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Fiscal Policy

Talk at Irish Taxation Institute Event

I gave a talk last night at “The Big Tax Debate” organised by the Irish Taxation Institute. Here are the slides.

The opening slides do some calculations of where the government is starting from when preparing the next budget. Taking out the €3 billion in adjustments that had been pencilled in last December, the starting deficit would have been 11.8% of GDP. Adjusting for the lower nominal GDP projected in 2011 by the Central Bank, this rises to 12.4%. Subtracting a billion from tax revenue because nominal GDP growth is projected to be €4 billion less than in the December 2009 budget and the projected deficit becomes 13%.

These figures exclude payments on promissory notes because the full cost of the notes issued so far is getting incorporated into this year’s General Government deficit. However, the payments will be real cash flows and international markets will be aware that they increase our borrowing requirements. So, while one can argue that it may not be appropriate to point to our projected 32% deficit for this year as the correct measure, one can’t also keep excluding the banking-related payments as though we are never paying for the banking crisis. Adding on €2 billion a year for promissory note payments (my guess, based on €30 billion in payments spread over 15 years—no I don’t know what the correct figure is because it hasn’t been released) the underlying deficit rises to 14.2%.

One adjustment I didn’t make was for higher borrowing costs than projected in 2009. In any case, you get the picture. You don’t have to be brought into the Department for secret talks to see that the starting position for the deficit is an extremely serious one and that adjustments of €5 billion are probably the minimum required to establish a credible downward path.

I think this point, that we need to credibly get back to sustainable levels of the deficit in the next year or two, is far more important than the other popular debate about whether we should have a four-year plan or a seven-year plan for getting back to 3%. Colm Keena correctly quotes me in today’s Irish Times as saying that I don’t think anyone believes that we are going to reach a 3% deficit in 2014. That’s been my experience, perhaps others know people who do believe this. Either way, the 3% is an arbitrary figure and when we reach it is not the crucial point.

Of course, if the Commission insists that all our plans end up with 3% in 2014, then that’s the way they will be written. However, what’s far more important is that we can convince people that the deficits for 2011 and 2012 are going to be well below the starting point we’re looking at right now.

Finally, as an aside, Keena also quotes me as saying “On efficiencies in the public service, Prof Whelan said there was no need for any more reports. He believed the Government was not serious about the matter.” I’m pretty sure I didn’t say the latter. In fact, I suspect the government are probably more serious on this matter than those who claim enormous savings can be made from efficiency gains in the public sector. The point I was trying to make was that we should try to get some clarity as to how much, or how little, we can save from public sector efficiency improvements. And then we should implement them.

49 replies on “Talk at Irish Taxation Institute Event”

Karl,
apprecitate that..so the bigger leaked adjustment number of 15bn reflects lower growth assumptions and higher debt service assumptions due to the need to fund the promissory notes. Except of course that the latter point is glossed over. Hence we arrive at 5bn plus adjustment. The argument then is over the plus.

What is this about “the statistical change in the way the overall size of the economy is calculated.”

I haven’t heard anything about the “change in the overall size of the economy” thing but I assume it’s a heads-up from the CSO on downward revisions to nominal GDP.

Now, one could say it doesn’t matter since we’re collecting the tax revenues we’re collecting whatever the statisticians say GDP is. However, of debt and deficit ratios, they’ll use the CSO figures and lower GDP will imply higher deficit ratios.

@Karl Whelan
“I haven’t heard anything about the “change in the overall size of the economy” thing but I assume it’s a heads-up from the CSO on downward revisions to nominal GDP.”
Perhaps the CSO have got religion on the GDP deflator they should use? GDP was wildly overstated by the bubble increases in the price of fixed assets, increases that were not reflected in the other countries in the eurozone (i.e. money didn’t lose value). Accounting for price increases as an increase in value using the DoE house price index must surely have compounded the measurement error (since it is not a hedonic index). (See here for CSO methodology: http://cso.ie/surveysandmethodologies/documents/pdf_docs/estimates%20of%20capital%20stock.pdf ).

Equally, deflating constant currency by CPI risks overstating constant currency GDP. Where the decline in fixed investment and in existing capital stock is the result of an unwinding of bubble prices (which had moved sharply from use value), increasing constant price GDP is presenting a false picture of what is happening.

