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Archive for February 25th, 2012

This is Part Two of a three-part blogpost on political remuneration in Ireland. Part One was published last weekend, and is available here, it focuses on the detail of salary and benefits and has been updated with some new information since last weekend. It’s worth saying that the value of the Oireachtas pension which costs TDs and senators 6% of their salary each year, has yet to be calculated but with life expectancy for men at 77 years and women at 82 years, average returns on private pensions of 1.1% per annum between 2001-2011, a guaranteed 50% final salary scheme based on 20 years service, and a generous lump sum arrangement, I can’t see how it would cost less than 20% of annual salary in the private sector.

There is now going to be a Part Three following the acquisition on here of details of political expenses paid for by the grants provided by the State to political parties – politicians, it seems, aren’t limited to direct payments for their political income; the information is presently being analysed. Part Three will also examine the failure of the mainstream media in Ireland to report on the cost of the political system and the lack of transparency over how our money is spent, and with whom it is spent.

Part One allows us to, for example, challenge ministers when they claim their salary increments are justified because, upon being promoted to the office of minister, they lose the Travel and Accommodation allowance that applies to TDs, because in response, you can say “but then you get a new dual abode allowance which allows you to buy a Dublin home, an annual unvouched tax free allowance of up €6,500, plus two drivers plus a mileage allowance of up to €1.14 per mile plus hotel, service charge, overnight subsistence and even a gift allowance”; and judging by the Ruari Quinn mileage expense claim reported last Sunday in the Mail, the mileage allowance is not subjected to the tightest scrutiny. You can also ask someone like the affable Mick Wallace, what we get in return for a €92,692 salary, a gold-plated pension, a personal representative allowance of €15,000 (unvouched) to €27,000 (vouched), a travel allowance of €32,966 (Mick being 130 km from Leinster House), an independent’s allowance of €41,152, a secretarial allowance of €41,092 an €8,000 grant for a constituency office, termination payments, free facilities at Leinster House etc. And let’s not forget Mick’s well-publicised distractions in dealing with his own extracurricular businesses. And you might ask if the €250,000-plus potential annual cost of Mick, as unconventional and decent a man as he no doubt is, is good value for money.

Comparison UK

There has already been a blogpost on here comparing the cost of our politicians with those in our nearest neighbour, the UK, which of course is not in an IMF programme, is a sub-Superpower with nuclear energy, which has control of/responsibility for its fiscal and monetary policy, whose economy is 10 times bigger than ours and whose political constituencies are three times bigger than ours (average Irish TD looks after 27,500 citizens, average UK MP looks after 95,000). That the emperor has no clothes is not just apposite for Treasury Holdings.

Personal Reward (Sinn Fein and United Left Alliance)
Whilst messages from this blog to the two parties that comprise the United Left Alliance (ULA), namely the Socialist Party and People before Profit parties, weren’t responded to, it is claimed in the media that the four TDs from these two parties adopt a remuneration policy similar to Sinn Fein’s. I don’t wish to offend anyone’s political loyalties, but a general statement on the matter, perhaps on the two parties’ websites might clarify the matter. With respect to Sinn Fein, each deputy and senator is paid the average industrial wage of €34,000 and then, personal tax and PRSI is paid on this €34,000 – typically the TD will end up with about €25,000 net. The rest is used at a local constituency level for party activities and that typically involves the employment of political activists. Sinn Fein has no special policy on pensions, but that party has the dubious privilege of not having to deal with it – in this Dail there are 14 Sinn Fein TDs, in the last Dail there were only four (five when Pearse Doherty was elected in November 2010), and in the previous Dail there were five, and before that just one. As far as I can see, Arthur Morgan (now aged 57) is the only past Sinn Fein TD and we don’t know what his pension arrangements are, but with only nine years service between 2002-2011, a salary of 9/40ths of €92,672 will not be significant even at age 65. Sinn Fein claims actual expenses only, as opposed to vouched expenses.

So given the straitened times we live in, it seems that Sinn Fein and the ULA are heroes in their personal sacrifice. Having said that however, the gross cost to the State of Sinn Fein and the ULA is exactly the same as any other party. And the second aim of this blogpost was to highlight the cost of our political system.

Part Two
Part Two is aimed at placing these political costs in context and examining the damage done to society and the economy by our gobsmackingly overpaid politicians. Again, the country needs presently borrow €300m a week to fund the difference between tax collected and state expenditure. Even in 2015, if all goes to plan, and we have a 3% deficit, that will still mean we need borrow 3% of €170bn, or €5bn a year or €100m per week. We are facing into a further four years of austerity/reform and by comparison with 2011, we will need adjust our budget annually by €12.4bn in 2015. With respect, if anyone thinks we will avoid a substantial household charge, university fees, cuts to public sector salaries, cuts to basic social welfare rates, cuts to frontline services, increases in mortality rates/class sizes/crime and reductions in education standards/crime detection rates/ available hospital beds, not to mention tax-rate increases and a wealth tax, and perhaps even an increase in corporate tax rates, then I think you’re deluded. €12.4bn is the annual adjustment needed, and that assumes economic growth which is far from certain, and assumes we will be able to borrow money to fill the €100m-a-week deficit in 2015. And it should be said that this is required regardless of bank bailout costs.

With a €12.4bn annual adjustment needed, the three main criteria for individual adjustments will be that they are undertaken quickly, efficiently and fairly. “Quickly” is easy to understand and measure, “efficiently” is less clear because there will be argument about cause and effect – do you raise VAT which drives down demand? do you cut public sector numbers or can you employ the same number with lower salary? how much can you tax wealth without it emigrating? – but it is the term “fairly” about which there will be most argument, and each of us has our tribes and vested interests and corner to fight. But “fairness” might objectively balance “ability to contribute” with “damage to the economy”. So a wealth tax akin to France’s or Italy’s may be needed, but any tax needs to take account of consequent behaviour and if you tax too much, the income or wealth may absent itself from the economy and since we don’t have capital controls or a Warsaw Pact approach to the free movement of people, any changes need to be sensitively considered.

