Bail out the People, not the Banks!

Posted: February 7, 2011 in Welcome

So how are we going to pay for the €19 billion deficit?

Every time an election candidate proposes anything radical, they are hit with this question. Then they are told that if we tear up the IMF deal, the ATM machines will stop working and there will be no money to pay social welfare or public sector workers.

The same scaremongering tactic was used in the Lisbon debates. If you voted No, then foreign investment would flee the country. We were instead supposed to ‘Vote Yes for Jobs’ and ‘be at the heart of Europe’. But after we were finally dragooned into voting Yes, the jobs never appeared. And far from being ‘at the heart of Europe’, we have been shafted with a demand for interest payments of 5.8% from our ‘friends’ in the EU.

So instead of falling for the blackmail, let’s stop and think.

Politics is not just about answers but about how questions are framed and who gets to frame them. The particular question: How are We going to Fix the Deficit? contains three assumptions.

First, who is this ‘WE’? Nobody was talking about how WE could help share the wealth when the Celtic Tiger was booming but yet when the crisis hit, the We word was invoked everywhere. It is only when there is pain about, that the elite talk about sharing.

Second, the question conveys an image of a hole that has to be filled. But this hides the fact that tax revenue keep on falling and so the ‘hole’ gets deeper. Government revenue fell by 4% in 2010; 19% in 2009; 14% in 2008. The reason should be fairly obvious. The more the government cuts, the less money people have in their pockets, the less they buy and so the less people are employed. The ‘deficit hawks’ ignore how their demands for ever more cuts creates a vicious downward cycle that deepens recession.

Third, the question gets its listener to focus only on the public sector and take their eye off the private sector. It assumes that the problem with the Irish economy is the public finances. Yet the most recent figures from the Central Bank, however, contains an ominous figure about how capitalists have gone on an investment strike.

THE INVESTMENT STRIKE
2008 2009 2010 2011
Gross fixed capital formation -14.3 -31.0 -24.8 -13.2
Of which: Building and construction -13.2 -34.9 -32.0 -22
Of which: Machinery and Equipment -15.3 -19.3 -10.0 00
This table shows the astounding drop in investment in the Irish economy over four years. In our society, the bulk of capital for such investment is held by a tiny number of people who only seek an opportunity for profit. They are now sabotaging society by their refusal to invest. The table illustrates how there has been a huge fall not just in construction – as would be expected but also in the broader category of machinery and equipment.

Investment for profit is the engine which drives a capitalist economy. When it seizes up, the whole of society is thrown into a crisis. One aspect of that seizure will be public finance because tax revenues fall and tens of thousands are thrown onto the dole.

So instead of framing the question as: ‘How will we plug the public deficit’ we could equally well ask: What will we do about the investment strike that is causing crisis in public finances and the running of society?

This leads naturally to the issue of what will we do about the super-rich who show no concern for Irish society at large even while their paid mouthpieces tell us to make sacrifices. People Before Profit-United Left Alliance is proposing four principal mechanisms for tackling this issue. The assumption behind the combined measures is the necessity to encroach on the power and resources of capitalists who refuse to help our society.

1. STOP BAILING OUT BANK AND BONDHOLDERS

Last week, the Irish government paid out €750 million to Anglo-Irish bondholders. Yet the combined ‘savings’ from slashing the income of social welfare recipients this year amount to €870 million.

Which only begs the question: Why is it ‘realistic’ to cut social welfare to pay off the likes of Goldman Sachs?

The United Left Alliance will cease these payments to bondholders. Bondholders are very wealthy people who move their money about for speculative purposes. They foolishly gave huge amounts of credit to private Irish banks and so they have as much right to make a claim on the Irish people as regular punters who lose at the bookie shop.

We also advocate an end ‘re-capitalising’ Irish banks. These banks have already received €60 billion but are demanding still more in funds. We have been repeatedly told that these injections of public money are necessary to get credit flowing again.

But it has just been revealed that €110 billion was withdrawn from Irish banks in the past year – including €18 billion in Irish funds. In other words, a quite run on Irish banks is underway because the Irish are so ‘unpatriotic’ that they put their greed for profit over the welfare of society.

