Jim O’Leary: Tax plans the proof of FF and FG ideological compatibility

I’ve been doing a bit of digging into the election manifestoes of our two largest political parties to get a handle on how Herculean a task it might be to bridge the ideological chasm between them.

Fine Gael is a party that sits firmly on the right of the spectrum and wants to slash taxes even if it means compromising standards of public service provision.

Fianna Fáil, meanwhile, has reinvented itself as a social democratic party with a gentler approach to tax-cutting and a much stronger commitment to the public sector.

At least that’s how the narrative of the last few weeks would have it.

Well, it might seem that the thrust of that narrative derives some support from the plans of the respective parties for government current spending.

FF proposed to devote €4.8billion to raising current spending over the next five years; the corresponding FG figure was €4.2 billion.

On the other hand, FG was the more ambitious party in relation to investment spending having proposed an extra €4 billion for the capital budget for the 2017-21 period, compared with FF’s €2.7billion.

So, if we just add current and capital together (and ignore their differential impact on the much-lamented “fiscal space”), FG’s plans would result in higher public spending than that of FF.

A slightly surprising conclusion when set against the prevailing narrative.

Much more surprising (indeed “surprising” is an understatement of how it struck me when I discovered it in the aftermath of the election) is the comparison of the cost of the two parties’ proposals on taxation. The cost of the FF proposals? Just over €2.9 billion. And FG’s? A bit less than €2.5 billion. In other words FF was proposing to devote almost €500 million more to tax cuts over the next five years than FG.

Election documents

By the way, none of these figures are my estimates; they are all taken directly from the parties’ election documents. So much for FG being the leading “tax-slashers”.

The projected cost of FG’s commitment to abolish USC, at almost €3.5 billion over the 2017-21 period, was to be offset by a net €1 billion of increases elsewhere, including a 5 per cent levy on incomes over €100,000 and a range of base-broadening measures for high-earners. In contrast, FF’s more modest plans in respect of USC, costing €2.6 billion, were to be augmented by a net €300 million of tax cuts in other areas.

It seems to me that FG’s proposal in relation to a single tax, the USC, was adopted as a kind of shorthand for its overall position on taxation (and was taken as emblematic of its attitude towards public service provision), and the rest of its tax platform was pretty well ignored.

Political opponents

Lazy analysis, perhaps, but what else would one expect from hard-pressed(!) political commentators, not to mention political opponents.

What is bewildering is that FG made no serious attempt to counter what proved to be a damaging depiction of its position. Not once did I hear a FG spokesperson point out that FF proposed to cut taxes by more. Maybe I missed something.

In any case, the truth of the matter, as most disinterested observers have long concluded, is that there is no ideological chasm between the two parties at least as far as budgetary policy is concerned.

The difference between them in terms of spending proposals is trivial in the overall scheme of things. The €500 million gap that separates their respective current spending proposals is the equivalent of just 1 per cent of the expenditure base, comparable in magnitude to the kind of budgetary overrun that the HSE might record in a single year. Indeed, by this yardstick even Sinn Féin’s proposal to raise current spending by €6 billion – €1.2 billion more than FF – over the 2017-21 period does not look like a radical alternative.

Same page

As for tax, the two bigger parties are on the same page. The fact that both favour reducing taxes at a time when the overall tax burden is already at an historically low level – the sum of Exchequer tax revenue and PRSI contributions is projected to amount to 29.5 per cent of GNP this year compared with an average of 33 per cent over the dozen or so years before the crash and an average of 37 per cent through the late 1980s/early 1990s – is eloquent testimony to their ideological compatibility. In this respect parties like Sinn Féin (with its proposal to raise taxes) and the Social Democrats (with their undertaking not to cut them) are distinctly different. Jim O’Leary has worked in senior positions as an economist in the public and private sectors. He served as economics adviser to Dr Garret FitzGerald for a period in the 1980s. He can be contacted at mail@jimoleary.ie