TASC Proposals for Budget 2011

Cnn’t help pointing up the proposals on Capital Taxes – CGT and CAT. These would raise a few quid more than €100m. Wow, that would be worthwhile.

It is stiking that those who pursue “equality” in this area always push for higher rates here. It never seems to occur to them that the extent of the agricultural and business property exemptions and allowances means that, for example in CAT, the very wealthy are hardly touched on wealth built up often under generous reliefs and subsidies.

Equality is not on offer to other folk who end up with some assets, nor does it appear to suit anyone with an equality agenda to suggest it.

Oh, the power of the Irish farming and business lobby. Awesome.

@AMcGrath

Not agreeing or disagreeing with you on the above but just thought it worth commenting on your final sentence. Is’nt it absolutely amazing that here we are 2 years on and all quangos are business as usual – it just beggars belief!

This is a timid and conservative set of proposals.

In illustration of the Mexican standoff in the debate on public spending where depending on the position on the political spectrum, visibility of distant sacred cows is clear but myopia rules for closer ones. For example the standard-rating of pensions tax tax relief is recommended, which would be a good move in particular for high rollers, but there is silence on public staff pensions.

Maybe I shouldn’t mention the war but public staff pensions now account for 12.9% of the total public pay/pensions bill, up from 9% in 2005.

Overall, the pensions bill has increased from €1.35bn in 2005 to €2.23bn in 2010 representing a 65.6% increase over the period.

All these extra years add up!

Gardaí retiring at 50; judges getting full pensions on a few years service and so on.

There is 1 pensioner for less than 3 workers.

The proposed cut of €300m on the non-pay related spending, is not serious.

Earlier this month it was reported that a “new world-class skills organisation” is to be established to replace the discredited Fás.

The common use of the term ‘world-class’ in Ireland is almost Kafkaesque.

So before overseas personnel are hired to take control of this important area, we shovel more public money to feed this beast where cronyism is rampant.

There are some proposals on improving budget transparency but essentially baby-steps compared with for example lifting the veil of secrecy on all public spending.

MH

What is the justificatiojn for secrecy when spending money forced from the public?

There is none?

@All

Off-thread: a little reminder on David Chapter-11 Drumm

http://www.irisheconomy.ie/index.php/2010/04/12/profile-of-david-drumm/

Let the public sector pay for their own pensions. One suggestion is to allocate a set percentage of GNP to the public sector and this sum to be divided between pensions and salaries. It should be fun to watch their socialist caring principles come to the fore and watch them insist “you first, no after you.”

There is need for a new mindset on public spending.

Tasc proposes funding of €200m to support R&D in the alternative energy sector.

The annual science budget is about €1bn and the additional spending implies that there is no room for substitution in the existing budget.

The current science policy was launched in 2006 and was rebranded as the ‘smart economy’ strategy in 2008.

In a clear admission that policymakers recognise the strategy is a failure, on Sept 27 Batt O’Keefe announced the 4th advisory body of ‘experts’ to make recommendations on science policy since Dec 2008. This one headed by Jim O’Hara of Intel is to recommend research priorities.

The latest group is to get feedback from international experts on how research policy was implemented in other countries – – more than 4 years after the policy launch. I’m not making this up!

http://www.finfacts.com/irishfinancenews/article_1020653.shtml

Last March the innovation taskforce report was seen as the blueprint. It was ready for Cowen to bring it on his trip to the US and the Government gave it the official seal of approval even though its key recommendation was based on a dodgy extrapolation scenario as to how Silicon Valley could be cloned in Ireland.

So why add more scarce public funds to this black hole ?

Thanks for highlighting this Michael, it made it to my personal top 10 which I call ‘The Jawdropper List’.

Paul Hunt,

If the stickies get back into govt will they bring their printing press with them. What this economy needs is a bit of QE.

@ Nat

Equality means equality. If you hijack the word so that it only applies to the poor you are spinning a bit.

Tha CAT rates you talk about in the context of the really wealthy are a fiction. Every tax adviser simply advises the bulk of assets are invested in qualifying business property or farmland – even overseas. This then gets a 90% reduction on an UNLIMITED sum for valuation purposes (could be billions). You can only do this if yopu are wealthy enough or part of the farming lobby by default. Often no tax on the first €5m and tax at an effective rate of about 2.5% thereafter. Did you know that?

Retired Joe Soap who has done OK for himself, working in the non-subsidised part of the economy that is the one Irelasnd needs to encourage, is stuck with the reduced thresholds you propose and the higher rates. Oh, and the house that he lives in does not usually qualify for the exemption.

There is something wierd about a society in which equality matters in respect of everybody except the ones who are realy, realy rich: they are somehow untouchable – even in discussion.

@ Joesph Ryan,

If everybody is to have the same reward, then motivation to be creative, work hard is removed.

Many of these successful business people are financially successfull due to hard work, education, making sacrifices, taking calculated risks etc. There has to be a reward for working hard. In addition there are spin offs to the local / national economy, trickle down effect etc etc.

If you are proposing draconian penal taxes on hard work, then fine go ahead. The people who want to get ahead in life will emigrate.

There are other countries which exist outside Ireland. They have tax reliefs as well.

@J Ryan, TASC & lots of others
We have had the equivalent of a nuclear explosion in the middle of our economy. When something like that happens, you rarely see the great unwashed rushing out opinions on how to fix the reactor & deal with the radioactive fallout. It is generally accepted that amateurs have little to say. And the authorities don’t send in plumbers and carpenters to effect repairs.
For our implosion we have had it all: no-nothing commentators and repair-men.
Right now, the maximum amount that qualifies for tax relief is 45k At 20% that would give tax deferred of 9k- not avoided, the tax will ultimately be paid, when the pension is drawn down at the marginal rate, currently 52% and rising.

@Nat O’Connor

I recognise the valuable work that you and others have put in here – & popped in the Ivan Yates piece, slightly provocatively, to highlight that many who do not need certain ‘welfare’ benefits continue to receive them – too many regressives with our penchant for across the board universals …. Blind Biddy needs the ‘bus pass’ – many well heeled retirees do not: as Yates notes, why should an early school leaver labourer’s taxes support the third level education of private fee-paying school alumni in our elite institutions? And Pensions time-bomb etc

@Paul Hunt, tull mcadoo, John the Optimist

The tails of your blue-shirts [or should that be pink slips (-;] are showing – this is a respectable blog – pls tuck them in or ‘stick’ them somewhere else (-;

There has been no discussion here about the likely impact of the TASC proposals, but then that should hardly be surprising as some clearly feel no obligation to read the proposals before commenting on them.

