These figures included 440 ‘high net worth’ individuals - defined by the Revenue as those with net assets of more than €50 million. This was a very large slice of the Irish business elite. Most of the best-known figures amongst the super-rich were tax-resident elsewhere: Dermot Desmond in Gibraltar, John Magnier, J. P. McManus and Hugh McKeown in Geneva, Michael Smurfit in Monaco. (Tony O’Reilly has not been tax-resident in Ireland since he left Ireland to work for Heinz in the 1960s.) These men all retained major business interests in Ireland: Desmond, for example, remained active in fields ranging from health insurance to telecommunications to banking, and was even offered the chairmanship of Aer Lingus in 2008. McKeown remains chairman of the largest private company in Ireland, the food distributors Musgrave. Smurfit was chairman of the biggest Irish-based multinational company, the packaging conglomerate Smurfit Kappa, until 2007.
The starkest case was that of the telecoms and media billionaire Denis O’Brien. O’Brien built the bulk of his fortune from the acquisition of a public asset - the state’s second mobile phone licence - in circumstances subsequently investigated by the Moriarty tribunal. He then sold on the company that held the licence, Esat, to British Telecom for €2.4 billion. Just before he did so, however, he changed his tax residency to Portugal, saving himself capital gains tax of €55 million. He continued to live in his mansion on Raglan Road in Dublin, which the Revenue tried to insist was his ‘principal residence’. He established that he could not in fact live there because the house did not have a kitchen. He also maintained a large house in Thomastown, County Kilkenny, and continued to run his large Irish media businesses.
There was, though, a further refinement on this abstract game of absence and presence. Some very rich men began to wonder whether it was actually necessary to spend any time outside Ireland at all. Why not send the wife instead? Gerry McCaughey, who had stood unsuccessfully for the PDs in the 2002 general election, owned and ran Ireland’s largest timber-framed house construction company, Century Homes. He sold it for €74 million in 2005 - his share was €31 million. Behind this transaction, however, there was a touch of magic from the accountants KPMG. They suggested that McCaughey and three other main shareholders should sell their shares to their wives, who would in turn sell them on to the real purchaser. The wives, meanwhile, would go to live in Italy to avoid capital gains tax. All that was required to stop the peasants from getting their hands on any of McCaughey’s gains was a languid 183-day holiday on the Riviera.
This ruse was perfectly legal, but it also perfectly illustrated the almost pathological aversion to paying tax among the Irish rich. Capital gains tax, at 20 per cent, was low. In McCaughey’s case, it would have left him with €25 million instead of €31 million. How much difference would this have made to his family’s way of life? But the money itself was not really the point. As McCaughey explained when the ruse was revealed, ‘People do everything they can to reduce their tax liability.’ Not to engage in tax avoidance was to be a non-person. In some societies, and for ‘maverick’ Irish billionaires like Ryanair’s Michael O’Leary, paying substantial taxes might be a source of pride. For the Irish elite, it was a source of shame. To be in on the latest wizard scheme was to be ‘one of us’. It was the definitive mark of separation between the First Estate of unimaginable wealth and the Third Estate of PAYE toilers who didn’t get to play the game.
It would be wrong to conclude, however, that the game itself was particularly difficult or that it could only be played with smart-alec schemes. This was a game whose rules were fixed to ensure that there could only be one winner. The government, which was supposed to be the referee, was relentlessly biased towards tax-phobic citizens. It introduced, and kept in place, a dazzling variety of tax reliefs. In 2004, the Revenue Commissioners estimated that these reliefs had an annual cost of €8.4 billion - nearly a quarter of the entire annual tax take at the time. This huge expenditure was so poorly policed, and so sketchily analysed in terms of the relationship between the costs and the supposed benefits, that the Revenue literally could not say, in the case of forty-four different schemes, how many people were claiming and how much money they were getting. The reliefs, of course, were overwhelmingly of benefit to the better-off.
