63 thoughts on “The Budget”

  1. Well they seem to be trying to grasp the nettle. Big trouble with nettles is that they tend to sting.

    Am I right in thinking that we have rewound the tax (tax + levy) clock to 1997?

    A bit thin on the toxic AMC..

    Go long on Lidl and Aldi, short consumer discretionaries.

  2. Mortgage interest relief on rental properties dropped to 75% effective immediately, with a view to eventual abolition. This will put even more downward pressure on house prices further eroding the property market and the collateral the banks hold

    The plan to purchase assets has the provision that if the government loses money on this plan it can levy the banks to make good on the loss. This look back option undermines the scheme. Will new investors put money into the banks if this risk iexists?

  3. Daniel – the ivestors don’t look too worried about it so far ..
    http://finance.yahoo.com/q/bc?s=AIB&t=1d
    up sharply in the last hour. That implies that the deal could be bad for taxpayers.
    It should also be good if the property market is eroded further towards realistic prices.

    Seems to be promising a hit on the pension lump sums later in the year, after the board snip reports.

    Why any ceiling on PRSI payments? That would appear to break his so called rules on fairness

  4. Note the matching of the thresholds between the income levy, health levy, and PRSI. The total sum of the three levies is 12% just below the 75K income threshold, and 11% above. So that makes the effective top marginal rate 52% (41% income tax + 11% levies), with a 1% extra wack for middle income levels up to 75K.

  5. The National Asset Management Agency. Some details here : http://tinyurl.com/c853fu

    It says that the loans will be transferred at an ‘appropriate discount’. Anybody have any idea what that might mean?

    It also says that if there the NAMA makes a loss, a levy will be imposed. But it fails to say upon whom the levy will be imposed..

  6. Irish bank bonds are about 4-5 cents higher so far FYI, Irish gov CDS about 20bps wider. So investors seem to like it.

  7. At the top marginal rates, the new income tax rates and levies imply a 16% reduction in after tax income. (After tax value of 1 Euro gross income is now 0.48 cent versus 0.57 cent on prior tax levels).

  8. @Lorcan: You have pinpointed the same questions that occurred to me on the NAMA. The lack of precision here is somewhat worrying.

    I certainly hope these points will be clarified in the days to come, and in the direction implied by recent posts by Karl Whelan, myself and others.

  9. NAMA loss levy would have to be on bank earnings going forward i assume? But agreed, vague and needs a lot more detail. At the end of the day, its all about the price paid for the loans, right?

  10. @Owen. The insurance levy that was imposed following the AIB bailout, was imposed on all of us. It was actually increased today, which strikes me as strange because it is supposed to pay down a fixed deficit, ie the one arising from the AIB bailout. If I was the type to look for conspiracies I could point to this as a possible ‘levy mechanism’ that is receiving renewed interest from Dept. officials..

  11. How concerning is the emphasis on tax increases rather than spending cuts. Our current expenditure as a percentage of GNP is at 1988 levels.

  12. At budget time redux they have blown it again, this time with too much emphasis on tax increases and too little on expenditure decreases.

  13. The NAMA will be a notionally arms length branch of the government but the value of its assets and the possible eventual return to the taxpayer will largely depend on that same government’s attitude towards property development e.g. planning permission, tax reliefs etc – are we in a Catch 22 property boom?

  14. all said i’m not depressed about the budget, it is a step in the right direction, and no matter what they came out with there would be counterpoints and calls for other alternatives, the fact is that they did something they had to do and now its in the public domain. I’m not so concerned with the Irish interpretation of it [even though it affects us most] more with the general market interpretation, if we can avoid a downgrade, get the debt issued that we need to and restore some confidence then that will put us on the right path

  15. @A mobile worker: The percentage reduction in after tax income that you quote relates only to the marginal euro. Reduction in anyone’s total after-tax income would be much lower — about 9 per cent even for someone on €300K.

  16. NAMA is designed to sort out a lot of FF’s friends. We as a nation are now about to become the proud owners of mortgages on properties in some wonderful spots. Try valuing assets in Dubai, Kiev, Odessa, Bucharest, the Baltic States! And what about the Cape Verde islands, Eddie Hobbs was plugging your own little bit of the 3rd world! You cannot sell a lease on Grafton St, even with a massive reverse premium, what chances downtown Budapest?

