TASC Proposals for Budget 2011

The TASC think tank has produced its proposals for Budget 2011 (a mix of suggested tax and spending proposals, plus recommendations to improve the quality of publicly-available information): the full document is here and the executive summary is here.

161 thoughts on “TASC Proposals for Budget 2011”

  1. 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.

  2. The ERF proposal if adopted I suggest would be used to pour more money down the FAS drain – although I suspect that the idea here is to focus it mostly on the third level institutions.

    Does the property tax estimate include the effect which the proposal would have on further depressing property values?

    Overall I felt that the proposal was narrowly focused – maybe neccessarily so but why no mention of the Bord Snip proposals – abolition of quangos etc.

  3. @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!

  4. As already stated, for reasons that should not be repeated, the actual haul of what we in the trade call fiduciary taxes, will not reach projections. VAT and PAYE will fall well below the fall in other taxes.

    The property tax is too low and obviously, will fall in line with property. Maybe an increase annually to 1% will be seen as fair after a decade or so of misery, as it will be, by then?

    There is still overt no appreciation of just how bad things are going to become, fiscally. Quangoes, armed forces, ignorance of internet use, fetish with land all continue as if majestic icebergs heading towards a Liner filled with the world’s elite who hope to break a speed record. Guess who wins? History repeats first as tragedy, then repeatedly, as often as ignorance allows, as comedy. Everyone laughing?

    It is likely that the pessimists in DoF are now being listened to and not dismissed out of hand. “Best practice” will eventually catch up with the politicos and land values will drop further than ever conceived of byu even the pessimists. From the periphery, massively out of line land values were always a game with a limited life span, especially so in a depression. The centre countries, where value is, say it quietly, actually added and even created, land values are very reasonable despite FAR HIGHER population densities. Expect these values to exceed those in Ireland as politicians find themselves as powerless and exposed as: Anglo-Irish Bank, a few days before year end accounting and finding out that their friends have raised the charges on the friendly fund money from the other banks! No choices left!

  5. 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.

  6. @Michael Hennigan

    I’ve come to the conclusion that, monumental balls-up on banking guarantee notwithstanding, this is all eminently DOABLE with a few ruthless pragmatic realists in the driving seat – a principle of citizenry first (this is a Republic) and a culling of sacred cows ………

    http://www.irishexaminer.ie/opinion/columnists/ivan-yates/lets-get-rid-of-all-those-freebies-and-put-a-ceiling-on-child-benefits-133426.html

    What did they do last time?_ they took a tenner from Blind Biddy – Jesus wept!

    On skills and human capital – The TASC are astute in noting the success of the German “Kurzarbeit” short time working …. which maintains human capacity in down turns. FAS is not fit for purpose – its role can be given to the Institutes of Technology.

    The Executive is THE problem.

  7. @ Grumpy
    As Rory O’Farrell says, we have a whole section on tax expenditure (those “exemptions and allowances” you are talking about) and we have a comprehensive approach to reform of tax law.
    Re CGT and CAT, we used Department of Finance estimates from 2009 for how much revenue raising these taxes would yield. They may be conservative estimates, but changed behaviour would also have to be taken into account.
    But to take up your point on equality, you are suggesting that less well-off people would be punished by these higher rates, in situations where they gain modest assets. In reply, I’d note that there are some substantial exemptions one can receive before paying CAT (‘inheritance tax’), such as a tax-free dwelling house. I accept there is an argument for small-scale tax credits or a more progressive scale of rates for CAT/CGT, but costings for such changes were not available to us for our submission.

    @A McGrath
    It is likely that property values will continue to be low for some time, and that property tax could act to dampen price rises, but we do call for the abolition of residential stamp duty, which was arguably a greater distortion on house prices.
    As for ‘Bord Snip’, our argument is that three years of cuts in a row has added to deflation. We need a Budget focused on fostering and supporting economic growth in 2011, so that our Eurozone partners and bondholders can see a change of direction, and that we will be able to pay them back!
    Re quangos: TASC is on record since 2006, with our book Outsourcing Government, calling for improved corporate governance of public bodies, quangos, etc. (http://www.tascnet.ie/showPage.php?ID=3041). We also detailed questions of corporate governance in the boards of public bodies in Mapping the Golden Circle (http://www.tascnet.ie/showPage.php?ID=3137).

    @Pat Donnelly
    The property tax was set at a conservative 0.28 per cent as this strikes a balance between raising enough revenue to make it worthwhile, and not deflating the economy excessively. There is scope to raise this rate over time, especially if property prices continue to fall. For example, Callan 2010 (ESRI paper) has modeled a tax at 0.40 per cent.

    @ Michael Hennigan
    Conservative, perhaps, but not timid!
    Everything is conservatively costed using Department of Finance or Tax Commission estimates. There is scope for increased revenue yield from our measures, but think tanks are not political parties, so there is no gain for us in ‘talking up’ our solutions beyond the available evidence.
    Even mentioning property tax on the radio elicits a torrent of angry texts and calls. Various politicians have shied away from doing the same.
    And there is nothing timid about the call for fundamental reform of the tax system. This would be ‘game changing’ in the economy.
    And then there is the €3 billion Economic Recovery Fund. That’s a lot of money, and it is targeted at where it could be quickly used efficiently in the system.
    Our proposals may not be a ‘big bang’ but they offer better bang for your euro than the idea that some miraculous scheme can supercharge the economy.
    Re public sector pensions, TASC proposes that all ‘high pay’ needs to be curtailed, either through lowering pay or taxing it. If pensions are exorbitant, then they should be looked at too. But every country has a substantial pensions bill, and the amount most public servants receive is not excessive. You are cherry-picking extreme examples (e.g. judges).

    @David O’Donnell
    Ivan Yate’s proposals in the Examiner contain some reasonable suggestions, but there are always unintended consequences from wielding the knife on so-called ‘fringe benefits’ – many people rely on these things to make ends meet. And many people, who depend solely on the state pension, at a risk of poverty. For example, ending free travel could simply mean a lot less older people travel, visit family, etc. And that would be socially corrosive.

  8. 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.”

