Issues for the Budget Countdown

I have written an article on the debate about the upcoming budget for Business and Finance. It’s hidden behind a paywall, so I’ve attached the full text below the fold.

Issues for the Budget Countdown

The government has begun making preparations for December’s budget. Minister Eamon O’Cuiv’s comment that he couldn’t rule out cuts in pensions tells us that budget kite-flying season is with us again. As with last year, we are likely to see a series of proposals flagged as possibilities in the hope that the public will be immune to them by the time they are revealed on budget day.

This process will eat up plenty of media attention in the coming months. However, there is a bigger picture worth focusing on in relation to the next budget, with three issues in particular deserving attention.

The first issue is the scale of the budgetary measures required. The government has signalled that another €3 billion in adjustments will be delivered in the upcoming budget, with €1 billion of this earmarked for capital spending and €2 billion in current spending.

I noticed Leo Varadkar of Fine Gael saying on TV that he thought this planned adjustment was too large. However, sovereign bond markets have become far more nervous in recent months and a failure to stick with our announced plan for adjustments could very possibly see the Irish government shut out of this market, thus becoming reliant on the EU\IMF stabilisation fund. The price of accessing this fund would almost certainly include a more rapid pace of adjustment than is currently planned. Hopefully this represents a solo run from Deputy Varadkar, as a cross-party consensus on the need for the government to stick to its planned path of fiscal adjustment has been one of the key elements distinguishing Ireland from countries like Greece.

The second issue is the composition of the adjustment in terms of tax and spending measures. Last year’s budget speech signalled that the adjustment would be solely on the expenditure side. To my mind, this would be a mistake.

A major reason Ireland has opened up such a large budget deficit is the collapse in tax revenues from property market sources. The EU projects that Ireland will have a tax to GDP ratio of 34% in 2011 under current policies. This would place us at the very low end relative to other European countries. Maintaining this approach is likely to have very serious consequences in terms of the delivery of public services. The Commission on Taxation has outlined a number of suggestions for expanding our tax base and providing us with more stable sources of revenue. The next budget should start to implement some of these measures.

The final issue deserving attention is the question of stimulus measures. The opposition, perhaps wary of the lack of reward handed out to Fine Gael for its Tallaght Strategy of the late 1980s, has been determined to consistently criticise the government’s budgetary proposals as too negative. Richard Bruton immediately responded to last year’s budget by labelling it draconian, jobless and joyless and the opposition has regularly bemoaned the lack of positive initiatives being taken by the government.

It seems to me that there is an air of unreality about these criticisms. Both Fine Gael and Labour put forward various proposals last year aimed at reducing unemployment. However, both parties also put forward alternative budgets in which the net fiscal adjustment was about €4 billion. The reality is that the overall macroeconomic effect of any of these potential budgets would have been contractionary.

It’s easy to paint a budget that has €5 billion in spending cuts and €1 billion in new spending initiatives as “having stimulus” and a budget with €4 billion in spending cuts and no new initiatives as being “devoid of stimulus”. But even beyond the fact that the overall macroeconomic effect is about the same, there are a number of reasons to be careful about adopting such an approach. Despite the continuous public demand for new initiatives to be seen to be doing something, new and untested spending or subsidy programs are often poorly designed and ineffective. For instance, the job subsidy and enterprise grants that the government has put announced do not appear to be very effective programs.

Constant calls for “positive action” also produce token gestures that do little to help and cost money. For example, in the last budget, Minister Lenihan announced a cut in excise duty on alcohol “to protect exchequer revenue and stem the flow of cross border shopping.” In fact, the budget details showed that this measure, far from protecting exchequer revenue, will cost us €90 million this year.

Similarly, the move to reverse the previous year’s VAT increase of half a percent was motivated by the mistaken idea that the original hike had lead to a flood of cross-border shopping. In truth, the large decline in the pound against the euro was a far more important factor in triggering cross-border shopping. However, this move will cost €167 million a year.

When overall budget targets have to be kept to, these positive measures just need be offset by cuts in existing programs. For instance, without the cuts in excise and VAT rates, one could have avoided the cuts in child benefit, which cost €221 million.

I don’t mean to dismiss the idea that the composition of budget adjustment shouldn’t be looked at carefully in a way that protects as many jobs as possible. However, the debate in the coming months would be more constructive if our politicians admitted that this year’s budget, and others to come, simply will not provide stimulus to the economy.

60 thoughts on “Issues for the Budget Countdown”

  1. Apparently we now have from the MfF a “pledge” to introduce property taxes and water rates (according to the Indie’s reporting of the NTMA’s information memorandum for 2010). Separately Mr Gormley says neither tax will be flat-rate. So presumably we’ll recruit an army of water meter installers and valuers to help with assessing the levies for the 1.6m households and 2m properties in the State. Whilst I’m all for progressive taxes (if we absolutely must have taxes), there hasn’t been much talk of landbank taxes (is it really the case that 8 individuals own most of the development land in County Dublin?) or mansion taxes in any of the debate so far.

