Labour Budget Submission

It seems churlish, or maybe just naïve, to ask what is the evidence that supports these policies? These proposals, after all, are probably no more or less based on evidence than those that will be brought in by the government shortly. Although the latter clearly has more resources to engage in evidence based policy making. €700m for active labour market labour policies (ALMP) sounds good and will appeal to the “something must be done” brigade – of whom I am one. But I would sleep much better at night if, instead, say €300m was spent on labour market policies that had been shown to have a good chance of being effective. The confusion between input and output is unlikely to go away.
Reinstating the Christmas Social Welfare Payment seems – baa humbug- a vote winner but has little else to recommend it.

@John the Pessimist,

Same applies to the proposed magical €1.3bn saving on public sector pay. Departments will be ordered to cut 6% or so off their pay allocation, according to Eamon Gilmore, but with no indication provided as to how the savings are to be achieved or how this squares with the central policy tenet:

“While it is necessary to reduce the public sector pay bill, this should be achieved through negotiation, and as part of a process of public sector reform. There will be a requirement for significant flexibility in staff deployment to bring this reform about.”

Fits very well with Jack O’Connor’s summation of ICTU strategy in his Pat Kenny interview that ‘a cut in pay is not the same as a pay cut’.

I would like to see a breakdown of public service numbers. Just how many management/admin staff are there?

Health Service with (what?) 110,000 employees but only 40,000 frontline (Doctors, Nurses, SWOs). I know those figure are not accurate but what do the rest do?

How many IT staff are employed by the HSE?

How many payroll clerks & supervisors?

How many accountants and assistants?

How many “change management” managers?

Are any of them necessary in delivering health outcomes?

@ Greg

http://www.economist.com/world/international/displaystory.cfm?story_id=14753826

the Economist had a piece last month touching on that very subject, and apparently, at an overall PS level, we’re actually quite lucky in terms of the age profile (in thats its quite young relative to other EU countries).

Dont know what the pension fund liability is for the group approaching retirement right now, but at an overall level its €105bn for the PS as a whole.

@Sportshog,

The Greek Socialists won office in October last on promises that they would solve Greece’s problems by, within the first 100 days in office:

– raising taxes on the wealthy and eliminating tax sherlters that favoured with wealthy,
– debt relief programmes for SMEs and idnividuals with personal debt/mortgage type problems,
– increases in public sector pay & epnsions (undoing a freeze on public pay introduced by the outgoing administration in March)
-investing €1bn in education
– enact a promise to hire an extra 3,000 nurses to the health service.

They proposed a €3bn ‘stimulus’ package plus €1bn for capital expenditure on public works. The long term objective is to stimulate the econmy to create the conditions that will allow Greece to be transformed into a vibrant ‘Green Jobs’ economy.The conservatives campaigned for an austerity programme that would focus on the deficit, privatise remaining State assets and introduce further labour market flexibility.

The budget currently being pushed through Parliament by the Socialist administration envisages adding a further €47 bn (of which €16bn is for interest payments etc. on existing debt) to borrowing to cover next year’s deficit. The EU is wringing its hands in despair; ineffecutally perhaps, but wringing its hands nonetheless.

The stimulus cum no cuts approach appears a common theme among Socialit Party responses to the current crisis in small countires anyway, which is probably why the the LP’s Budget formula sounds eerily familiar.

Is it not terrifying that Labour have produced such an incredibly shoddy document?

The €100m contribution from tax exiles beggars belief. Even the Cloud Cuckoo Bridge like E34bn or whatever he’s calling himself at the moment would blush.

Why not also seek an amendment to the Constitution to guarantee us three months of decent weather during the summer?

Whatever you think about the Fianna Fail cowboys who got us into this mess, this document doesn’t exactly inspire confidence that Labour are the party to lead us out of the gravest crisis in the history of the State.

@Greg,

The DoF pre-budget statement contains figures for increases in staffing levels in health, education etc. during this decade. Likely to confirm that your ‘guess’ is correct.

@ Veronica

Another guess. The older public servants are the higher paid. They would represent a disproportionate amount of the unfunded pension liability and want the younger less well paid recruits to pay for their retirement. Oh, and they don’t want basic pay cut because that will eat into their pension pots.

Put another way. How many public servants over the age of 55 “earn” less than €50k per annum? Very few I suspect. But they’re still happy to take 7% in pension levies from younger less well paid public servants.

“An additional 60,000 training and work experience places”

Sounds nice. Doing what?

@ Veronica,

Thanks for your comment about a common trend among socialist parties within small European countries. Unfortunately I would tend to agree with your comments.

I am of the same opinion as most of you, it is very dissappointing to see the LP offering little credible alternative to the present Govt.