This is the mirror-image of support for austerity measures without considering their impact, and remaining in denial now that their consequences have become unavoidably obvious.

Here is my assessment of the impact of the TASC proposals

http://www.progressive-economy.ie/2010/10/impact-of-tasc-budget-proposals.html

The simple fact is that everyone in the State needs to be making some contribution. It is not acceptable that the Government sets basic tax credits and tax bands and overall exemptions at levels where large numbers of people pay nothing or very little. The Garda, Army and street lights dont run on fresh air. The present policy is to bleed the middle classes and self employed/SME sector to oblivion. Well it will not work as the Law of Diminishing Returns is now setting in. What’s the point of working your butt off so that the puffed up Politicians and their benefactors in the Trade Union Public Sector sit on their butts and look for more.

The recent Report of the Comptroller and Auditor General showed the cost of Pensions for these people ranging from 27% of salary to 61% of salary for Minister and Judiciary. Those percentages are meant to be based on 40 years service. What a Joke that Ministers qualify for a Pension for life with Widows Pension after 3 years. Mention was made here of Ivan Yates who has a Pension for life which he has been drawing for around 10 years . He has no right to be superior on these issues. “Nothing in life is free” except TD/Ministerial Pensions which he forgot about !!!!!!!! What about Pensions paid only when you reach normal Pension age like the rest of us i.e. 66 based on a proportion of 40 years service ! There is loads for the chop here but then Politicians and their Buddies are always exempt from real pain as thats for the rest of us.

@Brendan Quinn:
“… without any hits on frontline services …”.

Let me take advantage of your posting to record my objection to the idea, often advanced by contributors to the radio programme presented by the eminent social commentator Mr Joseph Duffy, that “frontline services” must always be preserved at the expense of managers. I do not believe:

(a) that the efficiency of frontline services cannot be improved

(b) that those providing frontline services are as effective as possible at doing whatever it is that they are supposed to be doing

(c) that those providing frontline services have an interest in driving down the costs of their services, thus benefiting those who pay for them. In the public services, in particular, it seems that the mark of success is the ability to increase costs, and I am not convinced that the services are being provided at the lowest possible cost

(d) that those providing frontline services are of a particularly saintly nature, such that they are dedicated solely to the welfare of the consumers of their services.

It seems to me that there is much scope for stronger and better management, but that the job of public-service managers is very difficult.

bjg

Having now read the full document, I can’t say that I feel more charitable towards TASC than previously.

There is page after page on how TASC want to tax more, in a recession. The first, only, and very brief mention of spending control appears on page 22. It takes up significantly less space than the references, and less than one page.

After that there are essentially 25 more pages about increased taxation.

Even the discussion on the probably sensible property tax is disfigured by TASC’s proclivity towards entirely non-egalitarian taxation, essentially they repeatedly say “of course, we’ll only apply this tax to people we don’t like and we’ll protect the kinds of people we do like”.

God help you if you work hard, because TASC won’t.

Heaven will need to help the Irish pension system in a few years too, because TASC is already aiming to raid the pensions reserve fund to try to do things like investing billions of Euro in boondoggles for the well-connected. €500 million of spending on fibre broadband next year. €200 million in alternative energy R&D next year! €250 million in venture capital, administered by who, exactly? Our proven government investment advisers?

Imagine what they’d like to do if there was real, and investable, money in the national pension reserve pot. The tribunal lawyers would start to get jealous of the national pension fund’s investment advisory committee..

Again the overwhelming aim of TASC’s document seems to be to equalise everyone downwards, to assure failure, and to penalise endeavour.

Meantime, of course, they say essentially nothing about spending waste, failed public regulation, national corruption and the connections between state and big business, the DAA, Dublin Bus, or anything that might remotely tread on priviledged toes.

@ Hugh Sheehy

“failed public regulation, national corruption and the connections between state and big business, the DAA, Dublin Bus, or anything that might remotely tread on priviledged toes”

When are those topics mentioned in a budget?

“God help you if you work hard, because TASC won’t. ”
Given that you read the document why don’t you try criticise some of the actual points. Do you really think that the only people who work hard are the type who avail of the various tax shelters?

And as the national pension reserve fund is controlled by the government, why not invest the money in Ireland? Can you give a good reason why its better to invest the money abroad, when there is plenty of work (such as on broadband) that needs to be done at home?

@J Ryan
Like I said, we allow carpemters & plumbers to fix and comment on our nuclear implosion.

The current regulations set a 150k ceiling. What you miss out is the multiplication factor that then applies. For an individual over 50, for example, he can contribute a maximum 30% of this to his pension. That equals 45k which is then allowed at his marginal rate, currently very high. If he is allowed, under TASC proposals, to only offset at 20%, that’s 9k.

Check your figures. Indeed. My guess is that you are a teacher.

Ireland really takes after Homer (Simpson): Can’t someone else do it (pay)?

Wage-earners aren’t risk-takers. Business owners are. It can’t be that difficult for revenue to sort out the difference.

All wage-earners will likely have to suffer tax increases. Solidarity is not only for the low paid.

Here’s a challenge for Nat and the other authors of the report – identify 100 people who have actually either started a business and/or scaled a business up significantly in terms of employee and revenue growth. Send them a copy of the report saying that here’s a plan for job recovery in Ireland and request feedback. Summarize the feedback and publish as an addendum. (Even better, if responder was willing to allow feedback to be published either anonymously or with attribution, directly publish the feedback on the TASC website as it is received).

Since job recovery is a crucial element of any plan, feedback from those who have actually started and grown businesses and successfully created jobs should be a cornerstone of any policy.

Agree in some cases Alchemist

The term property tax is misleading… Unless it is applying to all property… and to all owners of property.

If there is to be a property tax, banks who own/repossess property should pay it, businesses, semi states, charities, churches, farmers, sports clubs etc All should pay up…. We are supposedly all in this together….