  2. Very interesting stuff, Karl, but just one question: doesn’t the use of GDP in an Irish context overestimate the size of the Irish economy considerably? Shouldn’t one use Gross National Product or Gross National Income to give a more accurate picture of taxation as a proportion of our national wealth, or have I clumsily misunderstood something here?

  3. By all means widen the tax base but my suggestion would be cut taxes and cut spending. VAT at 21% is unjust.

  4. It is a great idea to bring in water rates and property tax, it is just that so many of the people who bought themselves a new build home in the good or bad Celtic Tiger years are already paying property tax to the very people that have brought this country to its knees, the developers, in the guise of management charges.
    Yes screw the people and bail out the ones that got us here. What a great and fair society we have in Ireland.

  5. @DD

    It depends on what your axe is. If yur are talking about measure like debt or the cost of the bank bail out always use GNP as the ratio is bigger. If you are talking about taxes or spending as a proportion of national income, always use GDP as that way we look like we are underspending/undertaxing.

    I would say the lack of specifics on the Budget is deliberate. This govt has run its course & is likely to be gone by the Autumn. The GP are looking for an excuse to get off the pitch soon.

  6. The other thing we need is some clarity from the European Commission on whether the new promissories for Seanie and Fingers count as spending, and if so, whether they necessitate a revision to the stability and growth submission.

  7. Interesting comments indeed.

    One suggestion, the cost of electricity in this country. How about bringing it down.

    Mr Paul Hunt has covered this topic many times, but again this topic is cast away like it is a unimportant irrelvant fact by the powers that be. Even the political opposition parties are disinterested.

    Mr Brian O’Hanlon discusses the SME sector, energy costs will have a impact here as well. But once again this topic is swept away.

    We went from having one of the cheapest electricity in Europe, to becoming one of the most expensive, all in the name of competition.

    We are actively encouraging micro generation with feed in tarriffs etc. Yet nobody has asked who is going to pay for these tarriffs? The penny has not dropped yet, the tax payer will pay of course.

    Now that the dominant role of the ESB has diminished, we should approach a point of cheaper electricity prices. But this remains to be seen if it will ever happen at all. If my memory serves me correctly there was a article some time ago where the Independant power producers will cry foul if the ESB is allowed to cut its prices. So it looks like competition will keep prices artifically high.

    Are people waiting for Ireland to discover a massive oil / gas field or for the messiah to come down from heaven and lead us out of this sorry mess we are in? Dream on, it ain’t gonna happen.

    How about taking responsibility for ourselves, getting the cost of doing business down by reducing energy costs would be just one place to start.

  8. Thanks for the interesting discussion. The 3 billion adjustment presumably means an 18billion deficit if there is no growth, and if the low tax revenues so far this year “very hopefully” reverse? At 18bn (or 15bn or 20bn) the deficit is still far too large measured against GDP to prevent collapse with debt over time. Since our survival all depends on growth, and this government has decided to make taxpayers pay all the debts of the financial sector despite us having too few taxpayers for that 70-80bn of additional total debt, maybe we should just PRETEND to tax more. A property tax takes time – we can tell this to the EU – and so wait 24 months. We then need only pray the rest of the world actually does fantastically well, and they are tricked by our numbers which clearly don’t add up. [P.S. I agree with DD, it should all be measured against GNP or GNI, and that makes these deficit numbers look more awful.]

  9. @sporthog
    Yup, +1.
    If this and, as ribbit says on the spillover thread, the costs of the legal system, access to law and the likely payouts were addressed, then the cost of commercial insurance should fall. Liability insurance is a shocking cost on small businesses. Add in commercial rates and a small employers scheme – perhaps reduced rates of employer PRSI for three employees or fewer? With simplified accounting and a higher VAT threshold?

  10. @ Yoganmahew,

    Good points, its all starting to add up now.

    It’s not rocket science, yet nobody appears to be determined to get all these costs down.

    It’s just talk, spin, talk, spin, and no action. Truly embarrassing, even shameful.

  11. @Donogh Diamond

    Is GDP not taxable here (albeit at low rates for the foreign multinationals who repatriate profits)? Surely, then, GDP and not GNP or GNI is the correct denominator, no?

  12. @ Donagh

    Christy is right that is one of my hardy perennials that I have written about on a number of occasions, e.g.
    http://www.irisheconomy.ie/index.php/2009/01/17/where-is-irelands-tax-burden-heading/

    To quote:

    “However, I do not view this higher GNP-based figure as a useful one, for two reasons.

    First, I believe that GDP rather than GNP should be viewed as the correct tax base when making calculations of this sort. GDP represents all the income generated in this country and, technically, all of it is available to be taxed by the Irish government at whatever rate it chooses. Of course, profit income generated by multinational corporations is likely to move elsewhere if we tax it at a sufficiently high rate but this is an issue faced by all governments, not just our own.

