Is the austerity juggernaut running out of gas?

For five years, unions have argued that austerity is preventing economic recovery. Bernard Harbor asks the question, is the message finally getting through?

There’s something different about the pre-budget chatter this year. For the first time since 2008, there’s a serious debate – among economists, the media commentariat, and even within the coalition – about whether, and how fast, the austerity juggernaut should keep on rolling. Even from some surprising quarters.

The subtle yet significant shift has been provoked by a number of things: Austerity fatigue; the €1 billion annual savings from the ‘promissory note’ deal; persistent off-stage IMF whisperings that austerity has gone too far; the emergence of the trade union-backed Nevin Institute, which has at last provided a credible and consistent expert alternative to the economists’ failed consensus.

And, of course, it’s becoming harder to argue that austerity is working. Even if you set aside the huge cost of unemployment – particularly youth and long-term joblessness – or our damaged public services after years of savage cuts, we have still struggled to meet troika deficit targets as unemployment and low confidence continues to depress consumer spending and, thus, exchequer income.

In this environment, more people are listening to the Irish Congress of Trade Unions’ (ICTU) view that Ireland can pursue an alternative to austerity and still meet its 2015 troika deficit target. Launching its pre-budget submission in the summer, ICTU called on finance minister Michael Noonan to abandon plans for further spending cuts in health, education and other public services. Congress also said further tax increases should be confined to the top 10% of households, which means those with a gross income over €109,000 a year.

On incomes, Congress says increased taxes on the highest earning households can be achieved without increasing tax rates or changing tax bands – primarily by targeting tax reliefs enjoyed by businesses and higher income households. This would also avoid hitting all but the very highest paid PAYE earners.

Congress points out that, on average, the highest earners pay about 27% of their income in tax – far less than the nominal tax rate of 52-55%. This is mainly down to tax reliefs. If the average figure were increased to around 30% by targeting tax reliefs and other breaks, there would be no need for increased taxes for households that earn less than €109,000 a year.

ICTU’s has been a lonely cry in the wilderness during half a decade of cuts, emigration, mounting joblessness and worsening public services. Now – painfully slowly, but just as surely – other voices are wondering if it’s time to shunt the austerity juggernaut up a side street. We’ll know how influential those voices are on 15th October.