You’d have to have sympathy for this government which is increasingly straitjacketed by the bailout deal with the IMF/EU. As promised, there was the unveiling of a jobs initiative today (available here) which
(1) Reduces employers’ PRSI on low paid workers and is intended to deliver a competitive boost. You’ll recall the minimum wage was cut in January from €8.65 per hour to €7.65 per hour to boost competitiveness in line with commitments given in the IMF/EU Memorandum of Understanding. The incoming government promised to reverse this cut but has now cut employers’ PRSI so the cost of employing someone on the minimum wage is effectively cut by €1 per hour compared with last year. PRSI was also abolished on payments in shares. If we’re more competitive, there should be more investment which should boost employment.
(2) VAT will be reduced on certain tourist and “real” economy services (restaurants, hairdressing) with the intention of reducing prices by 4% and boosting demand and consequently employment.
(3) Air passenger tax will be abolished on condition the airlines get more bums on seats and the hope is that tourism and visitor numbers will increase which will boost demand and consequently employment.
(4) There is a range of training, education and internship projects which will help deliver a better trained workforce, better able to secure employment and will hopefully attract investment and consequently boost employment.
(5) There will be a range of labour intensive capital projects for which €135m of new money is being made available.
The above are a commendable set of measures. Set against unemployment of 300,000 representing 14.6% of the workforce, it is debatable whether these measures will make a significant dent in that army of unemployed. But, as we are straitjacketed by the IMF/EU bailout deal, the above measures which will cost the best part of €2bn will need to be balanced with income found elsewhere.
And the government is finding that revenue through raiding the private pensions of the citizens. A 0.6% levy is to be imposed on the pension assets of Irish residents. This will contribute €470m per year for the next four years. Again, you would have to have sympathy for the government but at the same time, this seems like a massively unfair charge which is estimated to cost €500 per pension per year. Some of the cost will be borne by pensioners in receipt of pensions, others who are not yet drawing the pension will see the value of their pension pot reduced.
There is a generally accepted principle with any tax that it should be timely, efficient to collect and fair. This levy meets the first two criteria which are quite objective. But when our president earns more than the US president – USD $418,000 compared to USD $400,000 at today’s exchange rate applying to €292,500 – and with correspondingly high salaries throughout the upper echelons of our public sector, it is hard to see how the pension levy meets that third (subjective) criterion. Lastly let’s remind ourselves of the bondholdings in the State-guaranteed banks (though most of the bonds themselves are not guaranteed).
(Click to enlarge)
UPDATE (1): 11th May, 2011. There has been a predictably critical response to the pension levy from the pension industry. The Irish Independent cites various representatives of the industry and we have claims that the levy will mean “an average of €500 a year coming out of the pension savings of 750,000 people”. It seems clear at this stage that this levy will not affect public sector workers. However it is unclear how it will affect spending by those in receipt of reduced pensions as that will tend to reduce demand for goods and services which will tend to reduce employment. Of the 750,000 people with private pensions, it is not clear how many are actually of pensionable age and how much this levy will take out of the real economy. Bizarrely, Enda Kenny has claimed that the pension industry can soften the effect of the 0.6% levy by reducing its administration costs which would surely mean less employment in the industry.
UPDATE (2): 11th May, 2011 Parallels are being drawn today between our own government’s proposed action and the actions of Argentina in 2008. And we have some closer-to-home examples of tampering with private pensions in Hungary , Poland, Bulgaria andLithuania which have all been aimed at bringing private pensions back under state control, generally so that the state can use the funds to pay running costs of the state.
In Ireland we doing something different, we’re expropriating 2.4% of all private pensions over a four year period. There would appear to be some €80bn in private pensions (if 0.6% = €470m). And this move to impose a levy for four years at a rate of 0.6% of the fund’s value is worrying. The government has denied that it is the thin end of the wedge and that a levy will be applied to savings or that the pension levy will be increased or its 4-year term extended.
Argentina has had two raids on its private pension funds in the past decade. In 2001 the state confiscated USD $3.2bn in a last ditch (and unsuccessful) attempt to stave off default and then in 2008 the Argentinian state nationalised some USD $30bn of funds managed by private pension providers to help compensate for a shortfall in tax receipts.