The importance of this, aside from the various ratios calculated from it, is how we measure growth. JohntheO believes we have been growing for some time using export statistics and constant currency GDP. I believe we started growing in Q2 using current price seasonally adjusted GNP figures (positive in Q2 for the first time since Q4 2007). But the base figures that this is worked from are unreliable because of the effects of the bubble. Until we have reliable figures for real growth, we will be deluding ourselves as to the state of the economy (whether a positive or a negative delusion).

I have been saying this for quite some time.

The economy may have returned to very modest growth in the last few quarters but real growth is almost completely irrelevant to our current situation. What matters far more is nominal growth as this what the debt will be expressed against and tax revenue will be closely linked to this rather than real growth

@KW
Interesting slides and good points but I don’t agree with you on the need to end universal benefits. How can you be sure that it would not engender a series of changes throughout the system which would be far more negative than initially would be indicated by the bottom line of how much we could save in 2011 by means-testing or taxing child benefit as currently structured? The government doesn’t seem to be able to modelling the short- and medium-term effect of different changes to policies/rates of payment. Even cities in the US have sophisticated software which allows them to predict how something as small as a change in the nightly hotel tax will percolate through the system: whether it will affect the number of nights spent in the city or the amount spent in shops by visitors and consequent loss of hours/jobs in different parts of the city’s economy.

Certainly the social welfare system needs reform but if you start by ending universal benefits you will most likely have a less effective system which costs the same, if not more, and allows those most in need of help to fall through the cracks. Olivier Thévenon has done work on this for the OECD (e.g. http://circa.europa.eu/Public/irc/empl/demographic_change/library?l=/assessing_2009-06-10/brussels10june2009pdf/_EN_1.0_&a=d).

While agreeing that the notion of the welfare state did not work, neither has the social safety net, according to the UN’s Dept of Economic & Social Affairs:

‘Social policy itself needs to be coherent, in the sense of avoiding too narrow a focus on social protection and targeting of the poor, and leaning more towards universalism (creating a “social floor” for people of all ages), and ensuring conditions for continuous progress in human development and for household-level social reproduction.’ http://www.un.org/esa/policy/wess/wess2010files/wess2010.pdf

What we are paying for Anglo alone would effectively pay child benefit as currently structured for an entire cohort of children 0-18. CB is not the problem.

@ hogan

Deflators don’t matter for nominal GDP (which is what matters for fiscal accounts). Deflators get used to deflate nominal GDP to produce “real” GDP. But it’s only as real as the deflator used to construct it. If you’re right then real GDP is lower but it doesn’t impact the fiscal accounts.

Much is often made about old data that purports to show the size of the Irish public sector, relative to the economy, is not out of line with OECD norms – in fact, there is data that supports this. Of course, as Irish GDP falls with the recession and the re-write of history mentioned on this thread, it remains to be seen whther or not we stay in line. In addition, other public sectors in the OECD are shrinking or will shrink. So defenders of the size of the public sector will need to keep their data up to date (as well as allow for other factors like the non-existence of a large military component in our spending relative to those countries with large defence budgets).

You suggest both raising the basic rate of tax and worse introducing a property tax. I would disagree with both these measures for the following reasons, and with the following alternatives.

Firstly, on the notion of raising the base rate. Firstly, this would hit the disposable incomes of most people quite hard and would certainly reduce growth. A clear alternative here is to consider the higher tax rates. And I don’t mean the second rate we have now.

We should introduce more tax bands with their own increasingly higher rates. Even the American’s once had such a system. These higher brackets worked and worked well in generating government revenue without affecting growth.

At the higher bands, most of the income taken is not economically useful disposable income. Moreover, taking it discourages excessive management remuneration, which is a large problem in the Irish economy. Galbraith in fact attributed the 1929 crash and subsequent depression in part to excessive remuneration. Note that the presence of most progressive 90% income tax band (~1945-1965) corresponds with the economic and cultural ascendancy of the US in that period.

Such a continuous tax band system would work and work well in this country.

My second point concerns Property Tax.

My thinking on property tax is that it reflects an agricultural mode of thinking about government finances. In other words that land is wealth. As the fortunes of this country have clearly shown, this is an illusion, and a dangerous one for any government to base its budget on. When coupled with house price inflation, the capital gains tax system in this country effectively functioned as a form of property tax and turned out to be unreliable as a source of income.

Instead, government funding should come from economic activity—the true measure of wealth in an industrialised society. Tax must come from transactions, profits and income, all of which give the government a vested interest in promoting these genuinely useful activities, rather than promoting a useless property bubble.