The result was that, even leaving aside the top layer of the wealthy elite that was paying no tax at all in Ireland, the minor aristocracy enjoyed the privilege of paying tax at far lower rates than those that pertained to the rest of the country. The findings of a Revenue study of the 400 top earners (defined, it is important to remember, by their declared income rather than their actual wealth) in 2002 were stark. Six had an effective tax rate of zero - they had quite lawfully managed to pay no tax at all. Forty-three paid less than 5 per cent. Seventy-nine paid tax at less than 15 per cent. Conversely, just 83 paid more than 40 per cent, and none paid more than 45 per cent. To put this in perspective, the top tax rate for PAYE workers in the same year was 42 per cent.
Even when these reliefs were eventually limited in 2006, the impact on high earners was still relatively minimal. In that year, 439 individuals declaring over €250,000 each were able to claim €288 million in tax reliefs - an average of €650,000 each. For the 214 people in a Revenue study declaring over €500,000 in income each, three-quarters had an effective tax rate of between 15 and 20 per cent, and the rest paid between 20 and 25 per cent. Not one of them paid anything like the 41 per cent rate that then applied to middle-class incomes. Scott Fitzgerald began his 1926 short story ‘The Rich Boy’ with the words ‘Let me tell you about the very rich. They are different from you and me.’ Beneath its surface of classless bonhomie, Irish society in the boom years was underpinned by this dictum.
The government’s response to figures like these unconsciously betrayed the belief that the rich elite did in fact constitute an aristocracy. Aristocrats are not taxed - they are bountiful. The government’s chief ideologue, Mary Harney, responding in 2004 to questions about the ability of the rich to pay little or no tax, specifically ruled out any attempt to make them cough up on the same basis as everybody else. They might, however, feel like throwing some coins from their balconies: ‘I would like to see perhaps in Ireland, on a voluntary basis, a greater culture of some of the wealth that is acquired going back to the state, not necessarily through taxes or through legislation but perhaps through endowments, through foundations.’ There were, in other words, quite explicitly two classes of citizens: those at the bottom for whom taxation was compulsory and those at the top for whom it was voluntary.
Instead of seeking to end these distinctions, government politicians began to behave as if they were themselves part of the aristocracy. There was a sense that since, in their own eyes, they had done so much to create the boom, they ought to live like its heroes. It was therefore proper that they should be paid very large salaries. A Financial Times survey in March 2009, after the Taoiseach Brian Cowen had taken a 10 per cent pay cut, still found him to be almost at the top of the tree among world leaders. Dmitri Medvedev’s salary was €67,000; Gordon Brown’s was €199,000; Angela Merkel’s was €228,000; Nicolas Sarkozy’s was €240,000; Cowen’s was €257,000 and Barack Obama’s was €292,000. Even this somewhat understated what Irish leaders thought they were worth during the boom years. In 2007, Bertie Ahern proposed paying himself €310,000 a year, which would have made him the best-paid politician in the democratic world, had public opinion not forced a deferment of his salary increase.
This sense of entitlement to the high life was reflected in the lavish conduct of senior politicians. Many ministers began to ape the ostentation of the class with which they identified. Even though they had high-end state cars and chauffeurs, they insisted on travelling like property developers, in helicopters and private jets. Sharing the motorways with ordinary citizens was beneath them - often quite literally. Between January 2007 and June 2009 alone, ministers used government jets or fixed-wing planes (a Lear jet 45, a Gulfstream IV, a Beech Super King Air and a Casa) and Air Corps he
licopters 144 times for internal flights within Ireland. Mary Harney, for example, took twenty-four flights in that period, flying to exotic destinations like Galway, Cork, Kerry and Shannon. Harney had form: in December 2001, she used an official fisheries surveillance aircraft, part-funded by the EU, to fly to Leitrim to cut the ribbon for an off-licence store for a barrister friend of hers.
Abroad, Irish ministers travelled like sultans on tour. On one infamous trip to Florida, paid for by the state training agency Fás, Harney and her party took the government jet at a cost of €80,000. The taxpayer forked out $410 for hair treatments at their lavish hotel. The Arts, Sports and Tourism minister John O’Donoghue, his wife and his private secretary ran up a hotel bill of €5,834 in Venice. At the Cannes film festival, he stayed in the €990-a-night Hotel Montfleu and spent almost €10,000 on hiring a chauffeur-driven limousine. Another limo during a trip to the UK for St Patrick’s Day came to €8,843.
