The less effedct that they have on the economy, the better. Use the web!

The time is now, for it is a shame to waste a crisis. The public service actually has plans for this. But by destroying the illusion (or worse, the reality) that a TD can get a job for someone, TDs etc do not like the loss of control and the greater transparency obtained!

“And, if the task at hand is to reflate the economy, then cutting public sector pay and/or jobs makes no sense”

Ya see. This is where you loose people.

That’s simply not the case. We are borrowing huge amounts of money, private sector workers are having their income slashed and are facing redundancies. With a limited spend and a goal of limiting borrowing it makes sense to prioritize investment that will create jobs over maintaining the income levels of those with safe jobs.

By choosing to defend the insiders pay and conditions in an economy with deflation, the progressives have lost the chance to build consensus around stimulus programs that will create jobs. In effect the left are choosing to protect the priveleged at the expense of the weak.

By default, it appears, (Irish) mankind will be crucified on a cross of Euros.

Debt deflation it is for the outsiders as the grand Wizards seem determined to protect the Wicked Witches of the East (Bankers) and West (Public Sector) at the expense of everyone else.

http://news.bbc.co.uk/2/hi/uk_news/magazine/7933175.stm

It would be heartening to believe that there was an emerging consensus on the beneficial effects of government investment. However, this seems set to be an area where the government will actually cut spending in the next Budget, according to the PBO.

And, if the task at hand is to reflate the economy, then cutting public sector pay and/or jobs makes no sense; that is contractionary. It is akin to trying to fill a bucket of water after you have punched a big hole in the bottom of it.

That (capital investment) looks to be the area where there is grounds for consensus. We need to get people working again, and given the heavy layoffs in construction we probably have a lot of skilled workers who could work on infrastructure projects (at less cost to the state than a couple of years back).

Is there political will on the left and right, to put the needs of the outsiders / unemployed) above the desires of those with safe jobs to maintain income levels?

So, how do we cut current spending and direct our borrowings to more productive capital investment. HSE managers digging ditches? Clerical officers driving diggers?

Perhaps there might be a use for FAS yet… put the economy on a war footing and use the existing permanent staff to rebuild the country…

Below are all the references I mentioned.

The multipliers (or estimates of them) will differ because of objective circumstaces of each economy and over time, while the subjective estimates will differ depending on the assumptions contained in the model.

An important distinction: The 2.5 applies to government investment, not all government spending, where the multipler is held to be lower. But if the 2.5 were applicable to all govt. spending the relative weight of the state would decline, as the non-state economy would be growing faster 1: 2.5.

Nearly all models suggests the following; multipliers operate most effectively when there is an output gap, when access to credit is constrained and when there is a monetary accommodation. All of these conditions currently apply.

http://www.tcd.ie/iiis/pages/publications/discussionpapers/IIISDP281.php

http://www.imf.org/external/pubs/ft/spn/2009/spn0903.pdf

http://www.nber.org/papers/w15524

ec.europa.eu/economy_finance/…/publication12918_en.pdf

http://www.esri.ie/publications/search_for_a_working_pape/search_results/index.iew/index.xml?id=2756

Doing a bit of research on this, according to this article on FinFacts capital investment fell 34.1% in the year to April, while consumer spending fell 9.1% while net exports over imports actually rose.

http://www.finfacts.ie/irishfinancenews/article_1017047.shtml

Would that imply that any reflation should be centred on the government Capital Investment program and encouraging businesses to invest with tax breaks rather than on maintaining current spending? (Especially seeing as much of current spending is in turn being spent outside of the state by it’s recipents? Reducing current spending will reduce imports and contribute to a rising GDP?)

I think houses vastly overpriced. They are being manipulated by the government in a desperate effort to forestall repossessions. The sight of redcoats dragging starving children from their homes wouldn’t go down well with the peasants. So we’ll let them pretend that they have not bankrupted themselves by buying a property at 10 times their salary over 40 years. Easy done. Just write a strongly worded letter to the banks telling them not to repossess properties for 12 months.

No mention of the compounding effect of interest. Let the peasants dig a bigger hole for themselves.

The banks, well known for their social conscience, will recognise their civic duty and comply. Of course it will also allow the banks to pretend that the residential mortgages on their books are actually worth par.