If the desired form of assessment based property tax is introduced in this country, it will bring about two major immediate problems. Firstly, the assessments themselves will a) take considerable time and money, and b) may become rapidly outdated in a few short months. And secondly, the issue of appropriate property price assessment(historically an unsolvable problem in any society) will place the government in an immediate dilemma. It is clear that house prices have fallen considerably and should be assessed as such, yet the government has a vested interest in talking them up. This conflict of interest will lead to either overvalued assessments or the undermining of government strategy.

The government has dodged both these issues by deciding on a flat rate property tax. Regardless of anyone’s position on property tax, this is an inadequate compromise.

My position on property tax is that capital gains tax and VAT on rental incomes should function as property tax in any industrialised society. To assume otherwise is to impose a nonsensical burden on most home owners whose property has never, and will never, generate any income for them at all, and is not viewed by them as wither an asset or a form of wealth. Only those properties which generate income should be taxed.

This essential difference in views between the business world and the general public will be a fundamental point of contention in the introduction of any assessment based property tax, and will be felt most keenly when homes in negative equity and those in ghost estates are considered. And this is all before we get to the issue of local authority funding.

Simpleton,

There you go again. Do you not know that the lefty posse will turn up now with Prof Whelan 2007 data to prove there is no bubble.

Politics aside, economically speaking what is the best way to reduce a large government deficit?

– massive front loading, but growth and so positivity by years 2 or 3
– tentative cutting so as not to destroy what you have

The IMF have released a paper saying that every 1% cut by government = .5% cut in GDP. This seems to be used to suggest we should cut less. I think you should look at this the other way around. Every 1% borrowed by the government only adds .5% to GDP. The other half gets wasted. This is an argument to cut.

This brings me nicely to the high tax / low tax argument. We have a government that is borrowing 10 – 12% of GDP. This is adding 5 – 7% to our GDP numbers. If we balanced our books, while keeping the tax take stable, perhaps we would not look like such a “low tax economy”.

There is another issue.

The government has been very good at getting people to chase their tails on sideshows. David Begg obliges again today with the 3% issue == when it should be reached. But here’s the EU Council President yesterday saying again what has been said many times before — under the revamped SGP, they will pay more attention to the level of debt than before. So while the promissory notes can be hidden under the green jersey for a little while longer, their impact on the debt dynamics will be clear in any medium-term plan. It’s not just about the deficit.

@Tull
Sorry, trying not to invite the posse but more to try and keep the debate based on some numbers. But you are right. The Defenders of The National Interest will turn up….after lunch no doubt.

‘…He believed the Government was not serious about the matter.” I’m pretty sure I didn’t say the latter. In fact, I suspect the government are probably more serious on this matter than those who claim enormous savings can be made from efficiency gains in the public sector.’

Karl: You didn’t say it? Well you should have. Compare Cameron’s bonfire of the quangos with our own approach. When you say that you suspect that the government is ‘ more serious on this matter than those who claim enormous savings can be made from efficiency gains in the public sector’ – it’s not clear what you mean. I believe 1) that enormous gains can be made from a better run and less wasteful public sector and 2) that the government is not serious about reform of the public sector..

Are you saying that the government far from not being serious about it is actually more serious than those who are arguing for it?

Do you have any evidence?

Any evidence at all?

Even a teeny weeny bit of evidence?

The ESRI produced Recovery Scenarios in late July. They had High Growth/Low Growth scenarios with many assuming things would fall somewhere between the two.

Were the ESRI wrong?

@simpleton

You wrote: “So defenders of the size of the public sector will need to keep their data up to date”

I would’ve thought defenders and attackers (of which you are one) would be under this obligation… Apparently not: only the defenders.

@Justin Collery

My main argument against massive front loading is the labour market effects. If unemployment becomes embedded it will become structural, and that will be very difficult to fix.

I’m in favour of getting the structural deficit on track within two years (make half the adjustments this year, and if things don’t completely collapse the second half the next year), but offsetting the negative labour market effects by increased capital spending (making use of the pension reserve fund).

@ObsessiveMathsFreak,

In your argument against a property tax you say tax must come from transactions, profits etc. That is partly why we find ourselves where we are: stamp duty was based on activity in the property market. When that market overshot, then stalled, that source of income essentially vanished, adding an element of feedback into the downturn. If we had had property taxes, based roughly on the size or value of properties, we should at least have had an incentive for people buying and building to cut their cloth to fit their measure. It would have had a damping effect on prices.