Leadership
But in this war – and the fact that this country can’t pay its way is the greatest threat to our notion of sovereignty, so “war” is apt – to reduce the deficit, we need leaders. And our political leadership cannot continue to draw such plutocratic sums from the public purse whilst seeking to impose austerity on the rest of society. Or if it does, we end up with an unfair society, “the sow that eats her own farrow”, social unrest which at one end of the spectrum results in economic loss through days lost and low-level disorder and at the other extreme sees the collapse of law and order and loss of life and, mass emigration again and a place where the majority don’t want to live.

Turning to our leader, I should start off by saying I have no small amount of respect for An Taoiseach of the country, Enda Kenny. He leads a strong government not compromised by the whims of independents or dissidents at every turn. He has a rotten economic situation to deal with, and he hasn’t buckled under his responsibilities. He is the “father of the house” in the sense he is the longest-serving politician in the Dail, and that is no mean feat in this country. He seems to have a good sense of what is needed to keep his subordinates and his coalition partners in acquiescent equilibrium. And with respect to the theme of this blogpost, it should be remembered that one of the first actions undertaken by An Taoiseach in March 2011 was to reduce his own top-line salary and the salaries of An Tanaiste, ministers and junior ministers by 6.6%, which in An Taoiseach’s case meant a reduction from €214,187 to €200,000. And remember that only back in 2007, the top-line salary for then-Taoiseach Bertie Ahern was €310,000. And you might also have sympathy for the fact that An Taoiseach is meeting with people every day in this society and economy who earn a multiple of the taoiseach’s salary but with a fraction of the burden of responsibility.

But how can An Taoiseach ask for more from the nation, when his own rewards and those of his administration and his political system remain untouched? How will he answer critics in the US during his St Patrick’s Day visit when this year, he is likely to face questions on his salary from politicians in a country that is a big donor to the IMF, and doesn’t understand how a bankrupt country with limited options can afford to pay its political leadership sums which would appear excessive even in the world’s biggest economy and sole Superpower. In theUK, will opponents to the encroachment of Europe demand answers from their leaders as to why theUKis loaningIreland€4bn so as to pay such enormous sums. Perhaps this is the international agitation that is needed to focus politician’s minds here…

Part Three will be published next week.

(Graphic above produced by Japlandic.com, contact here)

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“If there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained.”  NAMA CEO Brendan McDonagh speaking at the Corporate Restructuring Summit, September 2011

“In the case of property under the control of debtors, NAMA is precluded, under Section 202 of the NAMA Act 2009, from disclosing confidential information…However, in cases where NAMA receives enquiries from potential purchasers about specific properties under the control of debtors, it can facilitate contact with a view to enabling sales transactions to take place” Minister for Finance, Michael Noonan in a written reply to a question in the Oireachtas, February 2012

In recognition of tomorrow’s Oscars, it’s perhaps appropriate to remember one of the great films of the past that never got an Oscar nomination, The Parallax View. A great thriller of the 70s, it was part of a director’s trilogy which also comprised Klute and All The President’s Men, both of which got Oscar nods. Not only did The Parallax View provide you with detail of how to get an airplane to turn back – leave an anonymous note about a bomb, in a napkin in The Parallax View but I suppose scrawling it with lipstick in the wash-room would also do the trick – but the film gave public prominence to a great word “parallax” which means the changing direction of an object caused by you moving. It’s not quite Father Ted’s “this are small, those are far away”, but it’s close.

Its relevance to NAMA is that on one hand NAMA has inflexibly strict protocols for not disclosing the price paid to acquire loans or details of property under the Agency’s control unless it has been foreclosed. And on the other hand, NAMA and Minister Noonan are happy to act as if both details are in the public domain. In both cases there is a view of the Agency’s information disclosure at a fixed point which somehow changes as its CEO and the finance minister open their mouths.

Last year the NAMA CEO Brendan McDonagh took a swipe at bottom-feeding speculative buyers who were wasting their own, and NAMA’s time with unrealistic offers. Don’t come knocking on NAMA’s door with offers for property or loans below that paid by NAMA. But here’s the kicker – NAMA won’t tell you how much it paid for the loan and indeed is very protective of that information, and the debtor isn’t supposed to know and given the price included some convoluted calculations involving Long Term Economic Value and discounts for costs, plus there will have been due diligence on the security which won’t be generally available, how in God’s name are you, as a prospective purchaser of a NAMA asset, supposed to know what NAMA paid?

On Thursday in the Dail, the finance minister declined to provide a list of properties under NAMA’s control in a particular politician’s constituency citing confidentiality, though there is a public list of the small fraction of NAMA loans which have been foreclosed. Fair enough, NAMA has to abide by its own confidentiality rules. But then the Minister invites prospective purchasers of all NAMA property – both foreclosed and still controlled by the debtor – to contact NAMA directly to facilitate sales. How will prospective purchasers know what property is controlled by debtors but subject to a NAMA loan?

I think there are many that would like to see  a register of everything NAMA controls together with the price paid. Fine Gael promised a register of all loans that are in default, and given 80% of NAMA loans are not performing and the loan to values of the remaining 20% may also mean these are in technical default, you might think delivering that promise would give us that information. But like NAMA’s protocols on information, those manifesto commitments are also subject to a parallax view.

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