[WARNING: This blogpost has something to offend everyone – it examines the closing of the €13bn gap between what this state generates in taxes and what it spends on services, social welfare and interest on the national debt]
The Germans are an intelligent people, and it wasn’t by chance that Dr Merkel – with her PhD in chemistry, quantum chemistry to be even more impressive – suggested that the Greeks hold not one, but two elections on 17th June, one to elect parties to government and the other to stay in the EuroZone. She was in effect telling the Greeks that you can’t have your cake and eat it, or rather you can’t vote for anti-bailout parties and still expect to stay in the EZ. Yet this apparent contradiction is the Greek position, it seems likely that anti-bailout or more accurately, anti-Memorandum, parties will feature amongst the most successful in Greece’s election in two weeks but the overwhelming majority of Greeks want to stay in the EZ. Having your cake and eating it.
We can sit back and tut tut at the Greeks with their stereotyped corrupt and lazy ways, sure in the knowledge that it is indeed human nature to want it all, but before we get too self-righteous, we might want to stand back and take a look at our own finances and near-term economic future. We don’t need a crystal ball; thanks to the EU/IMF we have a Memorandum of Understanding which sets out the adjustments that have to be made to the country’s finances between now and 2015. It’s not pretty. We need adjust by €3.5bn in 2013, an additional €3.1bn in 2014 and an additional €2.0bn in 2015. So in 2015 we will have – in that one year alone – €8.6bn of an adjustment compared with today. Apportioned to the 1.7m households in this State and that’s €5,000 per household in that one year alone. The adjustment won’t all be new taxes and charges, it will be reductions to social welfare and to public services, but an average of €5,000 it will be. In a state where research shows that nearly half of all households have less than €1,200 per year of discretionary income, you can readily see the nightmare that lies ahead.
And just to hammer home the seriousness of the adjustment, capping the adjustment at €8.6bn requires us to grow our economy, in GDP terms, by 0.7% in 2012 and 2.2% in 2013 and 3% in 2014 and 3% in 2015. According to the back of the envelope calculations on here, we will not see any growth in GDP this year following downgrades to UK, US and EU forecasts of growth. Who knows about 2013-2015, it could be better than forecast but you would have to say at this stage, it could also be worse.
And despite these facts – and they are facts, just consult the IMF/EU Memorandum of Understanding, though the GDP growth projection is an estimate – it seems that no group, corporate or social, in Ireland seems to be receptive to the adjustment coming from their income, be it income taxes, charges like property and water, social welfare, public sector pay, wealth tax or corporate tax – yes corporate tax. So tut tut for the Greeks wanting to stay in the euro but at the same time wanting an anti-Memorandum government, but tut tut also for ourselves for thinking we can have it both ways as well, that we think we can freeze our standard of living at its peak and not offer up one step to retreat from that peak standard of living.
The usual reaction to governments trying to make adjustments which might target YOUR pocket is to group together, protest and resist, both before and after an adjustment is made. And that oftentimes works – witness the success of unions, of old age pensioners, of disabled groups and less visibly the legal, medical and accounting professions in this country. But when the adjustment required is so great, and when it comes on the back of five austerity budgets, the result is going to be EVERYONE takes a hit. And that means:
1. Wealth tax – the next time you get hold of a United Left Alliance politician, rub their noses in the Sunday Times or Independent rich lists and demand that they tell you how they would tax wealth on individuals whose names, photographs and sources of wealth are chronicled in these “Rich Lists”. The truth is that for most of the super-wealthy, their wealth is either outside Ireland to begin with, or is mobile. Once you get down to the common-or-garden wealth of €10-20m, you’re usually looking at individuals whose companies have been successful, and the wealth is tied up in the company. How do you get at that wealth? You can tax corporate profits more than at present, but that is a touchy subject or you can tax shareholdings. Do the latter and you will quickly find the shareholdings transferred outside the State. Of course you can try to stop the movement of wealth, but if you find a way of doing it, there are 100+ countries around the world which will want to hear from you, because from the US to the UK, from China to South Africa, ALL governments want to hold onto control over taxation on their citizens’ wealth but none has been able to effectively stop the mobility of wealth. Maybe the ULA has a novel approach, but unless it involves turning Ireland into a police state, it ain’t gonna happen. Or at least not on the €10bn per annum scale suggested in some quarters. More modest taxing may be acceptable and economists and political parties have produced “plans” which might see €1bn a year extra collected.
2. Income tax, I can tell you now that this Government was talking out of its backside when it gave a commitment not to raise income tax. You can expect to see increases to rates or reductions in allowances, or changes to tax bands. It is going to happen. Equity would suggest that the higher paid be taxed first and most. And in both France and Italy there have already been increases to the taxes of the well-paid. In Ireland, even the curmudgeonly Ryanair boss, Michael O’Leary has conceded he might have to pay more tax, but he has also been clear that if you tax people too much, particularly the very well paid, and they’re outtahere. In the UK, they have recently REDUCED the top rate income tax from 50% to 45%, despite the UK’s deficit being at the same vertiginous level as ours, at nearly 9%. Are the Brits economic illiterates or is it just Tory Toffs instinctively protecting their own? Or is there a calculation which shows that a reduction in the top rate of tax encourages more income generation and more income tax, or that it encourages earners to locate in the UK and spend their income here? So you can expect the higher income earners to pay more than at present, but in the end we will need tax the average earners getting €30-40,000 a year, more also.
3. Social welfare – if the standard weekly unemployment benefit in this country is €188 in three years time, when the projections are that we still have 11% unemployment, then you’ll know we’re stuffed. That’s not to say that €188 per week is an adequate benefit in an advanced society, but when it is twice the level of our neighbour’s which has unemployment of 8.5% today or 6.5% in Northern Ireland, but the sad truth is that needs must, and we can’t afford such a large bill to support economic inactivity.
4. Public sector, salaries, allowances and pensions need to fall and redundancies will need to be centrally managed and not left to individual choice. The Ireland of €30-40,000 including allowances a year Garda, the €35-45,000 nurse and the €45-55,000 teacher will not survive the next three years. Nor will the €200,000 a year consultant or €160,000 a year county manager. But if anyone thinks it will just be the senior public sector workers that will shoulder the adjustment, then the numbers just don’t add up and savings from those on €100,000 salaries won’t be enough. That means the Croke Park Agreement needs earlier intervention than is planned when it expires after 2014.
5. Charges and levies, forget the blether about the new charges and levies being to expand and enhance existing services, the truth is they are to help fill the deficit gap, though promoting the charges with a fig leaf of some social justification is seen as a political necessity. There is no rule that the Property Tax should be an average of €300 or €1,000 per annum. It’s simply a part of the mix to close the gap and might be lower or higher. Before water metering is implemented, it should be proven by the Government that reduction in average consumption outweigh the cost of metering, otherwise we should just have a flat charge and if needs be, invest in the treatment, distribution and disposal of water.
6. Despite the blether since last Friday about the “Yes” vote in the referendum “paving the way” to a deal on bank debt – so far we’ve shelled out €68bn, or 40%-plus of GDP, 50% plus of a more representative GNP, on bailing out our banks – the view on here is that we are in a weaker negotiating position today that we would have been with a “No” vote. We might benefit from a scrap that falls from the German-Spanish negotiations, but aside from that, there is little scope for a debt-writedown and as for the cost of the debt, we’re paying 3.5% on bailout funding and just over 4% generally on Ireland’s debt serving, so aside from getting a second bailout to fund future promissory notes or debt rollover, there is little scope for relief here and even if we get a second bailout, it won’t be significant for the cost of current borrowing. So what now? The Government needs to provide answers, facts and detail but the view on here is that our prospects have taken a turn for the worse with the “Yes” referendum.
7. Legacy personal debt including mortgage debt, it is ridiculous to impose further austerity on people who already are totally insolvent, and in the Irish case, the insolvency is mostly a function of the property boom and negative equity is likely to affect 400,000 out of 1.7m households today. Personal Insolvency legislation which is reforming, accessible and in line with developed-country international standards is required now. Bad news for banks and creditors, better news for the indebted and society at large.
8. Corporate tax – 12.5%, that’s the Irish standard corporate tax rate. But it’s more than a rate, it’s a brand and has been defended at great cost. Why is business so lightly taxed? Because in our country which bypassed the Industrial Revolution – thanks Britain! – we have some catching up to do, and we calculate that the ancillary benefits of employment creation, the attraction of international expertise and innovation, the creation of hubs in the Information Age and the domestic benefit of spend on everything from premises to VAT all outweigh the light tax take. Of course this upsets our bigger European neighbours. But will Irelandin 2030 still compete as a low tax economy, or will the country have developed a domestic economy which is not reliant on multi national Information Age investment? A year ago, I would have said it was taboo to contemplate raising corporate tax rates, but with such a huge deficit to close, does this country have a choice?
9. The cost of politics, leadership in the battle that lies ahead to close the deficit should come from the top, and there is little evidence of sacrifice in our political system where our politicians earn more than those in countries providing THIS country with its first bailout. As with every other tribe, there will be resistance to cuts and reforms, but if, in three years time, a TD in this country is earning €93,000 a year, plus unvouched expenses plus political pension rights plus the incurred expenses for constituencies which average 30,000, then we’ll know we are stuffed.
10. Put a rocket up the backside of the National Consumer Agency (NCA). One of the areas that should be cushioning the colossal adjustment that lies ahead should be the reduction in consumer prices. A year ago, the Minister for Jobs, Enterpriseand Innovation, the almost deliberately laid-back Richard Bruton announced the merger of the NCA with the Competition Authority. Not only has that not happened but we still live in a country where there is little or no competition for mortgages for those in negative equity and there are still amazing differences in prices between this State and Northern Ireland. It seems we might need antitrust action on a scale of that in the US in the early 20th century to deal with our legal, medical and accounting professions. We are just now seeing consumer prices declining in line with the reduced circumstances of the nation.
There needs to be a national conversation now about the shape of future cuts. You might expect Labour to seize the opportunity today to lead that conversation, as it is that political party that will face a wipe-out at the next general election on the back of austerity. The train has left the station for the Labour party, and already it has passed 1990s-ville in the polls, next stop is GreenParty-ville, so it is this party that has most to lose and should be arm-twisting its partner in coalition to deliver a united message about the colossal challenge facing the country, and to deal with the adjustment in an efficient and equitable manner.
Remember the above adjustments depend on a 10% economic growth between now and 2015, and growth is vital, but growth alone will not close such a colossal gap. But you can expect snake-oil salesmen and women to deflect attention from the budget adjustment in coming months, with the distraction of growth. But when we can’t borrow more and where we can’t increase our deficit, it is difficult to see where we can source or attract the funds for growth. We can run down our strategic National Pension Reserve Fund which still has €5bn in it, though if we do, we have nothing to act as a buffer at the end of 2013, we can try to encourage private pensions to invest more in Ireland but in that, we face the same challenges as every other country trying to corral its pension funds for the national benefit, we might get a few hundred million from the European Investment Bank and we might get a couple more billion out of NAMA which will need to be repaid by 2020, but even if all of that creates 50,000 jobs, we’ll still have 12% unemployment equating to about 250,000 and we’ll still have 380,000 on the Live Register. Government generated growth just won’t be enough.