One law for everyone. Equality.

But I don’t believe there should be a property tax for anyone….

There should be per usage charges for services rendered, with a flat rate tax, and no tax allowances…. And with everyone filling out a simple tax return, no matter if they are self employed, PAYE, student, pensioner, unemployed, farmer etc. Something that lists all income whether from working, the dole, grants, interest, rent etc.

Ideally a choice of provider for such services and no means testing… if you’re “rich”, you are paying enough tax to get something back from the system, and you have an incentive that the universal/public system is good and fit for purpose. And with no tax breaks for private option most will be in the public system and be incentivised to have it functional
If you are poor you still pay for services but you may be getting some income from the state to help, so everyone knows exactly how much of an asset or liability they are…. this year and over their lifetime.

Government should be slimmed down, with average income of those providing services less than the average income in society (including unemployed). And with a maximum amount which is a multiple of the minimum wage…. They should be serving society, not the other way around.

But above all there should be equality for all citizens, no preferential treatment in tax or welfare depending on age, sex, occupation, who you know etc…. No means testing, no discretion or power in government to direct who gets what or where people should spend their money.

@simpleton. No I am not a teacher but I did fail to check the accuracy of what I said. You are correct in the methodology you use.
Regrettably however I think you need to include yourself in among the carpenters and plumbers that you dismissively refer to.
The statement you make below is simply not correct.

“Right now, the maximum amount that qualifies for tax relief is 45k At 20% that would give tax deferred of 9k- not avoided, the tax will ultimately be paid, when the pension is drawn down at the marginal rate, currently 52% and rising.”

As far as this particular plumber knows the maximum refund cheque being paid to qualifying people is approx €30,000 (150000 @40% at approx 50% marginal Rate).
I do not consider it equitable that any person can can get a tax break almost equivalent to the average industrial wage.
Neither do I accept that this will all be taxed at the marginal rate subsequently.
I am aware of the existence of ARF’s etc and CAT shelters particularly for those with agricultural land. Many people simply use these funds to give as tax sheltered wealth to thier offspring.
As stated before I work in a company and industry where the average wage is well less than €30,000. It is a complete betrayal of these people that tax breaks equivalent to their entire income are freely available at present to the better off.

@J Ryan
Maybe not a teacher but certainly one skilled in cute hoorism. Or would that be gombeenism? The key feature of either trait is the desire to win at all costs, even when conclusively proven to be wrong. And use the tried and trusted trick of putting words in their opponents mouths.

I supplied the 9K under your TASC asumed/proposed 20%. Currently, as I correctly pointed out, relief is at marginal rates of tax.

Cute hoor trick number 2: wrap a lie around a kernel of truth. You use an example of somebody being allowed to claim relief of 40% of the maximum amount to arrive at your 30k. (Tha’s 5k below average earnings by the way). You originally claimed that this was possible even under the TASC proposals. Which it is not. And you are using the extreme example of someone who is over 60. No other age group could do this. So an extreme example to condemn the private sector’s ability to defer, not avoid, tax.

My guess is that you have never made a voluntary pension contribution. Nor will you have to.

@hogan,

Well done. You’re doing your best, but the progressive-left stance has a certainty in its beliefs that brooks no argument. The key elements are no reduction in public sector numbers or pay (some minor efficiencies will be negotiated painstakingly over a long – undefined – period), maintain – and possibly – increase social welfare benefits, get everyone else to pay for these and run-down the NPRF to provide some state-directed stimulus (with fingers crossed that this might appease the bond market).

All I can say is ‘good luck in Europe’.

@Rory
“Are you sure the self-employed don’t get some pension from their PRSI? ”
Yes, they do, the same contributory state pension. They don’t get many other PRSI benefits, but then they don’t pay employers PRSI. Most, I would say, don’t have anything to sell at the end of their working lives as their business is selling themselves.

The problem with pensions is that there is no catch-upness. If you have a bad year, you can’t put much into your pension. You can’t make up for this the next year if you have a good year. Most self-employed are heading for their third bad year. (Even aside from pension performance). Even should the economy turn around next year, they’ll be short in the long run.

@simpleton Joseph
Ignoring the TASC proposals on pension contributions I have to take issue with one of your contentions simpleton – namely that pension contributions (including AVCs) are a way to defer rather than avoid tax. If that were the case – which I believe (and know from some experience) is not true, then I don’t think you would see anybody make contributions to a pension. Why would they? A capital gain on the investments? – these are thin on the ground. And annuities are prohibitively expensive something like 10,000 pa costing at the moment over 350,000 up front.
The fact is that you can use these contributions (after the purchase of an annuity – minmum here I don’t remember but 12000 pa rings some bells ) to take a tax free lump sum of 1.5 times annual income, and as Joseph pointed out you can put the balance to an ARF fund which goes to your estate also without paying tax on it (oK there is a minimum of 3000 pa which must be drawn and would be subject to tax at the marginal rate.
You also omit mention of the fact that PRSI and levies are also relieved from these contributions – that is not inconsiderable.

@AMcGrath
The only bit of your response which is remotely accurate is the tax-free lump sum. That is, as you say, tax avoided. But don’t forget that everyone, including all of you public sector types, gets a tax-free lump sum. You don’t get it simply because you make a personal pension contribution: it’s a bit like child benefit, everone in a pension scheme of whatever kind gets one; in that sense it is universal and socially inclusive. It’s only the excluded (from pension schemes of any kind) that don’t get it.

Other than that, every penny of tax-free pension contributions will be subject to your marginal tax rate once drawn. Or estate tax (ever heard of that?) if you are daft enough to leave it behind. Under TASC-like proposals, contributions that attract relief of 20% will ultimately be taxed at circa 60%. Guess how many people will make contributions under that scheme? It will be financially irrational to save via a pension. They will be additional voluntary taxes, not contributions (I don’t expect you to understand this).

If the public sector paid for their pensions in full, as the private sector one way or another has to, you would take the time and trouble to acquire knowledge about how pensions work. As it is, I think public sector employees have no right to comment on private sector pension provision.

