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The gate of the year

Posted on December 22, 2016

Tom Healy, Director NERI
Tom Healy, Director NERI

The words of a famous poem are occasionally invoked at the beginning of a new year. 2017 seems as good a year as any to use them:  “I said to the man who stood at the Gate of the Year, ‘Give me a light that I may tread safely into the unknown.’”

This time last year there were three things, two of which we knew were possible, and one of which was not even considered as a possibility. The two possibles were:

  • A decision on the part of people in most parts of the UK to exit the European Union of which it had been a member since 1973.
  • A decision on the part of close to a majority of voters in the USA to elect Donald Trump..

The one thing considered impossible was a demand by the European Commission that the Republic of Ireland recover €13 billion in forgone tax.  See “State aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion, Brussels, 30 August 2016”. Contained in that press release was the following:

The Commission can only order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in this matter, which dates back to 2013. Ireland must therefore recover from Apple the unpaid tax for the period since 2003, which amounts to up to €13 billion, plus interest.

One company. One decade. One country.

It says something of our societal values and priorities that the Irish Government supported, in the main, by most political parties is prepared to contest this ruling in the courts when public services in key areas such as social housing, community mental health services, speech and language therapy resources, investment in broadband and in renewable energy desperately needs more investment. No doubt it will be suggested by some that, whatever the morality of the manner in which various large multinational companies have been dealt with for taxation purposes by the relevant authorities in Ireland, the fact is that thousands of good quality jobs depend directly or indirectly on foreign direct investment and it would be foolish not to endorse (or at least remain neutral on) the Irish challenge to the Apple tax ruling. 

The reality – whether we like it or not – is the following:

  • A smaller EU soon to be without the UK is calling time on the unique Irish tax package not in relation to the ‘headline rate of 12.5%’ but the basis on which profits and taxes are calculated here.
  • The political upheaval in the USA is calling time on the Irish beggar-thy-neighbour low corporate tax strategy.
  • We need to call time on the UK social model as an exemplar and means for wage-setting, tax-setting and socio-cultural shaping.

The last point, above, is crucial. Though many do not like to admit it, the institutions, governance, social norms and latest fashions in political ideology are very much taken from across the water (with suitable name changes and rebranding). When the UK joined the ‘common market’ in 1973 it was said that the Republic of Ireland had no option but to join. When most parts of the UK voted, in 2016, to leave the EU it is being said that we must further reduce our already low overall personal tax rates as well as ensure that low paid Irish workers are as poorly paid as similar workers in similar sectors and occupations across the water (or up the road as the case may be). A poverty of ambition and imagination means that the best we can aspire to is the worst – socially – among the more economically advanced economies of Western Europe.

Nobody knows the answer to the following five questions:

  1. Will Brexit really happen (it probably well)
  2. When will Brexit happen (it might be a sudden default car crash in 2019 or it could be strung out over years with a temporary exit arrangement put in place towards the end of this decade).
  3. How Brexit will happen (negotiated and orderly?, default collapse of talks and chaos for some time?, possible break-up of the United Kingdom? etc.).
  4. What Brexit will actually mean (when the British Prime Minister says that ‘Brexit means Brexit’ she means– ‘I haven’t a clue what Brexit will mean and if I did I wouldn’t tell you anyway before entering negotiations’).
  5. Might there be black swan events that overtake Brexit and render it a lesser question and challenge?

One thing is sure: black swans do appear from time to time.

What matters is not so much the colour or nature of the swan but the manner in which societies and various groups respond to challenges and – critically – plan and act so that the ‘needs’ of the future are not compromised by the ‘needs’ of the present (which is not a pretty bad definition of sustainable development in the broadest sense of the term and not just over things do with the natural environment important as that is).

Brexit poses many economic risks as the NERI has pointed out in published analysis over the course of 2016. At the present time, there are two polar opposite risks that come to together. These are:

A             Complacency based on the view that, economically, the sky has not fallen in since last June.

B             Hysteria based on panic and gloom that we are, all, about to fall off a jobs, investment and trade cliff.

The problem with risk A is that Brexit has not happened yet so we do not know what or how or when and the manner in which it will impact not only on Ireland and Britain but the rest of Europe as well.  The problem with risk B is that, whereas hysteria may be viewed as the sort of thing one does before an important event such as a referendum, it does not serve us well when proactive measures are called for and not just short-termist reactive ones. There is the added complication of underlying, and not so underlying, constitutional questions impacting on the northern fringes of the UK. While some will (understandably) seek to take advantage of the current situation to pursue a particular constitutional agenda, it is necessary to take a long-termist and pragmatic approach. This will mean dealing with the possible fall-out from Brexit, Trump, climate change, terrorism and rising socio-economic inequality and political instability.

Dealing with all of these challenges but Brexit in particular will require urgent policy response and actions (and not just playing a waiting game as talk about Brexit plays out over the coming months and years). Here are three things both adminisrations in Belfast and Dublin need to get down to work on diligently and if at all possible on a joined-up all-island basis:

  • Early warning intelligence on localised and sector-specific risks.
  • Early warning intelligence on generalised and macro-level risks.
  • Fine-tuned interventions to train, equip, monitor and resource enterprises and agencies to innovate, switch, target and invest as appropriate.

There is a risk, never mind debates over the hardness of an existing international frontier running through the drumlins of south Ulster, that a car-crash Brexit by default will reinforce competitive cost-cutting, tax-cutting and investment seducing activities of the various relevant bodies - all to the destriment of Ireland as a whole.

But, there is something even more important than our response to Brexit. It concerns what social and economic model we aspire to in Ireland.  Part of the many complex reasons, I will argue, for the rise of eurosceptism and post-truth politics on both sides of the Atlantic is the failure of institutions and movements to meet the legitimate expectations of large numbers of people for a fair share of the earth’s resources, a decent standard of living in keeping with modern conditions and productivity levels and a sense of participation in decisions that impact on their lives. The blind, ideologically-driven agenda of the conservative fiscal, monetary and social forces within the European Union is directly related to the fertile ground on which British and English eurosceptism thrived (it was always there but needed an impulse). By unnecessarily prolonging recession in countries such as Greece, the European Union as a whole including its 28 members states must bear some responsibility for the chaos and political fractures opened up, there. Moreover, a combination of disastrous historical interference and dysfunctional social policies has provided a breeding ground for every type of xenophobe and racist to claim political ground and, at the same time, blame the wrong people and the wrong factors for Europe’s current crisis. The situation is not fundamentally different in content from that of the USA though the political context and nature of that union is very different.

What is needed above all is political leadership based on a very, very different set of values to those that have been in ascendancy over recent decades. Is there any possibility that Ireland might begin to take a lead in 2017 and show courage? With no pun intended, getting our own houses in order would be a good start.

 

 

 

 

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