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Archive for January 1st, 2013

Roscommon Independent  TD, Luke “Ming” Flanagan was on Twitter bright-eyed-and-bushy-tailed this morning to say that he hoped to introduce a Competition Bill in 2013 and that he would raise competition and competition reforms with the bailout Troika when they pay us their next visit, which is understood to be next week. The regular audience on here will know that competition in Ireland is a bit of a bugbear on here – from consumer goods and services, food and mobile phones to, especially, professional services, law, medical, finance, receivers.

We’re a country with the worst deficit in the EuroZone, with 14.6% unemployment, with debt:GDP heading towards 125%, where commercial rents have declined 50% from peak, a flat economy in which living standards have dropped considerably and yet Dublin apparently still has the second most expensive lawyers in Europe after Moscow. The days of the €400-800 per hour accountant or receiver haven’t gone away, and for someone to cross the Border from Northern Ireland to the Republic, they are truly in for a shock with medical costs (Northern Ireland comparisons in brackets) – €100 if you turned up in Accident and Emergency (free), €50 for a visit to a public GP (free), and prescribed medicines can cost €100s (flat €8) and a suspiciously-high 80% (20%) of which just happen to be expensive non-generic drugs.

This blogpost examines the latest European survey of consumer price comparisons and contains exclusively obtained information from Eurostat on comparative European incomes – in summary, our household earnings are now 3.8% above the European average – compared with 6.6% above in 2009 – but our consumer prices are a whopping 18% ABOVE the European average – slightly down from 27% high recorded in 2008.

We all know the history : according to the CSO, the Consumer Price Index rose 37% in eight years from January 2000 to January 2008. Of course for many in the public and private sectors and on welfare, incomes kept pace over this period and for most, the increased prices weren’t a problem. Then , along came the crash in 2007/8 when property prices began to decline and problems in the banks revealed themselves.  Household incomes subsequently fell as unemployment, elimination of overtime, cuts in gross salaries and welfare, and on the other hand, increased taxes, levies and contributions all ate into our incomes.  Unfortunately prices have not declined in line with incomes, with the result of worse standards of living (for some).

It is notoriously difficult to fully compare price levels between countries – that’s probably why we ended up with the Big Mac Index – but despite the difficulties, the European statistics agency, Eurostat produces an annual snapshot of relative prices of consumer goods and services. This is the latest annual publication.

PriceLevels2011EurostatConsumer

It shows that overall, for the particular basket of goods and services examined, Ireland’s prices are 17% above European Union – “EU27” to refer to the 27 members of the EU – average. That compares with our neighbours in the UK whose prices for the same basket are just 2% above the EU average. In 2010, our prices were 18% above the EU average and in 2008, the record-high year, they were 27% above.

When it comes to measuring income, we are by now familiar with the arguments in Ireland for ignoring GDP, it includes the profits of foreign companies which are frequently repatriated out of the country and consequently our GDP is artificially inflated. So we tend to prefer GNP but even that has issues and in any event, Eurostat don’t provide country comparison rankings by GNP, but Gross National Income or GNI is a close approximation to GNP, and on a household basis, we are now 3.8% above the EU27 Union average, down slightly from the 6.6%-above-average in 2009. But our nearest neighbours in the UK have healthier incomes, now 9.9% above the EU27 average.

IncomeEurostatGNI

So, compared with our neighbours, our incomes today are just 3.8% above average but our consumer costs are 17% above average; in the UK, their incomes are 9.9% above average and costs are just 2% above average. In a free market like Europe, why should this anomaly continue?

The answer is competition reform.

I’d love to know what the ranine Minister for Enterprise, Richard Bruton does all day – he gives the clear impression that his main pre-occupation  when he turns up for work is to see if today is finally the day An Taoiseach Enda Kenny has a fatal slip on a political banana skin and Richard gets to fulfil his ambition of leading the Fine Gael party. Because, if you examine developments in enterprise, jobs or innovation in the past 20 months, there has been very little achievement, save for a litany of delay and disappointment and the odd goal-hanging appearance at a jobs announcement but the universal absence at redundancy announcements.  And Minister Bruton is also the person most responsible for competitiveness issues and prices in the economy. So it is at his door that ultimately we can lay the blame for Ireland continuing to be a rip off economy which hasn’t adjusted to the painful reality following the property and banking collapse in 2007/8.