@Simpleton. There is a difference between us. I made a mistake in the figures supporting my argument that the TASC documnet lacked equity.
I admitted the error in my calculations which still maintaining that the TASC proposal is not equitable.
When errors were pointed out in your statement, you reverted to personal abuse.

I hold by my statement.
“To leave such a tax relief for very well-off people in place while proclaiming equality is indicative of the kind of intellectual dishonesty that has crippled the country.”
For the following reasons I believe the document is not equitable.
1. The maintenance of a pension tax break which benefits the better off.
2. The failure to propose stopping tax breaks for exiles. In terms of equity, this should have been item number one on the list.
3. Failure to increase top tax rate.
4. Failure to mention tackling excess public sector salaries.
5. Failure to mention the bonanza single payments for some farmers- in some cases up to 500,000 pa. I am aware that most (but not all I believe) of this comes from the EU.
My personal financial arrangements are not the issue here.
I personally do not think that the TASC document taxation proposals are equitable.
Perhaps you do. That is your prerogative.

@ Joesph Ryan,

And why should a person, who does not live and work in Ireland pay income tax here?

If a person lives in France, or any other country then they pay tax in that juristiction etc.

Thats why we have double taxation treaties etc.

@J Ryan
Let me modestly proclaim that I do knpow what i am talking about. And that i would assert the following

1. Putting up the higher rate of tax. Already done. Raising it again will raise revenue but less than the DoF ready reckoners (see yesterday’s ITimes) suggest. And by nowhere near enough to make a difference.
2. Equity, as defined by you, involves taking tax from somebody else. I would be more impressed if you started your argument by saying ‘take more tax from me’.
3. Equity demands a limit to how much of a person’s income the state can take. Penal taxation is not equity. We can argue that one, but not what follows: it won’t work, it won’t fill the budgetary hole.
4. You expressed lots of interest in the average industrial wage. Someone on that wage , with two children, makes a zero net contribution to the running of the state out of that income. Do you think that is fair or equitable? We can argue that one but not what follows: it is utterly unsustainable: no modern state can run itself without a contribution from Mr Average. Default or revolution (or both) will follow such madness.
5. The economy is returning to a pre-bubble state. The President of the University of Limerick said yesterday that that means the public sector must return to the same state, the one that existed only a few short years ago. That means 70,000 less jobs and a public private salary DISCOUNT of 20% rather than the 20% PREMIUM that exists today. Doubtless you will find that proposal neither fair nor equitable. But what follows is inevitable: either we effect these changes or someone else will.

@Tull +42

The ultimate irony of all this is the way in which social solidarity is defined to work for one sector only (public) and how the other (private) must, under all and every circumstance, pay for it.

Basic law of tax: the more you tax something, the less of it there is.

MIT professor Lester Thurow was asked, on the eve of monetary union, what he thought the single currency would mean for Ireland. He forecast that we would end up in a similar situation to his home state Montana, devoid of all economic activity, home to the odd crackpot militia.

@Rory O’
I criticized specific aspects of the TASC documents. Here’s another line item. The document is missing about 25 pages on how you’re going to cut spending.

As for why we shouldn’t invest the national pension fund in Ireland? The Norwegians don’t invest their fund in Norway because it’d swamp the economy. Ireland is different. The Irish pension fund should invest the money outside the country to avoid the fingers of cronyism getting at it. Then there might be some money left when it’s needed.

Meantime, I’m sure that if TASC gets its way and punishes the hard working higher rate taxpayer enough they’ll manage to rid the country of them. TASC would be happy then.

@Hugh Sheehy:
“… if TASC gets its way and punishes the hard working higher rate taxpayer enough …..”

Do you assert that all higher-rate taxpayers are hard-working? If not, can we select out those who don’t work hard and punish them some more?

bjg

@ Rory O’Farrell.

In relation to taxation on world wide income, could you be so good as to explain the idea behind it? How is it supposed to work?

How would the Revenue obtain data from work / payments in Japan, Australia, Vietnam etc? Are you proposing abolition of double taxation treaties?

@simpleton, tull, Paul Hunt

This:

This is just another example of the defenders of the permanent and pensionable (DB) insiders in the public sector calling for an “act of solidarity” by the transient and less pensionable private sector.
The latter must be prepared should accept lower living standards so the former can continue to enjoy theirs.

and this:

The ultimate irony of all this is the way in which social solidarity is defined to work for one sector only (public) and how the other (private) must, under all and every circumstance, pay for it.

and this:

The key elements are no reduction in public sector numbers or pay

are just so much arrant bullshit.

Let’s establish some facts here. The vast majority of private sector workers have experienced neither pay cuts nor redundancy. Look around you. Dublin is filled with late-model luxury cars that are, by and large, owned by those in the private sector. Those people have not been asked to pay much of anything in the current crisis. In the course of the 3 “austerity” budgets, they’ve seen their taxes (along with the taxes of those in the public sector) increased by a derisory amount given the hysteria about the crisis we faced. In the meantime, every worker in the public sector has seen their take-home pay decrease by an average of 14%. Furthermore, there has been a hiring freeze in the public sector that has resulted in reductions of public sector numbers. True, nobody has been made compulsorily redundant but contracts have not been renewed and the number of positions has decreased. To continue to act as if these things have not taken place, to base entire arguments on outright lies, is the essence of gombeenism.

This is a textbook case of “tyranny of the majority” where 80% of the population would rather bleed 20% of the population than make any further contribution. It’s about settling old scores and has nothing to do with clearsighted view of the problems and fair solutions. The same cannot be said of the TASC contribution.

I absolutely love Ernie Ball’s satirical humour. The private sector engaging in a tyranny of the majority! Brilliant!

I note that there is still less than one page in the whole TASC document on cutting spending, and that this point is being resolutely ignored.

Also, if we followed Dr Ed Walsh’s idea of benchmarking or if we moved to a system like that used in the private sector where pay is adjusted based on ability and need to hire, would public sector pay go up or down? I’d guess down.

Meantime, public sector pay should not be an attempt at cross-sector equalisation, or to make people feel good, it should be maintained as low as sustainably possible to get the people to provide the services the state should be providing. Each Euro too high is a theft both from the taxpayer and from service recipients.

So, TASC still need to finish their homework properly. They’ve done half the assignment (badly mind you, but at least it’s done) but they still need to do write the other half on how they’re going to cut costs.