NAMA Wine Lake 
I cannot see the price of my haircut falling from €10.00 to €9.60 as a result of the VAT change or that I’ll go more often as a result of saving 40c a visit. Do many tourists (aside from occasional bondholders) come to Ireland to get their hair cut?
@Brian, its practically impossible to predict how these measures will convert into additional employment. Will hairdressers – and congratulations on finding one that that will cut your hair for €10, E Hobbs would be proud – simply keep their prices the same and pocket the €0.40 because they’re already running at a loss with utility, rates, employment and premises costs? Will people decide to get their hair cut more often or will people opt for a wash and cut instead of a cut only? Mind you, if we could deliver €10 haircuts, maybe someone could organise coach trips for the unkempt from the North?
I suppose the serious suggestion is that it will tend to lower prices which will tend to boost demand which will tend to boost employment.
Does this apply to public sector pensions as well?
If not, OMFG.
Brian makes a valid point. While businesses are very quick to adjust prices when VAT is increased, VAT reductions just mean extra margin for them. I guarantee this reduction will make no difference to prices, regardless of how many threats the Director of Consumer Affairs makes.
@SG,
Public sector pensions are paid out of current expenditure – so there is no ‘fund’ as such to levy a tax on.
Therefore, it can only apply to private sector pensions.
Two things…
I cannot find any sympathy for politicians who promised a different response to this circus and have, for all intents and purposes, continued the former governments policies, I particularly like Dermot Morgan’s piece when it referred to the government lying on the ground begging and looking for sympathy….
Someone (LEO V) needs to look at the fares (and passenger numbers) Aer Lingus is charging on their transatlantic routes. In the last three years the cost of flying a family of five from Boston to Dublin has risen from $3,500 to between $6,000 and $7,000. Needless to say the super long weekends on the lash in the ‘Diggers are a thing of the past. Too bad…
Allow me to give an alternative perspective.
The Generation That Wrecked The Country consists of the people who have recently entered, or will shortly be entering retirement. ~60 year olds(those born in the post war years). Now, finally, after years of avoiding the reprecussions of their feckless handling of the country, this generation will finally be expected pay up themselves. No more passing the buck to the generations below them, to whom they have bequeathed negative equity, unemployment and emigration. They will not now simply be riding away into the Mediterranean sunset, travel bags stuffed with handsome pensions.
There was a massive transfer of wealth over the last 20 years from the younger generation to the old, and it is right and proper that those who amassed such generous nest eggs on the back of that transfer, pay back what they owe to the rest of the country.
I’m not speaking solely about the decision makers. I’m talking about the rank and file of the upper middle class who backed the boom to the hilt in word, thought and deed for 15 years. I’m talking about those with no mortgages, in secure jobs, who have suffered no significant salary cuts, taxes, or job losses since this crises began. I’m talking about the people who are today driving new cars, still taking foreign holidays, and who still long for the return of the property boom; all the while still backing what is in effect _their_ bailout. _Their_ get out clause from the tax burden they have evaded almost their entire lives.
A mere 0.6% levy has raised €500 million. If it had been charged at the same rate as the USC, this levy would have raised over €5 billion–enough to pay for Bank of Ireland’s last recapitalisation. I think it should have been charged at such a rate, or something approaching it.
This may sound harsh to those with pensions who are approaching retirement, but these are the kind of hardships that are being faced by all below you. Those with jobs, property, businesses, shares, blind allowances, etc have lost this and more. Now finally, you are being asked to pay your share. And once we prise the senior civil servants off the treasury, we’ll finally all be in this together!
(Which is of course, around the time we’ll all decide to leave together.)
Last week the hairdresser David Marshall and the Bad Ass cafe closed. Restaurants and hairdressers are labour intensive retail and employ thousands of people. Competitive restaurant prices will aid our ailing tourist industry.
Credit where credit is due. This is a good news story for Irish businesses and jobs. What would the blogs have been if the government had increased the vat rate in these businesses.
