How NOT to fix the Irish economy

on Dec, 30 2011

The Toaiseach, Enda Kenny, has given his assurance that the income tax will not increase in the next year.

According to RTE News, "Enda Kenny said people he spoke to would prefer not to see an income tax rise... He said he believes income tax increases would kill jobs and he wanted to get people off the dole and back to work".


How insightful.


Rather, the government have ingeniuosly engineered a completely different scheme in order to battle the deficit... they will increase VAT.


VAT, or Value Added Tax, will increase from 21% to 23% early next year.


"The Government has to rebuild the economy, which has fallen asunder and at the same time protect the vulnerable, front-line services and get people back to work", Enda Kenny said.


Funilly enough, a 2% VAT increase will manifest in several ways that will neither rebuild the economy nor protect the vulnerable.  Here's how it will work:


a.  Consumer prices will increase, passing on the tax burden to the customer.  While there's no increase in income tax, the purchasing power of take home pay is now weaker, which is in effect the same thing.  Also, Irish exports will drop, particularly to Northern Ireland.


b.  Payroll hours will decrease. Rather than increase customer prices too much - workers will take a hit on the amount of hours they work, which amounts to lower wages.  The same workload would be undertaken by less staff in a shorter time.  But at least there's no income tax...


c.  Slower employment rates. Businesses that had planned on hiring new staff next year might decide to hold off instead of rising their prices, particularly small businesses.


The secret economic principle that has elluded almost every popular economist and politician (even the great champion of the working class,  Karl Marx) is that any tax implemented at any point in a business or corporation will always be paid by the lowest earners, through a mixture of higher prices and lower labour demand/wages.


At least the same tax percentages will be appear on workers' pay slips.  Horray!


The Taoiseach said the VAT increase would not apply to food, children's clothing or services, but would apply to goods like televisions or washing machines.  Yet.

Last modified on on Jan, 11 2012
More in this category: « Holy Mother Of GDP!

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