@ Simpleton

Thanks. Your say:

‘Penal taxation might make some people feel better but the logic of simple arithmetic cannot be avoided by wishful thinking. This problem is not solvable by taxation. Not even close’

Agreed on the need for reform on the spending side, but, that does not mean that the tax system is working properly. As Hugh Sheehy says:

‘Other high rate taxpayers are probably crooks, cronys, people in protected industries and sectors, etc….areas where high income is gifted or stolen but is not earned. The taxation system is not the solution to those problems’

I would say ‘other persons with dubiously high incomes’ rather than ‘high rate taxpayers’. There are many ways in which income can be gifted, and tax reliefs are one of them. Ernie is not wrong in smelling a rat.

While it is true that people in all sectors are being hit in the recession, the job security which public sector workers enjoy is only issue. Private sector state cronies and protected monopoly suppliers of goods and services to the state are the ones with their fingers furthest in the pie.

These ‘entrepreneurs’ and ‘leading lights’ are naturally happy to see struggling SMEs, private sector employees and public sector employees at each others throats. That distracts attention from the dense network of vested interets which have wrapped themselves around our state.

Responsibility starts at the top. Its not good enough to talk vaguely about responsibility, while keeping schtum about the lucrative games played in the inner circles to which one is privy.

Cometh the hour, cometh the man. Every time this blog debates public service reform and renumeration, out comes Ernie with studs up, elbows raised like some academic version of Vinnie Jones, before he became an actor.

Simpleton

I suggest you buy the box set of “Yes Minister”. This will explain what goes on in the Irish “publc service”.

@ Hugh Sheehy,

TASC will be back next year and each year thereafter. They obviously believe there is rich pickings in taxation to maintain the welfare state.

We are at the point where we either pay those who work, or pay those who don’t work. Unfortunately we cannot afford to pay both. So something has to give, and its going to be pain for both categories. But TASC believe the taxpayers can shoulder the pain alone.

Note the point about taxing world wide income, I suspect the aim is to tax those hundreds of thousands of Irish passport holders no longer living in Ireland to pay income tax here.

Just like “Alice in Wonderland” all must win, all must have prizes. Equality of outcome is the way of the Dodo.

Or maybe he just thought Juan was cool for pulling Eva

@Ernie.
If your pay as a public servant is higher than it needs to be then yes, your pay is theft from yourself in your status as a taxpayer. If you’re a public servant then you’re a net tax recipient and you probably wouldn’t feel too bad about that financial trade off. You might even find yourself arguing for higher pay for public servants at the same time as arguing for higher taxes since it would improve your comparative position in the country. (sound familiar?)

More seriously, if your pay is higher than it needs to be then it is theft from both net taxpayers and from service recipients. If you’re moral you should feel pretty bad about that.

Unfortunately, morality is something notably absent from the Irish system – on almost every side of the debate. The main unions and the Irish left are prepared to screw everyone else and to use the most brazen pretexts to do it. The “elite” of the country are prepared to screw everyone else and to use the most brazen corruption to do it. A rotten symmetry.

Meantime, I’m still waiting for that second half of the TASC report…the missing 25 pages on spending cuts.

@Ernie
I refer you to the September release of the Quarterly Household Survey. In that CSO release, the numbers emploed in “Public Admin, Education, Health & Social Work Activities stood at 354,500. I think that counts as the vast bulk of the public sector. That number has risen from 351,900 a year earlier. At the beginning of 2004, let’s call that the start of the bubble, it was 264,900.

The simple fact is that the last remaining Irish bubble is the one in public sector headcount. It has not deflated in any way at all. Either we deflate it or someone else will.

The President of the University of Limerick said on Friday that there is a 70,000 headcount public sector employment bubble. Looks a reasonable number on this data.
Ernie, nobody is being vindictive here. It is a tragedy that these people were hired on a false premise. The same premise that suckered people in to negative equity – often the same people. It’s not their fault. But it’s still a huge problem that will, one way or another, be addressed.

Many thanks to all for a very lively debate.

@ Hugh Sheehy

‘Unfortunately, morality is something notably absent from the Irish system – on almost every side of the debate. The main unions and the Irish left are prepared to screw everyone else and to use the most brazen pretexts to do it.
The “elite” of the country are prepared to screw everyone else and to use the most brazen corruption to do it. A rotten symmetry’

I’d be inclined to put it this way around. The ‘elite’ is defined by its ocupation of the commanding heights of politics, business, and our institutions. The ‘old’ leafy suburb and the private school. A ‘natural’ transfer of power and wealth from one generation of the clan to another.

As the sociologist Pierre Bourdieu has demonstrated empirically, the school system, and many other institutions, perpetuate and legitimise social injustice.

The trenchant stance of the unions is nothing other than a reflection of the remorseless perpetuation of our elite structures. Nepotism and croneyism are as inimical to economic development as well as democracy, and much of our ‘development’ is built on very shaky foundations.

@Comrade Ernie:
“But some won’t be satisfied unless there are forced redundancies.”

Nonsense, Comrade. We see the proletariat as the leaders of the revolution and we feel that more people should be encouraged to become proletarians. Then, when they have achieved that status, in a revolutionary alliance of workers, peasants and soldiers, we expect them to engage in Stakhanovite efforts to increase productivity. They may do so by increasing output (for example of sociology lectures and other cultural goods) or by reducing inputs (eg the number of proletarians required to deliver each sociology lecture). But the leadership of the revolutionary effort remains with the proletariat, and members who feel that their efforts are insufficient will no doubt, as you suggested, arrest themselves.

bjg

@Rory
I’m intrigued. What does search theory tell us about the market for public sector labour? What does it say we should do about the bubble in both headcount and wages? Benchmarking?

@simpleton

Mortensen and Pissarides use bargaining. The hold-up problem due to frictional labour markets leads to bargaining, in all sectors of the economy. (They didn’t develop the bargaining framework itself, they used Nash Bargaining).
So their framework shows that the idea that public servants should only be paid what they need to be paid is purely a rhetorical argument and has no basis in modern labour economics. The closest would be the idea of a reservation wage, but I can’t think of anyone who is paid that in a democracy. You might get away with paying that in a Gulag.