Irish people are getting sick and tired of the spin, double speak of political parties. Is it any wonder people are so cynical.

Either the LP are devoid of serious suggestions to aid the country or they are still stuck in the game of winning elections. Maybe they are just trying to capitalise on a mob atmosphere of anger which is present in the country at the moment. Despite the fact that they have had several months to prepare their submission for budget day it has proved to be dissappointing. I suspect they have their focus on winning a popularity contest among the other parties, they are not interested in the budget, only winning the next election.

This strategy is not without its merits, the current establishment continues to weaken, so a general election could be in the offering before the summer.

However they must be aware that the more ridicule the LP gets from economists will not aid their master plan.

As for taxing tax exiles, some things do not add up. Back in February / March, Gilmore stated that 200M could be raised from taxing the exiles. Again it was unclear if this was a definite calculated figure or sums done on the back of a fag packet. Now it is down to 100M, again source unclear. Something must have changed in the meantime. Either these exiles have little money or the possibility of obtaining the money is not feasible due to double taxation treaties. Another possibilty is maybe they are thinking of reintroducing the Foreign Earnings Deductions scheme which was scrapped in 2002 /03. Hence the reduction from 200 to 100M.

Maybe we were just been had, used to wip up a frenzy (a hate meeting) by the LP against something which was not really there at all.

Another point, suggesting to cut relief on contributions for Union membership? Is this not a swipe at the Unions? I find it strange that they would have a go at a group they are most aligned with! Unless of course they have no intention of acting on this when obtaining the reigns of power.

“1.3 billion reduction in capital spending through lower tender prices”
This concerns me a little.

Capital spending is due to halve next year from this year. This is largely, I believe, due to projects completing and new projects not being tendered for. Does the remaining 7.7 billion of capital spend relate to ongoing projects or to new projects? If it relates to ongoing projects, there aren’t going to be many tender savings available…

Tender prices are more likely to rise, they cannot fall more. Recent tenders are way below cost and almost all builders on public contracts have been burning working capital at a huge rate.

€865m raised from “Property Schemes” and “Reductions in Property Relief”? Really? In the year after a property bubble just burst? Where is this coming from? Come on Joan, we know you lurk here….

@ capsubsidy

“€865m raised from “Property Schemes” and “Reductions in Property Relief”?”

The figure of €435m for property schemes was provided by the Department of Finance.

The figure of €430m for ‘Modifications & Reductions Investment Property Relief’ is an estimate of revenue to be raised from the reduction of mortgage interest relief to 25% (from 75% in the case of residential property at present and 100% for commercial property)

At a time when most homeowners, bar first-time-buyers, have had their mortgage interest relief phased out, Labour is advocating that this ‘phase out’ be extended to investors.

@Vic

Labour has accepted a target of a €1.3bn reduction in the public sector pay bill for 2010 and has insisted that this be achieved through a negotiated settlement between the stakeholders.

Interesting that the insistence on a negotiated settlement seems to trump the maintenance of existing service levels. I would have expected the latter to be the primary concern.

@ Vic Duggan

“At a time when most homeowners, bar first-time-buyers, have had their mortgage interest relief phased out, Labour is advocating that this ‘phase out’ be extended to investors.”

If it is your intention to raise revenue on trapped investment you will have limited success and will also succeed in driving many buy-to-let investors to bankruptcy. That ought to help the banks. Mind you that will be after the Supreme Court challenge on retrospection.

If it is your intention to eliminate private investment in the residential market you will be 100% successful.

If it is your intention to eliminate private investment in commercial property you will find equal success.

If I borrow money at 4% and invest for a yield of 6% can you think of any reason I would bother if I am going to be taxed as if my cost of funding were 1%. Are there not other opportunities for investment both here and abroad?

If I borrow €1mm to invest in plant and machinery would you say that the interest on the borrowing was not tax deducible?

Sounds like nonsense to me.

The fact that the DoF provide numbers in not an indication of sensible policy.

@Vic Duggan

All credit to you for having the cojones to identify yourself and put your case out there.

They’re an unforgiving/merciless lot on this board, and quite rightly so if someone can’t make their case stand up….. and some of them don’t take too kindly to ‘pinko lefties’ policies (of which, I have to admit, I am one) 🙂

Is there not more mileage on the tax break side of things? I thought I read somewhere the other day a figure not unadjacent to 7bn in tax breaks doled out in Ireland?

For example, complete removal of tax relief on pension contributions. The right will no doubt scream blue murder and that it would damage the financial services industry terrible etc. but would it really? Would people actually stop saving for their retirement? I bet they wouldn’t. After an initial sulk they would just continue on with it.