@John, I think this is a mixed story. All of the initiatives should tend to boost competitiveness and make us a more attractive place to do business – that is the good news. The bad news is that the cost is being borne by 750,000 people who were saving for or are in receipt of pensions. It is not clear how much money will be taken out of the economy if those of pensionable age see their pensions drop by an average of €500 per year, though it is also unclear how much of the levy will represent pension pots of those not of pensionable age, where the pension pots are invested outside the country. It’s mixed.
@NWL
I’m sure you are not suggesting that pension pots invested outside Ireland are bad things. Remember that the recent terrible performance of many pots was because they failed to diversify – the managers just invested in the Irish banks, CRH etc. and claimed huge management fees for their lazy decisions. Haven’t the figures but managed funds are much more diversified now. Even if they invested in Irish equities, the centres of gravity of many of the best companies are overseas and proceeds of rights issues etc. are used for overseas expansion. A very good thing IMHO.
Personally, I think that raiding pension pots was a bad idea:
1. Is it legal? How come the Government can access my fund but I cannot till I retire. Is it constitutional?
2. Surely some way should have been found to include the gold-plated pensions for higher earners (and politicians) in the public sector. Of course, the reason is they make the rules and they can always slip and slide out of any scheme that might impact on their earnings and pensions.
3. 0.6% sounds very little but it amounts to 2.4% over the four years. Bear in mind that the YTD return for managed funds has been effectively zero.
4. Why was a graduated levy not introduced with 0% for funds under, say, €300k rising to say 2% for the largest personal funds (which could reach tens of millions).
Finally, funds are subject to great scrutiny on peformance. What evidence exists that the €1.8 billion extracted from pension pots will be subject to the same levels of monitoring and management or is much of it just being poured into the FAS/SW black hole, pockets of service providers, potholes and leaking roofs?
Finally, finally, if pension pots are no longer untouchable, why do the bondholders of busted banks remain out of reach. Is it that we can hit Irish pension funds because they are soft targets but not German, French ones?
Freak, your analysis is just a variation on the ‘We all partied’ line, which has echoes of the line promoted by the British establishment and their castle Irish during the ‘famine’ – ‘Ye brought this on yereselves, with yere big families and dependence on a single food-crop’; it’s equally wrong.
I’m eight years off retirement, started building a retirement fund only a decade ago which – believe me – is nowhere near public service standards. Even to do that much I’ve made a lot of lifestyle sacrifices during the boom years – I’m certain I’m not alone in this.
You condemn us all, “The Generation That Wrecked The Country consists of the people who have recently entered, or will shortly be entering retirement.” – gratuitous bullshit. Fewer than 100 high-flying decision-makers at the top of the six Irish banks recklessly borrowing €100bn from the European money-markets then equally recklessly lending it out to property developers and house-buyers, those were the people who wrecked this country; the politicians, the regulators, the media, they were all complicit, but the vast majority of us, the people, had no idea what was going on, just went about our business. Do a little thinking my friend.
If the government needs cash to fund its cost-neutral plans (and how much of this cash is going in to the black hole that is Fás?), and if they felt a need to raid pension funds, they should have done it in a proportional way, as suggested above; then – and because, as pointed out above also, there IS no public pension fund as such – they should also have introduced some kind of levy on public pensions, to match that which was being taken from the private pension funds.
We’ve been asking that our government and our new paymasters in the ECB should be fair; we should ask the same of ourselves. Your post was just plain stupid.
@Diarmud
Well said. It is interesting to see that even High Court Judges are now asking where the law stands as regarding the “reckers”.
@Diarmuid,
That line worked for the Brits. People just died or left. No reason to believe the Irish won’t just let it happen to themselves again. In fact, you could argue that the gene pool has weakened since the famine. Most with chutzpah have left.
I sorry but if shopkeepers and business people gave a two euro coin to everyone that spent in their businesses saying that it was for the parking meter. They would generate a level of goodwill. Across this State we’ve towns charging for parking on empty main streets.
All we’ve seen with this idiotic rubbish is a continuation of Macreevyite manipulation of the tax code to tempt people to act and employ people when what’s needed is the use of the levers of power to compel.
