Asset Protection Strategies, STAFF NEWS & ANALYSIS
Irish Central Bank: Raise Taxes Now
By Staff News & Analysis - October 12, 2010

The Governor of the Central Bank, Dr. Patrick Honohan, said that Irish people will have to pay more tax to help fill the gap in the public finances. "On the tax situation, I fully agree with [EU economics commissioner] Olli Rehn," Dr. Honohan told an audience of bankers at the International Institute of Finance in Washington. He had just explained that the tax-to-GDP ratio in Ireland must increase. "There is no credible way of correcting the public finances that doesn't require a higher tax ratio," he said. However, he believed people jumped too quickly to the conclusion that Mr. Rehn advocates higher corporate tax in Ireland. "I think such a policy is very far from being present," Dr. Honohan said. "The Government have made their position on corporation profits tax very clear. – Irish Times

Dominant Social Theme: The Irish will pay and pay. It's good for them.

Free-Market Analysis: We have been arguing for a while that austerity is a promotion and that the real idea behind it is to ensure the EU doesn't go under as a regional entity and also, just as important, that the European middle-classes lose even more ground. Sub dominant social theme: "You better concentrate on paying taxes while we work at perfecting society here in Brussels."

While we've been suspicious of austerity for a while as an elite promotion, Dr. Patrick Honohan's recent statements (see article excerpt above) seem to confirm it. They are certainly predictable. The central banker is concerned about the opinion of his peers when it comes to Irish solvency. "There is no credible way of correcting the public finances that doesn't require a higher tax ratio," he intones. Not under current circumstances, anyway.

Well how about this? Leave the EU and deregulate where possible. After that disband the government except for a minimal core dealing with poverty issues. Begin the transition to gold backed money and shut down the central bank. Devalue as part of the process. In about a month, Ireland would be back on its feet, figuratively speaking, we estimate. Even if it didn't work, you'd have half of Brussels camping out in Dublin with "new ideas" to get Ireland off the hook. But that's not what is going to happen if the Honorable Honohan has his way. There's nothing to do but raise taxes. Can't default after all. The banking community would be most disgruntled.

The Economist, predictably, stands behind Honohan. The magazine has published a gloomy assessment of Ireland that comes to the same conclusions. What a coincidence! The moment is critical, the magazine intones. (So many EU crises that we lose track!) Here's how the article begins:

How now Brian Cowen? … Ireland's prime minister struggles to reassure investors and voters … It is "a critical moment", says Garret FitzGerald, a former Irish prime minister. As the Irish people brace themselves for even more fiscal austerity, the challenge for the political class, Mr. FitzGerald suggests, is to put country before party so as to ensure that Ireland avoids Greece's fate—a loss of economic sovereignty and a euro-zone bail-out. To do this Brian Cowen, the prime minister, must take some more tough decisions, and soon … Olli Rehn, the EU's economics commissioner, has said that they must include sector-specific adjustment measures. By January, when the government is due to resume borrowing, Mr. Cowen needs to have done enough to convince bond investors that there is a credible plan in place to bring the budget deficit down to 3% of GDP by 2014.

We really wonder how long the Irish are going to tolerate this. The Economist tells us that household wealth has dropped by a third and that the real-estate and building sector has virtually dried up. Honohan's take: "During the property boom, 13 per cent of the Irish work force was involved in construction, twice the percentage before the boom. 'Now, of course, it has collapsed,' Dr. Honohan said. 'The banks just imported funds on a large, large scale.'"

When exactly will the Irish realize they've been rolled? The Irish voted twice on the Lisbon treaty, defeating it the first time by a margin of 53.4 per cent to 46.6 percent before finally ratifying it – and giving the EU nation-like powers. The second time around the pressure must have been intense, but even as the Irish voted their economy was falling down about their ears. The idea was that the EU would help Ireland cushion the economic blows. Did that really happen?

Not from what we can tell. Ireland has been held up approvingly by EU pooh-bahs as a country that has not shirked to drink its medicine. The Irish, the story goes, have realized that their own profligacy caused the current predicament and each Irishman and lass is now dedicated to belt-tightening until the banks are paid off and the economy is stabilized.

Does this perspective have some truth to it? Our take is that the EU elites poured money into the PIGS to smooth the way toward a more perfect union. It's almost uncanny, in fact, how quickly EU economies collapsed once the Lisbon Treaty was finally ratified. It's what the Greeks are upset about, we imagine, and the Spanish as well. If we are correct on this point, there are plenty of Europeans who feel a bit like they are victims of a bait-and-switch. They gave up sovereignty for financial security and ended up with neither.

Austerity, as it has been described, is mostly focused on a reduction of the public sector. But from our point of view it is a middle-class killer, generally. The whole EU experiment is about increasing elite control over the European population. And the best way to do it is via further impoverishment and increased regulation, both of which the EU is providing aplenty. The power elite seeks closer world governance and the pesky EU countries with their defiant national histories stood in the way of global consolidation. The stakes, in fact, are very high for investors as well as EU citizens, and certainly it is possible that the Eurocrats at the behest of their elite bosses will pull it off.

After Thoughts

On the other hand, continually worsening conditions and the truth-telling of the Internet may finally undermine the austerity promotion. Certainly, we will be surprised if the austerity project moves ahead smoothly either in Ireland or elsewhere. We expect considerable bumps in the road as it becomes clearer what exactly "austerity" entails and for whom. In this regard, Honohan has been most enlightening.

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