  9. I have not yet read the full document yet, but let’s paraphrase the exec summary.

    In the middle of a terrible recession, with Ireland borrowing somewhere close to €20 billion per year and spending up hugely over the last several years, TASC (which a newspaper yesterday actually called a “leading think tank”) would like to raise taxes by €2.7 billion and cut spending through vague and non-specific measures by ~$300 million, for a total adjustment of €3billion.

    On the specifics of the tax raises, in a country suffering from a hidden but horrific pensions crisis, the second largest tax raising item is intended to punish most of the private sector middle class for putting money in their pension. The largest single tax item might actually be sensible, although I’d quibble on the structure, but is likely to be politically impossible in any case.

    Meantime, on the spending side, there are no specifics at all.

    From reading the exec summary, nothing would be done on welfare spending, or on public sector spending, or on public sector pensions, or on anything much beyond – to take a sample quote – doing wonderfully vague things and bureaucratic thinks like “Where feasible introduce centralised procurement by all State bodies”.

    I’m forced to wonder what area Tasc are a leading think tank in, because it obviously isn’t in policy development.

    One short comment for David O’D.
    The Kurzarbeit scheme was a great success, but Germany also has a Middelstand and other major industrial manufacturers. In Ireland the biggest single source of unemployment was and is in construction. It’s not as sensible to apply Kurzarbeit on a construction site. It might work in other areas, but the main idea in Germany was a bridging scheme to keep highly skilled workers on board until business recovered. A bricky has a skill, but not to the same level as a German industrial worker has skills, and in construction the business might not be back for a long time. The world has started buying German industrial products again already.

    (sorry for the length)

  10. 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 ?

  11. I can’t say I’m keen on hitting pension reliefs. I’m in a defined contribution scheme. The value is less than payments made.

    It certainly seems that defined contribution pensions are the poor relations of public sector and (to a lesser extent) defined benefit pensions.

    Do TASC propose a deficit in an individual’s pension funds be calculated and allowed as a tax free contribution)/limit)? For example, if you say a pension can be 50% of final salary and a DC projects a pension of 20%, should the person be allowed to fund the shortfall tax free?

  12. To be of any use this proposal needs to be re-worked and expanded in the context of the 4-year fiscal adjustment programme which Brussels is demanding. The interesting question is to what extent this refects Labour’s thinking and policy stance. If it does and the Government falls before the NTMA re-enters the market with Labour playing a major role in government, I foresee a sizeable premium – the Stickie Surcharge – on the cost of sovereign debt which could shut the NTMA out of the market. Hello, EFSF and IMF.

  13. 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.

  14. @Nat

    As someone on probably the opposite end of the political spectrum to TASC, I was surprised at how much of what was in the report I agreed with, particularly around cutting the various tax allowances which are so often used for avoidance.

    The glaring omission though, as mentioned by others, is public sector pay & pensions. Even if I were to accept your contention that “the amount most public servants receive is not excessive”, why did you so obviously avoid the mention of those that clearly are?

    Why did you not propose a hybrid public pension scheme that pays defined benefits up to the average industrial wage (say) and then a defined contribution amount above this? Such a scheme would generate huge cost saving, yet completely preserve the security and value of the pensions of lower paid workers.

  15. @ 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.

  16. Fiscal consolidation with Equality. I have just read the executive summary.
    What a fraud of a document as far as equality is concerned.

    Example on Pension relief. A person earning €150,000 pa will still benefit from tax relief at 20% i.e €30,000 tax relief per year.
    I work in an organization where most of the people earn less than €30,000 pa and that is those working full time.
    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.

  17. @ 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.

  18. Once upon a time it was said that nobody got rich working for another.

    Now it seems to be the other way around: Be a wage earner and take risks with other peoples money, if it goes well collect bonus. If not, blame circumstances.

    Owners take risk. Corporation tax is low. Unhappy wage-earners with opportunities abroad might benefit by going for them.

    Negative equity will keep many ‘high-performers’ here, taxes can go up without many leaving.

  19. @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.

  20. There are millions in the system that could be cut without any hits on frontline services or “disadvantage” people. e.g. tens of millions spent on fluoridation, high salaries for people in public sector versus jobs in private sector especially in IT. The rates paid to consultants need to be brought down by 20%. There are just so many but Ministers either ignore them, are unaware of them because they are hidden by civil servants, or they just go for the easy options. There is no transparency so we will never know. We are lead by elected and unelected dictators.

  21. @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 (-;

  22. @Sporthog:
    “There has to be a reward for working hard.”

    Sure. Respect, admiration, self-actualisation …. Let’s not tax rewards like those.

    bjg

  23. 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

  24. @All

    No sign of Blind Biddy – neither can I see the bus pass or the big whitethorn shillelagh – be forewarned around Kenmare this weekend ….

  25. 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.

  26. @simpleton

    I think there is an exemption from income tax for the over 65s of €20k or €40k for a married couple and the marginal tax rate is 40%.

    Maybe I have missed out something, but it does appear quite generous given the tax reliefs on pension contributions in the first place. The principle was supposed to be – its OK not to tax when earned because it will be taxed when the pension is paid out.

    Then of course there is a bit of a circularity in the case of public sector unfunded pensions.

  27. @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

  28. @simpleton. You need to check your figures. The maximum income allowable for pension tax relief is €150,000., currently @ 41% plus health levy relief plus employee PRSI relief plus employers PRSI relief for employer.
    Under the proposed TASC summary the €150,000 will now be at 20% i.e €30,000 income relieved from tax- repeat €30,000 income relieved from tax under a proposal that describes itself as equitable. There are some other restrictions for people of a younger age.

    @Sporthog. Nobody mentioned about everybody having the same reward. My objection is to very wealthy people being able to shelter their income. I find it inequitable.
    Neither do I subscribe to view that the biggest beneficiaries of pension reliefs over the past 12 years were creative business who achieved success. Their outstanding achievement has been to destroy the Irish economy and to vist social and economic ruin on many people who had neither hand act nor part causing the destruction and who never benefitted from these tax reliefs.
    Ireland would be well rid of all tax reliefs and even better rid of the beneficiaries of those reliefs over the past 12 years. The only thing they created was destruction of the country.

  29. 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.

