The real reason people are mad at the Irish government pension levy
We need to “rob” the pension funds anyway – and it is actually a progressive tax. But the country would prefer that we rob large financial institutions (and the Germans and the French) first. They are indignant about it and I agree with them.
Let’s face it folks. Taxing (or “putting a levy on” ) the profits of private pension plans in Ireland was always going to happen. It’s not a new idea – the British did it some years ago alongside a fund that is designed to help pensioners whose plans go bankrupt. It is a classic “stealth tax” – so-called not because its implementation is sneaky, but because it is one of those taxes that you never really see or feel directly. It is also stealthy because it plays a little on consumer confusion. A lot of the general public in many countries will associate financial institutions with big, undeserved profits and with bailouts. It is very easy for this tax to be mistaken for a levy on the financial services industry, when in reality we all know it flows straight through to the average punter. And because we never see the “before” and “after” snapshots in our own pension values (and for many the annual statement is for a time so far away we don’t care), this tax goes on its merry way.
Although I will wait to see if I am contradicted by someone who knows what they are talking about, I imagine it is also a relatively progressive tax. That means it will hit the richer folks more than the poorer folks. This is the bedrock of most social contracts. It makes we wonder why the left and centre are carping about this.
I think that it all comes back to the general dismay we feel about the new Irish government. As this blog talked about in March, many felt the FG/LAB pact could strike just the right balance in sorting out Ireland’s financial crisis. Labour as the cannon, FG as the rapier.
But the Irish government has allowed itself and the nation to be carried along by the prevailing currents. They needed the courage to threaten a nuclear option, as Greece seemed to put on the agenda last week.
The key difference between an Irish threat and a Greek threat is that the Irish threat had a smidgen of credibility. Because our problem lies largely in borrowing to solve a banking crisis, rather than a sovereign one, our chances of survival outside the Euro are very real. Greece is such a basket-case that everyone knows they cannot go it alone.
However, as time has progressed and events unfolded, Ireland has missed its moment. Now, the threat of leaving of the Euro is likely to have to be followed through.
It makes we wonder how the conversation must go in the Irish cabinet.
Do they know that Ireland’s impending insolvency is a matter of mathematics, not conjecture?
Do they understand that a 1% interest rate cut from the EU/IMF will simply prolong the time until insolvency rather than avoid it?
Do they see that the touted 2013 ESF measures will make little or no difference – just “surviving” until then won’t work?
Are they prepared to continue to fund domestic spending and interest payments on debts (mostly banking debts) with choices that hurt the Irish public?
Are they familiar with the phrase “rearranging the deckchairs on the Titanic?”
Unlike many I think the levy on private pensions was inevitable. Unlike most, I think it is a sensible idea in the circumstances. Even with merely a cyclical soveriegn debt shortfall to cover, this is one of those measures that must now feature in the “Top 10 revenue raising measures for new governments” global handbook.
It still took courage for the coalition (particularly Labour) to make the choice given its unpopularity. I think the real reason people are mad at the pensions levy decision is because the coalition have not shown the same courage when dealing with the EU, ECB, IMF or the bondholders.
We would have had to rob the pension funds anyway – the country would prefer that we rob large financial institutions, the Germans and the French first. And I agree with them. Getting the little things right, but running away from the one or two big, brave decisions, will ruin Ireland.