    Second, if one is going to exclude the substantial factor income repatriated abroad (€28 billion in 2007) from the tax base it is not consistent to then include the taxes earned on this income in the measure of the tax burden. Assuming that the €28 billion figure represents corporate profits repatriated after paying the 12.5% corporate tax rate, one comes up with a figure of €4.1 billion in taxes paid by multinationals on repatriated profits. Excluding tax payments of this magnitude would give a 2013 (adjusted) tax share of GNP of 39%. So, even if one agreed with the idea of GNP as the tax base, an internally-consistent calculation of the Irish tax burden would still leave it well below the European average.

    The broader and more important point here is that we need a wider debate about the shape of future fiscal adjustment than the one currently taking place, which focuses almost without exception on the need to reduce public sector pay.”

  13. Funnily enough, on this topic (if not many others!) I appear to be right in line with Department of Finance received wisdom

    http://www.irishtimes.com/newspaper/finance/2010/0524/1224271011035.html

    Quote:

    The department also argued that Prof Kelly’s call to measure the State’s debt against gross national product (GNP) instead of gross domestic product (GDP) made no sense.

    “Prof Kelly should be aware that GDP measures the output of the Irish economy and thus what the Irish Government can tax,” the spokesman said.

  14. @Mr. Whelan
    “Prof Kelly should be aware that GDP measures the output of the Irish economy and thus what the Irish Government can tax,” the spokesman said.

    “can”, but “won’t”. As there is not the will to do it, another measure is required. A blend of the two, perhaps? It shouldn’t be beyond the wit of the econometricians on here to come up with some forumla that acknowledges both the tax burden on transfer payments and the limitations of increasing it?

    Perhaps then we would have a gauge that both parts of the debate could agree on and we might actually get somewhere other than in circles on how indebted/overpaid/underspending/bust we are?

  15. @Jagdip Singh

    “Apparently we now have from the MfF a “pledge” to introduce property taxes and water rates (according to the Indie’s reporting of the NTMA’s information memorandum for 2010). …So presumably we’ll recruit an army of water meter installers and valuers to help with assessing the levies for the 1.6m households and 2m properties in the State…”

    IMF takin over my water supply??

    No thanks. They’ll probably spike it with flourene and phosphorous and God knows what.
    I suppose I could shower with rain water..

  16. @Mr. Whelan – but the taxes collected on repatriated profits are far less than 12.5%. The Bermuda corporate with a Netherlands entity that in turn owns the Irish company means they can legally be brought down to tiny sums for the largest companies. Google etc. all do this. But agreed there is some modest tax available on that 20% of GDP. Isn’t the more worriesome point that that budget deficit remains so large after substantial cuts already? And since revenues are largely based on personal income and VAT, there is little scope for improvement without strong growth or more taxes taken from people fighting to pay off mortgages, which in turn will hurt demand? That makes it very hard to see how we escape this. The Spanish plan a budget deficit of 6% GDP next year – we will be at 11% of GDP or 14% of GNP even with 3 bn more cuts. Aren’t we mistaken to think markets will tolerate this much longer?

  17. @Sporthog
    “We are actively encouraging micro generation with feed in tarriffs etc. Yet nobody has asked who is going to pay for these tarriffs? The penny has not dropped yet, the tax payer will pay of course.”

    I would be cautious about scolding this policy. The fact is that relative to much of the EU and many US states, Ireland has done very little to facilitate microgeneration. Lets look at one country with the capacity for strategic planning and delivery, Germany for example. Under its ‘Feed-In Law’ initiated in 2004 this offered 57.4 cents/kWhr for solar PV microgen with a 5% taper-down year on year. The response to this is apparent to anyone who has driven around the German landscape. Residential power costs 16 cents kWhr.
    Ireland was one of the last of the EU 15 to offer a feed-in tariff for microgen, and the rate offered is a derisory 19 c/kWhr which is similar to the retail price of power (incl of taxes). So there is no obvious taxpayer subsidisation particularly considering the avoidance of public investment in new capacity. The ROI for homeowners to invest in sustainable energy is not very attractive and consequently the renewables field in Ireland has become the preserve of large semi-state and private utility-scale wind developers. The penetration of microgen in Ireland is miniscule and likely to remain that way.
    Do you imagine that any indigeneous utility will see upside in driving down the price of power in a tight-knit business community like Ireland’s? We need active regulation here, and some price support is essential to prevent a predictable autoimmune pricing response of the ESB monopoly to competitors. it was hard enough to get ESB to stop footdragging over technical interfacing with small power producers who wished to inject power into the grid.

  18. @Sporthog
    High electricity prices is old news. Prices have come down. Ireland experience the 3rd largest price drop of all EU countries in the 12 months to the end of 2009 and moved considerably closer to the EU average. Large consumers were about 5% above the EU average at the end of 2009 compared with 12% above at the start of the year.