No one I’ve heard who advocates a property tax would have, say, unemployed or low income families, pay high property taxes simply because they own a large house. In any case, the property tax issue is likely to be more part of the debate about building a long-term sustainable base rather than playing a large part in fixing the current crisis – I say that given the way it would have to be phased in, with possible exceptions as suggested by KW.

In expanding the tax base to get every (politically) possible cent to fix the current abominable fiscal situation, we ought not to lose sight of what kind of long term sustainable tax system should be adopted.

@Ahura
“Were the ESRI wrong?”
Yes and some said it at the time. A bad case scenario should have been for negative growth (i.e. a continuation of the current conditions), a double dip internationally (forseeable at the time), increased commodity prices (forseeable at the time), a rise in interest rates based on a German recovery (you get the idea)…

Risk analysis does not involve picking a best and second best outcome and discounting the rest. Taking an average of any outcomes is equally foolish.

@ Rory

Broadly agree, however the context of the discussion is tax.

My contention is that reducing the structural deficit should be by reducing spending as this will reduce GDP (and by a lesser amount the tax take) and so increase the relative tax burden.

I’d further suggest that what is needed is reform of the tax system rather than increasing the tax burden. Flat tax rate, no tax breaks should be pretty simple to enforce, and so would go a long way to achieving some savings in the DoF.

Also on structural unemployment, it’s possible we need a large retraining exercise. Perhaps we just have lots of people with the wrong skills. If so, surely it would be better get them out of work quicker and encourage them to retrain as there is no point in delaying the inevitable.

@Yoga: did anyone outside Ireland take those growth forecasts seriously?

This is the kind of area where IMF involvement would be extremely beneficial in my view.

And yes, you are right: you need to think in terms of all sorts of contingencies, and I don’t think you can rule out continued stagnation next year, it all depends on what happens in the rest of the world.

@ hoganmahew,

If the Irish Independent figures are correct, it places the ESRI in a bad position. Being so wrong over such a short space of time would be devastating for the ESRI’s reputation. Unfortunately, in order to restore confidence, heads should roll. This isn’t a matter of rushing out a new report and excusing July’s by highlighting caveats etc.

@ Ahura Mazda

Were the ESRI wrong?

Does Bernanke know what US growth will be in 2012 never mind 2015?

@ ObsessiveMathsFreak

OK, so you don’t like a property tax.

So what about a local council tax? This would include water, refuse collection, street cleaning, environmental work etc.

It has the merit of having the potential for local engagement with the voters who have no motivation to be engaged now.

If not, the money comes from somewhere, including the loss of about 13% of local government income from development levies.

@KO’R: “And yes, you are right: you need to think in terms of all sorts of contingencies, and I don’t think you can rule out continued stagnation next year, it all depends on what happens in the rest of the world.”

Oil price (aka: energy shock) increase? Food price rises? Interest (real) rates? Stagnation seems probable. Also, the emerging Mortgage Backed Securities mess in the US may unhinge financial ‘markets’, again.

Love to know where so many folk get this fancy idea about ‘growth’. Looks awfully iffy to me.

Brian P

@Ahura
I don’t think it’s entirely fair to heap blame on the head of the ESRI. After all, they didn’t give AIB a clean bill of health three months before it needed to be effectively nationalised.

All state bodies and not just in this state have been deficient in their forecasting. Otherwise we wouldn’t (individual states and collective blocks) be in the mess we are in. The embarrassing thing for all concerned is that risk analysis, in its basics, is a relatively mature profession.
If you can think that it might happen and have an idea how likely it is, it’s a known.
If you can think that it might happen and have no idea how likely it is, it’s a known unknown.
Otherwise it’s an unknown.

Only unknowns are difficult to analyse. Knowns are the ones that get people into trouble most of the time on the basis that they dismiss what they think they understand. The emphasis being on ‘think’. Known unknowns may be difficult to spell out the likelihood of, but the effects of them can easily be modelled. Their interaction with each other (in an economic context) means that at least some of them will happen to some degree, so their effects should be assessable.

Look at it this way (and the wrong way round) – if we did have growth, it would have been the result of recovery elsewhere. If there was recovery elsewhere, commodity prices and inflation expectations would be raised (separately). If even one of these happened, interest rates would likely rise. Given the level of indebtedness and the extent of foreign creditors, higher interest rates would be negative fo BOP which would have been damaging for growth (as money leaving the economy is reducing available capital for further investment/consumption).

