The Unions, you will be shocked to hear, are not happy. Yesterday, Owen Reidy, who is the General Secretary of the Irish Congress of Trades Unions, took to the august pages of The Irish Times to declare that the Government’s apparent plans to reduce VAT for the hospitality sector in the autumn budget amount to “economic vandalism”.
Reporting on his comments, the paper warned that the tax cut for the restaurants and hotels “might severely limit the room for other tax cuts in the budget”.
You can see a narrative being formed here, in real time: That the hotels and the restaurants are taking your cash, and that ordinary working Irish people will have to pay more taxes to fund greedy chefs and waitresses, and, of course, their employers.
Of course this is a false narrative. Yes, it is true that the VAT cut for the hospitality sector, if enacted, will cost about a billion euros annually out of the one and a half billion euros that the Government has reportedly allocated for tax cuts in the budget. That leaves the rest of us with a measly half billion. But of course the bigger point here is that limiting tax cuts to one and a half billion euro is not some legal imperative. It is a political decision.
As I wrote on these pages yesterday, the Government’s total budgetary plans include billions in new spending – about a 7% increase in total spending annually – as against only that €1.5billion in tax cuts. There is nothing in the wide earthly world preventing them from taking the opposite approach, limiting spending increases to 1.5billion and giving billions to the taxpayer in tax cuts.
In fact, if the Government abided by its own rules – the very rules it has set for itself in terms of limiting public spending, then it would only be increasing spending by five per cent, instead of the seven per cent it now plans. If you simply limited spending increases to five per cent, then that would make almost another €2billion available for tax cuts.
It should be noted here that this particular fairy tale about the restaurants and the VAT suits the Unions perfectly, because the Unions in general favour spending increases over tax cuts. The vast bulk of Union membership in Ireland comes from the public sector, where salary increases count as public spending, and where public spending growth means more jobs which in turn means more union dues. The bigger the state becomes, the better life is for the public sector unions in particular. Horrified though they might be by a tax cut for the restaurants, they would be even more horrified if some of their allocated public sector spending increases were re-directed to tax cuts for workers and families.
The media, too, is guilty here, for going along with Government spending plans as if they were inherently and unquestionably prudent. When the Government says things like “we have sought a balance between public spending and tax relief” journalists have a tendency to nod along. In part because so few of them understand economics, and in part because like the Unions, the media is now increasingly dependent on the continued growth of public spending.
As for Government, it benefits both ways: It benefits from both announcing prudent spending limits of five per cent, allowing it to pose as fiscally responsible. And then it benefits from breaking those same limits because it gets to pretend that it is doing something extraordinary to deal with a crisis. All the while, everybody agrees that the humble taxpayer should be grateful for whatever pittance he or she gets.
The thing here is: All of these limits and pots of money are ultimately a political choice. The idea that restaurants and hospitality is essentially robbing tax cuts off the rest of us is a lot of nonsense. What is actually happening is that the Government doesn’t want to give anyone other than the hospitality sector a significant tax cut. And it – and its allies in the public sector unions – are perfectly happy for voters to focus their ire somewhere other than on the budget package in the round.
Anyway, this is all moot. For whatever reason, Irish voters are infamously unwilling to vote for tax cuts for themselves, and consistently tell pollsters that they would prefer more public spending to the option of being able to keep more of their own money. They can hardly then complain when the Government gives the tax cut to the people who have campaigned endlessly for one – the restaurants – and doesn’t give one to anyone else. It’s what you voted for.
Finally, you cannot write this piece without noting that there’s another industry that also got a massive tax cut. Last year, newspapers were exempted entirely from VAT. You will note that the price of newspapers did not go down.
That is because what happened in that policy was a direct subsidy to a falling and struggling media industry. I suppose, in return, a little bit of positive spinning of the budget is the least that our politicians can expect for forking over our money.