Oh Vincent, well said, so true and so well said.
Once again the government / dictatorship believe it is fair when they raid the pension pot of the hard working family, while they and all their cronies remain un touched.
They continue to run an over paid underworked public sector which requires huge reform and waste reduction let alone salary reduction (Most people in the private sector have lost there jobs or have taken 20% – 50% pay reductions). Then to add insult to injury they leave public sector pensions (Gold plated final salary schemes, the likes of, you and I could only dream of, like a lottery win) un touched.
They talk about measures being introduced to make us more competitive (For hair cuts and travel, at least we will arrive in Australia looking presentable!!) but then they reverse the reduction in the minimum wage??? most people would be happy to earn the reduced minimum wage, instead this government reinstate the higher figure, which will result in less people being employed (If you can’t afford the wage bill, cut the number of staff)
The problem here is the Government believe by bailing out every broke dveloper, bank and insurance company with taxpayers money they will be able to prop up the system in the hope it will get better, the traditional boom and bust has now become the boom and taxpayer funded / EU prop up, with the hope it will all work out.
Its a very dodgey precedent to impose retrospectively a tax on somone who saved for their retirement based on the rules set by those now imposing the tax, and those who have to pay are locked into that position. A line has been crossed and it puts the reputation of the country as a place to do business right up there with a very unsavory bunch. Comments like MathsFreak’s are very ill – informed he mistakenly thinks that everyoone who has been prudent in providing for their old age somehow contributed to the madness and wrecked the country – when ironically many of the guilty have already fled and cant be touched not to mention Irealnd’s much vaunted ploiticans and higher public servants who seem to escape every economic sanction – because they make the rules. This dangerous precedent will encourage every citzen who can to move their assets out of reach of the Government permanently – including their bank deposits- starting now – shortsighted in the extreme.
Presumably if the levy is to deliver €470m this year and every other year then
(a) if the legislation is enacted by the end of May 2011, then the government will effectively be applying a 0.6% rate for seven months or 1% annualised.
(b) Shouldn’t pension fund values increase each year. So if there is €78bn in the funds this year, should that not increase next year and would the 0.6% levy not deliver more than €470m
Look lads/lassies, this is all set to continue, the Noonan Plan of cutting a little here, from people who simply can’t afford it, to give a little there, probably to be wasted on yet another over-administered government scheme, probably set up by Fás – get used to it, or get mobilised. This is all so that the bank/bondholders can get their full pound of flesh, over €60bn already paid, over €30bn yet to be paid (correct me if those figures are wrong please, somebody). We’ve so far suffered all of this indignity, all of this pillaging of our national purse by the ECB, with barely a whimper of protest. Enough talk, WALK for Jaysus sake. See our FB page, http://www.facebook.com/pages/Ballyhea-bondholder-bailout-protest/162154057174719, our blogsite – http://thechatteringmagpie14.blogspot.com/ – sign our online petitin – http://www.petitiononline.com/mod_perl/signed.cgi?isntbb11 – but dammit, get active. Our overpaid senior civil servants/politicians will continue to make all these economic decisions, no input from the private sector – who do you think they’re going to cut? ACT, dammit.
Maybe I am blinded by my youth but I find it hard to see how any other revenue raising measure would have been a better option.
Obviously we hope that this isn’t something the Government has to continously resort to but whats a 1% cut (lets be optimistic) fall in unemployment worth to the state in extra tax reveneus and foregone social welfare?
When 14.7% (QNHS rather than LR) have no jobs and almost certainly no pension – surely these are the people suffering most in the economy? 20% of the unemployed are under 25 – how damaging is that for your life/career prospects? Life just ceases to progress – people become engulfed in stagnation.
Its horibble to take money that has already been earned and I don’t want to sound like I have an ideology (because I don’t) but 0.6% from those who can most afford it to try and get those who are suffering most some jobs seems like a trade-off I can live with.
I do have to laugh that the Private sector fund (which actually exists and is actually funded by physical/tangible contributions) worth 80bn is being tapped whilst the fantastical Public Sector ‘virtual’ fund worth 110bn is left alone because the PS were once asked to ensure that what they pay in actually equals what is paid out.