Time for an honest national conversation to start, because in the real world you just can’t have your cake and eat it.
NAMA Wine Lake 
“WARNING: This blogpost has something to offend everyone”
Does it? I’m not so sure. Seems that if you’re a “commom-or-garden” 10-12 million up you cant be touched. I did read that right didn’t I, like I’m not making it up? I seems that a certain class of people, ie those who make money by virtue of already having lots of money dont just have their cake and eat it, they run the entire bakery. The super rich (and having 10-12 million is super rich in the eyes of most of us) get off whilst people living subsistence level on 188 euros a week should get that cut?
Its a rather disingenuous to argue that the ULA have way proposing how to get at the wealth of the super rich as it where. If the same level of human resources that comes from the ‘professional classes’ was directed at redistributing wealth more equitable rather than as at present where it is deliberately hidden, tax avoided and legalised amorality is the game. Why ask the ULA, why not ask the trained professional classes to do it. Say the likes of Arthur Cox and Co. Given that we have handed over 11 million to these guys in the last few years, why not pose the question to those that write and lobby for the financial rules?
It is time for an honest conversation, but trotting out the old line that the rich will leave Ireland rather than part with more of their crazy obscene amounts of wealth in a time of crisis – caused by financial capitalists themselves – suggests that its likely that the conversation will be a reheat of many previous ones
@Offended,
“More modest taxing may be acceptable and economists and political parties have produced “plans” which might see €1bn a year extra collected.”
The problem is SO big that NO-ONE is going to escape.
And those who are wealthy AND have large incomes – not uncommon – will be hit by a wealth tax and changes to income tax.
But taxing wealth is not going to generate €10bn or anything like it, for the reasons above.
If you disagree, take a look at the Sunday Times rich-list and tell me how you would tax the wealth of named individuals.
http://www.therichest.org/nation/sunday-times-richest-people-in-ireland/
“If you disagree, take a look at the Sunday Times rich-list and tell me how you would tax the wealth of named individuals.”
Well I’m no tax expert – which is precisely the point I made above – but I would imagine there is a dimension of political will here.
Step one would be a very public ask of those on the rich list? Actually say “here we are in complete dire straits here, you dont really need all that cash do you, hows about handing 25% of it to us”
Most likely the public will be told by these folks “sorry no can do, we want to keep our 1000’s of millions” but if you dont ask you dont get.
It no surprise I don’t have a specific answer, but are you telling me that its not worth exploring, and namawinelake adopts a position that is simply impossible? I dunno, just seems a little deterministic that 10s of thousand of people living with very little have to live lives diminished. It will flag a certain psychology of extreme wealth, which in itself will help shaped the amorality of the present forms of social organisation
@Soundmigration, again NO-ONE can escape an annual adjustment of €8.6bn.
And the belief of economists – and I’m thinking of the likes of Seamus Coffey here – and political parties – Sinn Fein has back of the envelope calculations which went into their Budget 2012 proposals, is there is around €1bn there in additional taxes on wealth. That’s quite a sum of money for a small group of albeit wealthy individuals.
And it IS a surprise that you don’t have a specific answer. What wealth would you tax? The link below outlines the wealth of the super-wealthy. Exactly how would you tax it? You will find that most of the wealth is mobile, corporate or not in Ireland in the first place.
@Otto,
If there is proper competition in the medical sector, the number of €200k-plus consultants will drop, but the point you make that people have choices is acknowledged, but the scale of the challenge facing this State is so great that even whizz consultants will need take a hit.
This is an important topic with many different aspects.
1. Ideally we need ideas that raise considerable amounts of extra tax without discouraging labour or business investment. One idea would be to remove the capital gains tax exemption on principal private residences. It would raise a lot of money while discouraging our property mania. It would not affect the ‘negative equity generation’, but would bite hard on the windfall gains of the owners of those houses advertised in Thursdays financial times, often bought for a song in 1988. It wouldn’t be contrary to the Programme for Government or the parties manifestos. It will also hit some of the 1% in a tangible manner, which may produce some D4 anger – all to the good. Win, win, win.
2. The income tax rises need to fall not on the €30-40k group, but on the much broader €15-40k group. These are the people largely exempted from tax on income in Ireland and whose step-by-step reincorporation in the tax-on-income system is so vital for balancing our budget. See here for a comparison of UK and Irish tax rates:
Click to access IRL-UK-tax-comparison-2012-rates.pdf
The well-paid in Ireland already pay much higher rates of tax-on-income than in the UK, and yet it may need to rise again, but it is the average-to-low paid that are comparatively undercontributing.
3. Public sector salaries need to be re-examined yes, but IN LINE WITH SUPPLY AND DEMAND in particular occupations. I hope this is not too shocking a comment for an economist’s website. The €160k a year County Manager generally has few alternative occupations open to him, and could get by fine on €110k a year. There will still be no shortage of applicants for the job. The €200k consultant, on the other hand, is paid more, but operates in an international market for high-skilled medical professionals where they can easily move to protect their incomes, so their pay should not be cut in the same way. (At the very least, much more easily than the county manager). It is already difficult to recruit for some medical positions in Ireland, as well as many university positions. So DIFFERENTIATION is a vital part of managing the cut in public sector salaries. Simply put, if the relevant market is an Irish-only one, salaries should be cut much more than if the relevant market is effectively international.
4. I agree on cutting the cost of politics. Eamon Gilmore on the radio this morning was told that ‘exceeding the pay caps’ for advisors etc was one reason for Labour-voters anger in the referendum. They would be wise to find some way to say “we’ve listened” on this issue and if some advisors resign in disgust, so much the better.
5. It is not the national consumer agency, but markets, that will lower the cost of goods in Ireland. Allowing larger out of town hypermarkets would help a lot, as would encouraging new entrants in the grocery sector and allowing the delivery of many pharmaceuticals by web/post. As would reducing regulatory barriers to competition like the minimum wage and sector specific wage agreements. Lots more still to do on labour market flexibility, and this is very relevant indeed to “reducing consumer prices”.
6. I’ll repeat my earlier scepticism about the Credit Union survey you mention above. It’s not terrible but I dont think it’s scientific enough to have so much weight put on it, given the fungibility of the concepts of “essential bills” and “disposable income”.
@Otto, I think the UK versus Ireland comparison of income tax might be out of date after the decision to cut the higher rate in the UK from 50% to 45%
http://www.listentotaxman.com indicates that someone on GBP 100,000 pays 38,000 in tax now.
If the figures are out of date, it will just accentuate the fact that in the UK, those on higher salaries pay less than Ireland whilst those on modest salaries in the UK pay more than in Ireland.
“it is the average-to-low paid that are comparatively undercontributing”
Well, the average-to-low are “undercontributing” compared with the UK, but that is a political/social/economic decision.
That would be Thursday’s Irish Times, of course.
“The well-paid in Ireland already pay much higher rates of tax-on-income than in the UK, and yet it may need to rise again, but it is the average-to-low paid that are comparatively undercontributing.”
Undercontributing? Whose labour is that generates the profits for the well paid.
“The €160k a year County Manager generally has few alternative occupations open to him, and could get by fine on €110k a year. There will still be no shortage of applicants for the job. The €200k consultant, on the other hand, is paid more, but operates in an international market for high-skilled medical professionals where they can easily move to protect their incomes, so their pay should not be cut in the same way.”
Through the looking glass stuff there
Oh, and two more: there’s no reason why taxation on cars and on petrol (including diesel) should not rise significantly further; and – once again – the subsidies of the farming sector seem to have escaped NWL’s beady eye. There’s a vast amount of cutting / taxing to go on there, maybe starting with their inheritance tax advantages … See for example: “The [agricultural inheritance] relief operates by reducing the market value of ‘agricultural property’ * by 90%, so that gift or inheritance tax is calculated on an amount – known as the ‘agricultural value’ – which is substantially less than the market value. In general, the relief applies provided the beneficiary qualifies as a ‘farmer’ *.
Austerity is like asking a patient bleeding to death to give themselves a transfusion.
@Jake, I thought austerity was like asking someone to live within their means, and over the medium term not to spend more than they earn. Of course if you start at a position where your income has collapsed, then it will be painful to adjust. And who will pay for the adjustment? If it was €1bn then there would be plenty of scope for posturing by all the tribes. With €8.6bn, EVERYONE will pay.
@NWL
“I thought austerity was like asking someone to live within their means, and over the medium term not to spend more than they earn.”
You have a couple of wild cards in your definition, within their means and medium term. Austerity, as it is practiced, not defined, is taking from the weak and giving to the strong. This is all written out in every “bailout” done by the IMF or the Troika. “Balancing” spending with revenues through shock and awe is all part of the plan. It is all about saving the rentiers. There is no drastic need to reduce education and take hospital beds away from the needy. It is all about proportionality, which does include EVERYONE, and leadership. Currently, there are none of the above.
Your own numbers belie the possibility of an “adjustment” by austerity.
Austerity is a euphemism for “Do nothing with the budget except borrow more cut back a little on non-essential items”
Honoring election pledges like this would go a long way to restoring public confidence.
“Freedom of Information: Restrictions introduced by recent Governments to Freedom of Information in the public sector will be reversed.”
Click to access Fine%20Gael%20Manifesto%20low-res.pdf
“Labour will restore the Freedom of Information Act so that it is as comprehensive as was originally intended. The fee structure for Freedom of Information requests will be reformed so that cost does not discourage individuals and organisations from seeking information, and the remit of the Freedom of Information and the Ombudsman Acts will be extended to the Garda Síochána, the Central Bank and other bodies significantly funded from the public purse, that are currently excluded.”
Click to access labour_election_manifesto_2011.pdf
Really? “Public confidence” does not rest on FoI policy, but of course it’s nicer to talk about than the hard work of raising taxes and cutting spending. And the FoI fee structure will need to raise more money, not less, in our current fiscal environment, plus any costs to the institutions involved would need to be compensated or reflected in lower services. Seems like a good policy for post-2020 implementation.
So it should remain a dirty little secret what the girls and boys at the redundant NTMA and incompetent NAMA trouser every year?
Ah, you have a narrower target. I very much doubt “public confidence” will be restored by discovering that NTMA and NAMA employees earn a lot of money. Perhaps you mean that “public outrage” will be further reinforced by extending FoI rights to these institutions? It may be worth doing on the salary issues all the same…
“If there is proper competition in the medical sector, the number of €200k-plus consultants will drop, but the point you make that people have choices is acknowledged, but the scale of the challenge facing this State is so great that even whizz consultants will need take a hit.”
