Irish Liberty Forum

Getting the message?

with 6 comments

I was having a little browse of politics.ie, where someone asked the question:

Just wondering if anyone has any thoughts on this topic. As being discussed on todays news and suggested today that if we as the general public pay more in PRSI would get a first class free health care system?

Fourteen posts later, not a single person has indicated that paying more PRSI would help. They aren’t calling for the type of deregulation that I would favour, but there is a consensus that the problems with the public service are both deep and structural. One individual sent a particularly striking message:

I pay VHI for medical treatment because otherwise my family will be left to die on waiting lists.
I pay tolls to drive on roads that a third world nation would be ashamed of.
I pay into fundraising at my kids school and still have to pay grinds for them to get a decent education
I pay bin charges to a private company because my council just stopped doing it
I pay sky for my TV because the Irish system is 20 years out of date
I pay for a private pension because the state one results in poverty
I pay for bottled water because my tap water is poisoned
I pay eircom phone watch to look after my house because the guards dont bother
I pay for taxis etc for my kids because public transportation doesn’t exist
I pay stamp duty on my new house because the government thinks if I managed to scrape together enough money to buy a house then they didn’t tax me enough the first time.

Can anyone tell me why I pay tax anymore?

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Written by Graham

April 17, 2008 at 11:59 am

Posted in health, Ireland, taxation

6 Responses

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  1. One can surely sympathise with the poster which you have quoted at length, Graham. However, what strikes me is that many of these problems arise because of the historical downgrading of public sector provision within a low-tax, low-spend, low-service economy. This forces people on to the private market to comepnsate – an expensive and unsatisfactory option.

    Within the public realm people can, through taxes and social insurance, collectively consume goods and services which would be cheaper than private provision: health care, education, transportation, pensions, utilities, etc.

    Take pensions, for instance. Save for those in defined benefit schemes (and even these are coming under enormous pressure), people are forced to purchase defined contribution schemes which are expensive and cannot guarantee a high post-retirement income (essentially they are glorified bookies where you pay at the equities track). However, through social insurance whereby everyone pays according to their means, people purchase at less cost a guaranteed income-related pension. Not only do employees win, employers would incur less costs than under many existing DB schemes. Its win-win.

    Go through most of the complaints listed and the fault is not, in principle, the public sector option. The fault is decades of governmental hostility to the public option, resulting in one of the poorest physical and social infrastrures in the OECD. That’s why people have to take the less attractive option of resorting to the private sector – because they have no choice. And under our current alignment of political parties, they will continue to have no, essentially, political choice to consume goods and service collectively in an efficient and progressive manner.

    Michael Taft

    April 25, 2008 at 8:34 am

  2. Hi Michael. I’m reminded of an old quote regarding the Republican Party in the US: that they would tell everyone that government didn’t work, then get into office and prove it. I bet you feel the same way about Fianna Fáil!

    From my point of view, the economics I have learnt and my understanding of politics, the poor value we are generally accepted to receive from government spending is quite predictable. Theory as expounded in works such as “The Use of Knowledge in Society” describes why governments are not capable of outperforming the market.

    I understand that you can make a historical case for your position, that the government could have spent much more on public services in the past, and could spend much more even now.

    I wouldn’t change my understanding of theory on the basis of such an argument, but I would be interested in how useful it was in interpreting the facts. For example, the Irish government reduced its spending as a percentage of GDP from 50% to 34%. When the rate was at 50% we were one of the poorest countries in Europe, and now that it is at 34% we are one of the richest.

    When I apply my understanding of theory to facts such as these, I see strong evidence of a causal, positive relationship between reduction in the proportional size of government, and growth in national prosperity. I don’t see evidence that we would have been better off if Ireland had instead increased its spending as a proportion of GDP.

    Alternatively, if we look at public spending in absolute terms rather than in terms of its relation to GDP, then we should bear in mind the concept behind the Laffer Curve: that the tax rates which maximise taxation revenues are not necessarily the highest ones. The Irish government increased its revenues by reducing Capital Gains Tax, for example. Higher levels of economic activity mean that government revenues can become far higher after tax rates receive major cuts. This is more-or-less what I see as having happened in Ireland.