  19. But …….. in the mean time, more taxes would be ++good?

    As I toiled away, at the coal face, as our superiors told us that was where we were, they were helpful, like that, I often wondered if there was a better way of making taxation more fun for all concerned. Now the CIA and the British East India Co ran or run drugs and made or make money that way. The Mafia run numbers, but the Lotteries have to be restrained, lest we all lose the run of ourselves and we end up in massive debt ….. errr where was I?

  20. Couple of comments:

    G*P or whatever? Now if econ was a science (which it ain’t) – it would have a unique, international SI unit for aggregate ‘growth’ – so, what is it? Better sort this out PDQ.

    Tax or ‘cut’ or tax+’cut’ – either way you deflate aggregate economic G*P. So, how to pay down that pile of festering debt and keep the econ on the rails? More debt???

    Please rem that G*D is a complement of liquid oil production (math relationship is a tad complex – but no matter). Liquid oil products production has stalled (since 2005) so G*P also stalled, but stall was temporarily averted by a massive input of credit (which is why we have this unpayable pile of dept). Conclusion: G*P is belatedly stalling and will inflect over into permanent declension.

    If anyone can rubbish this conclusion I would be most grateful. I can then sleepeasy again.

    B Peter

  21. @Brian Woods

    “Please rem that G*D is a complement of liquid oil production (math relationship is a tad complex – but no matter). Liquid oil products production has stalled (since 2005) so G*P also stalled, but stall was temporarily averted by a massive input of credit (which is why we have this unpayable pile of dept). Conclusion: G*P is belatedly stalling and will inflect over into permanent declension.”

    There is a relationship between the 2 but I’d say you’re mistaking correlation and causation, oil production is influenced by GDP if anything, definitely not the other way around.

    I agree with your point on tax + cut or tax/cut, no matter what we do we’re going to be running a deficit for a long time. Can anyone see a situation within the next 5/10 years where we actually start to run a consistent, meaningful surplus? IMO it would require a massive world recovery (unlikely) and the euro to weaken further (likely, but I don’t like the idea of putting all our eggs in the euro basket) and even then, the emerging economies will be a lot better positioned to take advantage

  22. Karl
    Neither the government’s proposals nor your own will work in the long-term. The debt situation is unsustainable and the only chance of recovery lies in restructuring, either going it alone or, preferably, within an overall Euro-wide model.

  23. It’s interesting how public sector reform has been parked in Limbo.

    Bertie Ahern said on publication of the OECD report on the public service at the end of April 2008, in reference to the 800 State agencies/quangos, that there were ” too many by half.”

    The cull appears to be in slow motion and on becoming Taoiseach, Cowen appointed a taskforce to consider the recommendations of the OECD.

    The taskforce and Bord Snip appear to be on respirators or preserved in formaldehyde in the basement of Government Buildings.

    The poll today putting a party with no policies in the lead most be great comfort food for the forces of conservatism.

  24. @MH
    So according to you exactly which party in Ireland is not conservative? FF is the bastion of conservatism and FG is not a whole lot better. Greens are in bed with FF. The less said about SF the better. So who is a better candidate than Labour?

  25. @ Tony Owens,

    Interesting points, however I don’t think we are comparing apples with apples when we discuss the German example of microgeneration etc.

    For example, A PV system in Spain will develop more Kw/hr than in the US. Germany would have less sunshine than Spain. So FIT for PV systems would be higher in Germany than in Spain etc.

    Similarily a PV system in Ireland might need a higher FIT as the sunshine in Ireland would be less than Germany, and a lot less when compared to Spain.

    On the other side Ireland has a better wind energy distribution than Germany. So one could have a lower FIT for wind power in Ireland than compared to the German FIT etc. It’s not a level playing field.

    But the point I was trying to make is that we require to get costs down in Ireland as we are losing our competitive edge (or have already lost it). Energy costs would be just one part of this.

    Micro Gen in Ireland is small, but it is catching on a bit as some industries like Hotels are trying to find ways to reduce their costs. Hence they look into alternatives like small CHP plants (provide electricty and waste heat for the sauna / swimming pool) to maximise efficiencies etc.

    But at the moment mirco gen Feed in Tarriffs are there to support a energy source which is currently uncompetitive with present conventional generation. Hence there is a cost which has to be paid by somebody, and that cost is passed on to users of energy, ie you and me.

    If there were no FIT then microgen would possibly collapse.

    Leaving aside the environmental, strategic, or green attributes which microgen can provide, its take up will be very low. What bank manager is going to give you X thousand so that you can buy a Dachs unit or put PV arrays on your roof? As we all know cash is very tight.

    Why would you invest X thousand in a micro gen system when you have to rely on a FIT from a govt which is on the verge of bankruptcy. Would you take that risk? You might, but only if you had the interest and cash to spare.

    What about the quality of the electricity which micro gen provides? If we allow everybody to attach any sort of micro gen system to the grid will quality be compromised? If quality is compromised it can be improved, but again there is a cost to this technology and that cost has to be paid for.