So the conditions that would lead us to have growth are the very conditions that are likely to leave us with no growth. No growth is very much the likely outcome. The same factors are at play in other countries that are indebted and projecting a recovery in growth.

So in short (not something I do well!), no, I don’t think it is specifically bad that the ESRI got it wrong. (Nor do I think it acceptable that being wrong in a conventional way is a good out, it’s just that as a state-funded body reliant, to some degree, on government goodwill, there is a conflict of optimism, a green-jersey’d monster which doth mock the meat that feeds it…).

@Tomaltach
Actually, if you are talking about a property tax then I see no ironclad reason why people who own a large house (a valuable asset) should be exempt from an asset based property tax merely because they have no income, or no income in the jurisdiction. The tax could become a lien on the asset and would not have to be a cash charge it the person is cash poor.

If the person does not want to continue to pay the tax they could sell the asset.

@Karl

Concerning your suggestion on property tax:

What do you think about a tax on the equity in a property. The obvious advantage is that those in negative equity will not be hit, it would not dramatically increase the rate of mortgage default and it would tap into the relatively large amount of wealth amoungst middle class over 50s.

I believe such a tax works well in other countries such as Switzerland.

Great slides again. It’s great to see things so well explained.
Like your idea about broadening the tax base.
I wonder howmuch could be taken by a 15% drop in welfare and bringing lower income into the tax net. This would have positive social consequences as well.
Have to say though – should we be surprised that GDP has dropped and that the deficit will always chase it?
Tax increases are less scary than job cuts (and probably less costly socially too). But we currently have a very strange bunch in power who seem to enjoy inflicting pain – (and Varadkar and Noonan are no better). Nothing affirms a sense of power like the ability to inflict pain on others with impugnity.
Anyway – I think slowly and strategically cutting costs and increasing taxes is the best way to do this. Growth returning trumps everything else. The Germans will just have to chill and give us some time. The figures show that we are already doing this too quickly.

@Hugh Sheehy,

But the primary residence is not really an asset in the normal sense. What I mean is, we generally explicitly recognise that the primary residence deserves special treatment. We make special provision in the capital gains code for example. Looking on the primary residence as an asset is precisely the mentality that contributed to the property boom (and as it grew quickly must have been a factor in creating a ‘wealth effect).

I think it would go strongly against the perception of fairness in Ireland to impose a tax on person with no or low income which forces them out of their home. This is why it would be politically impossible.

It looks like two years of kicking the can down the road and harvesting the low hanging fruit have come to an abrupt end. And, of course, things that could have been tackled systematically and progressively over the last 2 years will now have to be done in a rush. But this was always going to be the problem with a government that was relying solely on its constitutional legitimacy to govern. In the absence of a popular mandate for its actions, a rapidly dwindling stock of political capital had to be eked out and only hurdles that could be well-spaced out and vaulted successfully were set up. This approach, finally, has run out of road.

I can only echo Karl’s previous call for an immediate general election. Given the extent and duration of the fiscal adjustment required, it is vital that the people express their verdict. The EC/ECB or the markets can’t call for an election, but any hope of squaring the markets for the eventual re-entry of the NTMA will require some measure of popular consent that may be sustained for the duration of this fiscal adjustment programme.

@Kevin O’R
“did anyone outside Ireland take those growth forecasts seriously?”
Well, some inside the country did. The fact that it was being said was probably being taken seriously in a “is that really what they think is going to happen?” sort of way. Credibility on these things is important.

“This is the kind of area where IMF involvement would be extremely beneficial in my view.”
Perhaps yes. I’m not sure it requires the IMF, just more open-ness with the model that is being used. I don’t see why it shouldn’t be on de web somewhere, with any punter being able to input a number of variables to get a number out the other side. Deciding on the variables and their likely levels is the skill, not adding them all together, dividing by three and multiplying by the number you first thought of!

Perhaps economic forecast models should go the way of weather models? Where simulation runs can be made on a variety of models with a range of inputs? It probably won’t make them any more accurate, it will make their limitations more transparently evident and might lead to better future models.

@Tomaltach
Two people.
One person sitting in a 5 million euro house, retired, low income, kids left home. No property tax.
The other person sitting in a 500k house, working, kids, higher income and saving hard hoping someday to buy a nicer house. Paying property tax.
That’s fair?