    So if we wish to find the cause of poor quality public services, I would still offer my view that public services can never outperform private services, as a logical consequence of economic theory as given to us by Hayek or Mises. But in response to the empirical claim that Irish public services have been underfunded, I provide my own empirical observation: that growth rates, government revenues and spending have all increased as a result of the Irish government lowering its tax and proportional spending rates. This does not contradict your claim; it is only evidence that public services could have been funded better if tax rates and spending as a percentage of GDP had been reduced earlier.

    I’m not sure exactly what kind of theoretical framework you are working in, but maybe if I find out some more about it I could have a better idea how you come to your conclusions.

    Graham

    April 25, 2008 at 6:27 pm

  3. Graham, you raise a number of important points which could fill several posts. But just to deal one: I would agree that there is no iron-law that states that high government spending will result in national prosperity. You rightly point out that government spending was 50% of GDP and nobody would argue this was causing prosperity. Of course, 20% of the spending was going on interest payments courtesy of a borrowing splurge engaged in by the Lynch Government in the 1970s in an attempt increase demand in order to incentivise indigenous enterprise (this exercise in ‘vulgar Keynesianism’ was always doomed to failure given the poor state of our indigenous sector – a state that continues today). Another high expenditure item back then was unemployment – we paid for that twice: first, in benefits, second in lost revenue. After those two hefty items were spent there was little left over to engage in economic and social modernisation.

    Ultimately, the failure of those years was not a fault of government expenditure but rather a poor economic base. In other words, was spending too high (and on the wrong things as I mentioned above) or was wealth generation too low? We had to wait for the arrival of the multi-national sector in the 1990s to get the second part of that equation right (an arrival that was achieved by state-led strategies executed by the IDA).

    But if I agree that high spending does not automatically translate into prosperty, would you agree that high spending does not automatically translate into penury? I submit the Nordic countries as evidence of the latter – high spending countries (very high) yet, according to the World Economic Summit – hardly a Leftist body – they are one of the most business competitive economies in the world.

    At the end of the day there are no silver bullet solutions to our economic problems – whether that be to increase tax or decrease it, to cut spending or to increase it. What it takes is hard analysis and going where the facts lead us. So whereas – and by way of answering your last question – my theoretical framework begins in the tradition of European social democracy, I prefer not to be bound by precepts and solutions that are not viable anymore. However, at all stages, the best starting point is the democratic accountability of ‘market forces’ and the promotion of the public realm through market activity – the ability to people to collectively pursue social goals using, but not abusing, market practice. I’m sure that answer begs far more questions which hopefully we will continue to knock about.

    Michael Taft

    April 26, 2008 at 10:51 pm

  4. I am preparing replies to this wherein I will explain my framework in some detail. Sorry for taking forever about it.

    Graham

    May 19, 2008 at 11:43 pm

  5. Good point. The reality is that billions of euros have been sacrificed on the altar of statism and socialism. The health-service should be depoliticised. We need a privatised health-market with competing private hospitals competing for health-insurance premia. The burden of paying for healthcare should be shifted from the taxpayer to the premia-payer. The only liability of the taxpayer should be to pay the premia of the very poor who cannot afford it. Means-testing should be employed to determine who these people are. Health-insurance should be made compulsory for everyone but the insurers should all be in the private-sector and VHI should be privatised – it is woefully inefficient and Risk-Equalisation is market-distorting and undermines competition, having forced BUPA out of the market. A Michael O’Leary figure would simply not tolerate the childish spate of industrial disputes from porters refusing to move a patient to an operating-theatre because of demarcation disputes or electricians going on strike to stop others changing lightbulbs.

    FutureTaoiseach

    July 3, 2008 at 10:15 pm

  6. FT, I basically agree with you. And I think “sacrificed” wealth is an excellent description of what we are talking about. As unattractive as this perspective may be to people whom I both respect and admire, I maintain the view that the government and public sectors are effective bonfires of our resources, not merely of capital but of all of the wasted human potential and hampered social progress associated with them. Give me some time and I will purge you of whatever statism you’ve retained! 🙂

    Graham

    July 6, 2008 at 11:11 pm


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