@ Hugh Sheehy
Search problems are unlikely to be much of a problem for public sector jobs, which do not change quickly over time, are well understood, are inclined to have hundreds or even thousands of people doing similar things and are hosted by a pervasive employer who can advertise easily in places that every unemployed person in the country can easily see.
They originally developed their model in a framework where labour is homogeneous, perfect information about the match, etc etc. Advertising a vacancy is part of the search cost. So yes, it does apply to the public sector.

If the state agencies can’t hire or are losing staff and can’t provide the services without more people and you can afford it, then they could look at increasing pay.

And search frictions (combined with information asymmetries and non-homogeneous workers)are precisely why this wouldn’t work. But search frictions are sufficient for why it wouldn’t work. Undergraduate labour economics is just an approximation of how the labour market works. You are applying it in an inappropriately.

@Rory
Bob Solow, in response to labour market economists (Nobel Prize winner Lucas actually) who dismiss the possibility of involuntary unemployment, said, ‘I know it when I see it, involuntary unemployment may not exist in your theory but I can see it and touch it. So it exists’.

I know an employment and wage bubble when I see it.

Benchmarking? A Nash equilibrium? Gimme a break.

Rory,

its up to simpleton to back up his own arguments, but inspired by JTO, I observe the following, GDP is essentially now back at 2004 levels, largely due to the bursting of the asset bubble, employment outside the sectors quoted by Simples is down about 5%. Employment in the sectors used by S as a proxy for the PS is up by a third.

if it walks and quacks like a duck…..

@tull mcadoo
Well given that factor returns don’t behave in the same way as asset prices I can safely conclude that there isn’t a bubble.
if it neither walks nor quacks like a duck…

GDP is back at 2005 levels, and prices are at 2007 levels.
Tax-take is at 2004 levels. The majority of the fiscal problems is due to the fall of in taxation, and a past over reliance on transaction taxes. This structural problem needs to be addressed. There is no point in taking a short termist approach to getting the structural deficit back on track.

@simpleton
What has autocorrelation go to do with wage bargaining?

For those who are interested, a link to CSO statistics on public sector employment.

http://www.cso.ie/releasespublications/documents/earnings/current/earnlabcosts.pdf

Hugh,

watching TASC defending its constitency is as if Seanie & Fingers were still claiming all the lending was sound. The Bankers & developers created the bubble and the tax receipt were recycled to another bunch of pro FF cronies. At least Seanie & the Finger had decency to admit they were FF supporters and the sense not to continue peddling their lies. TASC seems to me to lack both decency and sense.

@ Hugh Sheehy
Your notions of what people need to be paid, or if they are overpaid are just that, your own notions. Wages are bargained. Some people think they are too high, others too low. Economics does not give a moral claim as to what the wage rate should be. Also why do you constantly refer to benchmarking? Public sector pay has been cut about 14%. Also public sector employment is not much higher than in 2005, (the level of GDP we are at).

Economics is about making choices over scarce resources. We can choose between more public goods and higher taxes, or less public goods and lower taxes. I prefer the successful Danish model of higher taxes.

Also when comparing 2004 and 2009 you don’t account for the cyclical fluctuations. Restoring the structural deficit to health is important, not the overall deficit, or even the deficit due to current spending. The automatic stabilisers lead to increased spending on social welfare.

@tull mcadoo
And who do you expect their constituency is?

Rory,

TASC are defenders of the current status quo which seeks to transfer the burden of adjustment onto the hard pressed middle income private sector worker who still has his job. Defenders of the Kulak class comes to mind.

@Rory
Ah sure the CIF said exactly the same thing when all their members sat down with the Govt to discuss the per kilometre price of the N3 motorway.

They said “Let’s all bargain this out behind closed doors. Sure it doesn’t matter if we could get the highway built for €2 billion less, does it? The taxpayer won’t mind and as long as we’re all happy who cares about them? Sure no-one cares and they can’t do anything anyway.” The benchmarking process was essentially the same. The recent adjustments have been tweaks in comparison.

My notion is that the govt should aim to get, and could sustainably get, service provision for a lot less than they currently pay. My notion is that govt procurement should aim to get value for money and not to buy votes. Funny notion, isn’t it.

When comparing 2004 and 2009 I look at arithmetic. Ireland can’t keep spending so much. We could talk about stabilisers if the govt and unions and banks hadn’t spent more than all the money already. It’s like the three farmers in the Fabulous Mr. Fox story. Three farmers, one fat, one short and one thin. (you’ll have to guess yourself which politician, union leader and banker I’d put in each place)

@Rory
You’ve strayed outside your bubble. Interest rates are the inverse of the price. Finance 101.

Ooh deary me, a slight mistake. Interest is the factor return. Interest rate = return/asset value

@tull mcadoo

I definitely think there was an asset bubble. Simpleton is suggesting there is a wage bubble, which does not make sense as economic bubbles refer to asset prices not factor returns. Fortunately we can’t have an asset bubble for human capital as slavery was abolished.

Perhaps I’m being a tad pedantic, but I do think it is necessary to be precise with terminology. As to PS employment, as part of the Croke Park agreement that can be reduced if management can come up with ways to boost efficiency. Anyway, PS numbers are falling. Administration in the dept. health definitely needs examining. I’m sure there are lots of ways to improve efficiency, but the people who know best how to achieve it are the ones working there. They have an incentive to improve efficiency, though I would prefer it was made more concrete.

As for wages, the word bubble doesn’t apply. We can argue over whether they were unsustainably high or not. But it doesn’t really matter since they came down 14% anyway. There is no evidence to suggest current pay rates aren’t sustainable for the vast bulk of the public sector.

I would look at wages of top earners, like the people who escaped the wage cut last year.

But overall, I would put the emphasis on taxation.

” I’m sure there are lots of ways to improve efficiency, but the people who know best how to achieve it are the ones working there.”

Had to laugh at that. That is very touching and naive. The last people to ask about efficiency in any organisation are the staff and particularly the managment. They all think they are doing a superb job. This applies in all sectors.

Benchmarking was supposed to lead to efficiency gains fo the consumer, tax payer. Instead costs went up and productivity probably collapsed. So I have no faith in the CP deal.