See, I look at what’s considered fair in Ireland and I can’t map it to anything I recognize as fair. It must be the difference between tradition and logic or something.

@Tomaltach

The ownership of a primary residence IS really an asset.

If one does not own their primary residence, one has to pay rent to a landlord. Therefore the full ownership of a primary residence provides a return that is at least the rent that is saved each year.

If a homeowner only partially owns their property (with the bank owning the rest), then they should only have to pay tax on the portion that they own.

@bazza

According to WIKI – Switzerland

A proportional property tax of around 0.3 to 0.5 percent is levied by the cantons on the net worth of natural persons. The tax is levied on the value of all assets (such as real estate, shares or funds) after the deduction of any debts.

Sounds like a reasonable enough proposal!

@ hoganmahew,

At this point we don’t have information to suggest the ESRI was wrong. I don’t want to jump the gun, so I’m just laying down some markers. While I recognise that the ESRI didn’t execute bad policy decisions, they are paid for expert opinion. If they are not expert, then what are we paying for. In this regard, they are accountable.

We’ve all got Stockholm syndrome.
Fact is Brian Lenihan isn’t up to the job. Fact is that JP McManus is the only man with a plan – put all our GDP on the 3:30 at Exeter tomorrow and were sorted.
BTW listening to the noises from Germany. If you think those guys are gonna keep buying our bonds you are sorely mistaken.
We have lost the game. Let’s default while we still have some people left living here.

@bazza
IIRC a couple of countries have asset taxes based on concepts like “beneficial ownership”. If you have use of an asset you can end up paying asset tax on it whether or not you actually nominally own it let alone have positive equity in it.

More practically, why should the state give mortgage interest relief and not charge asset tax on the portion of a house that is owned by the bank? Isn’t mortgage interest relief essentially already a tax relief on the part of the house owned by the bank? Ireland just doesn’t have the asset tax on the other side of the equation.

@Tomaltach
“In expanding the tax base to get every (politically) possible cent to fix the current abominable fiscal situation, we ought not to lose sight of what kind of long term sustainable tax system should be adopted.”

Isn’t this exactly what happened with the Commission on Taxation of the 1980s and the most recent one? As one well-informed observer put it
“Broadly speaking, both reports advocated:
• a wider income tax base with very limited incentives;
• mortgage interest relief directed at first-time buyers;
• the reduction/replacement of stamp duty on dwellings with an annual property tax;
• the introduction of tax expenditure budgets;
• the full integration of income tax and PRSI;
• the taxation of development gains.
This suggests that the main problem facing tax reformers is not in devising sensible proposals but rather in getting them implemented.”
(Donal de Buitléir “The Agenda for Tax Reform” Irish Tax Review, March 2010. He was Secretary of the Commission on Taxation 1980-85)

Another case of Implementation DEficit disorder!

@CPAMG
“Switzerland…. A proportional property tax of around 0.3 to 0.5 percent is levied by the cantons on the net worth of natural persons. The tax is levied on the value of all assets (such as real estate, shares or funds) after the deduction of any debts.”
Another name for a wealth tax? And going to “local” government?
The centralisers among our governing classes have
spent years stripping local government, first of resources and then of powers. First the abolition of rates of domestic residences (despite pleas to make it easier to pay eg. as part of the PAYE system) and then on agricultural land (not keeping the valuations up to date)
Does Switzerland also have a similar tax at federal level?
Do you know whether similar taxes exist in other smaller OECD members eg. Denmark, Austria, Finland, New Zealand, Portugal etc.
I believe that France has something similar to the Swiss tax you mention which applies on all assets above a certain threshold eg. €750,000.

Depressed here this evening, listening to commentary on the health budget cuts and how it will result in a reduction in patient care, according to the nurses union.

I just wonder….. What if we introduced, say, German work practices for our doctors, nurses, surgeons etc, AND reduced their wages to German levels?? Could we save the 1bn without making the service even worse than it is?

And crikey, while we’re trying to run the republic for the public instead of the workers, we could also look at doing the same for the esb perhaps, or education, gardai, prison officers etc. I’m starting to feel decidedly optimistic again….

Hopefully they will continue to. We really are in a diabolical mess, but need to be as logical and fair as possible in looking for a solution.

And is it fair that our healthcare workers are paid more than those in the rest of Europe? Especially as there is probably a 50-50 chance european governments will be funding us next year? Same appliies to lecturers, teachers etc.