  30. @ Joesph Ryan,

    I understand your anger about those wealthy people who through their own recklessness have brought a huge financial burden upon the nation.
    You are not alone, there is a huge swelling of outrage among the population etc etc.

    However we need to distinguish between recklessness and prudent responsible business people. They can’t all be tarred with the same brush.

    I remember reading several years ago about Mr Tom Moran, owner of the Red Cow hotel / Convention centre etc. That man in cooperation with his family / wife etc made those decisions, made those family sacrifices, took those calculated risks etc. He made it work, he wanted to succeed and he put in the effort. It created employment, provided a service and had a positive spin off effect etc.

    I am sure you would agree that people like him deserve some sort of reward. I am not too sure of the position of Mr Tom Moran now, or that of the business, but I sincerely hope they will continue to offer a professional service at a good price.

    I accept your point Joesph, but we need to encourage good business. That is not going to happen if all business is tarred with the same brush.

  31. @ 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?

  32. Tax the fat honkies till they squeak ! by any standards we need to invest more in public services who are run off their feet. more heavy punishing taxes for self employed will fix everything. maximum demand going forward.

  33. @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.

  34. @ JH

    Could you please point me to the page where they have your supposed self employed tax?

    Having read through the comments I find very few that actually criticise the impacts of the proposed plan. I take this as meaning there are few criticisms to be made of the plan.

  35. 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.

  36. No recommendation to revisit rates on agri land? Doesn’t make sense. Yet a property tax for ‘everyone’ else is OK? Never came across a farmer (including myself) who wasn’t keen and ably assisted to talk down the value of the ‘home’ when required. The return of agri rates would be very helpful as it would compel those on marginal income from their holdings to dump them on the market. CAP is coming to an end. Agri rates are a progressive taxation measure hence they will be parked in a slip road.

  37. 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.

  38. @ Jesper

    “Wage-earners aren’t risk-takers.”

    Don’t workers also face risks if the company they work for goes belly up? Unlike for owners of capital, this risk can’t be diversified away.

  39. 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.

  40. @simples
    “Like I said, we allow carpemters & plumbers to fix and comment on our nuclear implosion.”
    Of course we do. It was the nuclear engineers that got us into this mess in the first place.

    @Rory
    “Could you please point me to the page where they have your supposed self employed tax?”
    The self-employed are entirely dependant on their pension contributions to fund their retirement. There is no final salary, no pay as you go. They pay PRSI and Health Levy on their contributions too…

    Personally, I like the TASC proposals on taxation and expenditure in so far as they go. Mostly I think they are not radical enough.

    A universal pension and a universal healthcare system please.

    A move to a funded pension system where you get out what you put in (capped) plus a basic payment. All existing pension funds to be converted to this to buy years. Any excess you have is returned to you taxed. So there would be a large one-off boost to the exchequer and a large cash boost to many individuals.

    Universal healthcare is to prevent the mad inefficiencies that currently exist. I can buy healthcare and get seen by a private consultant six months sooner than I would see the same consultant on a public waiting list. This is nonsense. I pay private money to guarantee the same consultant each time I go for a visit (paying cash on top of the health insurance). This is also madness. If he injures me through error or neglect in this private work, I can sue him and the state will pick up the bill. This is the final madness.

    With the recovery program, it is again lacking in ambition. There’s a feeling with the document that the collapse in employment was avoidable. It wasn’t. The property bubble saw to that. Now maybe the bubble enterprises have been worked out of the system and what is left is meat and bone, but I have concerns that companies that would not be viable even in a normal economy would end up being supported. I also echo previous commentators concerns about who would choose who gets the disbursements. Funding a foreign bank to come in with a remit to achieve the aims of the program would probably be a more efficient and effective use of capital.

    I have to say, though, that I can’t see any mechanism by which a property tax is not regressive. While based on value, it has the effect of saying to lower income people that they won’t ever be able to afford the running costs of a ‘better’ home. Far better, IMO, to stick to removing reliefs, which, as TASC have already pointed out, benefit the wealthy more than the poor.

  41. @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.

  42. @Rory,

    yep, you’re right. Wage-earners take risks as well. So why give some preferential treatment for highly paid wage-earners as the low paid take the exact same risk?

  43. @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.

  44. @hoganmahew

    Are you sure the self-employed don’t get some pension from their PRSI? I thought they get something (though the PRSI pension isn’t great). Also if you own a business and sell it when you retire there are some tax advantages, but you can’t diversify this risk. I’d be in favour of some sort of universal pension, based on your PRSI contributions. I think TASC produced a separate thing about pensions. This document should just be seen as an alternative budget, rather than fixing all the problems in one document.

    @ Jesper
    I think I misunderstand you. Are you just saying we scrap all pension reliefs?

    One other point I don’t know much about agriculture, but I don’t understand why they get special treatment.

  45. @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’.

  46. @Rory,

    my argument was intended to counter the argument that high-earners should be excluded from the coming tax-increases as they are risk-takers. My contention is that they are not risk takers and should not be excluded from the coming tax-increases.

    Pension relief is an interesting area though:
    Part of Irelands problem is that domestic spending is down. Pension relief is government sponsored postponed spending. Postponing spending could possibly be seen as a deflationary pressure. The multiplier effect has been discussed in regards to public spending. Would there be a multiplier effect on money that was spent now instead of put away as savings?
    Therefore it might be open to discussion whether or not the pension relief could be capped.

  47. @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.

  48. @Jesper
    Just as the discussion of tax rises utterly ignores the fact that tax rates have risen a lot already, in a very progressive way (=more taxes for the higher paid) you frame the discussion about pensions thus: “…..open to discussion whether or not pension relief could be capped”

    Pension relief has always been capped and the cap has been significantly reduced in the last budget.

    If you want to force would-be savers to spend, start with the NPRF. There are multi-billions sitting there, belonging to us all. Spending that money now would be the most ‘socially inclusive’ way of turning savers into spenders.

    This is discussion, as always, is about capping somebody else’s relief, putting somebody else’s taxes up.

  49. @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.