When you say you would put the emphasis on taxation, I presume you mean the taxation of other people. TASC loves cutting pension reliefs which in effect means cutting the inflows in pension funds & the retirement income of people outside the public sector to preserve the unfunded obligations of people inside the public sector.

Rory,

while you are at it, can you opine on whether reducing the tax relief on pension contributions should also apply to the pension contribution brought into the public service last year. Clearly it should on grounds of equity!!!!

Do the ps unions know this?

@ simpleton

To clarify, I don’t work for TASC so they aren’t my colleagues.

I did NOT mix up factor price and factor returns. I accidentally added the word rate to interest. You have mixed up factor returns and assets prices.

Banker share options are open to bubbles. The rest is just excessive. They are Nash equilibria.

Anyway, all this is well away from the topic of TASC’s proposals.

@Rory
We ain’t gonna solve anything without a sense of humour!

But while we staying po-faced, my fading memory of Nash equlibria includes the assumption that no player can improve their lot by acting unilaterally. Both bankers and some (or even all workers via benchmarking) sections of the public sector de facto decide their own pay – they can, and have, unilaterally decided to just pay themselves another bit more. Funny kind of Nash equilibria.

For those not inside the priesthood/coven who have stayed with this idiotic debate this far, the introduction of the Nash equilibrium to describe public sector wage bargaining (a non sequitur if you ask me) does NOT introduce any notion of efficiency or ‘correctness’ to the outcome. To stay with the jargon of priesthood, a Nash equilibrium can be a long, long way from Pareto optimality.

@simpleton

You have to apply the Nash concept to a dynamic setting.

I agree that Nash eaquilibria do not show correctness. Neither does Pareto optimality. The are millions of Pareto optimal solutions. Neo-classical economics can’t say which is morally correct.

My point was regarding Hugh Sheehy’s idea of how to determine public sector wages. His idea was impossible as it assumed wages were set in a frictionless market rather than through bargaining.

Last weeks Nobel prize winners showed the role of frictions, and they make use of Nash bargaining. All wages (even for those on the minimum wage) are bargained.

@Ernie Ball

And to add to your evidence, we still have among the highest incomes in the EU, so can afford normal western European levels of public services.

Those graphs clearly show the problem isn’t a structural problem with spending. Unfortunately many commentators ignore the differences between current spending, capital spending, and the structural balance. Of course we have a deficit, we hundreds of thousands more unemployed.

Also when saying GDP is at 2005 levels, they ignore the differences between prices and quantities.

@Ernie
Let’s see where public spending settles as a proportion of GDP over the next few years now that GDP is settling at a much lower level. And then redo those international comparisons. It isn’t going to be pretty. Bubble GDP led to bubble spending.
Your position would attract much more credibility if you didn’t so stridently defend the status quo. You can’t honestly stand over the claim that all increases in public spending during the bubble years have to be maintained at whatever level of implied taxation. I’m prepared to argue for the elimination of all tax breaks. What are you prepared to concede?

You can’t honestly stand over the claim that all increases in public spending during the bubble years have to be maintained at whatever level of implied taxation.

But there have been paycuts and cuts in employment and services. We are not at 2007 levels. Also TASC agree to cut back waste, but I am happy they don’t put a high figure on it. Its easy to say you’ll cut back on waste, and then do nothing.

Also the cyclical fluctations are being ignored. What is important are the structural balances. Social welfare spending will fall either due to growth or mass emigration. I prefer TASC’s growth approach.

Simpleton,

+1. The sheer arrogance is breathtaking. I wonder could we get the Potemkin up the Liffey and shell the Romanoffs in Liberty Hall. I always thought the Burren would be agreat place for a Gulag.

@ simpleton

TASC are in the private sector 🙂

Ever try an evidence based approach?

@ simpleton

Yes

Makie-uppie numbers about a PS “bubble” are, of course, also part of the picture.

Rory
A few points.
I never mentioned frictionless markets so don’t put words in my mouth. I did mention a number of approaches to public sector pay that do not involve crony vote buying deals.
If we select the UK as a benchmark country we could then argue about exchange rate adjustments. Do you accept the basis of benchmarking? Currency adjustments might make the savings more or less than €15 billion a year. It’d be close enough.
If you accept that maximizing value for money is the way government should approach public sector pay then what should be done by the govt to reverse the benchmarking system? Public sector pay is too high in Ireland on every comparison basis I’ve seen; against the Irish private sector, against other EU countries, against the level of the Irish deficit. What should be done, or should we perpetuate a system where the government colludes with the unions to overcharge the rest of the citizens of the country?

Again, if companies or the CIF did this kind of “bargain” you would call it a cartel or corruption, or similar. When a union and a govt conspire to overcharge the taxpayer it’s exactly the same as if the govt and the CIF did it. It may not be criminal, but it’s sure immoral.

Also a comparison with the CIF is deeply flawed.

Corporations don’t have citizenship rights or freedom of association, people do. Nevertheless, the CIF is involved in lobbying and bargaining. They are involved in wage bargaining, which trade unions do not object to. When tendering for projects CIF members are not employees but businesses.

Businesses have many customers to which they can ply their trade. They aren’t dealing with a monopsony. Due to labour market frictions workers are dealing with a monopsony, so its only right that such market power is countered by some monopoly power, and it leads to more efficient outcomes.

Trade union membership and freedom of association are fundamental human rights.

@Nat

@Nat
Thank for a clear and civil reponse in what has at times been an ill-tempered debate. I imgaine lots of contributors will have questions/issues with your points. I will confine myself to just one.
Apparently we need 15bn of savings over 4 years. How much of this can come from your stated preferred option, namely property tax? My crude calculations suggest around 15k per property?

@Hugh Sheehy

Well we could have separate negotiations for each functional unit. I doubt that would result in lower wages. When complimentary units bargain separately it usually leads to higher wages. This is one of the reasons why partnership came about.

One advantage PS workers have is they vote for their employers. Separate negotiations might affect that.

@Rory
“One advantage PS workers have is they vote for their employers. ”

That’s actually a nice summary of the key problem, the key misunderstanding. They do not vote for their employers. They vote for the managers, and the managers can bribe the employees to vote for them. The unions are in the middle organizing the bribe taking and giving.