The Competition Authority is presently being merged with the National Consumer Agency, where our friend Ann FitzGerald was until recently the CEO. The Competition Authority is an agency for which Minister Bruton has responsibility. There is a desperate need for the Authority to aggressively tackle costs throughout the economy, and perhaps figuratively hang a few high profile bodies from lampposts to encourage an acceleration in reforms to competitiveness. Alas, Minister Bruton doesn’t seem very interested in such reforms.

So maybe some Opposition initiatives to promote competitiveness, like the Bill announced by Deputy Flanagan today, might spur this Government to tackle rip-off Ireland.

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2013 begins with news that An Taoiseach Enda Kenny is to convene a special Cabinet meeting in January 2013 which will be devoted to jobs.  Is this just political bluster like the ministerial scorecards announced last Christmas or is this a serious effort to tackle the 14.6% unemployment rate equating to 324,000 unemployed and 420,000 in receipt of all unemployment-related benefits? Difficult to say, but there has been less than impressive progress made in delivering Point One of the famous Five Point Plan* which was trumpeted during the 2011 General Election and put job creation to the forefront of the new government’s plans.

Having watched the deliberate cutbacks in the capital budget from September 2012 onwards so as to shore up overruns in other government spending, and having seen ministers repeatedly deny there was any plan to cut the capital budget and that it would be spent by the end of the year – which it wasn’t – and incredibly, to hear one of the most senior ministers in Government and a member of the four-man Economic Management Council blithely state that jobs don’t feature when planning for capital expenditure,  the view on here is skeptical and this looks like another bout of New Year’s optics for the masses.

But on the off-chance that Enda Kenny is indeed serious about jobs, here are four little suggestions that won’t cost him a cent but may create or protect a few thousand, perhaps even low 10s of thousands of jobs in 2013.

1. This year, in contrast to last year, ensure the capital budget is actually spent – last year the planned budget was underspent to the tune of €405m at the end of November 2012, and it is clear that spending was held back to compensate for current spending overruns, particularly in Minister James Reilly’s Department of Health

2. Tell his ministers that when phasing the capital budget in 2013 that job creation be “bumped up” the priority list. “Phasing” means breaking down the €3.4bn annual planned spending for capital into individual months, Jan, Feb, Mar, etc. Minister for Public Expenditure and Reform, Brendan Howlin shamelessly says that jobs are not a consideration when phasing the capital budget over the 12 months of the year – “Job creation is not a factor in the profiling exercise.”

3. Further to the staff report by the IMF in December 2012 which stated that NAMA was back-loading its €2bn announced investment to the end of the four year period ending in 2016, issue a Direction to NAMA under the NAMA Act reminding NAMA, as Minister Noonan did when he Directed NAMA to temporarily pay the Anglo promissory note last March 2012, that NAMA has an obligation to the wider economy, and Direct NAMA to frontload the investment, subject only to NAMA investing in projects which will cover the NAMA cost of capital which is presently just over 0.75% per annum.

4. Stop creating property millionaires by paying colossal premiums to private land owners for land acquired for development of national infrastructure. The Kenny Report published in 1974 and written by Judge Kenny called for public acquisition of land to set prices capped at 125% of the land’s existing use value. In other words, stop paying farmers €150,000 an acre for land that is otherwise worth €7-15,000 an acre with its agricultural use. Use savings for valued added development of the national infrastructure which will lead to richer job creation and cheaper and better infrastructure.

The above four suggestions should not cost this State a cent. They merely monitor existing plans and put jobs at the forefront of spending, and in the case of NAMA, the Direction is consistent with the NAMA Act and the overall purpose of NAMA and indeed NAMA’s overall plan to spend €2bn on development of its portfolio, and in the case of the Kenny Report recommendation, both Labour and Fine Gael have previously embraced the recommendation, so all that is required is to give effect to it through legislation.

Somehow though, I expect there’ll just be the meeting in January…

*“Point One – Protecting and creating jobs. Because jobs and opportunity are the best chance of keeping our best asset – our young people – at home.  We plan to create 20,000 new jobs a year over the next four years. How? By cutting employers’ PRSI, by creating a welfare system that encourages work and by investing an extra €7 billion from State pension funds and from the strategic sale of state assets into developing the key infrastructures that will make our economy competitive for the future. In doing so, we can, by 2016, make Ireland the best small country in the world in which to do business” Fine Gael’s Five Point plan promoted during General Election 2011

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