Of course, everyone will need to take a hit. If your argument is just “everyone will pay”, then of course we are in agreement. If however, the argument is about, within the context of “everyone will pay”, who must be cut or taxed more, i.e. the conversation about the shape of future cuts you were asking for, then we need to differentiate in line with supply and demand: lower-paid Irish-market based public servants / local authority workers should be cut more than higher-paid internationally-market orientated high skill medical and research professionals.
One very important point that should be driven home to one and all is that the current crisis has little to do with social spending and everything to do with a real estate bubble that was created by the financial class. Let’s not be cute and say moving the retirement age up a couple of years will make up for the bailouts of the financial sector and quantitative easing, which has all gone to the banks and their ilk. To use the argument that the ATM machines will shut down to extort money from the powerless is a very nasty trick indeed. Deficit spending is grand and super when it comes to the financial sector but for education and health, it is a blasphemy of the highest order. Why is one group held to the “Austrian” whip while the other bathes in the liquid gold of Keynes? Where is the moral hazard between saving a hospital versus a bank?
@ Jake,
I am not sure I fully understand your first sentence…
“and all is that the current crisis has little to do with social spending and everything to do with a real estate bubble that was created by the financial class.”
My understanding is that spending was increased on the back of increased tax returns from the property sector.
As the property bubble got bigger and bigger, more money flowed to the exchequer from VAT, increased income tax returns and all the other business generated i.e. solicitors, people spending money on furnishings for new properties etc etc.
It was this increased income which allowed spending to be increased on social welfare, social services, new roads and so on so on.
It was effectively a one horse race, and when the horse fell flat on its face the source of funds for the spending dried up.
I think we are on the same page. Increases in soical services spending were a result of increased revenue from the bubble. However, this is not the problem. The debt from the bubble and who is going to pay it is the problem. I quote below an article that shows that bad bank loans over four years to be close to Irish GDP. The way to pay for the social serivces is to increase growth. No one is crazy enough to think that austerity for the sake of paying off the likes of bond holders and developers sour loans is the road to growth. The PRIVATE sector made a lot of very bad decisions and it is not the responsibility of the Irish tax payer to cover for them. If they want to be paid off with NO MORAL HAZARD, then convince Angela to go along.
Interesting topic, of which we are going to be hearing a lot more of in the near future.
Of course wealth tax is a delightful topic for the begrudgers. It is the final solution to all Ireland’s problems. I find it very ironic that those groups who are recommending taxation of wealth are in fact funded by wealthy philanthropists such as Mr Chuck Feeney, who I believes funds the TASC group. Perhaps if Mr Obama was to tax Chuck Feeney more then TASC would be cut of from its funds.
However Wealth Tax is a term which is very loosely used, how is it defined or quantified? Not every country in the world has a wealth tax, several countries have actually abolished taxation on wealth i.e. Germany.
In addition the input of resources to tally up wealth would probably exceed the the value of the net gain. Indices of all art work would have to be compiled, sculptures, jewelry, in short you would have to have a STASI police state, rummaging through all homes and properties, compiling huge databases. When a piece of art was sold, or a grandparent died and leaves their gold watch to their grandson, then the database would have to be updated.
Shares are already taxed at 30% on the gain, and dividends are subject to income tax rules. Investors in the stock markets have taken HUGE hits over the last number of months. FTSE is losing nearly 1 % per day on average recently.
As Mr Ronan Lyons has demonstrated Ireland already has a hugely progressive taxation system, he has shown this on his site. To the begrudgers of course, it is not progressive enough.
I would make a suggestion about the corporate tax rate. It should only apply to companies who employ sizable number of people here. The more a company employs then the lower the taxation rate.
There are companies who have a PO box in Ireland, and they are able to channel funds through this PO box and avail of the 12.5% rate. This is what Sarkozy was on about. I know of at least one company who is doing this, and they don’t even have a office in Ireland. They don’t even employ 1 person.
The success stories of the world, i.e. the German “Mittelstand” model seems to be working well. The idea of proportion where a company is not too big but fits well into its environment. In addition making a company public involves taking large resources from the company to maintain its value to the shareholders. In Ireland we seem to have the philosophy of making a company to become attractive enough to be bought out by a US based multinational. The IP then gets sent abroad or consumed into the foreign entity whereas it could have remained in Ireland and grown, perhaps having a symbiotic relationship with other companies in Ireland. We are not going to obtain a critical Mass effect if we keep exporting our IP.
Social welfare, I don’t really like talking about it, due to too many stereotypical comments in the public domain.
However I do believe Free Legal Aid does require to be looked at, the taxpayer is in actual fact funding lawlessness. The incentive to be law abiding is greatly reduced if somebody else is constantly paying your legal fees. Some serial career criminals enjoy sacking their solicitor and obtaining a new one for free!
FLA fees should be deducted from social welfare payments. Society will only agree to support you, provided you toe the line, behave and remain law abiding. People with criminal tendencies would then have a financial incentive to behave.
But regardless the most important change which is required is the MINDSET of the Irish.
The “Culture of Indifference” some examples are..
1) Hepatitis C scandal. Sure who cares if people get their lives destroyed, the taxpayer has deep pockets.
2) Army Deafness cases, the Civil service knew years before that there was a serious problem. Ah sure who cares, the taxpayer has deep pockets.
3) The scandal in Our Lady of Lourdes hospital in Drougheda, where countless woman had their reproductive lives destroyed. Ah sure who cares the taxpayer will pay them off.
4) Financial Regulation.. well we all know about that one, and again the answer was “the taxpayer has deep pockets”
What incentive is there for the professional class to carry out their duties responsibly if the tax payer is going to pay for their mistakes time and time again.
As long has
1) A culture of Zero Accountability exists,
2) Consistently failing to learn lessons from past failures,
3) REWARDING Incompetence with fat pensions and pay offs
4) Employing senior civil servants who specialize in long winded, ardoyne reports in which nothing is actually said.
continues, this country has NO CHANCE, in fact it does not deserve to have a future unless this mindset changes.
How about a little proportionality?
“So in 2015 we will have – in that one year alone – €8.6bn of an adjustment compared with today.” NWL
“Ireland’s largest 10 consumer lenders, including four overseas-owned banks, lost around 117.8 billion euros on soured loans in the four years through December, according to data compiled by Bloomberg News.”
http://www.bloomberg.com/news/2012-05-18/irish-banks-may-tip-state-into-bailout-2-deutsche-bank-says.html
@sporthog small clarification on post,not trying to be pedantic.
“In 1988 Forbes Magazine hailed Chuck Feeney as the twenty-third richest American alive. Born in Elizabeth, New Jersey to a blue-collar Irish-American family during the Depression, a veteran of the Korean War, he had made a fortune as co-founder of Duty Free Shoppers, the world’s largest duty-free retail chain. But secretly, Feeney had already transferred all his wealth to his foundation, Atlantic Philanthropies.”
http://www.amazon.com/The-Billionaire-Who-Wasnt-Fortune/dp/1586483919
@otto “narrow” NAMA is the largest state undertaking ever,relatively “new” but it’s chairman is vehemelemtly opposed to FOI.NAMA recently announced its ambition to spend 2Billion as a property developer,its taxpayers money.Nowhere else in the civilized world,would a state agency “loan” “give” millions to the largest tax evaders in the history of the state,who were also accussed of bribing elected officials,
http://www.irishtimes.com/newspaper/opinion/2012/0601/1224317058474.html
I don’t believe it.
I think that there are more than 10,000 people whose €100,000+ wage comes in one way or the other from the Irish State. Cutting these in half would save at least €1/2 billion every year.
Admittedly cutting social welfare in half would save us almost €4 billion, but I refuse to hear talk that there’s nothing to be gained from trimming the State fat.
@OMF,
Saving 4 Bln? My understanding is that spending by the Dept of Social welfare is running at 18 to 20 Billion per annum. Cutting that in 1/2 makes a saving of around 9 billion etc. Perhaps I am looking at the wrong figures. Were you looking at a subset of Dept of SW spending?
Of course NAMA is spending public money, but no, it is not clear that it should be FoI-able. The arguments are balanced like lots of state enterprises working in private markets. I hope you realise that the people who would use it most – in efforts to hamper NAMA – would be those very same property developers. And are you sure about your “nowhere else in the civilised world” or is it just an expression of exasperation? Bank workouts of loans to developers, including public agency debt resolution workouts, which involve new financing to finish projects, seem likely to have occurred many times over in developed countries.
A narrow requirement for NAMA to publish its salaries might be a good thing – even despite the unproductive “outrage” that might follow.
@otto the general “punishment” in this set of circumstances is/was a custodial sentence.
Highly,unsavoury to get a loan of half the money back a few years later by NAMA.
“Labour’s Joan Burton reacted with fury to the decision.
She said in most countries such a large settlement would result in a criminal prosecution and asked if there was a chance the message is still going out that it is worthwhile taking a risk on your tax returns.”
http://www.independent.ie/national-news/bailey-brothers-to-avoid-prosecution-for-tax-evasion-68066.html
If NAMA,is not nimble enough to operate under FOI,what chance does it have in the rough and tumble real world.At least report at the level required by public companies,have you tried reading their accounts?
The blogpost is aptly titled “having our cake are eating it” how’s this for having a laugh,NAMA must at least have some consideration for good corporate citizenship.As they have not displayed good and sound judgement here and in many other situations highlighted by NWL,they not longer deserve the trust that evolves being exempt from FOI.
https://namawinelake.wordpress.com/2012/05/30/is-the-latest-addition-to-the-drowned-and-the-saved-at-nama-a-guarantee-of-future-cooperation-is-it-fck/
@ John Gallagher,
Interesting point re Atlantic Philanthropies, thanks for that!
I dont think NAMA can exempt anyone from criminal prosecution for tax evasion and I doubt they have done so. As for giving project finance to developers to finish projects, I am sure it happens all the time.
On the tax compliance / accountability front, it probably would be a good idea for the FG/Labour coalition to tighten the law to increase penalties.
@NamaWineLake
Great Post as usual. I value you contribution to the National Debate. Major question here, how do you see this endgame playing out. Would you advocate Morgan kelly,s approach, get down to 3% asap with some leadership and cut the bank debt loose or go drip drip as usual.
My experience is that people really have no idea what’s coming down the tracks. For example, I work in the PS and in late January 2011 in our office we were all discussing how much we were down in our pay packets after the PS pay cuts. I mentioned that we will need to expect more of the same (i.e. reduced disposable income) in the coming years and I was assailed by comments such as “We can’t take any more”, or “We’ll have to go on strike”. So I decided it was wise to shut up rather than being considered a prophet of doom. Since then, there have been no significant cuts in my area. Staff are still getting their increments (compensating for the pay cuts), mileage and subsistence is still generous, and free mobiles and laptops continue to be given to many staff. For those who retired, full pre-cuts pensions and lump sums are being paid.
