the “favourable budgetary position” could only have been dreamt of by Quinn’s predecessors, from Bertie Ahern right back to the first minister  for finance, Michael Collins, in 1922. However, McCreevy warned the Budget “is an attempt to revive the electoral fortunes of the government by trying to purchase the votes of the electorate.”

“I predict the budgetary strategy adopted by this government over the past two years will do lasting damage. I have made that prediction for some time and reiterate it today,” McCreevy said. 

 “The problem is that when one has to take corrective measures, it is always the poor at the bottom of the scale who suffer most — the people whom those with bleeding hearts overtly say they are trying to protect...When changes and reversals of policy must come, whether a left or a right-wing government is in power, it is always the same unfortunate people who must suffer. That is what will happen again,” he added.

Finance Minister Ruairí Quinn got little thanks for his prudence and subsequently, the chairman of Independent News & Media (IN&M), Sir Anthony O'Reilly, denied that the 1995/97 Rainbow Coalition was given hostile coverage in Independent titles, not because of tax policy, but because of disputes over a number of commercial issues. He also said he had no foreknowledge of the pre-election editorial.  

The new Fianna Fáil Finance Minister Charlie McCreevy with cheerleading from the junior coalition partner, the Progressive Democrats, poured oil on the property market by massively extending property tax incentive schemes and the capital gains tax rate was cut from 40% to 20%. At the same time, the throttle was opened on public spending, which grew at an annual 14% rate in the period 1997-2007. McCreevy however,  introduced many stealth taxes and the overall tax burden fell to 35% of GNP in 2004 when McCreevy moved to Brussels, compared with 35.4% in 1997. An illustration of high indirect taxes is for example, the price of a new car in Ireland is about 30% higher than the Eurozone average.

Source: Goodbody Stockbrokers

Property-related taxes jumped from 4% of total revenues in 1995 to 17% in 2006. In November 2004, the then Finance Minister Brian Cowen, said 28% of the average price of a new housing unit was related to taxes and other public charges. So in the peak year of the boom, when 88,000 new housing units were built, the Government collected about €100,000 a pop. The Irish Housebuilders Association said in October 2006 that the Government tax take from new homes building industry was expected to reach €9.5bn in that year.

So Minister Cowen was funding more than half the public payroll and pensions bill with taxes on new houses. Maybe he believed the then recently retired US Federal Reserve Chairman Alan Greenspan, had abolished the business cycle?

Direct employment in construction rose from 126,000 in early 1998 to 282,000 in December 2006 and the overall employment grew by 605,000 in the period 2000-2007. However, in the exporting goods and services sectors, employment fell.

SEE: Irish full-time employment in manufacturing and internationally traded services fell 10,297 in the period 2000-2007 while the total workforce expanded by 605,000

On Tuesday, Mary Harney, former leader of the defunct Progressive Democrats, will sit with colleagues on the Government benches in the Dáil, in a scene that should evoke English politician Benjamin Disraeli's comments in 1872 on William Ewart Gladstone's Liberal Party government: "I doubt not there are in this hall a widow and an orphan who remember the profligate proposition to plunder their lonely heritage. But, gentlemen, as time advanced it was not difficult to perceive that extravagance was being substituted for energy by the government. The unnatural stimulus was subsiding. Their paroxysms ended in prostration. Some took refuge in melancholy, and their eminent chief alternated between a menace and a sigh.

As I sat opposite the treasury bench, the ministers reminded me of one of those marine landscapes not very unusual on the coast of South America. You behold a range of exhausted volcanoes. Not a flame flickers on a single pallid crest. But the situation is still dangerous. There are occasional earthquakes, and ever and anon the dark rumbling of the sea.…"

They should all be ashamed of themselves and Harney in particular.