    This is also a chance to bail out and cover Seán Quinn’s property interests. Have a look at http://www.quinn-property.com, to find out about Ufa, Kazan, Moscow & Kiev because I have no doubt you will need to find out to understand the implications of NAMA.

    Assume the State takes €90,000M in distressed assets @ say 30c in the €, who is going to fill the very large whole in the balance sheets? The tax payer? Paying any more leaves little chance of a return to the State, considering funding costs.

    What a shambles!

  17. The employment stimulus of about 128 million does not look like it will have a substantial impact, from first reading. Having said that, it is encouraging that they are trying out things like a work experience scheme which has to be worth a try, particularly for recent graduates.

    They are suggesting 2,000 places on a basis cost-neutral to the state. I will be watching this very closely as this is a potentially promising way of avoiding some of the really nasty effects of unemployment on young people. Having said that, 2000 just seems too small. The main issues of worry with increasing these further are potential displacement of existing workers, absorptive capacity of the companies involved as well as administrative cost. I think all of these are surmountable particularly if we contemplate the potentially impossible jobs situation in store for graduates in June. Doing nothing is a bad option in this market.

  18. @LorcanRK – sorry, i probably should’ve finsihed off my full train of thought there by adding, “…cos i assume they wont try the same trick as the AIB insurance levy and charge the general public”. But, as you suggest, that is a truly massive assumption.

    With such a large scale NAMA, surely this means the government really does believe it can keep going without having to nationalise AIB/BoI, as otherwise what’d be the real point of a NAMA?

  19. No imagination. We got the tax increases but what about public spending cuts – it’s all in the capital programmes. The fact is we need less public servants. Someone should be doing a trawl through government bodies and quangos we don’t need and shut them down. If all we’re going to do is cut the deficit by raising tax we’re all in big trouble. Watch consumer spending fall as a result of this and therefore VAT take fall further than it already is. The current crew don’t have the guts to do what is required.

  20. Listening and reading to the debate, am I the only one who wonders what will happen to our competitive position?

    Wages have been growing faster than labour productivity for a number of years now. Surely, income levies will increase labour costs?

    There are signs of life in the international economy, but can the Irish exports take advantage of that?

    Another aspect that seems to worry no one but me is that (a) the income levies affect all workers; (b) social benefits fall minimally; (c) wages are falling faster in the private sector than in the public sector; (d) employment is falling faster in the private sector than in the public sector; and (e) parts of the private sector are being nationalised.

    Put together, that means that the share of the public sector in the total economy is rising fast. Wasn’t that one of the reason why we got into this mess?

  21. A little reported part of the budget is the reduction in the public sector pensions levy for the “lower paid” public servants – which turns out in practice to mean anyone on less than 160k…

  22. Richard Tol: Put together, that means that the share of the public sector in the total economy is rising fast. Wasn’t that one of the reason why we got into this mess?

    Please elaborate… I thought it was because we demolished our tax base?!?!?

  23. I fear that the taxation splurge may shatter consumer confidence. Bigger public expenditure cuts would be preferable to higher taxation. Many small businesses are on their last legs. There is very little here to stimulate exports. It is a dismal failure.

  24. @Richard Toll — no you are not the only one I agree with you about the long-term damage that might be done to competitiveness and growth. Faced with difficult, tough decisions the government went for the easiest option in each case (short of doing nothing and handing the problem over to the IMF or ECB for sovereign restructuring). Perhaps there is insufficient political will to rebalance the public sector, but borrowing recklessly from the Germans to pay for a public sector much more generous than their own …. seems unwise in the extreme. Ireland has an unusally open economy and maintaining competitiveness should be a very important goal for economic policy.

  25. @liam
    The Irish economy was heading for a painful correction anyway because wages grew faster than productivity and the public sector was crowding out the private sector. The correction was triggered and exacerbated by the recession in the world economy, which pricked the housing/construction bubble and exposed the unbalances in the fiscal position. The latter two further exacerbated the recession. But, we were on the wrong track already in 2004 and yesterday’s budget will keep us going in that direction.

  26. Richard,

    Thank you for these insights which present the reality of the situation eloquently and economically. Is there any possibility that you might convince the other listed contributors on this site to make the case, collectively, to the Government that it is time to put away the shovel? The hole is deep enough already. Those of us who are less-exalted and contribute to this excellent site have negligible traction – even though we welcome the opportunity to engage.