  26. @All,

    I think you are all missing the massive change in the political economy backdrop. Current opinion polls indicate there ias now a majority in Irish society against the current policy of fiscal austerity and in favour of the redistributive and expansionary policies advocated by Trade Union posters on this site.

    Last night’s MRBI poll shows that the Left of the political spectrum comprising Labour, SF, GP and some others now is on the verge of a majority in the DAIL.

    Surely this will embolden the left wing to call for more taxation, greater public spending, taxation of corporate profits and capital.

  27. @tull
    Surely the deeper insight is that labour has learned to oppose. And has no policies other than opposition. And is reaping the poll benefits. It’s infantile but it works. And also beside the point because as you know full well, Brussels now runs all the important stuff.

  28. @Simpleton

    That would be an overly cyncal view of the Labour Party. I think you are accusing the most popular leader in the Dail of cycnical opportunism. What next, of being a paid agent of North Korea?

  29. @ Tull

    are you referring to Sean Garland, ex President of the Workers Party, which later became Democratic Left, which later merged with the Labour Party, and a man who is now awaiting extradition to the US as a result of being a paid agent of North Korea? 😀

  30. More seriosuly, does anyone want to guess at what stage someone in FG will be man enough to act on the rapidly obvious fact that the people of Ireland simply are not willing to elect Enda Kenny as Taoiseach of this country? Until they do, FG will be unable to create a viable alternative government with any meaningful mandate for change.

  31. @ Tull Mcadoo,

    Now now, one swallow does not make a summer!!

    As long as FF and the Greens along with disgruntled backbenchers do not push the self destruct button then it is possible that they will hold out until 2012.

    By then it is possible “something will have turned up” and they might be back in the race.

    Or it is entirely possible that the country will have gone bust by then and civil war reigns on the streets.

    While Labour have carried out a lot of huffing and puffing about lots of things it remains to be seen if they will act on any of them.

    As several other commentators have mentioned the opposition parties have no concrete proposals to get this country out of the hole it is in. There is lots of foaming at the mouth about jobs, but no mention of where the work actually is. In relation to penal taxation on wealthy people, this will placate some of the mob. But after a while the rest of the mob will realise that the average man / woman on the street will have no chance of becoming wealthy now that wealth has been removed from the wealthy. By crippling the wealthy one ensures everybody becomes poor, and the poor stay that way.

    But a week is a long time in politics.

  32. @Sporthog

    It’s highly probable that FF will hold on until 2012 – blunders aside, they are on broadly the right course and we should be thankful for that at least.

    The next election is still FG’s to lose, even with Enda Kenny. What people say in an out-of-season poll and what people actually put in the ballot box are completely different things. I am generally cynical about politics but I don’t believe a party as cynical as the current Labour Party can get elected without actually espousing at least one coherent policy.

  33. B Peter Woods

    I think you can rest easy!

    The illness was the easy credit. It not only funded crackhead politicians, it distorted many values. With less froth and frivolity, the real things assume greater importance. You and many others know those values. Many in this generation do not. I and you and others have tried to alert people to changes that are here and manifesting more and more. They are not coming. They are here.

    The rentiers will die in the coming snows. Many have seen the future. But some are confused and still occupy positions of power. Others do not care. They will hold onto what they think they have for as long as possible.

    We in this blog and elsewhere, have to help shape policies to get rid of those stopping prompt realignment. As debt continues to pile up, the issue becomes one of greater importance. Those who still have the old bankrupt values need to be excluded from policy formation.

  34. @Pat Donnelly

    “Those who still have the old bankrupt values need to be excluded from policy formation.”

    how do you propose we manage that given that all of the “Sir Humpries” are still in place and, if I recall escaped the last pay cut/levy call it what you will.

    Until these guys become accountable there will never be change unless it is forced on us from the outdide.

    @Karl

    ah the budget….the annual waste of time-6 months of kite flying-the usual panic by those who feel threatened-boring submissions by IBEC and the unions followed by a budget speech which does little except tinker around the edges e.g the stunningly inventive movement of the VAT rate from 21% to 21.5% and back again!!!

    and then if that is not enough we have to put up with the same tedious process until the Finance Act is passed

    there is no plan, for the good of the nation, by any politican except being
    re-elected

    For example we have heard lots of waffle about Corporate Governance over the last 6/12 months….yet there are heads of a bill, produced by the CLRG, sitting in the system for 4/5 years and likely to stay there for 2/3 more. Why can’t they just get on with it!!!

  35. @ Garo

    So according to you exactly which party in Ireland is not conservative?

    None.

    Ireland is a very conservative society which is slow to embrace change.
    From the trade unions on the Left to professions and farmers on the Right, the status quo is the safest position.

    What is striking across the political spectrum is that so many depend on income from the State directly or from European taxpayers via the EU budget. It is the safest option and nobody will easily surrender money privileges.

