Our Economic Crisis

Today I am going to concentrate my attention at another of the main policies of Breakthrough, namely the Negative Income Tax(NIT). The system of taxation has been proposed by many economist in the USA in the 1960s. Milton Friedman is attributed with this concept, though there were many other economist before Friedman, such as Juliet Rhys Williams, who have proposed this concept. At the time the idea was revolutionary and stirred up great amount of discussion and arguments about its efficiency and its ability to truly help both the poor and to improve the fiscal situation in USA. In fact some of NIT has made its way into Richard Nixon's Family Assistance Plan, however the full implementation of NIT has never truly been truly been implemented.
Before I venture into the reason why there is a reason for NIT in Ireland, let me first try to explain what NIT is, as not many are quite familiar with the concept (in fact even I have heard about it just recently). NIT, like any other system, taxes the income of the citizens at certain levels, as agreed upon by the government. However, the NIT proposes a threshold to be established above which this taxation taxes place. Furthermore for people with income below this threshold the government pays back 'negative tax'. People whose earning match this threshold break even, ie they do not have to pay any tax and nor do they receive any tax in return. There are actually quite a few different proposed systems of NIT, and I will discuss them in later posts to establish which system does Breakthrough prefer.
Having established the standard definition of NIT, however, let us now look why would Ireland need such a radical change in our tax system. Right now Ireland is in the middle of the worst economic recession in decades. In fact, some argue, we have two recessions happening here in Ireland simultaneously; the local recession caused by the property bubble and resulting unsustainable growth of wages, and the international recession that started off in the USA. With these two recessions happening simultaneously we are now experiencing an increasing unemployment (currently at around 12%) and the fall of GDP this year of around 9%. The situation thus, looks very grave for us in Ireland.
Furthermore, though, we are experiencing a great crisis in the public finances and running a debt this year of around €22bn, which is unsustainable. It is this crisis of public finances that needs to be sorted first, before the government can even think of introducing a stimulus package to create jobs and help to kick-start the economy. The Keynesian policies of great government intervention simply cannot start here, with a debt of €22bn for one year alone. Thus it is clear we must solve this crisis first before we can even start thinking of tackling the other problems.
However not many people have much time for such a thinking. It is no easy thing to do, when you have been made redundant and suddenly you find yourself singing up for social welfare payments in order to survive. Therefore the government needs to come up with a solution that would both tackle the unemployment crisis and help to make the fiscal adjustment that is required.
And this is exactly what NIT offers. How? I shall do my utmost best to explain this in the next couple of posts, so please look forward to reading them.