When I think about my extended clan and acquaintances the vast majority of whom do not work in the PS I can genuinely say that – strictly in my experience – I can see no evidence of austerity in Ireland. I have relatives working in MNCs and they are doing very well and have not had pay cuts or endured significant tax increases. I have relatives in part-time farming and they are doing very well. I have relatives running their own businesses (ranging from catering to distribution) and they are doing well. One close relative has actually recruited staff over the past two years.
In fact, I’m feeling pretty stupid in my workplace for having predicted major cuts back in late January 2011. I still expect these cuts and have attempted to plan accordingly but now I keep this to myself and nod along with any conversation in work on how awful things are at the moment as staff also talk about their foreign holidays, concerts, meals out, requirement to change their car, etc.
Is this like people in old days having “no idea” about abuse in the church, or all the goings on of the tribunals?
Ireland is the valley of the squinting windows, and pursed mouths. Everyone knows the country is flat broke and is grabbing as much as they can, while they can, before the default.
Eejits like us are wasting our time trying to get them to bail water.
P.S.
There is nothing wrong with public servants going on strike for a few weeks(months). As long as they don’t get paid, they can protest as much as they like!
@Bunbury
Your post reminds me of the old Simon and Garfunkel line
‘A man hears what he wants to hear and disregards the rest’. In this case your fellow man hears….
But you comment is revealing.
Your fellow workers, even though they work in the PS, seems to lack a basic knowledge of several subjects, arithmetic, national economics, national awareness, international awareness. They also display a distinct lack of empathy with their private sector citizens who have borne the brunt of this recession. The question that should be posed is whether you colleagues are informed enough to hold the presumably reasonably responsible positions that they do hold.
But your view will be vindicated, if vindication it be.
The crunch items of expenditure that will cause most distress is the lack of ability to pay for third level education for children, for mortgage or rent, for health issues. The loss of the other items that you mention will not rank that high in the difficulties to come.
Now to all the people who voted for the so called physical stability treaty you are in for a shock If any of you are civil servants you have just voted in measures that the lying gangsters in government well now be able to use to cut your salaries you did not think the government were for ever going to keep closing hospitals and slashing dole payments and allow you to continue to receive your Celtic tiger salaries now did you? You have just given the German Masters in Berlin the means to demand action on the massive salaries the Irish civil servants are getting in comparison to the German civil service. Talking about turkeys voting for Christmas? Don’t come whinging to me when the fun starts!
Reblogged this on Machholz's Blog and commented:
Now to all the people who voted for the so called physical stability treaty you are in for a shock If any of you are civil servants you have just voted in measures that the lying gangsters in government well now be able to use to cut your salaries you did not think the government were for ever going to keep closing hospitals and slashing dole payments and allow you to continue to receive your Celtic tiger salaries now did you? You have just given the German Masters in Berlin the means to demand action on the massive salaries the Irish civil servants are getting in comparison to the German civil service. Talking about turkeys voting for Christmas? Don’t come whinging to me when the fun starts!
“When I think about my extended clan and acquaintances the vast majority of whom do not work in the PS I can genuinely say that – strictly in my experience – I can see no evidence of austerity in Ireland. I have relatives working in MNCs and they are doing very well and have not had pay cuts or endured significant tax increases. I have relatives in part-time farming and they are doing very well. I have relatives running their own businesses (ranging from catering to distribution) and they are doing well. One close relative has actually recruited staff over the past two years.”
If you are not in the construction sector, and dont have high fixed rents from the pre-2007 period, and there’s still demand for your business, there’s no reason why your income should be dropping like a rock. Yes, there are tax increases, but low-to-middle income people still pay very little tax on their income in Ireland, so it can be very bearable so far. Even an extra thousand or three in taxes would not cause too much difficulty for a lot of people, and of course that is what they will eventually be getting. The problem is the large number of people for whose services there is no demand at all.
More than 100,000 young people are leaving the country this year. That’s 30,000 weddings. That affects the catering and homebuilding businesses. I know no-one in the leisure or construction areas that is not feeling the squeeze. And we have not really felt the pain yet. That is coming over the next 3 years and will include:
Corporation tax rate to be increased to somewhere between 15% to 20%. This is already being discussed in government.
Property tax to possibly start at 0.5% but it will rise over the short term to 1.5%.
Public Sector salaries will reduce by 20%.
The insolvency legislation will be watered down at the behest of the banks, the bankruptcy period will be 3 years – thereby extending the UK option for most people who have sufficient funds to avail of it.
Wealth, ownership and people will continue to leave the country at an ever increasing pace.
And you can forget foreign inward investment to take NAMA out. The foreign funds want a 20% plus per annum return. NAMA has agreed to find €8 billion in cash by the end of next year – and it has already been told that there will be no period of grace. In the German fashion, it is payable on the day. That is not in sync with the newly stated strategy of “we’ll hold, because we won’t sell at the prices we are being offered.” Inconsistent to say the least, it will be interesting to see how long it will be before the Agency blinks.
@WSTT
Thank you for your clear and concise summary of the current and future prospects for the Irish economy. As grim as it may seem, we can be thankful that those who least deserve to be paid off will be. Yes, the Irish pay their debts, even if they don’t owe them. What’s a generation or two in the grand scheme of things.
Could you clarify for yme if you have a moment Mr Winelake – do your adjustment figures (quoted below) allow for the increased debt servicing for the bailout?
“We need adjust by €3.5bn in 2013, an additional €3.1bn in 2014 and an additional €2.0bn in 2015. So in 2015 we will have – in that one year alone – €8.6bn of an adjustment compared with today. Apportioned to the 1.7m households in this State and that’s €5,000 per household in that one year alone.”
Thanks!
@Joe, any chance of sharing where you think the analysis or indeed translation is “off the mark”, as a newbie on here you mightn’t have realised that we like hard data to argue over!
The adjustment to be made by Ireland is set out in the 2010 Memorandum of Understanding signed by Ireland after parliamentary debate and approval, and the adjustment is one of the terms upon which Ireland is getting a €62.5bn loan from the EU/IMF (add in the €5bn from the UK, Sweden and Denmark, and the €17.5bn that is coming from our own resources and you get the oft-quoted €85bn)
Debt servicing costs were set out in the projections in the December 2010 documents with the Troika, so in that sense the adjustment “allows” for them.
Thanks Mr Winelake.
Sure – I will organise that info but it might take a few days for me to come back to you clearly. From what I can see Spain was where is now in the early 1990s on that occasion it simply devalued the peseta to sort it out.
The notion of retro-fitting the economy from a colonial Anglo model to a Germanic wealth retaining one would not be impossible. You simply have to know that’s what you’ve got in mind. But the current crew FF FG SF and Labour want all the historic goodies that came with the lopping off of the old colonial mandarins and belted earls to continue to devolve onto them.
We need a Luther to hack through the logjam of historic nonsense so we can actually begin being a State and not playing at it like some girl at her dolls house.
Ask yourself do you really think we’ll ever see a health system that truly works where the tramp on O’Connell Bridge and the Supreme Court Judge get something near the same.
If a country already on its knees needs a wake up call…then they are too used to being on their knees. (which is a different affliction than blind hope or can kicking)
I myself got a wake up call camping in the forest this weekend with my kids when I saw a California black bear chasing a deer just 10 feet away. Take about adrenaline rush.
In some environments the little guy is there, in part, just to feed the big guy.
I got that know. Thanks.
I think if they targetted the “Double Irish” tax avoidance alone it could be a large source of revenue. http://en.wikipedia.org/wiki/Double_Irish_arrangement. Hard to argue it’s not “fair” thing to target either.
The challenge is colossal, even with growth. As you say NWL, everyone will be hit. Though there is the matter of timing.
We have a long tradition of clientelism in Ireland, where each citizen always knows someone getting a free ride, or working things. Morevere such ‘chute whorism’ not only exists it is respected. We have a burst bubble from which each citizen knows someone who has rode off in to the sunset with winnings. Add to that the socialising of private debt and the continued lack of accountability throughout the state. What your left with is more like a number of interest groups hunkered down in bunkers than a society. Each flexing their power in order to be the last touched. Hence the faux-austerity so far.
Unfortunately to date the European crisis has given political cover to Irelands ‘leaders’ to blame it all on the Germans. When of course it was our establishment that signed up to the euro project and gave the laughable bank guarantee. Though described as ‘bounced’ the state had at least a year to plan its move (if you believe Michael Summers). Furthermore it is our establishment that still over pays itself, it’s cronies and allows the fleezing of its citizens via medical, legal, energy, property, food professions to go unchallenged (and sometimes even state supported) within its boundaries. It’s the state that sponsored and supported the blighting of its landscape via building of ghost estates.
So that’s where we’re starting from, and that’s the challenge assuming ‘growth’ and assuming the whole euro project doesn’t go wallop. First and foremost we need trust, accountability and straight talking from those in power. We need appropriate charges brought to those that caused the mess, including pension claw backs. We need the kind of accountability that would see Phil Hogan resign for his poor handling of the 100€ household charge. We need to learn from mistakes, how about legislation to ban any future government from guaranteeing private debt, legislation to prevent future bubbles eg multiple income limits, loan to value limits? I haven’t seen much evidence of it to date. Nevertheless I believe that’s what’s needed, the stakes are high. After that we need some kind of national unity movement involving the state, all unions and business represtatives. With the objectives of driving the costs of each sector to below the EU average, wages on the one hand to food/medical/energy/rent expenses on the other, with politicians wages and untouched expenses being the first to go to the EU average. That along with proper bankruptcy legislation.
I can’t see how it’ll be done otherwise. Trust, accountability,unity and clear concise communication. That may give us a state to belong to rather than a collection of embarrassing stories that our young and unrepresented tell people on their way to a future somewhere.
Why do you not mention at all the possibility of growing GDP and reducing social welfare payments by the gov investing in capital expenditure, infrastructure projects. The Krugman approach.
@Eoin
“growth alone will not close such a colossal gap. But you can expect snake-oil salesmen and women to deflect attention from the budget adjustment in coming months, with the distraction of growth. But when we can’t borrow more and where we can’t increase our deficit, it is difficult to see where we can source or attract the funds for growth. We can run down our strategic National Pension Reserve Fund which still has €5bn in it, though if we do, we have nothing to act as a buffer at the end of 2013, we can try to encourage private pensions to invest more in Ireland but in that, we face the same challenges as every other country trying to corral its pension funds for the national benefit, we might get a few hundred million from the European Investment Bank and we might get a couple more billion out of NAMA which will need to be repaid by 2020, but even if all of that creates 50,000 jobs, we’ll still have 12% unemployment equating to about 250,000 and we’ll still have 380,000 on the Live Register. Government generated growth just won’t be enough.”
@NWL
I think you may have missed out on a very important potential saving.
Pension tax breaks. Probably still in region of €2 billion per annum, though nobody knows. And as the biggest beneficiaries are the decision makers and their circle of friends, nobody is in any hurry to find out either.
That we are still subsidising private pensions for the better off, indeed wealthy, four years into the crisis beggars belief.
