EU to control of Irish tax policy
BY ROBBIE MacGABHANN
Wake up, we've bee living with the mushrooms again. Last 28 February, EU finance ministers, including our own Charlie McCreevy, met and ``broadly endorsed'' new criteria for the European Commission to assess the budgetary policies of individual EU member states. The new EU criteria could severely limit any government's ability to independently plan and execute their own economic policies.
This is a crucially important piece of legislation, but up until now there has been no Leinster House debate about it, no votes taken to see who is in favour or against this significant erosion of economic sovereignty. Up until this week, there has been no media coverage of the new criteria except for an exclusive front page story in the Financial Times.
Under the EU criteria, member states can only introduce tax cuts without cutting spending if their economy is in surplus or close to it. Many economic policy makers have in the past cut taxes to help spur economies out of recessions and budgetary deficits.
Cutting taxes in an economic boom, as is the case in Ireland for the last four years, would also be stopped by the EU. The EU Commission believes such cuts could lead to increases in inflation. This policy shift undermines one of the central planks of the new Partnership for Prosperity and Fairness (PPF). The PPF proposes cutting taxes to leave workers, on average, 10% better off over the next 33 months. Inflation in the 26 Counties is already one of the highest in the EU.
The third EU criteria involves governments taking account of the long term sustainability of public finances. This in itself is not a bad thing but could lead to governments being forced to cut spending on important social services, health care and reform. Why these areas in particular? Because experience around the world shows that when governments cut spending, it is these areas that get cut first. For a good example of this look no further than Charlie McCreevy - he was a past master of the miserly cutback during his brief tenure as social welfare minister.
Finally, the EU proposes that tax cuts have to be part of comprehensive policy packages. Simply put, this means that income tax cuts must be accompanied by cuts in welfare payments.
Much of the control for the implementation and monitoring of these criteria falls, as is always the case in the EU, onto the shoulders of an unelected official. Step forward Pedro Solbes, the EU Commissioner for Economic and Financial Affairs.
So now you know the plan. The only remaining question is when will the Dublin Government take the time to tell us.