Market values will return. A debtors revolt is not out of the question.

That would be these papers - “(Benetrix&Lane, ESRI, Eichengreen et al, IMF researchers, EU’s QUEST model, etc., etc.)”? I’ll try and hunt them out?

To get more info on this (as a layman trying to understand it).

If the multiplier from government spending is 2.5, would that not imply a theoretical maximum for government spending of 40% of GNP (2.5 * 40 = 100)? As raising spending at that point by borrowing would increase GNP proportionally, so as to maintain that ratio (and as spending increases the relative impact of other economic activity would trend towards 0%)?

How do we square that with gross spending at 55% of GNP? As Constantin Gurdgiev argues that would also imply that limitless spending could be financed by limitless deficits?

Is it fair to say that the multiplier is variable depending on the context & conditions? If so, isn’t this the core of the debate we need to have to determine whether or not reflation is possible?

I think you’re right. My personal view is houses are still overpriced driven up by low interest rates and over generous credit and irrational expectations of capital gains. Not sure if it’s a popular viewpoint but time will tell.

The people you really want to get for windfall profits are those who sold land and sites in the period around 2005-2007. They creamed it and unless they reinvested in property speculation are the ones who really gained from the property boom along with the few developers who got out at the right time. Maybe we will have to wait till they die but they might have shifted offshore by then.

Have both. A local government tax, property based perhaps. The CGT would go to central government.

I think you’re right about people not trading up or down. Maybe not a bad thing Stuart. We might as a society stop trading our homes as if they were investments. Could be good for building communities not bubbles. Anyway you could allow transaction costs against the gain.

It’s probably worth considering that those trading up during the boom did so in the face of significant Stamp. It didn’t stop them, because they had large gains with which to pay the Stamp.

In your example I would suggest that the “price” of the house you buy would be reduced. If you have less of a gain with which to trade up so does everyone else in your position.

Your argument is with NAMA…. the banksters have replaced the public sector unions as the preferred Social Partners, and theres 54Billion of reflation being wasted there, the money isnt there to waste more anywhere else.

You’ve been dumped.

In an early post on this thread I cited a variety of sources for the proposition that the highest multiplier is attached to government investment and that this has been estimated as high as 2.5.

The DoF did provide its previous estimates of the multipliers (PBO p.20) of 1.1, but admitted that these had been completely wrong in the recession and that a 13% decline in output had led to a 32% decline in tax revenues (a ratio of 2.46). Yet its method for ‘analysing’ the cuts is to remove a sum from government spending and, hey presto! it’s a saving. No wonder the Budget ‘fixes’ don’t work.

This is the same govt. that stands alone under the banner of fiscal contraction while the rest of the world flocked to reflation.

CGT on principle private residence seems a non runner politically, and also practicality-wise on anyone with even a modest amount of equity in their home. As such, it could be better dealt with via CAT changes.

Sums it up.

That’s where we agree. My point on CGT is the amount you collect will depend on how many transactions there are which is the same as Stamp. A straight property tax comes in each year regardless.

With CGT Granny or anyone else for that matter can choose not to trade down or up. I presume the tax will not just be aimed at senior citizens. So I bought my house for €60k, it is worth say €400k (maybe less now). I think of buying a house for €600k. If I sell my house for €400k, I pay 22% (maybe higher soon) on €340k, roughly €70k. That’s higher than the current stamp duty and I decide nah I’m not doing that and stay put. The government collects no tax. The same holds true as years go by and I decide to trade down to a house/apartment costing €300k. It’ll cost me €70k on the figures above and I decide stuff that and stay put. The government collects no tax.

With a straight property tax no transaction is required in the current tax year just the original one where you bought the house which could be 20 years ago. It will raise a lot of money and will be fairly certain year on year. The first couple of years will require a fair bit of administration but it will settle down after that.

My point on CAT is you can reduce the threshold to nil if you want and collect tax on the full value. But now property tax is based on people dying which I assume is a fairly constant number but it won’t collect as much as a property tax.

“The pensions levy is effectively a pay cut, unless you are close to retirement”

You worked it out then casimir.

When the Celtic Tiger got old and wasn’t able to hunt it ate its young.

Let me see if I understand you correctly and correct me if I am wrong.