I say squeeze all (all) tax breaks really hard and see what pips squeek. Things can always be reversed if they really cause a problem. Most of the right wing shouting is usually just that….. shouting. It has more to do with personal loss than what’s actually good for society.

Anyway…. enough of the politics on a Sunday morning.

I’m not looking forward to 2010 in Ireland. I suspect it’s going to fall in on itself.

@ Veronica

“As proposed, the 48% third rate of tax appears discriminatory and unfair in its impact on ‘single’ earners as opposed to dual income households whose gross income amounted to €199,999 per annum to whom it would not apply.”

I think this just follows the existing tax code. No?

Though you could be right. It doesn’t seem clear to me.

Unless it is intended that a dual income household were the first income is €190,000 and the second is €10,000 is not subject to the 48% rate.

From Revenue: http://www.revenue.ie/en/tax/it/leaflets/it1.html#section1

“€45,400 @ 20% (with an increase of €27,400 max), Balance @ 41%”

If the 41 in that formula turns into 48 then it is consistent with the current tax code.

If not then behaviour will change. A single income household on €195,000 will arrange for the one without income to get a part time “job” in the local Spar at €4,999 to avoid the 48% rate.

I’m sure that is not the intention. Clarification would be good.

Does anyone else find it of interest that comments on Labour’s budget proposals are running at five times those on FG’s proposals? It is possible that there is an interest in exploring the potential for a coherent alternative to the Government’s fiscal policies. While FG’s and Labour’s proposals diverge a credible alternative is not being offered to Irish voters and, as the likely junior partner in any alternative governing offering, there is a focus on those features of Labour’s proposals that differentiate them from those of FG.

It is for FG and Labour to decide if they wish to craft a credible alternative, but, imo, Irish voters deserve and require this.

@ Vic Duggan,

Thank you for contributing and placing your cards on the table.

However I wish to push you more on the residential investment relief.

The country is flooded with property, rents have had to be reduced and there is now a movement of net emigration from the country.

This has put pressure on landlords. In addition interest rates are low, and in the next few months they will be going in one direction only, upwards.

If you cut interest relief against profit obtained then one of two things will happen.

1) Either rents will have to rise.
2) Landlords will have to go bust.

In addition it does not send out a good signal to future investors in this country.

The CIF has estimated there is a large amount of money still being held back from the Govt in the form of unsold properties, I am open to correction but I believe it is around the 1B mark.

This policy does not make economical sense. In addition Greg has mentioned the possibility of Court action with regard to Retrospection for landlords.

Repeating your doctrine will not answer the questions that I and others have raised. LP doctrine in this case is illogical, we know what your doctrine is, you are being challenged to show how it squares with reality.

In addition landlords are business people, not homeowners. If you reduce cost offset against profit for landlords will the LP continue implementation of this doctrine against other business’s? All business’s have costs which impact on their profit.

You need to explain logically in a clear manner how will points 1 and 2 not occur on implementation of LP policy.

Unless of course it is the LP policy to destroy landlords, and after having destroyed this business, which business will you target next?

Not sure that’s the case. I haven’t heard Fianna Fail, the Green Party, Fine Gale or Sinn Fein suggest removing tax relief on Trades Union subscriptions.

Well that’s exactly the point. Labour are in the unique position of having an institutionalized link to the unions, and also gain indirectly from that tax relief via their union-originated funding.

Hence they must be seen to be willing to take as much away from their beardy mates as they squeeze out of anyone else, lest they be accused of hypocrisy.

Will membership subscriptions of the Irish Medical Organisation also lose their tax deductible status?

Yes of course, why wouldn’t they?

Its only €70 a year for crying out load. A GP would nearly make that back in a single 5 minute consultation

FG also propose removing the tax relief on trade union subs for a saving of 19m Eur. I would go further and ban SSB from joining IBEC just to even things up a little.

I believe the State also pays the salaries of the GRA full time staff. That should go as well.

@ Veronica

So this is where relief for Trades Union subscriptions was introduced.

FINANCE BILL, 2001

“Section 11 introduces an annual tax allowance at the standard rate of tax of £100 in respect of subscriptions paid for membership of trade unions, regardless of the level of those subscriptions.”

Minister of Finance Charlie McCreevy? That well known hater of Trades Unions.

The phrase “Fianna Fail Trap” comes to mind.

Still, small potatoes in the face of the deficit. I just found it interesting.

@vic duggan: phasing out interest relief on investment property is like phasing out the ability for a business to offset expenses, bringing it down further at a time of collapsing yields and record drops in property prices meaning that margin pressure on borrowers leaves them with an inability to move their loans is kicking a whole sector while it is down. there are some brilliant ideas in the labour submission but that aspect of it is way off mark.