    The only tiny shaft of light in this unfolding gloom is the Government’s willingness to consider the Construction Industry Federation’s proposal to mobilise some private sector savings to part-finance enhanced construction sector activity. The obvious risk is that this will be used to restore some vestige of the “business as usual” that got us into this mess in the first place, but any vaguely productive activity that is part-financed off the Government balance sheet has to be welcome – particularly when almost all other proposals in the Supplementary Budget are contractionary.

    Despite the hits that Irish-originated pension and insurance funds (and privately-held funds) have taken, a considerable stock of savings exists – much of this invested in assets outside of Ireland. With interest rates at historically low levels, it is inconceivable that there is not a demand for steady higher, but lower-risk, returns and a corresponding willingness to re-balance portfolios, both in terms of asset-type and investment location.

    The rapidly improving Balance of Payments position suggests there is huge scope to mobilise these savings to finance productive investment – to preserve, re-allocate and increase jobs, to remove infrastructure bottlenecks, to enhance and expand necessary infrastructure and to lift Ireland’s economic production capacity when growth returns. While the normal financial intermediation channels in the mainstream banks remain clogged it will be necessary for the Government to manage by-pass channels – essentially off the Government balance sheet – to match these savings with productive investment.

  27. @Liam There was an unsustainable tax-take associated with the property boom — this was financed in part by foreign borrowing since 30% of bank liabilities were foreign (mostly institutional or interbank) borrowing. These foreign liabilities of the banks were used to build and purchase domestic property via bank lending. This big short-term tax take allowed public expenditures to grow on the back of cyclical (and in fact unsustainable boom) tax revenues. When these tax revenues dried up the government’s solution is to … keep the expenditure level but borrow the money with sovereign debt issues. Not the correct solution.

  28. @Stuart and others who keep calling for a reduction in the numbers of public servants. I am bewildered by this demand. How will increasing the length of the dole queues solve anything in the short term?

  29. @Jane Gray
    One should consider both the short and the long term.

    Yesterday’s budget spared pensioners and those on benefits. It hit the private sector harder than the public sector.

    Recall that at the end of the day the private sector carries the entire economy. Yesterday’s budget redistributed money from the working to the non-working population; and from those working in the private sector to those working in the public sector.

    The budget did little to stimulate the private sector. Indeed, by raising labour costs, it will be harder to take advantage of increasing export opportunities in 2010 and 2011.

  30. @Jane

    Assumption 1: We accept that public expenditure needs to be cut. (By the way if you don’t agree with that then we have to bridge the gap with pure tax. In which case last person to leave the country turn off the lights)

    Assumption 2: A huge proportion of the public sector bill is public pay and social welfare benefits. So cutting telephone costs and stationery costs while laudatory won’t do it.

    Assumption 3: We must cut the public sector pay bill. Either by cutting wages or reducing numbers. To improve productivity you have to cut numbers.

    The reality is it is inevitable that this is going to have to happen. The government have again back loaded the pain to a couple of years out presumably hoping something will turn up. They need to start now or we’ll think we’re doing fine and wham the economy takes another hit.

    We need some private sector thinking to the public sector problem. Businesses scale back, restructure and then move forward. There are a whole heap of public sector jobs that produce nothing. Look at the levels of bureaucracy. I understand in the HSE there are as many back room jobs as front line staff. That can’t be right.

    It can be done imaginatively. Let people take career breaks, travel years, sabaticals to do a year’s study, time out to raise young children, try to start a business, write that novel. The early retirement scheme is an example of what can be done. It needs to be extended. Reallocate staff, don’t replace leavers. But bring down the public sector wage bill. It has to be done.

  31. @ Richard Tol
    Strangely, the public sector were so productive they got benchmarked! I know, he said darkly, I was one! But no, they did not get us into this. Greed did. Pretending houses were worth 12% more pa for 20 years may also have contributed as real productivity did not keep pace, believe it or not! And we did diddle with banks….
    See my earlier rants on them.
    We ran out of customers cos they is all broke is the biggie. We made ourselves wealthy by pretending to the US taxpayer that their companies could make massive $ in Ireland and nothing in the US: transfer pricing. But if they can’t sell they can’t make a profit. To sell their product, they must drop costs so Poland and Thailand here we come! And de Oirish lose jobs that were subsidized by the US taxpayer….