    We are all socialists now and wonder why no member of the scientific community has publicly queried the flawed Innovation Taskforce report which requires well-meaning but ignorant politicians to deliver truckloads of public money with little accountability?

    Credit is due to Fine Gael and Labour for pushing for social reform in the 1980s against implacable FF opposition and there can be little doubt that an alternative government combination to FF and their PD lapdogs would have saved the country much human misery and devastation.

    As for the LP, when Gilmore does not propose change in failed areas of governance now, what chance has he when immersed in day-today issues of government?

    The Greek PM has promised the most radical public spending transparency in Europe; What has Gilmore to say on such issues which can have a significant impact on accountability for public spending?

    Greeks have lived beyond their means for years, coveting public-sector jobs and demonizing entrepreneurs, Papandreou said in April. “We learned to live on loans” rather than increasing our incomes.

    Just 2 examples of Irish socialism:

    The cost of Irish State financed drugs schemes doubled from 2002 to over €1.6bn in 2008. Fees and other income earned by pharmacists doubled accordingly. It cost the taxpayer an exorbitant €640m to get €1bn of drugs from factory gate to patients in the community in 2008.

    The DPP paid €10.2m to lawyers in 2004; it was €15.2m in 2009, including €234,766 to political pundit Noel Whelan, after an 8% government mandated cut in fees.

    DPP James Hamilton wrote to the Minister for Finance earlier this year to express his “serious concern” over the impact the planned cut would have.

    Gilmore appears to be no threat to the insiders.

    http://www.finfacts.ie/irishfinancenews/article_1019736.shtml

    @ Bond. Eoin Bond…

    If Kenny’s poll numbers persist, it will be “Et tu Brute,” by the autumn.

    Brutus Bruton will have to be brutal.

    Apart from other qualities, people generally expect political leaders to be able to express themselves fluently.

    It can be unfair but that’s life; the last fat man to be elected US president was in 1908; the last bald man to be first elected as president was in 1952!

    The last bald man to become Taoiseach was in 1977!

  36. @MHennigan

    “The last bald man to become Taoiseach was in 1977!”

    Very true but we do not have any glamorous politicians, Cowen may have hair but….., to fit the bill!

  37. @ Karl

    Factor income repatriated abroad is undoubtedly a huge issue but I think that your figure of €28 billion for 2007 may understate it. From my reading the €28 billion is the net factor income from abroad.

    In 2007 there was an factor income outflow from Ireland of €112.7 billion. Income earned abroad repatriated to Ireland was €84.9 billion. This gives a net factor income from abroad of €27.8 billion.

    The €112.7 billion of factor income repatriated abroad in 2007 comprised €1.1 billion employee compensation and €111.6 billion investment income. This investment income can be broken down direct investment income (€36.9 billion), portfolio investment income (€42.4 billion) and other investment income (€32.2 billion).

    I have absolutely no idea what the tax treatment of these flows are but, as you say, they are based on economic activity in Ireland and hence are taxable, to some extent, in Ireland.

    Just over 95% of the €36.9 billion of direct investment income repatriated abroad was on equity investment. This gives an equity investment income flow out of the country of €35.0 billion. If this is after the application of our 12.5% tax rate then some €5.0 billion would be collected in tax.

  38. The scale of the fisal adjustment for ireland is unfortunately much greater than imagened. We have 100,000 civil servants and government employees taken on during the bubble all on 40k year and expecting huge pensions at the end of the rainbow. They are being paid at the moment by converting governent bonds to cash via NAMA and equity swaps with the failed irish banks that can use the government paper to get funds via the ECB.

  39. NAMAs statedal initial reasons were to improve liquidty in the private banks by allowing them to off load their bad debts to a govement entit and magicllally convert thazt to tier1 via the ECB who see goverrnment paperm as tier 1. More fool them

  40. @ Seamus Coffey

    This is a difficult area to untangle.

    Foreign patent income flowing into Ireland from other affiliates, is not taxed.

    Rather than repatriating profits, the Irish based foreign-owned company may be the banker to sister companies.

    As for the IFSC, we have seen from BIS data on foreign bank borrowing by Irish banks that the data can present a misleading picture.

    In 2008, investment by “Irish” investors overseas was greater than the stock of FDI in Ireland.

    However, US management consultants Accenture changed the country of incorporation from Bermuda, where there is no corporate tax, to Ireland in 2009. So it’s now an Irish company.

    “None of our top executives are moving to Ireland, but that’s totally irrelevant,” said the company spokesman. “If it was a US corporation, how many CEOs live in Delaware?”

    Delaware? Doesn’t the US VP come from there or maybe it’s someplace near Bermuda?

    There are Irish leasing companies with small operations in Ireland but revenues in the billions.

    Then there is CRH, 90% of its shares are held overseas and just over 2% of its payroll are employed in Ireland.