  50. Michael Taft believes the Tasc budget proposals if implemented would save us from the long-term deflationary slump that would result from government fiscal consolidation.
    “No doubt the cheerleaders for fiscal contraction will ignore all this. They will ignore the benefits of the TASC submission; they will ignore the ESRI finding that the current strategy will fail to repair public finances for a decade and more and drive up debt to 1980s level and beyond; they will ignore warnings from international bodies about the course we are heading on. If they get their way, we will all sleepwalk into IMF receivership and years of deflationary slump.”
    http://www.progressive-economy.ie/2010/10/new-weapon-in-anti-deflationary-armoury.html

  51. @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.

  52. Simpleton,

    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. It is a wealth transfer from the generally lower paid to the generally higher paid. I think that is called a regressive tax in some parts.

    In the end, the public sector is willing to fight to the last private sector worker to defend their T&Cs.

  53. @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.

  54. @tull mcadoo

    Which of TASC’s proposals specifically target the lower paid in the private sector?

  55. @ 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.

  56. The TASC proposals are sureley somewhat equitable. And they do, as Michael Taft writes, refute those who believe that fiscal contraction is the only alternative.
    “No doubt the cheerleaders for fiscal contraction will ignore all this. They will ignore the benefits of the TASC submission; they will ignore the ESRI finding that the current strategy will fail to repair public finances for a decade and more and drive up debt to 1980s level and beyond; they will ignore warnings from international bodies about the course we are heading on. If they get their way, we will all sleepwalk into IMF receivership and years of deflationary slump.”- Michael Taft on TASC website.

  57. @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.

  58. @simpleton
    not sure why you are so touchy or why you think I am a public servant type. I have worked in the private sector my entire working life, and I do know a little bit about how those pension contributions work. I actually don’t know a huge amount about public sector pensions but the ones you describe I don’t think are available to the generality of public servants work.
    On the point of the 1.5 times the salary, as I understand it these are available to anyone with a pension as you point out – but and it is a big but.. you must commute your pension annuity to avail of it. The amount depends on a commutation rate which is not the same as the annuity rate and would result in a huge reduction in pension.

    BTW I might not be “remotely accurate” about the cost of an annuity but I suggest it is not that far off. It is prohibitively expensive – except fpr the tax relief available.

    I happen to agree with you about the TASC 20% tax rate. I think that will kill any contrbutions to a pension scheme by anybody for the reasons I stated in my post above.
    I also believe I am correct about the ARFs

  59. @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.

  60. @ Simpleton/tull

    Agree with much of what you say but:

    ‘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’

    Let’s distinguish between

    1 PAYE employees, whether public or private sector
    2 Persons whose income stream is not pay.

    Your point is valid when the argument is confined to the first category. The average public sector employee enjoys a certain security vis a vis the average private sector employee. Permanent and (defined benefit) pensionable.

    Income, however, is not the only form of wealth. Businesses have owners, and our system has always favoured them, going back to the days when rates were removed from the big farmers who could well afford to pay them.

    Absence of property tax, low corporate tax, and the multitude of tax reliefs are all designed to shelter the incomes of those who are above the ordinary workaday world. Movers and shakers.

    The mantra was that these are the wealth creators, who are entitled to special privileges. ‘More talented than everyone else’. We have seen what happens when they are given their head.

    Public sector workers pay income and consumption taxes like everyone else, so the private v public sector argument is not simple. Many private firms and professionals rely heavily on public sector support, and I put it to you that social solidarity is everyone’s business.

  61. @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

  62. @Paul Quigley

    There is much sense in what you say. But this discussion is framed around the premise of taxation as the solution to our difficulties. In the interests of fairness, equity and efficiency I agree with all of those who argue that the various reliefs and allowances should be eliminated (not just reduced). We can’t afford them. That would push most high earners, PAYE or non-PAYE to an average (and marginal) tax rate of circa 50% under the current system. That, I would argue, is enough. IMHO once you go above 50% average tax rates you are in to penal taxation, not equity. But that is a judgement call. What is more objective are the following 2 points:

    1. If we implement all this we will barely scratch the surface of the fiscal problem

    2. If we go further than this (60%, 70%?) we will barely scratch the surface of the fiscal problem.

    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.

  63. @ 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?

  64. @Brian J
    All, no. Most, yes.
    Some are probably so talented that they don’t have to work hard. I suppose TASC could punish them specially. Would that make sense? When a sportsman comes home from winning an international event – perhaps the one time they’ll make so much money – we could have a special “you didn’t have to work hard so we’ll take even more of your money” tax.

    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.

  65. @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.

  66. @Ernie
    Welcome back. We have been waiting for you.

    I hope your colleagues in the Central Statistics Office apply a bit more rigour to their fact checking. Just by ‘looking at late model cars in Dublin’ we can ascertain that the bourgoisie have been blissfully unaffected. Nice one Ernie, I would never have thought of that.

    ‘Every public sector worker has seen take home pay decrease by 14%’ Methinks you are confusing gross and net here Ernie, pre and post tax. But that might be a bit technical. What abpout all those promotions Ernie, all those automatic annual increments?

    According to the most recent data, published in banner headlines in, for example, the paper of record, public sector employment has risen, not fallen.

    ‘Tyranny’ implies some sort of power or authority. In what way does the private sector exercise any control, checks or authority over the public sector? As ever Ernie, black is white, up is down, the sun rises in the west. Don’t stop believin’.

  67. 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.

  68. @simpleton

    It’s great to know I can count on you for obtuse literal-mindedness bordering on autism. Needless to say, the comment about luxury cars was not meant to be some sort of scientific study. It was meant to symbolise (obviously) that there are more than a few wealthy people about the place and that those people have not been asked to contribute much of anything in the current crisis. But I gather that symbolism is not your thing…

    As for my alleged ‘confusion’: it is nothing of the kind. I stand by the claim about reductions in take-home pay in the PS being of the order of 14%. But are you sure you yourself are not confused: promotions in the public sector have been frozen under the employment control framework.

    As for the way in which the private sector exercises their tyranny, it should be obvious. The main means is the sort of propaganda in which many on this blog and elsewhere participate. From the Sunday Independent it is echoed by the mindless minions throughout the national private sector press (I include RTE in this) until every know-nothing jackass and his brother is repeating the line of the day. Look at the extent to which the view that “there is no alternative” is parroted endlessly throughout the media and in this blog. Even if you grant it nothing else, you must admit that the TASC contribution shows this to have been a lie. There are alternatives.