    And it is going to get much worse…..Hehehe!

  32. @Liam
    Correct! Smashing put down too. And wherte do we go from here? Reducing labour costs is also known as the race to the bottom, but is beloved of the Irish gombeen man.

    It may be the only option?

  33. @Paul Hunt
    You are correct and I support you.

    But trying to be productive will be the job of the next government. This one is too busy with trying to pillage the public purse to pursue that one. Unless one of its cronies can make a buck out of it. Wages must have fallen 20% by now….

    This is a Cl=st%rf*ck of a budget betraying absolutely no imagination or use of any of our comparative advantages.

  34. @Gregory
    I agree but there is more. The real biggie is paying for the guarantees and the bad loans. Why pay twice? Once when the loan was made and once more over the next months in so many ways? We are digging a very big hole. All to play with the big bank boys playing pass the parcel, or is that pass the bomb? And the bigger bang has yet to happen. Folks, we are only at the beginning and the budget is way behind the curve. Playing bash the public service won’t work, unless you want drugs legalized and a minimal health system. And that may come and more may go. But now is not the time for that!

  35. @Richard
    increasing export opportunities in 2010 and 2011.

    How do you know this? If it is true then we are only in a mid size hole and even this bunch will muddle through.
    How do you know this?

  36. @Stuart
    There is no where else to go! Or do you fancy Iceland? Or Latvia? Or Austria or Switzerland? The last two had genuine banking industries, long established and skilled in foreign investment. And they are so F#%k&d! it is not true. Check it out. Any month now, they will have ratings problems. Worse than ours, but not quite as bad as Iceland. But we know that the Irish public service caused that too, don’t we?
    Tax is the only way to go or else we can have another Easter Rising…. Check out where the numbers are in the public service! Teachers, medical folks and Gardai!

    Queensland in Australia, has 10,000 heavily armed cops for the same population as in Ireland. But with 20 times the area. In theory that makes em more effective, but it is an illusion, ‘cos it takes folks and access to commit crime! We have a low crime rate here. They are handing out $900 per capita for free at the moment. Even if you get here you will be too late for that. Ireland’s crime rate is bad and is going to get much worse…. but you will only notice that, when they come for you, eh? Now is not the time for divisive discourse ok?

  37. @All
    The public sector knows how corrupt the pollies are and some but not many went along for the ride…they too are corrupt. To get promoted, you allow someone to know how to destroy you. You are compromised and then you rise. Canvassing disqualifies only at the start of your career. After that it is more than necessary if you wish to rise. Sack them! But it won’t save much of the pay bill.

    Do you want me to start a problem with some serving now and recently retired? More wasted money? Or can we get on telling our betters what to do?

  38. @Richard,

    The private sector does not “carry the entire economy”.

    Every worker has a certain rate of productivity, which translates into economic value. Whether that productivity is billed to clients (private sector), or remunerated out of a tax pool paid by clients (public sector) is a priori, irrelevant. It may be that private sector workers, due to incentives etc. have a slightly higher rate of productivity, but in many cases this is unavoidable, as public sector responds to market failure, and so is necessarily second-order.

    I happen to agree with the majority of the commentators on this site that the tax hikes were the soft option, and the budget was light on quangos and public sector spending generally, but to say the private sector “carries the entire economy” is misleading and cheapens the debate.

    After all, how many countries with no government, no law enforcement and no public infrastructure do we know of that are worth talking about? I cannot think of one.

  39. @Graham
    True, and sorry for being populist.

    In the immediate term, though, civil servants do not pay tax. Their wages are paid for by taxes, and then they return part of their wages in “tax”. That implies that you cannot expand the share of the public sector in the economy (as the government did yesterday) without negative consequences.

    Of course, the public sector is productive too if and when it provides public goods and services, and doing without a public sector would not be wise.

    At present in Ireland, I would argue that the public sector is too large, rather than too small — and the current policy is to make it bigger still.

  40. @Pat
    My point being if we don’t tackle the overspend in the public sector over the next few years and simply raise taxes to bridge the deficit Ireland will become a high taxed economy with rotten public services and infrastructure. In which case many will choose a high taxed economy with good public services or head off to the US who will have sorted out their mess by then.