But in terms of a total adjustment that would not have a massive impact on the economy allow me to suggest the following:
Removal of all tax breaks pension, property, royalty, etc . € 3 billion.
Graduated % reduction (up to 50%) in all PS pay above 60K.€ 2 billion.
Remove universality on child all above 60K. €0.5 billion
Remove universality on medical cards /free travel for over 70s.€ 0.5 billion.
Reduce universality of contrib OAP above €30K €1.0 billion.
Max State pension from PS jobs €50K up to and incl President 0.2 billion.
Reduction of Social Welfare for Non parents. €1.0 billion.
Note PS reductions to include all banks owned or guaranteed by the state, all semi states and all state funded bodies, NTMA, Central bank governor, regulator etc.
All done under emergency legislation. It is time to get real.
@Joseph,
“You can expect to see increases to rates or reductions in allowances, or changes to tax bands.”
I would expect to see allowances for paying into pension funds come into the cross-hairs, much to the annoyance of those in our burgeoning pension business, but as the preface says, everyone can expect to be offended by the sacrifices enumerated which are needed to eliminate what is still a horrorstory deficit.
@ Joesph Ryan,
I don’t believe your suggestions are sustainable i.e. elimination of tax breaks and so on.
Even if the state where to nationalize all property, wealth and outlaw pensions there would be a gain for the exchequer but only in the short term.
But there would be “a run for the door” by citizens. You would have “Irish Boat people” adrift in the Irish sea trying to get to the UK and other countries. People would just get up and go. This has happened in Cuba, Vietnam, Haiti and several other countries.
A country which does not offer you a future is not worth staying in.
But in the long term the country would lose out substantially as the brain drain would leave a huge scar. Eventually the population of Ireland would comprise of people who are either too sick or too old to migrate.
This state to finance its public spending, requires more taxpayers, more investors, and a process of Accountability. It is entirely possible that the Irish are not capable of accountability. Look at the Ian Bailey / Sophie Touscan du Plantier situation. Again the taxpayer will be coughing up for this, nobody will be getting their knuckles rapped, lose their job, or pension, and sure why not? The mindset of the taxpayer having deep pockets is firmly entrenched. Just as there was zero accountability in Donegal, so it will be with West Cork.
I don’t see any political party having any answer to this crisis. FF, FG + Labour will be out at the next GE, the rise of SF and others will continue, but the result will be the same, SF will do as it is told by the powers that be in Germany.
The latest on our corporation tax rate from Bloomberg
http://www.bloomberg.com/news/2012-06-04/u-s-multinationals-lobby-to-alter-tax-rules-they-sought.html
Why not make the effective tax rate 12.5%, get rid of the ‘double Irish’ and ‘dutch sandwich’ and have it only available to companies employing 100+ people here.
That’s very dispiriting reading, NWL. What a mess.
Dual currency – pay the public sector in punts. Unavoidable.
NWL – this has been a good omnibus thread, but there is a disadvantage to such a complete laundry list. Maybe pick one aspect and organize a discussion around that? e.g. increasing competitive pressures in retail, changing income tax structures, or – my favorite – removing capital gains tax exemption on the principal private residence? Otherwise everyone follows up on different issues and there is little cumulation.
NB on the Principal Private Residence CGT exemption issue, removing it might raise €2n a year. Even if it is only half that, it is very much real money – see Table 3 on page 10:
Click to access TEP1211.pdf
and there’s an efficiency gain too…
@Otto, it’s a fair point but the purpose of the blogpost was to set out some facts to emphasise the scale of the deficit confronting us, as well as to chase a few sacred cows around the field.
There was a call for Government to commence a national discussion.
In practical terms, it might be innovative for the Government to open up its consultation process for Budget 2013-15 online, with threads which show the facts for each heading and allowing contributions, moderated in such a way that facts are set out and questions answered.
Again, I would suggest it is the Labour party that has most to gain from opening a national discussion, because it will face wipe-out in 2016 if it survives that long.
The focus on here is NAMA, and the blog would be quickly flooded if there were to be separate blogposts for the hundreds of headings which need to be examined in coming budgets.
Okay. Thanks for everything you do.
That’s 2bn of course.
And so it comes to pass, a fiscal union, the German position, all or nothing:
“The fundamental question is relatively simple. Do our partners really want more Europe, or do they just want more German money?” a government official in Berlin said.
http://www.msnbc.msn.com/id/47673826/ns/business-world_business/#.T8ziXGthiSM
@ NWL
‘In practical terms, it might be innovative for the Government to open up its consultation process for Budget 2013-15 online, with threads which show the facts for each heading and allowing contributions, moderated in such a way that facts are set out and questions answered’
Great idea.
I respect data and dialogue and am not trying to be a smart ass. But the wording “call for” in an Irish context worries me.
Rather, someone needs to take names, kick ass, jail some crooks, tell Angela to talk a hike and focus, focus, focus on the immediate need to build a new Ireland.
Queue Anne Doyle
“a call has been made for an inquiry…….”
uh-huh
“A corporate tax to 15-20%? Kill the FDI fairy and export ‘growth’ (growth relative to import stagnation or actual growth?), what say we see a return to the double rate as when CJ brought it in for the IFSC initially. Low rate for FDI’s (sur’ why wud u leave the banks out!) for ‘x’ no. of years, every other ‘effer’ who can’t outrun it, 20% +.
“growth hides debt”
Never were wiser words spoken, if we can kick the Can down the road long enough we won’t have to solve any problems; a sprinkling of fairy dust will do the trick. You can see the attraction for everyone – even a French man.
everyone can afford the 1 year UK bankruptcy laws when you have no choice… we’re not just export youth anymore.”
Good Evening All,
But we can have our cake and eat it. Let us disarm all economic metrics and cut to the quick of our condition. Our economic achievements should be measured using the simplest and most vital measure, the level of employment. By that measure we are in trouble. So, how should we proceed to make more jobs ? Let us highlight a few preliminary issues.
The golden rule of the labour market is that the artificer can always find work provided she is prepared to accept the going rate. However, we know that currently, it would not make much sense for our artificer to work for anything less than €188 per week. To this baseline we could add the cost of going to work, the cost of benefits foregone and so on. So it is that our Labour Market is distorted by our system of social supports. Some find it easy to suggest that the solution is to reduce that €188 weekly pot of gold. There is reason to suspect that many Austerians are driven by such desires. Some find it distasteful, even offensive, to suggest such “rectification”.
Then again, some of our artificers do rather well out of our Labour Market. Average Civil and Public Servants’ earnings are c.50% in excess of private sector averages, about €48,000 as opposed to €32,000. There is much besides to attest to superior conditions prevailing in the Public Sector.
We can divide our workforce, 2.2 million persons, into three divisions, 18% working in the public sector while enjoying a 50% premium on private sector earnings levels, 61% working in the private sector while abjectly subject to economic exigency and 20% unemployed receiving perhaps 30% or a little more of the prevailing private sector average. On a per-capita basis, total employment income, including social protection payments, is respectively distributed in the ratio 72 : 48 : 15.
Unemployment in Ireland is no picnic. Still, it takes two Class-A1 employed persons to support one unemployed person. Those in work help those who are out of work. In any society worth its salt, that is how it should be. Even if it hurts a little.
In addition, c.1,350,000 private sector workers must support and pay for the provision of 400,000 public sector workers. On average, it takes about 3.4 private sector workers to support a public sector worker. Expressed in terms of private sector gross pay this should represent an imposition of about 30% on all earnings. But the actual cost is about 44% per private sector worker because those working in the public sector, on average, are paid c.50% more.
This cost is met in three ways. Firstly, we pay our taxes. Secondly, we borrow about 40% of the total cost. Thirdly and most alarmingly, we pay extra upon such as electricity, gas, public transport and health insurance. That is, consequent upon this imbalance, we have higher taxes, higher borrowings – and therefore higher taxes into the indefinite future on that account also – and higher prime costs for items essential to our economic well-being.
Many persons oppose benchmarking. Not me. We need to re-address the merits, expressed in terms of pay, pensions and other contractual considerations, of those working in our Public Sector and to reset the same to the level prevailing in the Private Sector. Any appropriate application of this process seems likely to reduce the cost to us all of such employment contracts.
Such re-benchmarking, properly completed, would likely reduce the cost of the State’s apparatus by about €7-8Bn. Two points arise in this connection. Firstly, such a reduction would merely go about half-way towards achieving a balanced budget. We would still be required to make yet the same again in Budgetary cutbacks or tax increases to reach Fiscal Balance.
Secondly and more dispiritingly, even when we do cut public sector pay by €7-8Bn, we would also be required to take account of the directly resulting loss in taxation. At best the saving might be of the order of c.€3.5 – 4.0Bn. But.
Let us suppose for a moment that we left the Fiscal Deficit in position, much as it is now. Benchmarking completed, we would then have our €7-8Bn available to spend on other things. At €32,000 per job created and with €10,000 per unemployment claimant saved, we could, within the level of the current Fiscal Deficit, create no less than 320,000 extra jobs. Putting matters even more plainly, fully 70% of those unemployed currently are unemployed precisely because we are overpaying those working in the Public Sector. Now that, that is offensive.
Doubtless the fiscal rectals amongst us are reaching for their abacuses (or should that be abaci ?) even now. “What he advocates” they are saying “is a continuation of current budgetary policies. He is merely moving deckchairs.” Not so. What is proposed is that we should make many more deckchairs than we have currently having properly pulled out all the extra soft cushions from some to make the others that are needed. No sane person could suggest that the resulting movement towards income equality was not desirable for its own sake, ceteris paribus.
Which is better ? To pay somebody 50% too much to do too little with another person, as a direct consequence, consigned to living in penury ? Or to redress the pay balance and while doing so, putting our fellow citizen aforementioned to work building schools, roads, waterworks, harbours, adding to the quota of those available to work with the enfeebled, back to school to achieve improved skills levels, on the street to help keep law and order, or indeed into those schools to ensure that when our children present for college, they can properly read and multiply ? Why would you ever discount from consideration, the many skilled persons whose labour could so transform our prospects ?
Consider the point in time one year on from the inception of such revisions. Would we have more or less persons working in internationally competitive industries ? Could we in fact abolish all but transitional unemployment ? Would we have a more healthy and sustainable society as a result ? And could we by then begin to reduce the level of the Exchequer Borrowing Requirement ? Ah yes. Now we get to it.
Why exactly are we shut out of the Capital Markets ? Back in 2008 and 2009, it was contended that if we played Mr. Nice Guy with the bank bondholders all would be well. Actually what we were told was that if we did not pay them off, we would be cut off from future borrowings. We were nice. We paid them. And we’re cut off. So much for that piece of financial wizardry; not alone that, but at least one reason why we are so disconnected is because of the machinations against us perpetrated by the very people at whose behest we acted so that they might avert a disaster in their own banks.
