The Ir­ish re­cov­ery

The Washington Times Weekly - - Editorials -

Ask any left­ist for the so­lu­tion to any prob­lem, and the an­swer is in­vari­ably, “spend more money.” This comes out of the fairy tale that blow­ing it is what money was made for. Ire­land, like the rest of us, loves fairy tales. It took the tax-and-spend route and landed in a cri­sis of chok­ing debt. Now the Ir­ish are sober­ing up. The Ir­ish gov­ern­ment last week thumbed its nose at the tax­a­holic rec­om­men­da­tions of the Euro­pean Union, and said Dublin would re­strain spend­ing while re­strain­ing cor­po­rate tax rates at the cur­rent low lev­els. It’s a choice that could put the coun­try back on the path to re­cov­er­ing lost pros­per­ity.

Af­ter the 2008 global fi­nan­cial melt­down, the Euro­pean Cen­tral Bank, the Euro­pean Union and the In­ter­na­tional Mone­tary Fund served up for Ire­land the same pre­scrip­tion it gave to Europe’s other bas­ket-case economies. In­stead of let­ting banks pro­ceed through or­derly bank­ruptcy, the gov­ern­ment took over about $82 bil­lion worth of bad bank debt in ex­change for bailout funds. The goal then, of course, was to pre­vent a chain re­ac­tion of bank fail­ures in the rest of Europe. Ir­ish tax­pay­ers were stuck with the bill for the bailout.

Ire­land’s fi­nance min­is­ter has been try­ing some­thing dif­fer­ent. His lat­est bud­get in­cludes tax cuts and a hand­ful of tax in­creases, in­clud­ing a per­ni­cious levy on the in­ter­est from sav­ings. On the most im­por­tant point, it holds the line at keep­ing the cor­po­rate tax at 12.5 per­cent, which is nearly half the av­er­age Euro­pean rate of 22.8 per­cent. Rais­ing the cor­po­rate rate would send busi­ness else­where, which would be par­tic­u­larly dev­as­tat­ing for Ire­land. Ir­ish ex­ports were val­ued at 108 per­cent of its gross do­mes­tic prod­uct in 2012, ac­cord­ing to World Bank data, com­pared to Greece’s 27 per­cent, and Italy’s 30 per­cent.

The Ir­ish bud­get in­cludes $3.4 bil­lion in spend­ing re­duc­tion, which means Ire­land will have cut spend­ing 15 per­cent in real terms since 2008. To put that ac­com­plish­ment into con­text, U.S. spend­ing has in­creased 30 per­cent over the same pe­riod. Some Ir­ish grand­mas and grand­pas will lose some of their gen­er­ous health care sub­si­dies. Ire­land’s ver­sion of the Obama­phone is can­celed. A rather gen­er­ous fu­neral sub­sidy will get a de­cent burial. Capi­tol Hill, take note. This is how it’s done.

The pay­off is that Ire­land’s econ­omy is out of the re­ces­sion and ex­pects to see 2.7 per­cent growth, an im­prove­ment on the rest of the Euro­pean Union, which re­mains mired in re­ces­sion. The trou­ble is far from over, with pub­lic debt level ex­ceed­ing 123 per­cent of gross do­mes­tic prod­uct. But re­cov­ery is in sight. Though Amer­ica’s debt hasn’t quite reached Ir­ish lev­els yet, at the cur­rent rate of spend­ing, we’ll be there soon. The Ir­ish les­son should be taken to heart, and spend­ing and taxes re­duced be­fore the Amer­i­can econ­omy passes out.

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