  41. @Michael

    “The cull appears to be in slow motion”

    Lazy politics here. Picking off 400 quangos means 400 fights and each one over what appears to be relatively small money all resulting in lobbying by highly paid Pr firms – paid by the taxpayer!

    @ Tull McAdoo

    HAHAHAHA. The people are in favour of not cutting public spending but increased taxation – by which they really mean “tax the rich” not defining themselves as rich. They don’t mean THEY should pay more tax. They think voting in Labour will mean we’ll get those damn tax exiles. Of course, they’re in favour of that.

    Let’s see the manifestos and exactly what this magical new taxation system would actually mean.

    Face it, for the next 5 years we’re all going to pay more and we’re going to get less. Anyone who suggests anything else is thick or lying.

  42. @ Sarah

    That is a classic Blueshirt reaction, referring to the voters as “They”. I hope you are not calling the leader of the Labour Party “thick” or accusing him of “inaccuracy”.

    We at least are tidying up the mess.

  43. @ Stringer Bell

    Krugman refers to the unemployed but in Ireland, the people who make the case for the status quo are in security guaranteed jobs or doing well from the mainly public supplied bonanza for the sheltered private sector.

    There has been no structural reform so far and what is likely to happen when the recession ends, the pressure for reform will ease but for the private sector where the majority of workers have no occupational pension and the huge number of unemployed, it will be leave horse and you’ll get grass.

    Costs were built on a bubble and the level of employment in the international tradable goods and services sectors is back to 1998.

    Where’s the tooth fairy that will supply 200,000 jobs in the next 10 years?

  44. @ Michael Hennigan

    Costs in the tradable goods services are back to 1998 levels? How did you make that one up?

    The main cost for productive export companies in Dublin are commercial rents. These have not been reduced anything close to 1998 levels. Most have remained artifically high. Large companies can just about afford this, small ones cannot, and many have gone to the wall because of it.

    What you are referring to are labour costs and the logic of your argument means that it is a good thing for someone to be earning €22,000 a year not €33,000 a year. Also, how many companies have gone bust because their workers are too expensive? Very few. As Craig Barret, chief executive of Intel stated recently – it does not pay to be cheap.

    Furthermore, your logic states: because non-union private sector workers have crap conditions and having pay cuts imposed upon them that everyone should have crap conditions and pay cuts imposed upon them. It is not an economic nor a political argument. It is a beggar thy neighbour argument.

    The tooth fairy that will provide 200,000 jobs will certainly not come from the private sector. The last 10 years have shown that the private sector is incapable of channeling wealth into productive activity. Neither will it come from our policy mantra of low taxes, low taxes and more low taxes. If 200,000 jobs are to be created it will be on the back of intermediate consumption – i.e. based first and foremost on public spending.

    But – we would not be in a position of having to create 200,000 jobs if a deflationary approach to the crisis had not been adopted. If Ireland adopted what most euro countries adopted – short term working, collective reduction in working time and temporary job subsides – more people would be in work, there would be less of a drop in national income, less people on the dole and thus healthier exchequers.

  45. @ Tull

    What an odd thing to take offence at.

    “The electorate” or rather “those polled” – will naturally favour an option that appears to spare them unavoidable pain. There is no ideology behind this. It’s wishful thinking.

    This you remember is the same electorate – encouraged by the Trade Unions and their “social partnership” deals- who consistently voted to fund the economy on decreasing direct taxation and increasing indirect taxation – a deeply regressive policy. THEY voted to put more money in their own pocket and to hell with the poor or public services. THEY might still hope that they can hang on to that money and that someone else can pay for the policy disasters which THEY voted for but THEY are going to get an awful shock if we don’t make it to the end of the year without IMF involvement.
    THEY (the IMF) will rip up that silly little deal and then the fun will start.

    I bought a poly tunnel yesterday so I can grow winter vegetables.

    Everyone else should wake up and smell the manure.

  46. @ Stringer

    think you need to slow down your speed reading thered – MH was referring to employment being back to 1998 levels, no costs…

  47. Sarah, come on. Take off the south dublin glasses. There’re many ways of seeing the world.

    Here’s my take:

    Social partnership was a means of subsidising employers by increasing disposable income without increasing the cost of employment. Gross income increased nothing like the rate of productivity. In fact industrial wages (as Conor McCabe over at Dublin Opinion points out) both rise and fall and indeed closely track the rate of inflation and has done so over the past 30 years. Partnership was designed to preserve that trend, and has largely been successful.

    Most people didn’t want tax increases, not because of any ideological predisposition, or because they didn’t want better services, which they patently did and frequently campaigned for, but because a large portion of the wage rises which they rightly earned where actually coming from income tax deductions. Hence the change to affordability indexes when mortgages where being offered, as opposed to gross income as the criteria.

    With this increased productivity not going to labour, but instead employers, wealth was increasingly concentrated, so that the housing market became disproportionately skewed towards speculation and investment. Naturally it’s the one asset class that ordinary people have to compete with. No point talking about moral hazard, people need shelter. And so they pushed and pushed for greater access to credit. They weren’t saying they didn’t want higher taxes because they didn’t want to pay for services, but because with the cost of property and increasing debt, they couldn’t afford them.