    @Hugh Sheehy

    I’m a taxpayer. Is my own salary theft from myself?

  69. @ 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.

  70. Correction.
    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 one issue.

  71. 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.

  72. @Ernie,
    Nobody will be more willing than I to admit error if, indeed, there have been no promotions. Equally forbidden were headcount increases but we know that restriction didn’t apply so why should we believe any other rule was adhered to?
    Increments don’t mean salary increases? Up is down?

    I think you may be a tad confused: what you have identified is more of a conspiracy than a tyranny. Your inclusion of RTE in that conspiracy (one that is actively doing the public sector down) is interesting. Rats eating their young?

    @Tull,

    Is that you Arsene?

  73. Simpleton

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

  74. @Tull
    I’ve worked in the British civil service, right at the centre, in the Treasury, so I’ve lived first hand the Yes Minister script. I actually know some of the civil servants who supplied the authors with some of their best lines. It really wasn’t a work of fiction.
    But I am surprised at your suggestion of a read-across to Irish public sector life. I thought you lot went through something called independence 90 odd years ago? And there I was labouring under the impression that you had found your own ways to screw things up!

  75. @ 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.

  76. Simpleton,

    We combined the principles of British public administration with somethink akin to Peronism. A few years ago, I asked a current FF minister over a pint who his political hero was and he replied without heistation “Juan Peron”. According to our politician, he had the right combination of nationalism with an economic policy that was neither capitalist nor socialist.

    Sam Symth pointed out this moring that Argentina started the 20th Centruy as the 7th richest economy on the planet but went through a century of serial default, political corruption and economic decline. Some role model.

  77. @simpleton

    You wrote: “Equally forbidden were headcount increases but we know that restriction didn’t apply”

    Do you have any evidence of this or is it just one of those things that “everyone knows”?

    According to the CSO, public sector employment dropped by 8,200 between Sept 2008 and Sept 2009. I don’t see any more recent data than that.

    So, in conclusion: public sector numbers have dropped. Public sector pay has dropped across the board. But some won’t be satisfied unless there are forced redundancies. Not for any policy reasons but apparently out of sheer vindictiveness. They want blood on the floor and they’ll get it long before the wealthy in this country are asked to pay much of anything.

  78. @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.

  79. I’m stealing from myself, then. Should I also arrest myself?

    And, please to explain why it is that the market is the ultimate arbiter of what pay “needs to be” even in areas that are not subject to market forces? You’d think that the advocates of such market fundamentalism might be a little more circumspect in light of the recent catastrophic market failures, but chutzpah is not something they ever were short on. Isn’t that right, Hugh?

  80. @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.

  81. @Ernie
    If you have morals you should consider arresting yourself, although in Ireland I’m not aware that you’re breaking any specific law. In any case I don’t worry about you stealing from yourself, but if your pay is higher than it needs to be then the state is being negligent in its duties and essentially allowing you to overcharge me and my kids too. That I do worry about. That I do consider immoral.

    Similarly, the architects of the banking catastrophe have not yet been shown to have broken any laws but are surely morally guilty of something pretty major.

    As for me having the chutzpah that the “advocates of market fundamentalism” have, I have no connection with the people you have in mind. In any case, I can condemn both sides of your political spectrum at the same time. And I do.

    Plus TASC still owes the country 25 pages on cutting costs.

  82. 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.

  83. @Paul Quigley
    Well put. Argentina once had the same per capita GDP as the USA. It is well endowed with natural resources, climate, etc. What went wrong? The writer Alan Beattie convincingly puts it down to an appropraition of Argentina’s wealth by a self-perpetuting inside elite, a bunch of cronies. Renewal, creative destruction, market forces and simple dynamism have all been eliminated by a form of economic incest. Sound familiar?

  84. @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

  85. @ Hugh Sheey
    “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. ”

    And what does it need to be. Should we follow a Stalinist wage policy that we are just given enough to survive?

    Maybe you should read up on who won the Nobel Prize for economics this week to get an idea for how labour markets work.

  86. @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?

  87. @Rory
    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. Now, should you read up on the Nobel Prize authors this year and see what they say about unemployment benefits?

    Other than that, I’d take a simple approach to what public sector pay needs to be. 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. If the state agencies have no problem hiring and are not losing staff or are – for instance – borrowing money to pay salaries then they’re paying too much. I doubt that the Irish state sector has had any major problem hiring, ever. Perhaps occasionally, for specific skills, but a major problem? Naah. Additionally the state sector does not have a proud history of bringing in efficiencies that would reduce the number of people required or to allow the same number of people to provide more services.

    The unions have a proud history of obstructing improvements or efficiency. Well done.

    The way public sector pay has been set in Ireland is as if the CIF and the govt had gotten together in a back room and agreed how much too much they’d pay for a new school or road construction job so that the CIF members would all vote for the govt (which may well also have happened on occasion). The discussions must have been nauseating. “No, you need to give me more of those other people’s money before I’ll vote for you. No, even more. Now make it perpetual, whatever happens to them. ”

    It’s a system that robs from taxpayers and from the service recipients. I’d use pretty strong words to describe it.

    p.s. I love that you’re bringing up Stalin. It’s almost, but not quite, as good as Ed saying that there’s a tyranny of the majority against the public sector in Ireland. Private sector workers in Ireland must be the least effective tyrants the world has ever seen. Stalin, indeed!

  88. @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.

  89. @ simpleton

    I forgot to mention, bubbles apply to asset prices. How do you think it applies to factor returns?

  90. @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.

  91. @ simpleton

    Well if you can see this employment and wage bubble please characterise it for me. How does it relate to an asset bubble?

    I said Nash Bargaining, not Nash Equilibrium. The Nash Bargaining solution is more specific. But yes, the outcome of Benchmarking was one of many potential Nash equilibria.

  92. 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…..

  93. @Rory
    As ever, Tull puts it more eloquently than I.

    Not sure what you want from me? Higher order moments? Fourier transform of the autocorelation function? Or just an expression of relief that I gave up on being an economist in 1995?

  94. @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?

  95. @Rory O
    This whole distraction on search economics is simply a distraction. Does it mean that public sector workers should be overpaid? No. Was it an issue consciously or unconsciously followed during benchmarking? No. Is it particularly relevant? No.