    I don’t want to go back to the 1980s. I left school, graduated from college and qualified as an accountant all in that decade. At every stage huge numbers of my peers chose to go and live elsewhere. Taxes were so high (both corporation and personal) there was no incentive to work hard. Services were still rubbish (worse than today).

    I get the impression some of the commentators on this site work in the public sector and are feeling very defensive. This is not personal. In the same way the private sector sheds non productive jobs, uneconomic jobs the public sector has to too.

    I’m not saying they caused the problem.

    The government started taking in loads of extra taxes from property and basically recruited lots of extra civil servants (I believe over 60,000 over 5/6 years) and yes gave too many tax cuts. What they should have done is said “Hey this is unsustainable, let’s put some money aside for the day the whole thing crashes” Instead they jumped on the out of control train for the party. Anyone who tried to warn them was dismissed as doom mongers.

    Too be quite honest I’m probably stuck here for better for worse but I’d love to see a thriving economy so my children decide to settle here too.

  41. @Richard,

    Yes I do agree with you on the scale and size of the public sector in Ireland.

    And I accept the “immediate term” implications of the current Leviathan on the budget constraints. The public sector wage obligations represent a huge stone in the narrow fiscal straits through with the goverment must maneouvre us.

  42. Richard, Graham – at the risk of myself sounding populist (I will flesh this out properly at a later stage) – a problem that is just as great as the one Richard pointed out is the fact that there has been practically no discussion of making people in charge of programmes in health, education, transport and innovation etc,. accountable for delivering them to standards that would be expected from well-designed policies. In fact, the atmosphere of cuts seems to be allowing regressive thinking to dominate, such that any demands for further accountability will be met with angry retorts about pension and income levies. I have to think that it is a psychological bias that we devote practically 100 per cent of the discussion to cutting expenditure rather than getting value for the expenditure. I understand the urgency of making cuts but perhaps an 80-20 balance rather than the current complete expenditure focus. This is all first glance stuff, but some of the labour market and education initiatives put out yesterday did not look like they came from the result of an intensive analysis and debate about how to solve structural education and labour market problems in Ireland. Our culture in general allows lots of money to be spent without any real analysis of potential impact other than their fiscal aspects.

  43. Now that we seem to have gotten over the little kerfuffle about the private and public sector, perhaps we can focus on a few things on which we all seem to agree (or should be able to agree);

    1. This budget is contractionary;
    2. The pain of public expenditure cuts has been postponed;
    3. Any borrowing capacity the Government has will be used to close the unfunded portion of the current deficit and to purchase dodgy property loans from the main banks;
    4. Potentially productive investment is being scaled back and there is only a very modest proposal to tap private sector funds to part-finance construction sector activity – rather than seeking to finance a major investment stimulus; and
    5. No serious effort is being made to improve Ireland’s international competitiveness – in fact it’s being damaged.

    Does anyone else see this as an intensification of the hole digging we’ve been perfecting for the last 10 years?

  44. @Graham, Paul

    I’m afraid that I agree.

    @Liam Delaney

    Good point. It should be perfectly possible to deliver the same level of public service for far less money — and it may even be possible to deliver better service for less.

    This should be further elaborated. The examples I can think of are specific to the departments and agencies I know best, and listing them here and now would look like I’m picking on the people I work with.

  45. The government had a choice to make, take the balance of the adjustment through spending cuts or tax increases…it chose the tax option which we can probably take but only as a once off. If taxes go any higher we’ll be having our own Boston tea party…what do we get for all these high taxes & high public spending anyway?

    One of the worst public services in Europe, until they cut public spending & reform the public sector…they will not be able to raise anymore tax. Someone has to shout stop!

    Public spending got out of control in the last 8 years (as Garret Fitzgerald has shown). We must cut it or pay the price. It is a self inflicted wound.

  46. @Richard and Stuart, thank you for your responses to my question. I accept (obviously) that there is a need to increase revenues and that taxes alone won’t do it.

    However, I don’t accept that the Irish public sector is too large – it clearly isn’t. Depending on how you measure it, it’s either roughly at, or below the OECD average (according to the 2008 OECD Public Management Review). The problem is not the size of the public sector, it is that public sector expenditure was recklessly, and unsustainably increased on the back of stamp duties. Now there may well be a question about how efficiently the money was spent, because I also agree with Stuart that we have rotten public infrastructure and services.