In purely financial terms, this lavishness was of little importance, but as a statement of the way government politicians saw themselves, it mattered a great deal. It revealed the film that was running inside their heads, a glamorous, sun-kissed international epic in which they moved through a world of speed and ease, of drivers and flunkies, fine wines and gourmet dinners, in which money was of no consequence because it was infinitely available. It placed them, when they were not in the grubby world of constituency politics, in an insulated, air-conditioned universe, floating above the clogged-up, stressed-out, often squalid physical realities of life in boomtime Ireland.
This fantasy of celebrity glamour didn’t just draw politicians into the mental universe of the super-rich. It separated them from the other side of aristocracy - poverty. The image of Ireland, as they lived it out with their high salaries and lavish expenses, was seriously out of synch with the reality.
One problem caused by the speed of the boom was a tendency to exaggerate just how rich Irish people really were. Because growth rates were so high, and because the general improvement in prosperity was so spectacular, Irish people in general felt rich. This feeling was bolstered by the figures showing GDP per capita rocketing above that of many other European countries, including the old master, Britain. But these figures were deceptive, both because GDP, which is simply an annual index of wealth-production, does not give an accurate reflection of things like accumulated wealth and quality of life, and because, in Ireland’s case, it is significantly inflated by the financial juggling of transnational corporations with an interest in boosting profits in low-tax Ireland.
Thus, GDP per capita undoubtedly ranked Ireland as one of the wealthiest nations in one of the wealthiest parts of the world, the EU. But GNP per capita, which excludes the money that transnational corporations are sending home and is thus a more accurate measure of real national income, placed Ireland just slightly above the average for the fifteen member states of the old EU. So Irish people as a whole were not in fact all that rich. Even using the exaggerated measure of per capita GDP, average wealth per head was pretty similar to, for example, North Yorkshire or Oregon. If Ireland actually were, as Mary Harney and others liked to fantasise, a US state, it would have been the thirty-fifth richest, a little wealthier than traditionally underdeveloped Arkansas but poorer than Rhode Island, Nebraska or Georgia, and less than two-thirds as wealthy as New York.
When Bertie Ahern proposed to pay himself an increase of €38,000 a year, it was striking that this increase alone was greater than the total salaries of 1.5 million Irish workers. Three-quarters of the workforce, in other words, was on €38,000 a year or less - a very modest salary in a country with an extremely high cost of living, high levels of mortgage debt and social services. People paid through the nose for facilities like childcare that were free or heavily subsidised in other European countries. It is also striking that, certainly by late 2007, there was an obvious disjunction between the constant propaganda that told these workers that ‘we’ were rich and their own experiences. In a Bank of Ireland Life survey of people in full-time employment earning more than €30,000 a year, 70 per cent agreed with the description of Ireland as a ‘wealthy country’. But 79 per cent also agreed with the statement that most Irish people were not really wealthy but rather were ‘obsessed with the trappings of wealth’. And 76 per cent agreed with the statement that ‘it’s all about keeping up with the Joneses’. Ireland was rich, its people were not, and the gap between one reality and the other was filled by attempts to acquire the outward trappings of a wealth you did not really have.
Even for those in decent jobs who were clearly benefiting from the boom, the levels of debt required to service mortgages and run cars, combined with inflation rates that were much higher than the rest of Europe, were not conducive to feelings of economic security. In a Guinness/Amarach survey published in March 2002, when debt levels were nothing like what they would become by 2008, a massive 44 per cent of people agreed with the statement: ‘I worry sometimes about how much money I have borrowed and whether I’ll be able to pay it back.’
Below this broad mass of people who were doing reasonably well but anxious about debt there was a persistent level of squalor. Some of this was physical: primary school children in the largest classes in the EU, many in abysmally ramshackle, overcrowded and unsanitary buildings; hospital waiting areas so filthy and overcrowded that the regular comparisons with ‘Third World’ conditions were understandable exaggerations.