    What was done in benchmarking was a political bribe. You stay quiet and vote for us and we’ll overpay you with other people’s money. That’s the status quo today. It’s still an immoral situation and raising a cloud of dust about search friction doesn’t obscure that simple immorality. How the union leaders sleep at night is beyond me.

    Meantime, taking the recent Aidan Kane numbers, receipts are up from €49.9 billion in 2004 to €52.3 billion in 2009, having reached a peak of €66 billion in 2007. Spending is up from €47.8 billion in 2004 to €75.1 billion in 2009. GNP is up from €126.4 billion in 2004 to €131 billion in 2009, having reached a peak of €162.8 billion in 2007. GDP shows a similar profile.

    The problem is bloated spending. The arithmetic is simple.

    You and TASC are still ignoring, and actively trying to obscure, the simple facts. You and TASC also seem to be aiming to perpetuate an immoral rip off done as a cosy crony deal with possibly the worst set of government ministers this state has ever seen.

  96. 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.

  97. @Rory
    I shouldn’t fall for it but….

    Trying to describe public sector employment and wage levels as an efficient outcome of a normal bargaining process is simply bonkers. Or perhaps just monstrously disingenous.

    Last time I looked, capital was a factor of production. Banking returns on capital peaked at over 30%. That looks like a bubble in factor returns to me.

  98. @ 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?

  99. @simpleton
    Trying to describe public sector employment and wage levels as an efficient outcome of a normal bargaining process is simply bonkers.
    I don’t need to try describe it as that. Game theory does it for me.

    Regarding return on capital, I don’t remember an interest rate bubble. The high bank returns were due to an asset price bubble. If you think public sector wages are too high you are entitled to your opinion. But you can’t use positive economics to make moral points.

  100. 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.

  101. @Rory
    As you know, a bargaining process requires both bargains and a process. Benchmarking was neither.

    Your memory is letting you down. There most definitely was an interest rate bubble. It’s why Greenspan gets the blame for what happened next.

    I can see that nothing is going to get through the bubble you inhabit. I really need to find something more productive to do.

  102. @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)

  103. @simpleton

    How are consistently low interest rates a bubble? By this reasoning the wage ‘bubble’ is actually because wages are too low 🙂

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

  105. @ simpleton
    Interest rates are the factor return for the asset.
    Low interest rates -> asset price bubble, NOT factor price bubble.

    You are still wrong 🙂

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

  107. Rory,

    only slight-Allied “recorded” an ROE of 30% in 2006 by lending out money over medium to long term to buy houses, cars and sites, based on bubble cash flows. These estimates of cash flow were out by a factor of humungous. As a result, AIB recorded a -25% ROE in 2009 to be followed by a 64% ROE in 2010. It took a 150 years to build an equity base of 10bn euros and 2 years to destroy it.

    Do you still think there was not a bubble?
    Do you still think PS employment levels & T&Cs do not reflect that bubble?

  108. @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.

  109. @Rory
    As you have admitted, you are mixing up factor prices with factor returns. There is a bubble in the factor price of public sector labour. You are arguing by assertion: just saying there ain’t a bubble doesn’t necessarily make it so.

    There you go, I knew this was coming ‘solve the problem with higher taxes’ presumably anybody else’s taxes apart from your own. As dreary as it was predictable.

    There is abundent arithmetical evidence to conclude that the fiscal hole is simply too big to solve with private sector income tax rises. There ain’t enough private sector income. Or, perhaps more precisely, there won’t be.

  110. ” 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.

  111. @Rory
    If wage bubbles are impossible, as you assert, what do you think of banker’s pay? I think that was another bubble, but, logically, I guess you think that was another efficient Nash bargaining outcome?

  112. 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?

  113. @Rory
    Please don’t take this the wrong way, but I thought it rather amusing. One of your TASC economist colleagues glories under the title ‘Head of Equality’.

    The irony.

    Is this a bubble in job titles?

  114. @ 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.

  115. @simpleton

    You wrote: “just saying there ain’t a bubble doesn’t necessarily make it so.”

    No, what makes it so is that it ain’t so. There was no bubble. Allow me to borrow a few graphs from a paper from last October by Karl Whelan:

    The graph on the left in this chart shows public employment as a percentage of total employment. Really looks like a bubble, doesn’t it?

    This one shows the share of GDP spent on public pay for Ireland and the EU 15 average. I’m sure you’ll have no trouble explaining to me how a line that remains well below the EU average is a “bubble.” Obviously it spikes upward at the end when GDP collapsed.

    Here’s a nice table that you and Hugh Sheehy will no doubt construe as demonstrating that there is absolutely no room whatsoever for increasing taxes on the hard-pressed Irish taxpayer.

    Finally, allow me to quote from the OECD report on Ireland’s Public Sector from 2008:

    Despite major spending increases over the past 10 years, expenditures in the public domain, i.e. services funded by government and provided by government or the private sector, are small as a percentage of total GDP, compared to other OECD countries. This is because Ireland has traditionally had a small public sector, and so recent increases have been part of a process of “catching up” to more typical OECD levels. For example, amongst 25 OECD countries for which data is available, Ireland ranked third to bottom in terms of public expenditure as a share of GDP in 2005 with 34.4%, above Korea (28.9%) and Mexico (19.5%) (Table 2.2), even when factoring in infrastructure investment. These three countries however presented the strongest average annual rates of real growth in public expenditure over the 1995-2005 period with 6.4% for Korea, 5.1% for Ireland and 4% for Mexico. If however the level of public expenditure in Ireland is expressed as a percentage of GNI (40.5%), it becomes much closer to OECD average levels expressed as a percentage of GDP (42.7%).
    Much of public spending in Ireland is allocated to social protection and both the health and education sectors (Table 2.3). The public functions experiencing the highest real average annual increase in expenditure over the 1995-2005 period were environment protection (10.34%) and health (9.21%) (Table 2.4). Given Ireland’s strong economic performance, however, public expenditure as a percentage of both GDP and GNI has actually decreased over the past 10 years. Ireland’s real average annual growth rate in public expenditure between 1995 and 2005 was 5.1%, and was therefore actually growing slower than both GDP at 7.5% (Figure 2.5) and GNI at 6.6%. Although spending on education increased annually on average by 5.52% between 1995 and 2005, for example, its relative share of GDP decreased from respectively 5% to 4.3% of GDP and from 5.7% to 5.1% of GNI over the same period.