The Irish pension industry helped destroy the Irish economy by using the most anti-tenant lease law in the world against Irish commercial tenants.
Toxic Irish commercial lease law i.e. upward only rent reviews tied to long leases did not just destroy tens of thousands of sustainable Irish jobs and businesses, it was the rocket fuel for the commercial property valuation model which created the monster commercial property price bubble. The Irish banks lent tens of billions against these leases not against the properties.
No third world country and certainly no other eurozone country tolerates this toxic lease law. The rents are the symptom ,the lease law is the disease. Commercial property should be a service to enterprise ,trade and jobs ,Irish lease law destroyed all three.
The Irish pension industry destroyed the Irish economy.
@John Corcoran. Please, John. We have argued this a dozen times. You want the Irish government to introduce retrospective legislation on the legacy leases that remain, so that the Irish taxpayers can subsidise the multi-national retailers who won’t be passing any of that saving back. Give it a rest!
@John, I’m afraid that I would add in more neutral terms than WSTT’s, that unless comments move the debate on, then the blog risks becoming a vehicle for sloganeering on either side which I don’t think helps the quality of the debate.
There should be a major entry on here once the AG’s thinking on the abolition of UORRs becomes known & I look forward to a nice clean debate on the issues then. In the meantime, can we avoid sloganeering comments please.
Just over a year UORRs were banned on new leases and you might be interested in the PropertyWeek article then which canvassed opinions on the “Yes” and “No” sides of the debate.
http://www.propertyweek.com/news/polarised-landlord-and-tenants-argue-upward-only-rent-review-legislation/3160834.article
@ nwl
I opened the above property week article on the banning of UORR clause in all future commercial leases. Andrew Muckian a property partner at law firm William Fry states “Investors who buy shopping centres will get a mix of leases. Some will be upward only and some will be upward and downward with no guarantee of income-and that will lead to a completely different valuation model“
Perhaps John Corcoran is correct in stating the banks were lending against the leases not the properties.?
These leases were not available in any other eurozone country–I wonder why?
@Houdini
“These leases were not available in any other eurozone country–I wonder why?”
Because our commercial history, traditions and laws come from our connection with the UK, not Napoleon’s Europe.
Banks lend against both the strength of the lease and the property itself. If the property is vacant they take a view of its value as an empty property with income potential (maybe). If it is let under a strong lease to a good quality tenant it adds value, because then it becomes an investment, not just an empty building with no income.
@ WSTT
Facts are sacred
Let me challenge some of your facts. I know it`s hard to believe but there are thousands of Irish businesses in Ireland who are commercial tenants and are significently overrented and are desperarely trying to survive. There are Irish retail.office and industrial tenants and they employ hundreds of thousands of employees
I am aware of some of the details on one Dublin street namely Grafton street. The following are some of the Irish companies at risk, and seeking rent reductions etc or just trying to survive; A-wear ,Bewleys,Bus Stop,Butlers Irish Cafes,Card Gallery,Fields Jewellers,Grafton Crafts,Health Matters,Hickeys Pharmacies,Korkys shoes,Dubray Books,McCormack,s Jewellers,Richard Alan,Spar ,Zerep , Edmond Ross Studios and many others.
You comment that “I want the Irish government to introduce retrospective legislation in the legacy leases that remain ,so that the Irish taxpayer can subsidise the multi-national retailerswho wont be passing any of that saving back“
No third world country tolerates our commercial lease law. I refer you to the list of 38 countries in Europe ,The Middle East and Asia which nwl kindly loded on a previous blog. There is only one other country who use this notorious kease law–the UK
These notorious leases are hated in the UK. No later than October 2009 the UK pub tenants threatened a national rent strike against their landlords the breweries , to force them to drop the UORR lease clause. The breweries capitulated ,dropped the UORRs clause and agreed to convert legacy UORR lease to market rent leases.