But the underlying squalor was social. The greatest shame of the boom years was the abject failure to get rid of consistent poverty. That it was possible to do this with the unprecedented resources at the state’s command was acknowledged even by Fianna Fáil. In its manifesto for the 2002 general election, written with the experience of five years of government and presumably in the knowledge of what could be done even within the framework of Celtic Tiger orthodoxy, it made a bold pledge: ‘For the next five years we are setting the historic target of effectively ending consistent poverty in our country, with a minimum target of reducing it to below two per cent.’
The best evidence of the failure to reach even this minimum target was the Fianna Fáil manifesto for the 2007 general election. It made no reference to the target at all, not even to repeat the promise. It stated merely that ‘The achievements of the last 10 years confirm that we have the possibility of becoming one of the few countries in the world to effectively eliminate consistent poverty.’ There was no target, no commitment, merely a bizarrely vague reminder of the ‘possibility’ that a country with the resources that Ireland had acquired could ensure that no one lived large parts of their life in poverty.
The reason for this complete shift in tone was obvious: the government had not ended consistent poverty or even reached its ‘minimum’ standard of 2 per cent. In 2007, at the height of the boom and after a decade and a half of almost uninterrupted growth, the level was two and a half times the minimum target. For children (7.5 per cent in consistent poverty), the picture was even uglier.
Beyond those living in poverty for long periods, the numbers defined as being ‘at risk of poverty’ also remained high. Eighteen per cent of the population was in this category in 2007 (compared to 10 per cent in the best-performing EU countries) - and 40 per cent of these people were children. With the collapse of the economy, rapidly rising unemployment and sharp cuts in public spending, these figures will certainly rise over the coming years.
The government failed so miserably to achieve its goals on poverty because it no longer actually believed in the republican concept of equality. With no sense of irony at all, it was the Minister for Equality, Michael McDowell, who told the Irish Catholic that ‘A dynamic liberal economy like ours demands flexibility and inequality in some respects to function. ’ It was such inequality ‘which provides incentives’. ‘Driven to a complete extreme, the current rights culture and equality notion would create a feudal society.’ The bizarre logic of this sentence perhaps betrayed the strain of excising equality from republican
ism, which McDowell always claimed as his political philosophy. It was not the deliberate fostering of an unaccountable, untaxed super-rich elite that was in danger of creating a feudal Ireland, but the looming threat of the ‘culture of rights’ and the notion of equality as it stalked the Celtic Tiger to its lair. McDowell’s view of the medieval world seems to have been shaped by the scene in Monty Python and the Holy Grail when peasants scrabbling in the muck declare themselves an ‘anarcho-syndicalist commune’. The threat of revolutionary feudalists seizing power in Ireland was not unreal, and indeed it had already come to pass, but not quite in the way that McDowell’s Pythonesque world-view seemed to imagine.
McDowell’s leader, Mary Harney, helpfully glossed his comments for tabloid-reading dummies who might be confused by such convoluted thinking: ‘It’s like a football team: Some make premier division and others aren’t so good, unfortunately.’ If Ireland had both a Manchester United class of pampered and idolised superstars and a Drogheda United class of slow-witted cloggers, this had nothing to do with politics or power, but was simply the working out of genetic and temperamental differences: ‘everybody is not the same, people have different skills, different capacity, different IQs, different strengths.’ (Oddly, this apparent support for raw meritocracy did not prevent the government from protecting inherited wealth by abolishing estate duties and cutting inheritance tax.) The typical right-wing confusion of sameness and equality barely concealed a profound belief that inequality was the proper order of things. Genetic differences had simply expressed themselves in the fact that some people had lots of money and paid no tax and some people had very little money and paid lots of tax. This being so, the existence of a ‘free’ elite at the top and a slough of poverty at the bottom was simply inevitable. It was Social Darwinism and not crony capitalism that had decreed that the likes of the Bailey brothers should sit on top of the Irish evolutionary tree. That this might be a rather disappointing outcome to all those millennia of human development did not dampen the PDs’ enthusiasm for the doctrine.
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