During the last five years many investors moved funds from the periphery of the Euro area to beyond the Eurozone entirely. Some of the countries in receipt of such funds are potentially more unstable than the Eurozone. And yet, through their acceptance of meaninglessly low yields on such investments, investors confirm their belief that those countries will not ever default on their sovereign obligations. Thank you Angela. And Jean Claude.
Peripheral Euro states, Ireland included, have had the legs cut from under them by such as the various pronouncements of our Angela and others who make it plain that if one wishes to invest in Euro, Germany is the safest repository. She let it be known that, given her way, she would require that holders of such as Irish Government Bonds would be required to take a haircut starting in the middle of 2013 ! No poo ! Some Union.
We may yet have the last laugh since if Angela does not permit the merely technical adjustments necessary to sort out Europe’s banks, the undulating banking failure will wash upon her shores and those of M. Francois, forcing both Germany and France to have their own 29th September 2008 moments. It is that prospect which motivated our European “Partners” to put the squeeze on the late Brian Lenihan.
This has gone on for long enough. We have voted “Yes”. We are on the side of the Angels. It is now time for our Government to play hard ball. It is time for us to take back control of our own economic affairs.
One of the enduring lessons of my period as a baby accountant derived from the failure of the Gallagher Group Limited. The story goes that, his companies owing a vast sum to Bank of Ireland, Patrick Gallagher was taken to the top floor in the Bank of Ireland headquarters and offered a gin and tonic, the clear lesson being that when we owed a difficult few quid to our bankers, we were in trouble whereas if we found ourselves owing a zillion……. Our Enda should receive no less than a gin and tonic next time he goes to see our Angela because we do indeed owe her beloved proxy bundesbank zillions.
Let us allow that our Angela might not be drawn to pop her cork. Provided it is a Friday afternoon, there is no reason why our Enda could not gently advise her of the advent of a few extra Irish bank holidays, the following Monday and Tuesday perhaps, during which we could impose strict exchange controls, substitute Airgead Nua into the ATM’s and in the bank teller drawers, provide three days thereafter for the exchange of all Euro notes then in circulation for Airgead Nua at a rate of one for one, thereafter requiring that only Airgead Nua be acceptable in discharge of all contracts, redenominating all public account balances in Airgeat Nua, impose a moratorium on all obligations to the European Central Bank though with an undertaking to meet all obligations in due course and so on. We could leave the Euro. Just like that.
Thereafter it would be necessary to exert total control upon our own affairs. For example, it would certainly be necessary to authorise the Central Bank of Ireland to issue sufficient Airgead Nua to meet the fiscal deficit. And yes I know this would likely result in a measure of inflation. But we could handle that. Indeed, a modicum of inflation might be just the job to sort out certain little matters including for examples our National Debt and the ongoing difficulties posed by negative equity.
As to the enduring value of the Airgead Nua, it would depend upon international demand for our goods and services, balanced against our demand for imports. This is important. Currently we are in surplus both as to trade and payments. We should be able to continue to fund purchases of such externals as oil.
We might expect our multinational friends to be a little perturbed at first. But actually, the value of such as their plant and equipment and so on would be unchanged and, should the value of the Airgead Nua fall against other currencies, then that would make their operations in Ireland even more lucrative than currently. Precisely the same advantage would present to our indigenous exporters. In terms of the price to be paid by, for example, our customers in Great Britain or Germany or Brazil, the portion arising out of our own labour costs would have fallen. It is as inevitable as that night should follow day, that over time and with the resulting boost to our competitiveness, employment would grow.
Our banks ? Given a moderate rate of inflation, say about 4% per annum, the current level of their exceptional liabilities would decrease over ten years by about 30%. Given the imposition of exchange controls, we would return to the classical model. One bank’s advance would become another bank’s deposit. Much of the deposit base would be obliged to become “sticky” once more so that it would be possible, for example, to endure a mis-match of maturities such as would allow short-term deposits to support long-term borrowing at fixed rates for such as housing.
The requirement for sovereign bonds to provide reserves at the Central Bank of Ireland would likely result in a rebuilding of reserves with nominal interest rates held at about 5%. Given that the Central Bank of Ireland would be required to function in the context of the proposed 4% inflation rate, it would become easier to manage the money supply while having access to a range of interest rate options commencing in effect, at a rate of minus 4%. Accordingly and were the proposed revised fiscal arrangements to threaten an advance in core inflation, it would be open to Professor Honohan to up rates to about, say 7%, steadying the ship without spoiling it.
Indeed, that prospect in turn, sovereigns at 5% or even a little higher, would make it far easier to address the coming pensions challenge. Many pensions funds are moribund currently precisely because the capital markets offer no suitable securities for investment of their funds. Indeed, there is much to recommend that such funds should be given every “encouragement” to invest mainly in Airgead Nua sovereigns.
And since I know that many of my fellow contributors have “real property” carved on their hearts then I should say, yes, in my humble opinion, the proposed revisions would see us presently in circumstances in which, for better or worse, property values would rebound to – what shall we call it – oh well, something more realistic than the current strangled position. We need a renewal of speculation like a hole in the head but we do need property values to support the cost of construction plus a modest inflow to the landowner.
If on the other hand, Angela broke out the Gordons, we should ask in advance, what exactly would oblige us to turn from such halcyon prospects ? What about; an inflation target of 4%, removal of our banks’ obligations to the balance sheet of the European Central Bank, removal of banking supervision and regulation to the same, provision of adequate sovereign funding at appropriate rates over a period of thirty years, an undertaking to adopt an expansionary fiscal policy, an undertaking to endorse existing Irish fiscal policy as to spending with indifference to spending allocations, enhanced regional funding to substitute for otherwise necessary fiscal transfers, hands off our corporation tax rate. Other more difficult questions could be left for the consideration of Ecofin for resolution by genuinely collective decision.
We can work to either prescription.
All the best to all,
Sincerely,
Eric.
Very good, but don’t you have your own blog to go to!?
One thing you’ve left out is the debt obligations to the UK and its bondholders. That default would be a particularly interesting challenge.
Thank you Eric. Once again a creative and insightful analysis of the problem with particular emphasis on the overpayment of Public Sector wages. It has to be addressed if we are to reach a solution.
In relation to our corporate tax rate, It is not just the Troika and our “european partners” that want to see it raised. Whatever, they may say publicly, our own “Benedict Arnolds” in government are already trying to figure out how they will spin it to us. My moles in the Dail tell me that the battle is already lost. It’s down to letting the masses know.
[…] […]
@SG and @WSTT
Good Morning People,
1. Did I mention default ? Ok, an inference that one might be just a little neglectful as to interest payments due to the ECB, could be taken as a little touch of default.
I suggest it is very important to bear in mind that the world is not going to end tomorrow. We have every reason to remain on good terms with the Capital Markets. For example, many “shovel ready” projects could be funded tomorrow morning provided we could devise an appropriate PPP model. An essential of this is that we be seen to retain a good credit record.
This is one reason why it was such a financial blooper to blow much of our credit on keeping the Public Sector delirious. That should stop now.
In that context, debt due to the ECB is hardly debt at all. Indeed our own Professor Whelan, in the course of a recent discourse before the Dáil, spelled out in detail what precisely would happen to any “repayment” of the Anglo IOU’s. What I suggest, in the context of a withdrawal from the Euro is that we can usefully and properly and morally require of the ECB that it should do what central banks do. No more. No less. And maybe that is not even a touch of default.
One of the things we have learned through this crisis is the effectiveness with which the custodian regime guards the identity of investors. Insofar as we are concerned there are no “UK” bondholders, merely bondholders. I do not know the current position but I guess that the greater portion by far of private bondholders have already been paid. This is why in a recent observation herein, I suggested that it might be worth our while to resign ourselves to liquidating whatever “little” remainder there is under that heading for the sake of all that has gone before.
Remember; we can draw a heavy and clear line between sovereign debt and bank debt but if we move on to try to include as a part of the latter, that part of the former which was used to pay off bank bondholders – and it is not that much anyway – then a difficulty presents. When you’re telling, you’re winning. When you’re explaining, you lose.
In summary; we have to pay all sovereign debt, even the bit that was used to pay off bondholders and even the bit that was used to pay our Public Sector too much.
2. Corporation Tax Battle lost ? It is this simple. We have, certainly at least, 100,000 jobs directly relying upon the 12.50% corporation tax rate. If the rate goes, the jobs go. In the overall, the thing could easily double our present unemployment total.
As to your sources in the Dáil, may I respectfully suggest you point out to them that they were put there to speak on behalf of the people, not to shuffle from bar to restaurant, hushing each other into silence, doffing the cap to those whose applications for membership of the Bilderberg Group is still pending ?
3. Which brings me neatly to my Blog, thank you SG.
Namawinelake and the people behind it have been ploughing a lone furrow these past four years, having identified well in advance, pretty well all of the chickens that have come home to roost and a few which are still at large. How else, for example, would we have known the names of the prominenti within the Fianna Fáil parliamentary party who owed money to Anglo Irish Bank at the time it was guaranteed ?
As you amplify, I have the freedom to speak openly and, I hope, somewhat competently on the problems which confront us all. I have caused the odd ripple in the discourse herein and perhaps and in some small way, I have helped to move the debate onto the ground which we must cover if we are to become a whole society once more. Namawinelake provides the necessary forum and for that we should all be very grateful. I know I am.
My own blog ? It is political in purpose and must be assumed to be partisan as to its content. I prefer the instant environment where the threat of the odd metaphorical dig in the ribs will keep one on one’s toes.
All the best to all,
Sincerely,
Eric.
@ED-H, Good morning Eric.
I think the appropriate expression is “Don’t shoot the messenger!”. The ineffectual and inadequate inmates of our Dail have quite rightly been reduced to county councilor status and as brown-nosed minions of Angela Merkel have no real say any more in the future fiscal direction of this country. They are largely irrelevant. Up to now, their contributions have done more harm than good. The ultimate example being the September 2008 “stroke” of the bank guarantee.
The agenda and policy is set in Germany. And Germany is not particularly interested in jobs in Ireland. Neither is “tax cheat” Timothy Geithner who, if Obama is re-elected, will see to it that there is no real tax incentive for US subsidiaries to locate in Ireland. We will have to rely on our proximity to the USA, good airline connections, our position as an airline hub to the rest of Europe (thank you Ryanair), competitive wages, commercial pro-business attitude and our position as the only (primarily) english speaking nation in the eurozone to attract foreign inward investment in the future. Our much vaunted young, educated population are leaving in droves. Most of my own family will have left before the year is out.
In the words of the great Bob Dylan, “The times they are a changin” – and not for the better.
Highest marginal income tax rate is now 52% for private sector, 62% for public sector. Earn an additional €100 and you keep less than €50. So there is little incentive to accept additional work at these rates. My staff are now routinely turning down extra work on the basis that they get to keep so little of it/can’t afford the childcare. With 14% unemployment it makes no sense to place additional taxes on work even if it feels good from a Marxist point of view.