    It’s true that the budget spared pensioners and those on benefits, but taxpayers employed in the public sector will pay as much as those in the private sector (and that’s on top of the pension levy). And many public sector employees in contract posts have already, or shortly will, lose their jobs.

    As far as defensiveness goes, I don’t think it’s surprising, because – to my ears anyway – the tenor of much public comment on the so-called ‘bloated’ public sector has been vitriolic, with usually no attempt made to distinguish between ordinary employees, senior management, organizational systems and so on. Whether we like it or not, public sector employees and their families comprise a significant part of our population, and from the point of view of social cohesion, it’s not desirable to have one part of our labour force feel like it’s constantly under attack by interests linked to the other.

    In the medium to long term we need academic commentators to articulate a clear vision of a sustainable social model – as well as an economic one. I hope it won’t be one that leaves us with rotten public services and infrastructure, but today I’m not feeling optimistic about that.

  47. @ Liam

    In my opinion you are perfectly right about this. Reforming the budgetary process, through the implementation of performance budgeting, is one step in the right direction. Budgets should be outcome-driven instead of line-item, input-driven. The current Annual Output Statement approach, inadequate as it is in terms of its own objectives, is a poor substitute for this approach.

    Of course, performance budgeting has the potential to be abused as a catch-phrase, but it can be more than just a slogan if it is implemented the right way – The OECD had a very good publication on this in 2007 I think, I would get onto SourceOECD and find the reference, but I am just too tired.

    However, a necessary precondition for increasing performance in the public sector, whether through budget innovations or by other means, will require a greater degree of flexibility on the part of public sector workers. PMDS is a joke, and needs to be replaced by a more rigorous performance-related measurement system, which provides for both sticks AND carrots.

    Microeconomists, get yer gloves on…

  48. @Jane
    I agree we need a calm debate on this and no doubt the media love the us versus them story.

    I agree with the value for money argument and the reality is when you do this there will be many jobs where people will indeed wonder exactly what they add value to.

    I’ve been through a couple of downsizing exercises in the private sector in my life, one of which I helped to plan (the joys of being an accountant). Never fun. What happens in a growth period is everybody argues for more resources. People are employed to do questionable tasks from a value point of view. Everybody seems to need assistants. The number of pointless meetings increase as people justify their existence and the productivity goes down. When the gravy train stops businesses (and governments) need to offload the non productive areas.

    In one situation in my retail career, back in the early 1990s when things were pretty awful for business too we decided to do without area managers. The Head office team each adopted a store. It added to the workload but it was backs to the wall and we all learnt a lot.

    We got through that period and saw the greatest advance in Ireland’s economic growth ever. A bit of imagination was used – taxes were reformed. We need a similar spirit again. I just don’t see it at the moment.

  49. @Paul: “2. The pain of public expenditure cuts has been postponed;”

    It’s actually worse than that. Despite having the benefit (if it may be so termed) of the most convincing set of reasons for reforming public expenditure*, the government has once again done nothing. Each successive failure to tackle the monster strengthens the conviction — both of monster and of concerned citizenry — that St George (or St Brian) lacks the spherical objects to tackle the dragon. If not now, when will it be done?

    Apart from that, my overall impression of the budget is much the same as yours.

    “But what good came of it at last?”
    Quoth Little Peterkin.
    “Why, that I cannot tell,” said he,
    “But ’twas a famous victory.”

    bjg

    * Note that I am not commenting on what parts of public expenditure should be cut. It is not essential that widows and orphans should be sent penniless into the snow: for instance, I favour parliamentary reform, in particular by getting rid of the Dáil and making the government answerable to the Seanad.

  50. Is it not the case that the quango-culling and public sector inefficiencies that much of this discussion focuses on are to be addressed by An Bord Snip Nua?

  51. I think there’s a misconception caused by current economic thought, that the public and private sectors are somehow separate from each other. This is probably related to the pseudo-scientific nature of the economics profession, focusing always on reductionist objectives, or the trees instead of the woods. It’s like saying that a forest exists separate from it’s soil, or that the left side of the brain is somehow a parasite of the right. It’s nonsense.

    Okay granted, there are the tradable and non tradable sectors, and the tradable sector provides the increasing returns that lifts an economy (most especially an open economy). But it is still but one economy. And one sector is utterly reliant on the other. There are no parasites in this relationship.

