Avoiding sectoral job losses is rarely a sufficient reason for a Government not to act

8 December, 2009

Typical of many attempts to influence Government tax (or other) policy is a statement which is reported today, in which Mike Kemp, Chief Executive of the Irish Insurance Federation is quoted as saying :

“Up to 2,000 jobs in the life and pensions industry may be lost due to the Government’s planned changes to pension tax relief and the implementation of levies. Obviously, the threat of job losses is never good and should be avoided at all costs. And in the current climate I find it astonishing that the Government is willing to put these jobs at risk while also severely damaging the Irish pensions industry”.

Mr Kemp would have been better advised to argue his case on its merits, rather than relying on any alleged effect on jobs in his sector of a change in tax treatment of pension contributions.  His case is a reasonable one, but he damages it by his approach.

One only has to think of the over-inflated construction industry of recent years to find an example where tax policy was leading to an excessively high number of  jobs in a particular sector.  It would have been in the overall national interest, and would have led to higher sustainable employment levels generally,  if tax incentives had been removed earlier (or never introduced) even though the result would have been lower employment in that particular sector.

Similarly, if it’s the right policy to reduce the permissable blood-alcohol levels (and I argue in this post and in this post that it’s not), there is no point in opposing it just because jobs will be lost in the hospitality sector.

Based on optimal economic efficiency, I suspect in fact that there are too many people employed in the life and pensions industry, protected not so much by by tax reliefs (although there is a case for reducing them a bit),  as by opaque and excessive charges to consumers.

Self-serving claims that a sector needs special treatment to avoid job losses are rarely valid;  in fact, such claims should by definition lead to the particular cause that expresses them being treated with greater suspicion.  After all, if a change in tax or regulatory policy leads to job losses in a particular area due to a decline in the market for the relevant product or service, then the funds diverted by the public will end up being spend somewhere else, and employment will rise in the newly-favoured sector.  Overall job levels will tend to remain stable at worst, always assuming the domestic/overseas job impact of the sectors are comparable.

Rarely have we seen economic or social progress without accompanying clamour that jobs are being lost.  The spectre of mass unemployment among blacksmiths was no doubt used to argue against introducing the motor car.

Mr Kemp should re-think his approach.


One Response to “Avoiding sectoral job losses is rarely a sufficient reason for a Government not to act”

  1. […] effects of particular activities are used to argue for special treatment or subsidies.  I have commented on a particular example of this already, where the Irish Insurance Federation tried to argue that up to 2,000 jobs in the life and pensions […]

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