By the same reasoning, increasing taxes on employers is perverse and counterproductive during a period of unemployment. Employers don’t just pay 12.5% corp tax, they pay PRSI, commercial rates, water charges.
Instead increase taxes on consumption of goods and resource usage (waste/water/fuel). Tax residential property ownership to encourage tenancy. Cut dole to UK levels to make working more attractive. Bring in income tax relief for childcare while reducing child benefit to UK levels. Cut PS salaries to UK levels instead of cutting PS numbers.
Every action should make working more attractive than sitting on your hole. I am still finding difficulty hiring Irish people for jobs under €20/hour – not because they are lazy but because they can rationally see it’s not worth their while compared to collecting welfare payments – particularly rent supplement which is not paid to full time workers even on min wage. E Europeans without established domicile residency have more difficulty obtaining welfare. I have just hired a Slovak for €14/hr for a painting job. All Irish applicants wanted to be paid under the table for anything less than 20/hr.
Good Morning Derek,
The 62% to which you refer as a public sector income tax rate comprises 52% income tax and 10% pensions levy, which latter is levied BEFORE deduction of income tax. The actual cost of public sector pensions is no less than about 40% of employment income. Accordingly the 10% rate to which you refer points to the most significant of the secondary factors which enhance public sector employment contracts compared to those available in the private sector. The maximum rate for the self-employed is in fact 55%. Some interesting ideas besides.
If the Slovak painter is any good, ask him to contact me in October. Herself likes the house to look well at Christmas.
e.
Public Sector pension arrangements are too generous. Garda retirement age is 55. Many PS staff ‘retire’ and then return on contract.
It’s the major party in Government that will make all the plays, not little ‘ol Labour – arm-twisting or otherwise.
FG are big and brash now, but they know they are only guaranteed four more years in power. Thus, the run-in to the General Election in 2016 (if not held before then) will have a serious influence on adjustments being made.
Call me cynical, but “it’s the GE, stupid” that matters most in Ireland. And, I guess, the Local & European Elections, to a lesser extent. These parochial events provide a backdrop to any changes that will be made policy-wise and adjustment-wise.
The “public sector” should now include the rump of Anglo and AIB,Irish Life.
That would be a great starting point,popular with the “public” too,does Anglo really need i think it’s around 750,000 a year CEO?
Indeed,Mike and Siteserv was not a stroke!
“What happened at Anglo Irish Bank during the reign of Sean Fitzpatrick and David Drumm was “obscene and disgusting.” The bank does have a future, particularly in the refinancing of Nama-bound assets. There is about €21.5bn in assets that can be shifted to an Anglo good bank following the Nama transfers. The Minister for Finance Brian Lenihan has done an excellent job in stabilising and de-risking the banking sector. Moreover, the new regulatory regime is more than fit for purpose. These are the views of the chief executive of Anglo Irish Bank ”
http://www.businessandfinance.ie/index.jsp?p=670&n=631&a=3297Does the
NTMA requires a 500,000 CEO in John Corrigan,after all his position is redundant,no chance of returning to bond markets anything soon.
Admin. support staff are not the problem,the proverbial Slovak painter could not do much of a worse job that this pair.
Sorry mobile,links are complicated,will get Mikes later.
“Mr Corrigan currently has an annual salary of €490,000, while Mr McDonagh is paid €430,000, bringing the total reduction in the two men’s salaries to €138,000. This represents a cut of €73,500 from Mr Corrigan’s salary and €64,500 from Mr McDonagh’s pay.”
http://www.irishtimes.com/newspaper/ireland/2012/0103/1224309736354.html
@WSTT
Apologies, I certainly did not wish to direct any ire in your direction. It is the composition of our houses of parliament which raises my blood pressure.
e.
Start here,this a a “dead” bank with no commercial purpose or mandate,it’s ability to recover taxpayers funds is seriously in doubt,after the insidious disgraseful display of “crony capitalism” as described by FT,regarding the Siteserv fiasco.
“The Minister disclosed earlier this week that eight staff at IBRC are earning basic annual salaries of €300,000 or more and a further 16 are earning between €200,000 and €300,000 a year.
The bank has said Mike Aynsley, IBRC’s chief executive, received a remuneration package of €866,000 last year. Earlier this year, 15 staff earning more than €200,000 at the National Treasury Management Agency took a 15 per cent pay cut in response to a request from the Minister.”
http://www.irishtimes.com/newspaper/finance/2012/0504/1224315590729.html
Agreed!
At this level, it’s about not about the bottom-line savings – it’s about moral authority and leading by example.
But what do we get?
QUOTE: “…15 per cent pay cut in response to a request from the Minister”
Optics, damned optics, and token pay cuts.
NWL,
Thank you for another great blog. NWL has the essence of politics here. He is teasing out special interests to eventually reach a consensus which is messy and takes time/consideration. Instead of smoke-filled rooms on St. Stephens Green, we participate in a blog string.
While the Government already had a ‘budget’ to deliver forecast spending cuts, the ‘budget’ is dependent on economic growth. Assuming actual growth is below budget projections, NWL highlights sources of additional savings.
Given the popularity of this discussion, I hope NWL can narrow the debate and focus the discussion toward consensus building.
Dennis
Very good list, NWL. Though I would add future pension liabilities to it.
To put Aynsley and Corrigan’s salaries,both PS employees into perspective!
Reform of the Irish PS is desperately required,both govt. parties shoud honour their pre-elections pledges regarding FOI,and also throw Corrigan and Aynsley under the next bus.Thats over a million annually saved right there,also a great example and motivator for other over paid PS employees.
“BEN BERNANKE, U.S.
Salary in $U.S.: 196,700
Nation’s share of global GDP: 20.42%”
http://www.businessweek.com/magazine/content/10_50/b4207037576499.htm
@Ahura M
Pensions are not that simple. Need a separate, I was going to say post, but perhaps blog would be a better solution ! But yes, they are important.
e.
@John Gallagher
Would that be a public sector bus ? Jeepers, that would be optics.
e.
@EDH certainly not a train,may have to wait a while,bus services to be cut too,but Anglo and NTMA are abolutly essential to the future of the country!
Get rid of that failed,incompetent politician Dukes,what possible qualifications does he have,pontificating while topping up his outlandish pension.Give it a rest Alan,so how are we doing here,go fencing or something.
“Ireland has a “good” possibility of succeeding in easing conditions on the debt amassed from rescuing the former Anglo Irish Bank Corp (ANGL)., Irish Bank Resolution Corp. Chairman Alan Dukes said.
“The possibility in succeeding in getting alleviation on that side is good,” Dukes told Dublin-based broadcaster RTE today. “I have seen the result of action that has been taken up to now, I hear the political signals that are coming out, I think progress will be made on that.””
He’s the chairman,hadn’t a clue,completely hopelessly out of it,retire Dukes before you to do further damage to an already mediocre carrear.
http://www.bloomberg.com/news/2012-02-12/ireland-has-good-chance-of-easing-anglo-debt-alan-dukes-says.html
http://www.rte.ie/news/2012/0601/450-jobs-to-go-in-iarnrod-eireann-costcutting-plan.html
The continued obsession with high salaries of a very small fraction at the top of the public sector is one of the oddities of this debate, even here on grown-up NWL. It’s tackling the public sector workers who are paid €35K but should be paid €29K and the person on €25k who needs to pay another 5% of their income in income taxes that are at the heart of solving the finances, – plus “active labour market measures” nordic style to get the unemployed back to work.
Perhaps we should have a rule that no proposal that saves less spending or raises less tax than €200m in the first year of implementation is worth discussing? Otherwise the discussion continually turns to trivia.
It was the PS employees on 30 grand a year that need sorting out,small fraction !
“Figures provided by Noonan show that, at AIB and EBS, 804 employees earn basic salaries of between €100,000 – €199,000; 45 employees earn between €200,000 – €299,000; and 12 employees earn more than €300,000.
At Permanent TSB a total of 52 people earn basic salaries of between €100,000 – €199,000; seven employees earn between €200,000 – €299,000; and two employees earn more than €300,000.
Finally, at IBRC, 159 employees earn basic salaries of between €100,000 – €199,000; 16 employees earn between €200,000 – €299,000; and eight employees earn more than €300,000.”
http://www.thejournal.ie/1065-top-bankers-earn-basic-salary-over-e100k-437499-May2012/
It absolutely is the PS employees on 30 grand a year that need sorting out. That is where the government is spending the bulk of the money – the ordinary hospital employee, civil servant or local authority worker.
And AIB/ EBS/ TSB/ IBRC need to be privatised or closed, which will take care of their salaries one way or another.
@Otto, that’s very true, the total savings from the sorts of initiatives being talked about for the very highly paid public servants – eg the Financian Regulator Matthew Elderfield whose €340,000 makes him almost 50% better off compared with his BOSS, the Governor of the Central Bank of Ireland, Professor Patrick Honohan – are in the low millions of euro. The bulk is further down the pay-scales, but equity would suggest you lead from the top, that’s why politicians frequently come in for criticism on here, so debating the very well paid – in absolute terms – is an element of what is coming down the tracks. But you’re absolutely right, most savings in agglomerated terms will likely come from those lower down the payscales.
NWL, thank you. I prefer to focus on issues that may actually solve the fiscal problem, not optics/ trivia etc that so many want to focus on. And “leading from the top” is not always possible or sensible, since sometimes the lower paid are more “over paid” than high-skilled workers who are part of international markets. For example, there are lots of local authority workers on €50-100k who have very few outside market options and could be paid 40% less than at the moment. The same is not true of lots of medical employees or university researchers, where there are already difficulties hiring qualified people from abroad.
I do agree however that elected politicians should be “leading” in this regard, and I think it would be very wise for Gilmore / Labour in particular to say “we’ve listened” and reduce all the special advisors pay / invite in the Danes to advise on creating a “bare bones” regime for parliamentary expenses and pension rights. If someone resigns in disgust, so much the better for Gilmore.
I see stuff like otto wrote about tackling the little people first and I always think of Swift’s ‘Modest Proposal’:
http://art-bin.com/art/omodest.html
On Elderfield, I think he earned much more ($700k+) in his last job in Bermuda, so his Dublin salary is not at all outrageous by comparison.
One hopes Alan was more useful with the foil,saber or épée,because he’s absolutely useless as chairman of Anglo
Dukes clipping another 150 a year on top of massive pension package.
“…. and his chairman Alan Dukes (pay €150,000) at Irish Bank Resolution Corporation (as Anglo Irish Bank is now known) and in particular their relish for banking former Anglo clients such as Paddy McKillen and Denis O’Brien.”
http://www.ucd.ie/fencing/history.html
http://www.irishtimes.com/newspaper/finance/2012/0331/1224314163733.html
“I see stuff like otto wrote about tackling the little people first and I always think of Swift’s ‘Modest Proposal’.”