    This goes to the heart of the problem. Using a public – private dichotomy where one is perennially seen as a problem for the other, is to miss the fact that they are not separate entities. Ask the Dutch. Do you think the private sector could have built their dikes? Or the Germans, built their great industrial strength without the high taxes and consequent infrastructure, supports and services?

    We really need to wise up in this country. There are many examples to follow or even just to learn from. The Anglo Saxon model is not the only one, and to be honest, not even the best. In fact, for a nation it’s poisonous.

  52. @Liam

    Since you ask, the first dikes were built in the Netherlands well before there was anything like a central government. And these were not just itty-bitty dikes. The Westfriese Omringdijk, for instance, is 126 km long, enclosing 800 km^2 — completed some 50 years before Floris V became the first ruler.

  53. Richard,

    There is, perhaps, a deeper moral to your Dutch dike story. It demonstrates the efficacy of concerted collective action by citizens in their long term interests without centralised direction.

    During the last great international economic crisis, Keynes fought the good fight to rescue capitalism from its own death-wish and from the predations of fascist corporatism and communist collectivism by advocating a compromise between the liberty of the individual and the strengthening of the State to support and regulate markets and to advance a progressive agenda. He saw this in purely technical terms where the State’s participation would wax and wane as market conditions required, but he underestimated the inherent dynamic of the State to accrete more and more power and control and its ability to impose a form of “top-down” collectivisation.

    Citizens are now treated, and have allowed themselves to be treated, as objects to be managed and manipulated – and, with an increased interest in behavioural economics, manipulated in more sophisticated ways. This is not a yearning for a return to a some non-existent Golden Age, but a description of the current reality.

    The challenge is to develop arrangements that will allow citizens to become subjects, rather than objects, taking more control of their destinies, either individually or collectively. Ireland has a scale and a cohesion to facilitate the development of these badly-needed alternative arrangements.

  54. Could i suggest that people use unique identifiers rather than just “liam” or “ciaran” – this creates a lot of confusion. “liam” is perfectly entitled to views such as that the economics profession is pseudo-scientific but at the same time it would be better if you added something to this so people could distinguish between me and you. Ditto for the “Ciaran’s” that post on the blog.

  55. Considering the fact that social welfare payments account of approximately 1/3 of expenditure, surely greater savings could have been made by at least reducing social welfare payments inline with deflation. Specifically, reducing unemplyment benefits and perhaps the immediate introduction of child benefit means testing. I commend the government on their decision to half unemployment benefits to those under 20 but more needs to be done.

  56. Sure Richard – This is an issue but even a pseudonym like “Irish Economist” or something like that would be better. I don’t mind falling afoul of my bosses or indeed anyone else but I would rather it was for something I actually said!

    Anyway – the main issue is the one of how economics should think of contributing to the debate on policy reform. This is really not a question of economists trying to act as management accountants. Leave that to management accountants. Its an issue of putting the way policies are developed and targetted on a scientific footing.

  57. @Jane Grey:
    “However, I don’t accept that the Irish public sector is too large – it clearly isn’t. Depending on how you measure it, it’s either roughly at, or below the OECD average”

    I hate the use of the OECD/EU15/EU27 average as a yard stick unless we’re clearly at one end or the other, and even then…

  58. @Mark Dowling I measure the size of the public sectort by the diameter of the crater it leaves in the Irish public finances.

    A friend of mine works in the public service, when he complained he had nothing to do, he was asked, “did he gamble?” “a lot of the lads pass the time gamblimg!” When he said he was not “into gambling” He was asked would he consider doing a degree? “No” he said, he already had one! “Would you consider doing another one?” Bottom line he was told, ” we cannot have you going round saying you have nothing to do!” He is one of thousands upon thousands, just look at what your own whistle blowers are saying.

    The above is the norm in most of the Public Service! And then we have the gross inefficiency and dysfunctionality. All in all, If I was you Mark, I would embrace change instead of looking to hide behind statistics. You can fool some of the people some of the time but not all of the people all of the time. With statistics you could prove the moon was made of cheese if that is what you really wanted.

  59. Robert Browne – wind your neck in. I was not asserting that the Public Service is not overmanned, or that it is. I was asserting that the yardstick being used by Jane Grey is not what we should be using.

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