    –From Ireland: Towards an Integrated Public Service, pp. 52-53

    Wow, sure sounds like a bubble to me.

  116. @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.

  117. @Ernie
    Two things.

    First, since you’ve pointed out that married Irish wage earners on the average wage with two children are only paying 6.7% of income against an OECD average of 21.1 percent, should I presume that you’re arguing for a tripling of the income tax burden on average family wage earners in Ireland? It sure looks that way. I might even agree with you, but I’m surprised to see you argue for it.

    Second, if we take international wage benchmarks, should we now cut the public sector pay bill in Ireland by €15 billion to align our pay levels with the UK, as suggested by professor Ed Walsh. Just think, if we did that we’d probably be able to afford to hire a bunch of unemployed people and greatly improve public services at the same time. Why haven’t TASC & co been advocating that? I can tell you why I think it is. I do not believe that TASC are interested in the public interest. They are interested in protecting special interest.

    Finally, with public spending equalling 57% of GNP in 2009 and the deficit hitting 32% of GDP in 2010, how much more would you like to spend?

    @Rory O
    Nice to see that you’ve ignored my point on how the government should be focused on getting value for money with public sector pay and not on buying votes with public sector pay. Funny, that. Do you agree with my point, or do you think that public sector pay should be used to buy votes? Which is it?

    My description of benchmarking and public sector pay levels in Ireland as an immoral crony deal is still too accurate to be funny. Add it to the top of the stinking pile of crony deals in Ireland. Again, how the union leadership sleeps is beyond my understanding. How the responsible ministers sleep is completely understandable. They are Irish politicians. They can stand most smells. I used to think union leaders had ethics. I regret to say I no longer think so.

    Meantime, TASC are still missing a key 25 pages of their report…the pages on how they’ll cut spending. A disgraceful omission from TASC. Predictable, but disgraceful.

  118. @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.

  119. @Hugh Sheehy

    If we set UK wages as the benchmark we would have to adjust wages every week to account for currency fluctuations. Ed Walsh also suggested closing down the education system for a year to save money. He says lots of things.

    And no, I don’t think wage setting should be used to buy votes.

  120. @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?

  121. Ernie,

    You should update the graphs to 2010 and you would get a differant answer. In particular Pay/GDP is probably above the EU average now. Then there is the tiresome debate about GDP or GNP or something in the middle. Employment/total workforce is around 20% now due to a rake of private sector workers losing their jobs. However, they exist only to keep you in the well renumerated & secure status that you currently enjoy.

  122. 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.

  123. @Rory
    You argue that the public sector has
    1. Done enough cutting bar an unspecified, but low, level of waste. The public sector is done cutting.
    2. The structural deficit is to be eliminated through tax rises.

    I suppose it would be futile to ask you to quantify the second point.

    Have you any idea how much visceral anger point number 1 raises amongst those of us in the private sector? just how much damage it does? I really do think that only those utterly coccooned from reality of daily private sector life could hold such views. Those who do not have a job under threat, who have not seen large numbers of colleagues laid off, who are utterly confident that their pension will be paid: carry on guys, it’s going to be a very strange revolution.

    I give up. Over and out.

  124. 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.

  125. Oh, yes, the arrogance of the PS, unwilling to accept the characterisation as harmful parasites on the truly productive (and therefore virtuous) sectors of society.

    But since we’re talking about visceral anger, how do you think those in the public sector felt last December when the budget doled out their second substantial pay cut in less than 12 months while asking the wealthy of the country to pay, essentially, nothing? Indeed, they got lower excise on their champagne. But no amount of cuts is ever enough, is it? Because you can always go around one more time on the endless merry-go-round of “they have permanent jobs” (therefore: cut), “they have pensions” (therefore cut again), “they still have permanent jobs” (cut yet again), “hey, do they still have pensions?” (cut again).

    None of this is about resolving the crisis in the best way for the nation. This is, as I’ve said, about settling old scores and vindictiveness. The frequency with which benchmarking is brought up in this context is revealing. It doesn’t matter that most PS workers have now given up more in pay cuts based on back-of-the-envelope calculations than they ever got from benchmarking. Benchmarking, like permanency and DB pensions is just an endless source of righteous indignation, no matter how much things have changed in the interim.

  126. 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.

  127. @ Hugh Sheehy
    I never said you mentioned frictionless markets, so I didn’t put those words in your mouth. Your idea for wage setting in the public sector implicitly assumes frictionless labour markets for it to work. Benchmarking against the UK won’t work as we would have to change wages on a weekly basis. Also you appear to be against benchmarking against the private sector as it was done a few years ago, and many public sector jobs have no private sector equivalent.

    Can you propose an alternative to wage bargaining that would actually work? Especially given that wages in the private sector are also bargained.

    Public sector pay is too high in Ireland on every comparison basis I’ve seen
    Perhaps you should look at some more comparisons as the evidence is very mixed.

  128. 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.

  129. @ Everyone

    Thanks for your comments. I won’t address individuals in detail. But I’ll make a few clarifications.

    Re pensions
    TASC’s argues for the standard rating of the pension tax relief because, as shown by the ESRI, 80 per cent of the benefit went to the top 20 per cent of earners, which is not a good outcome from such a large item of tax expenditure. It is not “intended to punish most of the private sector middle class for putting money in their pension”. In fact, TASC’s full pension policy argues for a state-led universal pension, with mandatory contributions, which would benefit everyone – including middle class private sector workers – by giving them a much more secure retirement income.

    Re spending cuts
    TASC’s budget proposals make it clear that after three austerity budgets, which cut services and social welfare, we advocate taxation in 2011 to redress the balance. Moreover, we seek to address the deflationary impact of the three budgets by focusing on property tax, which has less deflationary effect compared to other types of tax. Our Economic Recovery Fund proposal is designed to foster growth in the economy to counter-act the deflationary impact that is inevitable from any cuts or tax increases.