“No transaction, no tax.”

I think you are incorrect in conflating a transaction tax with capital gains or losses.

If (as a smoker) I buy a packet of 20 from my local I pay a transaction tax. I as the purchaser give the retailer the tax. The retailer then forwards the tax (he/she has not paid it, I have) to the State.

That is a transaction. One in which I have no possibility of avoiding unless I wish to evade (a criminal activity) the tax by buying the pack of 20 on the street or shopping for my smokes in Newry (a legal avoiding enterprise a smoker cannot refuse).

That Stuart is transaction. It is as you correctly point out just like the Stamp.

A tax on capital gain is an entirely different matter. Certainly (State) revenue on a capital gain requires a transaction, but it also requires a capital gain.

I cannot think of any tax revenue that the State accrues without a transaction occurring.

PAYE? PRSI? VAT? EXCISE? DEATH? AIR? (Yes the State has managed to convince you that the air you breathe is subject to a Carbon Tax).

Let me be absolutely clear Stuart the State requires a transaction to take any tax. Without a transaction there is no tax. If the State cannot observe (the transaction) it cannot tax.

Of course the collection of a capital gains tax requires a transaction. It also requires a gain.

(As an aside, any Fascist or Communist State can collect tax without transaction. It’s called confiscation).

“On death there is capital acquistions tax for the beneficiaries which will include any gain on the house.”

You are incorrect. CAT does not charge the gain (on the house) it takes tax on the transaction of the dead to the living. It is an asset based tax transaction. Any losses on the assets (the house) are not taken into account in assessing the CAT.

A child of the deceased is entitled to a “tax free” amount of more than €500,000. For a family of five that would be €2,500,000 tax free.

If Granny left a house to her five children with a value of €2.5m the State wouldn’t get a penny even if Granny bought the house for €25,000. Did Granny earn that money. No. The State has provided the circumstances in which Granny’s house is worth €2,500,000. Granny and her children didn’t contribute to the Granny’s capital gain.

“Don’t think this one is going to go very far in sorting out the mess.”

I don’t think this will “sort out the mess” either Stuart. I doubt if Granny would think it would. She had enough sense to know not to get into the mess. Her children are the ones who created it. Granny won’t mind if the State takes 20% of the value of her house when she’s dead. She’s disgusted with the selfish spawn she bore. It’s her grandchildren and great grand children she is concerned about.

The point is Stuart, the State has to get away from the Stamp.

CGT is still a transaction based tax just like stamp duty. No transactions, no tax. A property tax would be more sensible for smoothing income from property.

On death there is capital acquistions tax for the beneficiaries which will include any gain on the house. You could reduce the exemption threshold for children if you want a higher tax take. Don’t think this one is going to go very far in sorting out the mess.

If your salary is reduced by 10% one year before retirement, then your salary for that year and your pension thereafter are both reduced. If there is a pensions levy at 10% then your effective salary for the last year is reduced but your pension is not affected.

Lots of arguments on the rights and wrongs of it eg: Pensions are accrued rights, which should be protected. The pensions levy will hit junior staff harder, over the long term, than their bosses who are close to retirement.

“Financial Emergency Measures in the Public Interest Act 2009”

Yeah. They’re so full of Public Interest sometimes it takes my breath away.

You might want to exclude teachers from that. Holidays?

They would be paying a Stamp of (say) 2.5%.

I would assume that they are making a lifestyle choice. Also, they are unlikely to a mortgage.

Senior home equity loans could be handled by deferment of CGT until death (at a favourable interest rate).

Like I said, don’t want to get to morbid. But the State has to get off Stamp Duty as a source of revenue. Now is the time to replace it with CGT on residences.

no so much worried about 95 year old grannies as 65 year retirees wanting to move out of Dublin or simply to a smaller house. The relatively middle class ones kicked up an unholy fuss with a medical card worth a couple of grand, so i can only guess how they’d react to a couple of hundred grand being charged on them. You’d also have the issue about how to deal with any home equity withdrawals used in the last few years. Like i said, not against your idea in principle, actually quite fair and broad based, but just think the politics of it will prevent it ever gaining traction. The younger generation might like the opportunity to take negative equity-related CGT offsets with them into the future i suppose!