I refer you to my leller to the IT dated 28th April 2011 headed “What caused Irish property crash“ The last line reads “If Ireland had regular eurozone lease law it would have been impossible to have had a commercial property crash“
Lets try and help retain tens of thousands of vulnerable Irish jobs–allow market rents and eurozone lease law prevail before its too late.
The Irish pension industry helped destroy the Irish economy by inflicting this poisinous lease law on our commercial life.
@John Corcoran
As you would say John, once again your facts are all fiction.
The terms of leases in Europe and the USA are negotiated. So were yours when you signed your lease. For most of their lives tenants’ leases have been below market levels. They are whinging like cry babies because for the last couple of years they have been above the market.
In relation to upward only reviews, rental terms in the USA and elsewhere include terms linked to fixed annual percentage uplifts over ten year leases, or uplifts based on inflation. These are normal and they represent upward only terms, but in a different form – and that is a fact, not fiction.
Ireland has the most anti-tenant lease law in the world, the longest leases and the highest rents per capita . In 2008 Grafton Street became the fifth highest rented street in the world .No third world country and certainly no eurozone country tolerates Irish commercial lease law, which is a form of economic terrorism.
Most Irish tenants with legacy UORR leases,which is the vast majority, are paying a multiple of market rents i.e twice,three times etc and are been bled dry by pension funds,speculators and wheeler dealers. Tens of thousands of sustainable jobs are at risk. In most cases,these outragious rents were inflicted on tenants at rent review/arbitration. A substantial body of tenants believe the arbitration process is systemically biased in favour of the landlords. The use of secret ageements ,side deals and other trickery to inflate rents ,was widespread.
UORRs inflate rents and property prices. The property bubble was a direct consequence of their malign effect. They allocate the macro-economic risk to the party least able to bear it.
The Irish pension industry ,by inflicting this lease law on our economy ,destroyed it.
@wstt
Irish Times today –
(The state agency Forfás is locked into a 65 year lease in Carrisbrook House which has been empty for some years. “Irrespective of whether it is occupied or not, Forfás will have to pay an annual rent of at least €1.18 million until the year 2034”. ) Luckily for the landlord the state can keep paying over the hapless taxpayers money forever Any other tenant would eventually go to the wall and their lifes work would be lost . Also possibly their home. If as you say the terms of the lease were freely negotiated, it begs the question as to why the state entered into such a contract on behalf of the Irish citizen. Your repeated argument that terms are freely negotiated by the tenant and they should stop whinging is simply not true. Upwards only clauses and long leases were standard in retail in Ireland for the last thirty years. Ask any of the retailers on Grafton Street, St. Stephens Green Shopping Centre, Blanchardstown Shopping Centre, Henry Street, St. Annes Street , Bridgewater Shopping Centre, Wilton Cork, St. Patrick Street Cork. Crescent Shopping Centre Limerick, Dundrum Shopping Centre etc.
I am afraid that it is true —————————————– All who_ Shot_ the_ tiger facts ARE fiction!
@d_t_s
I not sure where our facts differ. It is the conclusions that we derive from those facts that differ.
@d_t_s
To answer some of your points:
“The state agency Forfás is locked into a 65 year lease in Carrisbrook House which has been empty for some years. Irrespective of whether it is occupied or not, Forfás will have to pay an annual rent of at least €1.18 million until the year 2034″:
That’s the agreement that they entered into. They obviously were looking for a very long lease and security of tenure at the time. Whether they choose to occupy it or assign the lease is up to the OPW in the normal course of business. The government don’t like moving offices. They get screwed by the unions when they do.
“Any other tenant would eventually go to the wall and their lifes work would be lost . Also possibly their home.”:
That’s a possibility, not a probability, but it equally applies to many landlords, who have mortgages on their properties, in the current economic circumstances.
“Your repeated argument that terms are freely negotiated by the tenant and they should stop whinging is simply not true. Upwards only clauses and long leases were standard in retail in Ireland for the last thirty years.”:
Some days you’re the dog, other days you’re the lamppost. At present tenants are negotiating short leases with multiple breaks at levels that won’t allow the property owners to cover their outgoings. I don’t hear the sound of them sobbing. That seems to be a proclivity confined to tenants.