Always fun to reread Dean Swift! But if you want to tackle Ireland’s fiscal crisis, raising taxes on the income of low-to-middle income workers is an inescapable part of the solution, because they pay so comparatively little at the moment. And the amount they should contribute would probably still be much less than in the UK, let alone higher tax European economies. Personally I dont think, “low-and-middle-income people in Ireland should pay tax on income similar to that paid in our European neighbours” was the sort of proposal that Swift was lampooning, but who can say? Perhaps life under the income tax in England, Germany or Denmark is so miserable that it can properly be compared to selling your children for food.
People are very focused on the small details of the broader employment picture.
What about considering the type of jobs and their legacy, for example, what good does it do long term for a foreign company to create jobs but then pull the rug out when it suits them. They leave behind people with outdated or overspecialized skills, and empty buildings.
People probably scoff at the idea that Dell’s facility, for example, would have served Ireland better, for longer, had it been used as giant Irish-food court (what a pun).
But forward thinking is absent, and the glow of shiny MNC’s is too much for vain politicians to resist.
“So what if they disappear when it suits them, just think of the photo ops.”
I wonder has otto tried living on 2o,ooo euros in ireland recenty? thought not!!!! bet his children(if he has any) will not need to emigrate either.I bet he will not claim his old age pension(state) in addition to his private pension when the time comes.He certainly will forgo any mortgage interest allowance or anyother allowances allowed to him by revenue comms. in the interest of getting this country back on even keel I am sure. . It is amazing how everybody on here can see how everyone else should make sacrifice. we areall in this s…t together. But the sacrifice needs to be proportional. Our basic costs are the same whether we earn 10,000 or 500,000.
@Camella
Good Morning Camella,
You put your finger on it, our basic costs are somewhat equal and it is that reality which requires that in some way, the extent to which we may all dig into the National Pie be moderated to ensure that we can all extract a portion which is both properly reflective of our own merits and our own needs. One way to achieve this is through reform of our direct taxation. The current maximum rate – 52% for most and 55% for some – should be augmented with a third rate and band. Another possibly complimentary way would be to introduce a common income payment – abandoning all the other how’s yer father nonsense.
Thinking of your €20,000 figure; Assuming full-time continuous employment, 39 hours per week, the minimum wage annual equivalent is €17,303. There are many adult people amongst us who receive a gross income which is less than that and it is right that we should be reminded of that.
Ah but. I am quite familiar with matters as they run in the 6th wealthiest country in the world and I can assure you that our minimum wage is the typical of industrial earnings in that country. Such persons also receive good free health care, excellent education free at the point of delivery up to doctoral level, cars priced at two thirds of the Irish equivalent. And so on. Never mind China, this is typical of the competitive challenge which we face.
We really need to re-think towards a basic socio-economic framework and then such considerations can be given an agreed weighting and arrangement.
Sincerely,
Eric.
Simple solution-cut public sector (and semi-state) pay and social welfare by 40%. This would bring our public sector salaries to a level commensurate our economy. Invest the savings in significant infrastructural projects which, if carefully selected, would lead to future competitive advantage, as well as precipitating short term economic growth through recycling of the capital spend and reduced unemployment.
Simples.
@Brian, how much tax does the public sector (and semi-states) now pay? And how much tax, pension contributions and PRSI would be lost with a 40% pay-cut? And on what basis would a clerical officer on €25,000 per annum survive if their salary was cut to €15,000? Wouldn’t they be mad to continue working when they could get €10,000 unemployment plus rent allowance/mortgage supplement and other benefits on the dole?
Not so simples?
Admittedly the strategy does need more development. 15k per annum is approximately minimum wage. Why are few or no employees in the public sector on minimum wage,while thousands in the private sector, doing similar tasks, make the decision not to go on the dole and to work for these salaries. nevertheless, social welfare levels are unfortunately far too high for our current economic situation.
I’m guessing that the mean tax take on this 40% reduction would be less than 30%, so a total of a 28% reduction of the public pay and pensions bill to spend on capital projects. The net loss to economic output from pay cuts would be more than compensated through the creation of new jobs.
@Brian
Good evening Brian,
Respectfully, could not concur with 40% cut as you suggest. However, given the profile of our unemployed – certainly more than 200,000 persons from within Construction – it is likely that carefully targeted capital projects would offer removal from unemployment for many workers in any event.
Though I certainly have no difficulty with abolition of “how’s yer father schemes”. We have too many abandoned baby buggies and First Communion grants are the essence of foolishness.
Public Sector pay is, on average, c.50% in excess of average private sector levels but and as many comments herein highlight, some pay levels are more outrageously disproportionate than others. This is why we must Benchmark once more.
Competitive advantage ? Yes, a port or finishing our motorways could do that. But so would effective policing and prompt access to good health care free at the point of delivery.
What is vitally important is that we offer all citizens a genuine opportunity to make their contribution to our collective effort. We need to share. Paying people on the the strict condition that they sit on their bottle-of-bass is economically mad and socially offensive.
Ponder; there is an implication in your suggestion, that we must cut through our current economic morass and attain GNP growth once more. That approach will not solve all problems. You know, the way the Celtic Tiger failed.
What we must bear in mind that that pathway may not be available to us as it was in the past. It will still take years to unsnaffle the mess in the World’s financial services. De-leveraging is not confined to AIB Bank. Moreover there is considerable evidence that we are coming up against resource constraints. Think of oil and gas, coal, rare earth metals and so on, but also water ! These factors may stop economic growth in its tracks on a global scale.
@namawinelake
Good Evening NWL,
Absolutely right. This is the economic granny knot in which we are entangled which is why the emphasis must be on a sharing of available resources. €15,000 as a stipend would comprise a pretty daunting prospect. However there are many people working in the Private Sector who would merely retort “Welcome to my world !”.
And to both,
One of the difficulties which confront us currently is that because of the manner in which our affairs are ordered, that which might otherwise be an adequate stipend is instead punctured by an excessively high cost of living. Think of electricity. Think of groceries as an outstanding example. Any person who has had occasion even to do even a holiday grocery shop in say Spain, Portugal, Great Britain, France or Italy, can readily recognize that we are paying – I will guess – perhaps even 30% more for such staples than our fellow Union citizens. Think of the cost of getting to work; most households NEED a car per worker and yet again in this connection we find the dead hand of so-called public service straddling our workers’ necks.
And as an ubiquitous example, municipal rates are horribly high and comprise an excessive cost to all manner of businesses including retailing, commercial and industrial premises. Rent allowance, in my view, drives the cost of residential accommodation to levels which are significantly in excess of those prevailing elsewhere in the Union.
Certain matters stand out for immediate attention. But we really need a general overhaul of the way we manage the economic relationships between citizens.
I could go on. As everybody knows !
All the best to all,
Sincerely,
Eric.
@edh:
I doubt there will be much growth for anyone. So much has been pumped up on the back of debt, and deleveraging has a long way to go.
The age of making money off money is past. Add in finite resources, ageing population, increasing automation, and there’s not alot to shout about.
A citizens’ income may solve the welfare/work disincentive – everyone gets it, and it the citizen wants more he earns it.
@SG
Good Evening SG,
Cannot take issue with anything you say but to add for emphasis, surely it behoves us all to act now to achieve the best possible disposition overall. Your “citizen’s income” will work and while I have yet to do the sums I guess we would have to narrow the low rate band and increase the higher rate (including USC and PRSI) of direct taxation, eliminating ALL reliefs, benefits, allowances and credits besides.
I sense we have done good work here.
e.
Taxing capital as against labour seems inevitable. Bricks & mortar are an easy target, but pretty much the same target as wages – especially in Ireland – so I guess it requires capital controls.
That way you can actually catch the goose before plucking the feathers. Some talk about this at the moment for Greece and Switzerland, though for opposite reasons. I suppose it will just increase the chaos, and the next dream will be a workers’ paradise outside the EU.
Thinking about energy – here’s a good conundrum: how many wind turbines does it take to make a wind turbine? Seems likely that fossil fuels are subsidising another dream, like mortgages did for property-is-my-pension.
Good Morning SG,
Thank you for the conundrum. May I suggest to you that the relevant question is; compared to the amount of energy which it might produce, how much energy is absorbed in the creation of a windmill. The answer to this question changes over time because of technological improvements both in the windmills per se and in their method of production but also because of changes in cost structures. As a starting point, you might like to consider:
Click to access Murphy_EROI_AnNYAcSci10.pdf
/….. which presents Murphy and Hall’s 2007 response to the question. By 2010 Hall had moved on an updated his contentions, publishing the same at:
http://netenergy.theoildrum.com/node/3810
Hall’s response to this question is in the form of a ratio of 18:1. This compares with 15:1 for Nuclear and 10:1 for Natural Gas. The comparables for Coal and Oil are very vexed in that the ratios are impacted by deteriorating quality as to the former and the increasing cost of extraction as to the latter. Hall would suggest something of the order of 30:1 to as to the recent past.
The real problem with Wind Energy is that, as Eirgrid has advised, it behaves like a consumer rather than a producer, that is, by providing grid input in an unforeseeable way. This means that no matter how much wind energy capacity we install, we must always and in addition install base load whether CCGT or Coal or Oil or Nuclear.
Common sense alone tells us that for so long as this is so, the thing is a pointless exercise. One possibility might be to store the energy produced during windy periods for use later. Two options present currently; one, that we should make hydrogen, a volatile gas, the other, that we should power reversed turbines to pump water to a height from which it can be allowed to fall, turning the turbines and thereby generating energy.
We have an example of this at Turlough Hill in County Wicklow. Electric Ireland will correct me if my memory is failing but I believe it has a peak capacity of about 230Mw for about one hour. So, to provide for a peak capacity of about 6900Mw using this method, we could build perhaps another 29 Turlough Hills, that is for each desired hour of peak capacity. So, if we wished for say 16 hours, we would need to build perhaps 479 more Turlough Hills. But. To fill their reservoirs, we would need the equivalent of capacity stored, 16 hours of daily energy requirement, times 0.3 which is approximately the average percentage of time during which wind energy functions. So, we need about 1,440 Turlough Hills, 479 for each of the three days during which we would like 16 hours of electricity supply at current maximum demand.
And I think, these totals need to be divided by 0.6, further increasing the numbers, to provide for energy lost in converting from wind to electricity to motive power to pump power though I suspect the correct divisor is much less.
What happens if we get four calm days. Simple. We have a great big bath-time toy, you know, we’re rubber ducked.
Wind Energy as currently conceived does not work and it is all but impossible to envisage any basis upon which it could ever work. Anybody trying to tell us anything different is either being foolish or disingenuous. Bottom line. If we wish to have a reliable supply of electricity, we have no option but to go the Nuclear Route. It will take fifteen years to complete that journey and we should start now ! TINA !
Wealth tax ? It is almost as yawn-inducing a question as wind energy, something that ULA-types dream about. Rates, NPPR and Household tax are not wealth taxes. They are service charges. But they could be structured to influence investment away from bricks and mortar and into productive areas.
All the best to all,
Sincerely,
Eric.