It’s perhaps the biggest corporate governance problem that most states face today. (gerrymandering may be bigger in the USA, but I doubt it).

The non-public sector taxpayer is confronted with colluding players whose mutual advantage is to the disadvantage of the rest. It’s analogous to preferential treatment for one set of shareholders over another…which is illegal in most countries.

Other than that, it’s not just separate negotiations for each functional unit..it’d be multiple separate business units operating on each function (e.g. multiple independent hospitals) and probably multiple unions for each function as well (e.g. no single union can dominate a local hospital market)…otherwise you’re recreating today’s virtual monopoly set up.

Could this kind of competition increase frictional losses and introduce some inefficiencies? Yes, but internet technologies can reduce those to insignificant levels. We’re not living in the 19th century.

Could this cause enormous cost savings and innovation? Yes.

Would this eliminate the power of the public sector union? On any political level, yes.

Would it eliminate the essentially corrupt relationship between govt and unions? Yes.

Would it reduce the cost of providing public services…potentially a lot and it might well revolutionize quality too.

@Rory.
In Ireland monopsony has pushed rates for top doctors up. So?

Again, my key point on PS pay is one of duty and of justice. The government has – or should have – a duty to spend taxpayers money as effectively as possible; to get the maximum value for money for taxpayers; to get the best possible services for the money for service recipients.

The Irish government betrayed this duty and bought political advantage – and as you say potentially only brief and marginal political advantage – at huge and permanent cost to the taxpayer.

Workers should be able to organise to protect themselves against monopolistic buying power or abusive treatment but should not be able to threaten such disruption of the state that they are able to threaten the state and other citizens with impunity.

For a govt to engage in buying political advantage by overspending is a breach of duty, a major one. It should be illegal. Perhaps it is? Similarly, for a union to participate in a collusive plot where carrot and stick threats to deploy essentially monopolistic strike power and to favour one political party over another are immoral and perhaps should be illegal.

Many schemes better than the corrupt monopoly supplier and essentially monopolistic unions could be imagined. The US medical world is probably an example of excellent health administration but of excess spending, partially at least in response to tort law in the US. The US health system has its own problems.

It should not be beyond Ireland to develop a system where the state is an effective and efficient purchaser of public services. These public services could still be available to all, and the more effective and efficient the procurement then the more services could be available for the same money.

Libraries do not have to be managed by state employees. Schools do not have to all pay their teachers according to the same scales as each other. Hospitals do not all have to hire doctors on the same HSE contracts. From a practical point of view there could easily be competing passport offices, although perhaps such state documents might be put beside force and policy development as a protected monopoly. Services like administration of social welfare payments could easily have multiple suppliers. Driving instruction does not have to be state provided. Processing subsidy cheques to farmers could be outsourced.

One does not have to oppose public services to think that the recent history of Irish public service organisation and of Irish public sector pay is a disgrace, and for a so-called think tank like TASC to wander across the budgetary policy discussion in a time of crisis with no ideas beyond tax increases is shameful.

Just think…a better solution could increase public services, could release labour to provide other value added services in the private sector – increasing national wealth – and could help reduce the fiscal disaster zone that Ireland is in. Elimination of the prividged position of the protected public sector worker would be a net gain for the whole of society.

Of course, like the pharmacists and the banks, there is value for the public sector worker in remaining a protected industry and in continuing to overcharge the customer. An immoral position, but certainly valuable.

Services like administration of social welfare payments could easily have multiple suppliers.

This works in countries like Denmark, Sweden, Finland which are highly egalitarian. Under the Ghent system it is mainly trade unions that administer unemployment benefit, so there is an element of competition there. Others can also provide unemployment insurance. I think it is subsidised by the government. It works for them.

I’m not against reforms in the public sector. Some savings can be made in the short term, but most will take a while. This is why I’m happy TASC didn’t overestimate what can be achieved in the context of a one year budget. I think big savings could be made by integrating the health services north and south so people in Donegal mainly use Derry for treatment. Not much hope of that happening soon though.

Back to being pedantic, I strongly doubt the high wages of doctors are due to monopsony power, because that is the power of the person doing the hiring.

@Sporthog. Your question.

“And why should a person, who does not live and work in Ireland pay income tax here?”.
They shouldn’t pay tax here but you must define “not live” here. As I understand it most countries define it by means of the amount of time you live in the country each year.
If you are a US citizen and reside 30 days in the US in any one year, you pay tax on your worldwide income. [I need confirmation of this].
But in Ireland you can reside here for up to 180? days in any one year or up to 240 days in any two year period before you pay tax on worldwide income.
Personally I would go for US system.
Pay a minimum of €100,000 per year or file your returns and pay less if it works out that way. Alternatively if you don’t like either option, leave your Irish passport at the checkin desk next time you leave-not to be returned. Simple.

@JR

US citizens are taxed on worldwide income no matter where they live – even if you spend 0 days in the US you are still subject to US tax. There are many exemptions and allowances that apply (e.g. foreign tax paid) when calculating the tax due, and I don’t know how things work out in practice or what sort of reporting is done, if any, between the tax authorities in different countries.

Lately the US has been stepping up enforcement of tax laws, and has forced some Swiss banks to reveal details of accounts belonging to US citizens, using the threat of revoking their banking license in the US if they did not comply. Somehow I think the equivalent threat made by Irish authorities wouldn’t have quite the same impact in Zurich – they will have to be a little more imaginative with their threat selection in order to scare the bankers into compliance…

@Sporthog. We each have our views. There has to be a cut off point. Otherwise you would end up in a situation where people would be incentivised to take longer foreign holidays in order to reduce tax.
I am aware that exiles do pay tax on Irish sourced income (I think) plus CGT on sale of Irish assets.

@Hugh Sheehy. Well spotted on that one. But how do the US handle that particular scenario.

Still I will hold with my views.

@Joseph Ryan
If we take one and a half million households, and exempt 50% because they’re the kind of people TASC don’t like to tax, then three billion is €4000 per taxed household, on average. Good luck with that one.

Meantime, TASC still can’t propose more than vague suggestions on €300 million of cuts. TASC has done an entirely unsatisfactory job.