    Ironically if the trade union movement is guilty of anything its being duped into believing that partnership was a good thing. If higher wages had been paid in line with productivity increases, instead of inflation, the concentration of wealth would have been much smaller, the housing bubble tamer, the credit requirements puny in comparison, and a whole lot less misery.

    As for the IMF, who cares, sure don’t we all agree with their policies anyway!

  48. @ sarah

    As long as FG supporters like yourself keep referring to the voters as “they”, my seat is safe. Ever hear the anecdote of Pat Lindsey, James Dillon and John A Costello going up to the Park to hand back their seals of office.

  49. @ Stringer Bell

    I wrote that employment in the international tradebale goods and services sector is back to 1998 levels.

    Fact or fiction?

    Of course costs are not at 1998 levels.

    You may not know much about Japan but the country has what is regarded as the best infrastructure in the world including Alaskan style bridges to nowhere.

    It also has gross debt of more than 200% of GDP because like Ireland, the construction industry was in bed with the dominant political party and stimulus spending was ramped up year after year as if all that was needed for sustainable jobs – – it’s always easy for the armchair “experts”.

    As regards the tooth fairy, it’s easy to follow the Keynes example of planting bottles with money and starting public works to find the bottles.

    At some point when a small country like Ireland or Greece wants to fund its public debt and it cannot do so internally, it may be galling but it has to butter-up foreign lenders.

    It’s so easy to deal in generalities about creating employment – – the country is full of experts on wind energy, clean energy etc – – and I’m not infavour of low wages but how many ESBs can we afford?

    The last 10 years have shown that the private sector is incapable of channeling wealth into productive activity. Neither will it come from our policy mantra of low taxes, low taxes and more low taxes. If 200,000 jobs are to be created it will be on the back of intermediate consumption – i.e. based first and foremost on public spending.

    Maybe in a siege type economy that David McWillaims appears to hanker after.

    So the same types who brought ruin to the economy will be “picking winners.”. The likes of the university establishment will love this nirvana stuff.

    Of course the problem is that the country is full of experts who have never sold anything in the local market never mind in an international market.

    This isn’t 1930s redux where we can arrange tariff barriers to make our dream come true.

    @ tull mcadoo

    You seem like an old guy in West Cork I knew, who kept on about Dev and the skinning of the calves!

  50. ‘…The department also argued that Prof Kelly’s call to measure the State’s debt against gross national product (GNP) instead of gross domestic product (GDP) made no sense…Prof Kelly should be aware that GDP measures the output of the Irish economy and thus what the Irish Government can tax,” the spokesman said…..’

    Utter transparently disingenuous nonsense. Here’s why:

    The GDP-GNP gap exists BECAUSE

  51. sorry pressed ‘submit’ button too soon…

    ‘…The department also argued that Prof Kelly’s call to measure the State’s debt against gross national product (GNP) instead of gross domestic product (GDP) made no sense…Prof Kelly should be aware that GDP measures the output of the Irish economy and thus what the Irish Government can tax,” the spokesman said…..’

    Utter transparently disingenuous nonsense. Here’s why:

    The GDP-GNP gap exists BECAUSE….. the State provides an offshore facility to route income NOT EARNED here via Ireland to avoid tax in foreign parts. No problem with this.

    However it has to be low enough to attract this income and therefore it is bound to be much lower than taxes paid by individuals actually working in this country – especially people / families on middle incomes.

    So if you say that the tax / GDP ratio is low then what you’re really saying is ‘We have to up tax (further) on middle income earners who – as individuals or households will pay much more tax than – say the UK – AND EVEN AFTER A DECADE PLUS OF LABOUR they do…. It’s already approaching or beyond 50% in Ireland now if you include all levies etc..

    Even if our GDP were not a distortion this approach would be disingenuous. Afterall if the middle and upper income earners pay all the tax – which outside of businesses they do – then the question you need to address here is discriminatory confiscation against certain immobile groups who can’t flee the country…

    You then dress your argument up as ‘scientific’ and ‘pragmatic’ by positing tax / GDP ratio as a pseudo rational benchmark, then you defend the 12.5% for corporates as ‘pragmatic’ and then you load all the taxes on the groups who are already the most ripped off (because they get very few government services in return) and claim ‘our tax to GDP ratio’ needs to be brought into line.

    Its incompetence is exceeded only by its dishonesty.

  52. Has anybody put a figure on exactly how much the Government would save from Public Sector reform? How much of the €3bn is hoped to be made up here?

    If so, was that figure expected over the length of the four years or just one?

    Finally, how will unions react if (just plucking it out of the sky) €500m was saved by this time next (the first review) and the State deemed that it wasn’t enough to warrant (any) restoration of pay rates?

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