    Re treading on privileged toes
    Check out TASC’s report (Mapping the Golden Circle), which points out questions of corporate governance and excessive pay across 40 of the top public sector and private companies.
    http://www.tascnet.ie/upload/file/MtGC%20ISSU.pdf

    Re misconceptions about TASC
    TASC is a private, not-for-profit body, which receives no state funding. We do not have a “Head of Equality” – you may have misheard “Head of Policy”.

  130. @Rory O
    I agree that the comparison with the CIF is not really valid. It would be generally regarded as illegal for the CIF to do what the unions have done.

    However, again, my ideas for wage setting do not implicitly require frictionless markets. No labour market is frictionless. Additionally, benchmarking with the UK would not necessarily require weekly wage setting. Then, very few public sector jobs do not have a private sector equivalent, but I do not think that formal benchmarking has lead to a good outcome for the poor customer of the public sector.

    Of course, if the monopsomy role of govt is a concern it can be easily modified for almost all labour intensive activities. Only the agencies of force and some central policy setting need to be monopolistic agencies, and perhaps not even them, although I think so.

    Everything else could fairly easily be broken down into independently negotiating entities. Universities, hospitals, schools, administrative supply companies, passport offices, etc. No problem.

  131. @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?

  132. @Nat
    For clarification “Head of Equality” is the job title of one of the TASC ‘network of economist’s’ listed on your website. I think it was at SIPTU.

  133. @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.

  134. @simpleton; hugh et al

    Thanks for the engagement. I would echo Nat’s previous comments.

    TASC’s proposals re the multi-annual strategy will obviously be influenced by the official figures as they are released. Having said that it does not require a rocket scientist to pinpoint the scale of the adjustment and I am confident we’ve all done our sums. The previous growth predictions were clearly wildly optimistic.

    In the mid-term I would aim for up to €3billion in revenue per year from recurrent property tax. The precise breakdown of measures that TASC will be proposing for the multi-annual year strategy is still to be finalised.

    There will be no sacred cows.

  135. @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.

  136. True, they have a vote on their managers (govt), but they are less than 20% of the electorate. A significant group, but not a majority.

    I understand what you mean about separate hospitals competing. I wonder how it could work in practice. The US example isnt promising. Also the NHS monopsony power pushes down wage rates for top doctors.

    Can you think of other countries that do this?

  137. @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.

  138. 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.

  139. As per the latest discussions, the deficit for 2011 is likely to be back up towards 22 billion Euro.

    If we take Aidan Kane’s recent numbers, income tax in Ireland was (IIRC) €11 billion in 2009 (note the last comments on definitions in that thread). We’d need to triple income tax to close the deficit. We’d need to more than triple VAT (€10 billion today) to close the gap. Overall taxation would need to increase by 50% or more.

    More tax is not a plausible solution and Ireland needs solutions fast. If we prolong this process then the debt becomes a huge long term deadweight. Even on current plans the debt’s going to hit approx €150 billion. Slower adjustments could see that hitting nearly €200 billion. Work out the per citizen number on that one.

    Even quite radical reforms will take too long. Spending simply needs to be cut hard. TASC are off on holiday in a softly lit room in a luxury hotel in fantasy land. They’ve been there a while. There they are, waffling in a corner while their real house is burning down. Labour just got home from holiday and are looking as if their tan has already faded.

    Meantime, I readily agree that the high wages of doctors in Ireland are indeed unlikely to be a symptom of a monopsony “properly” exercising its market power. Something else makes the govt overcharge its citizens for the services it’s providing and simultaneously deny its patients access to the multiple doctors it might be able to hire for the same money.

  140. @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.

  141. @Joseph Ryan
    30 days? That’ll keep lots of people out of the country. I can imagine the Bord Failte ads.

    “Come home for Christmas and the summer! Do your Xmas shopping in Arnotts and remember your childhood. Visit the Dingle dolphin and swim in the summer Atlantic.
    But remember that if you overstay we’ll charge you tax on your entire worldwide income and create a nightmare of bureaucracy for you that you’ll never forget.
    Ireland. The land of a hundred thousand tax forms. ”

    More tax raising ideas, but still nothing from TASC on how to cut costs. Oh, how they love spending other people’s money. I should too, to be honest, but I have too many scruples to really like it.

  142. @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…

  143. @ Joesph Ryan,

    Sorry I was overloaded with work, and I did not check the thread.

    Joesph you have cherrypicked the only country in the world which bases personal income tax on citizenship.

    What about cherrypicking the US Vat rate, about 7 to 10% depending on the state? Will those looking to follow the US also cherrypick this example?

    Depending on which yardstick you use, there are at least 180 other countries in the world which use days present formula.

    How can it be equal treatment for a non resident who can only spend 139 days per year on average every year to be subjected to the same level of income tax as somebody who spends 365 days per year? How on earth can that be fair treatment?

    If you and I booked into the same hotel, I stayed 365 nights and you spent 30 nights would we get the same bill? No it would be fair and equal treatment if you were charged for 30 nights and I had to pay for 365 nights. That is fair and equal treatment.

    Further more you mention “not living here”. If a person is alive then they must live. If they visit Ireland for 139 days per year then they must be living elsewhere for the remaining 226 days. Once a person leaves Ireland they do not stop living.

    It just cannot be argued on grounds of equality that people who do not live and work in Ireland should pay the same income tax rate as those who live in Ireland all year.

    Many years ago there was a system of Foreign earning deductions. I am open to correction but I believe it was designed to encourage more people to stay longer than 139 days in the country. But they were taxed at a proportional rate for each day.

    For example if you spent 365 days in the country in a tax year, 100% of your income tax was due. But if you spent 60% of the year in the country then 60% of your tax was due.

    This could be considered a fairer system, paying income tax per day present /365

    I hope I have made myself clear with this.

    Further more it is not true to say Tax exiles pay no tax in Ireland. Any money that is made in Ireland is subjected to Irish tax law.

    If on the other hand double income tax agreements are going to be ripped up, then Irish Citizenship is something which in not worth having.

  144. @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.

  145. @Tom O’Donnell, TASC.
    3 Billion a year in property tax. Well done. Now we’re talking.
    But it is very optimistic.

  146. @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.

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