Depressed again. Good night

@JCY
Fairest way of equalizing the pay is probably through taxes. Then you would have to improve the system too – working in a functional German system would be much easier than working in the dysfunctional Irish system.
Was depressed a bit too earlier but then thought that the worst government in the history of the state won’t be with us much longer (neither might the state either) – so that made me happy.

@Donal O’Brolchain

Yes your right France has a ‘Solidarity tax on wealth’. Better again – Norway has a national net wealth tax levied at 0.4%. The tax is levied on net wealth exceeding NOK700,000 (€86,775) for single taxpayers and NOK1,400,000 (€173,550) for married couples. It also has municipal wealth taxes at much the same rates and for a triple whammy it still has a Property tax 0.2-0.7% on the assessed value of the property!!

In Switzerland in addition to the “Wealth Tax” they have property taxes.

(following courtesy of – http://www.globalpropertyguide.com)

Many municipalities and some cantons impose real property taxes on real estate located in Switzerland. The rates usually range from 0.05% to 0.3%, levied on the value of the property. The rates and the coefficient vary from canton to canton.

Denmark has a National Property Tax

A national property tax is levied on the value of properties in Denmark. The taxable value is the lowest of:

1. The assessed value as of 01 January of the current tax year;
2. 105% of the assessed value as of 01 January 2001;
3. The assessed value as of 01 January 2002.

The tax rate is 1% of the taxable value up to DKK3,040,000 (€407,791) and 3% on the value in excess of the limit. If the property was acquired before 01 July 1988, the applicable rates are generally reduced by 0.5% and 2.8% respectively.
Municipal Real Estate Tax

The municipal real estate tax rate is levied on the land value. The tax rate is between 1.6% and 3.4%, varying depending on the location.

Austria has a REAL ESTATE TAX

Property taxes in Austria are levied on the assessed value of real property, which is generally less than the prevailing market value. It is levied at a basic federal rate, multiplied by a municipal coefficient. The basic federal rate is usually 0.2% and the municipal coefficients range up to 500%

Finland has a Real Property Tax

A real estate tax is levied on properties located in Finland. The tax is imposed on the value of the property at rates varying from 0.5% to 1%. For residential buildings (but not summer cottages), the rate may vary from 0.22% to 0.5%. The actual rates are established by the municipalities, which are the recipients of the revenue from this tax.

New Zealand – Don’t think so

Portugal has a Property Tax (Immovable Property Tax, IMI)

This tax is levied on the officially assessed values or “patrimonial value” of the buildings located in the territory of each municipality. The calculation of the patrimonial value takes into consideration the cost of the building, the average value of the land, the location of the property, etc.

The applicable rate is defined annually by each municipality in a decision taken by the respective municipal assembly. Rural properties are taxed at 0.8% while urban properties can be taxed from 0.4% to 0.8%.

Houses destined to be used as a permanent home and those destined for rental may benefit from exemption, upon application to the director of the local tax office. Exemption from this tax may be granted for periods ranging between three and six years depending on the patrimonial value of the building in question.

Eureka,

So let me get this straight. Let us say the President of an Irish university or a hospital consultant is paid more than an overseas comparison, pay should not be cut to the level of the overseas comparison. No we should raise taxes on all other workers, many (most) of whom would earn less than said public official.

Take another example, if a bureaucrat has no work to do and gets in the way of the efficient operation of the public health system, he should be allowed draw his salary.

Some idea of fairness that. I do earnestly hope for the arrival of the IMF to put anend to your little scam.

@Tull
Give me a break.
I’m not proposing a scam – just a wealth tax if necessary.
This article http://www.independent.ie/health/case-studies/staff-crisis-even-centre-of-excellence-cant-get-doctors-2298619.html is good. Need to bear ease of migration in mind in healthcare and that our system is quite unattractive compared to other countries. It’s good to keep a competitive basic pay rate and then recoup through taxes.
All the other stuff you said just doesn’t follow at all. Wouldn’t be into keeping wasteful beauracrats or having everybody pay the same tax rates etc.
Hope that clarifies – not proposing a scam – we have enough of those already

Property taxes are common in the developed world. Typically value is assessed every 3 to 5 years and the rate is in the range 1% – 2%. There are provisions for the poor, pensioners and so on. On nonpayment a lien is placed on the property and the municipality or other gov’t gets paid when the property is sold in the normal course of events, death for example. It is deemed to be wasteful of resources not to have a property tax. Commercial/industrial rates are typically double residential rates. From the gov’ts perspective it is a very stable source of income, moving average assessment accounts for that.