What is the point, therefore, pumping ever more public money into a leaking system.
We need instead to take emergency measures to create a good state banking system from the remnants of the private sector. The debts of that were run up by these banks will be repudiated; all accounts below €100,000 will be guaranteed by the state; emergency laws will be introduced to take the physical assets and accounts of the old banks into the new state bank. This bank will then function like a credit union and will be banned from engaging in speculative activity. Large-scale loans – generated from deposits from citizens – will be directed towards planned investment projects that create jobs and provide a real return.
These measures will save billions for Irish society.

TAX THE MILLIONAIRES TO SAVE THE POOR

A number of measures can raise funds to help society

A Wealth Levy: the last Bank of Ireland wealth report indicated that there were 33,000 millionaires who had combined assets of €150 billion. The economist Tom O Connor has adjusted these figures to take account of falling property prices and rising bond market prices and calculates that this millionaire class now has €121 billion in assets. A wealth levy of 5 percent would raise €6 billion – and do away with the need for the savage cuts in last year’s budget.

A new tax on incomes over €100,000. It is not fair that someone who receives an income of €200,000 pays the same rate of tax as someone on €40,000. All income of single earners over €100,000 should be taxed at 70 percent to raise necessary funds. After World War 2, Japan established a legal maximum income of five times the minimum income. So a 70 percent tax rate looks ’moderate’ by comparison.

Impose a Financial Transaction Tax: Dublin has become a major centre for financial speculation. Irish resident investment funds accounted for 10 percent of the eurozone area. These include hedge funds and funds used to speculate in government bonds – including those of Ireland itself. The French right wing President Sarkozy is currently advocating a financial transaction tax of 0.5% of currency movements across borders. Such a tax would generate considerable revenue for Ireland
.
Increase taxes on profits. Ireland’s industrial development strategy has been based on its status as an Atlantic tax haven but this is no longer sustainable. Other countries are undercutting Ireland’s low corporation profits tax rate and there is now huge pressure from the EU to change it. Each 1% rise in corporation profits tax will generate an income of €300 million. So a 1.5% rise, for example, would do away with the need for a Universal Social Charge on PAYE workers.

STOP THE GRAVY TRAIN – SLASH THE JUNKETS

The left does not accept the artificial division between public sector and private sector. We want to tackle the greed of the rich in both sectors. It is unacceptable, for example, that Cathal Magee, the head of the HSE, is earning more than the US President Barack Obama. These exhorbitant managerial salaries must be cut.

We want to:

Slash the salaries of TDs, judges and top civil servants and semi-state executives. The scandal whereby the most recent crop of Ministers walk away with pensions of more than €200,000 must end.
Impose a maximum salary of €100,00 on the public sector. It is time to restore the ethos of public service not private greed.

End the rip off of public funds through crony procurement. Irish capitalists have traditionally looked for secure profits by getting government contracts. Hangers-on of Fianna Fail have used the planning mechanism to secure big pay-outs. This needs to stop.

Stop consultants working in private practice while paid by the state. Introduce generic drugs in all cases except where necessary for health reasons.

PUBLIC INVESTMENT TO CREATE JOBS

The engine of our economy must be started through a new investment programme that can create jobs. As private capital has failed, it is necessary for the state to step in and take a lead. This shift to public investment has two aspects;

A Public Works programme to give immediate work to the unemployed. 14% of the Irish workforce were employed as construction workers at the height of the Celtic Tiger. These should be taken on by a state construction company to engage in necessary infrastructural work while the economic crisis lasts. We need, for example, a major insulation programme for housing. Instead of installing water meters for eventual private profit, people should be employed to fix the water infrastructure.

Long term state investment to create jobs. We need to take Ireland’s natural resources of oil and gas into public ownership. These assets are currently valued at €45 billion but will increase as oil and gas become more scarce. Public ownership of these resources will allow us to develop downstream industry and to fund new investment projects such as the Spirit of Ireland proposals to develop wind and tidal power off our coast.

In 2008 and 2009, a quarter of a million people were made unemployed. The cost of this to society at large was €14.5 billion when account is taken of falling PAYE taxes and payment of social welfare.

The ‘deficit hawks’ in the right wing parties say we must keep cutting. The left says invest in our society and put people back to work.

Our programme is practical and workable. It requires popular mobilisation to take the resources of our society out of the hands of a tiny minority who have squandered it and continue to squander it.

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