@Hugh Sheehy

You ask if your scenario with the retiree in the 5m home versus the working family is fair. No. It isn’t. Still, I think it would be politically impossible to force through measures to make the retiree pay a property tax if he or she is on a very low income. Plus, in reality, it wouldn’t be worth expending the political capital to do it: the scenario you paint is tar to atypical to make any difference to our finances. First, the percentage of all people in 5m homes and now retired is truly tiny. Second the percentage of these who happen to have 5m homes and a very low income (i.e. didn’t have significant private pension provision) is likely to be small as well. In sum, this is a corner case which is not worth pursuing.

@bazza
Yes of course the private residence is an economic asset. That is plain. The point is we are talking ‘political economy’ and we still live in a society not an economy. The right to shelter and the sanctity of the home are well established and as I said, as a society, in mores and in law, we recognise that. That is why the primary residence IS different. That doesn’t necessarily mean it could not or should not be taxed. It simply means there are sensitivies around it that the economist can ignore but the politician cannot.

Some of these suggestions do not avoid another property bubble occurring in the future.

I suggest that reform must involve tax on all land and just to make some of you think, all borrowing! That is a fairly clear way to hit the wealthy speculators and embed bubble avoidance. Bernenke and the rest would not have had to pretend they did not see a bubble, there would not be one!

So little intellectual light, but so much shill heat!

KC
+1 Try not to take it personally. All the problem of excess credit is over, the spoils are now being shared out, but all we can enjoy or take with us is memories. Make em happy ones!

A few questions on the charts
1. The charts say the data is from 2009. I cannot read the source. Do the figures for income tax and prsi include the income levy (2%-4%) and the increased health levey (2% and 2.5% to 4% and 5%) in May 2009 or are they pre may 2009?

2. The figures do not chart the drop in PRSI at €75036 which would be an interesting addition, particularly to the conclusions on raising income taxes.
3. It does seem that the single person on low wages (67% of average wage-about €23000) pays less tax (14.2% as against 24.2%). There is a compelling argument to increase this.
4. Chart “Effect of generouus child benefit” I am not happy about because it nets off the cash effect of child. This chart should be shown without child benefit to get a clearer picture of the tax position as distinct from both combined. The reason I say this is that there are several other benefits, particularly health benefits available to assist families in other countries that are not present to the same degree in Ireland.
5. No specific mention of tax exiles or pension contribution, royalty changes. You did mention the commission on taxation so I presume you are endorsing their tax proposals?.

6. Agree property tax but not stamp duty abolotion at least until there is a fully transparent working property tax. Being Ireland we would end up with the worst of both worlds. Stamp duty abolished and a hames made of the property tax.
7. A property tax could be very simple. Base it on the purchase price-and go back to a base year of say 1990 setting a minimum at that year. Then use the CPI index to adjust the purchase price and an offsetting House price index to remove the house price inflation. The final figure is then taxed. Dead simple. No valuation necessery. All based on purchase or inheritance price. Some older houses would benefit from having the base price used but eventually the owners will die and the new price can be set.
8. Expenditure side. Efficiency Savings. Forget it. It will provide nothing in the short ter. Witness progress to date. There is a immediate need of radical ongoing cuts.
A. No more sick pay. Period. Self funded benevolent scheme if emplyees wish. No more exchequer funded sickies.
B. Progressive pay cuts starting at €60,000. 20% cut on next 20,000, 40% cut on next 20,000 increment above that, 60% on next 20000, 80% on next 20,000 and 100% above thereby setting cap.
C. Voluntary go home at 50% pay scheme across public sector, with right of employer to refuse on need basis.
D. Emergency Public Sector Payments order limiting all payment to professional to set low rates for all tiered personnell. If hours are not presented accurately, they don’t get paid

9. Capital Spending. Agreed absolutely. Get rid of metro and all big projects. Spread budget to small labour intensive capital projects across country .ie. small road, flood relief, water systems. Much better spending effect from these.
10. Universality. absolutely right. Get rid of it.

11. Front Load cuts. 10 billion at least in 2010. Pension and higher level pay cuts would have virtually no negative effect on the economy. The rest will have a negative growth impact-say 3%-4%. So. If it gets us out of the hole so be it. But the cuts should be from those who can afford it.

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