The Four Year Plan Post author By Karl Whelan Post date November 24, 2010 The plan is here. Categories In Bailout, Fiscal Policy Tags Four-year plan 174 Comments on The Four Year Plan ← Martin Wolf: Ireland Refutes the German Perspective → Four year plan: Energy and environment 174 replies on “The Four Year Plan” Listening to the press conference. Pet peeve: In his final weeks as finance minister, can someone teach Brian Lenihan that GDP is income not wealth? (9% of our annual wealth ….) question: If we need to start now bringing our spending levels back to 2007 levels, what on earth have we been doing for the last 2/2 and a half years in terms of this So between 2010-2014 the plan is to recruit an extra 2000 employees to Education and reduce the number of gardai by 1500 over the same period ( p. 64). The herds of Golden Calves will continue to suckle at the expense of the almost everyone else: “The scale of the spending adjustment we must now make dictates that investment must be curtailed. But the careful funding choices made in this Plan seek to protect core areas of economic investment such as education and supports for enterprise and innovation for the development of the smart economy.” Karl At this stage income is their wealth for many people. Maastricht return from September 2010 http://www.finance.gov.ie/documents/publications/other/2010/maastrichtreturnsep10.pdf General Government debt in 2010 =155,091 GDP in 2010 = 157,272 155091 / 157272 = 99%. Deficit in 2011 = 9.1% of GDP Real GDP Growth in 2011 = 1.75% Growth in GDP Deflator in 2011 = 0.75% So, if the deficit is 9% of GDP and nominal GDP growth is about 2.5% how does the debt/GDP ratio only go from 99% in 2010 to 100% in 2011? Answers on a postcard …. Karl, Even better if someone point out that GDP is output, not income 😉 @karl Government addicted to confusing an output with an input. Having read the plan (admittedly quickly) disappointed with level of proposed public sector reforms/reductions. Couldn’t divine anything to stimulate indigenous SMEs but might have missed those gems in my haste. @The Alchemist: So between 2010-2014 the plan is to recruit an extra 2000 employees to Education and reduce the number of gardai by 1500 over the same period ( p. 64). Let’s hope they add self-defence to the teachers’ training curriculum. They’ll need it: Boy breaks primary principal’s nose with head butt http://www.independent.ie/national-news/boy-breaks-primary-principals-nose-with-head-butt-2433034.html @ Gekko. Indeed. Perhaps a full memo on output, income and expenditure measures of national income might be worthwhile. May be of interest: Macroeconomic and fiscal deviations from plan 1985-87 Honohan, Patrick May-1987 http://hdl.handle.net/10197/1369 I have just read this piece of the plan. Page 63 “More generally, the Government has already taken action to reduce the pay of politicians and senior public servants.” The top boys hold onto their pay!!!!! What a country. A banana republic. Social welfare of course to get deep cuts. Answers on a postcard … A. Jan 01, 2011 😉 Prices at 2007 levels. Minimum wage cut to 2005 levels. This is an 11.5% cut, one of the largest pay cuts of any sector. Its a far far larger cut than average hourly wages. There is zero evidence that this will promote jobs. Its totally unjustified, and just shifts income up the distribution. NPRF to pay €550m to install water meters. @Karl W, There’s a lot in here to digest – most of it guff. However, would it make sense to open separate threads on each of the main chapters? Actually loads of interesting stuff re NPRF on pages 86, 87. Talk of purchasing existing assets rather as well as investing in new ones. Would the NPRF be purchasing from the State? Roads etc How much did this document cost. This can’t be correct. Someone needs to take a red pen to it and send it back with a big fat “F” Page 102 (ii) Net Pay By 2014, net pay for a single person on €55,000 will be reduced by €1,860 per annum (€36 per week) or 4.8%. The net pay for a married one-income family on €55,000 will be reduced by €2,310 per annum (€44 per week) or 5.4%. New public service entrants to earn 10% less. Does this mean that new TD’s coming in after the general election will be earning 10% less than they are now and existing TD’s will not have any cut? Or are TD’s going to be exempt from all this? What is going to be left in the NPRF? I think these lads need to get a bigger kitchen http://www.independent.ie/breaking-news/national-news/new-poor-join-food-parcels-queue-2434280.html and it doesn’t look like the NPRF is going to be in a position to pay for it. Has anyone spotted where the mass job creation bit is in this yet? I haven’t been able to find it/ Must have missed it in my haste. I’m sure it must be in there somewhere. Suggested title for Plan-Bordering on Reality. It is clearly a damaging limitation exercise by FF for the forthcoming election. A few raids on the NPRF to cover a few holes, more soaking of the coping classes and some unrealistic growth assumptions. @Joseph: good point about TDs – this should be asked by the next journo to get to a cabinet minister. @Barrier Reef The point about net pay is interesting, but I assume that the net pay for a single income married couple will still be higher than for a single person, even if the reduction in the latter’s net pay will be lower. Would be interesting to know the absolute net pay levels of both. NPRF investing in state infrastructure does make more sense than paying fund managers to invest in global bubble equities for a near zero % return over the last 5 years. An average of 2.75% growth in each of the next 4 years. How realistic is that? Given we know there are further problems coming down the line for the Euro and other countries such as Portugal and no doubt some of our major trading partners are going to have hard times too. Rapid notes: re Croke Park and all that: What you gain on the Roundabouts: (page 63) Section 4.2 — Expenditure on public sector pay bill: The pay saving … will amount to €1.2 billion savings by 2014. (or -8%) You lose on the Swings: (page 71) Section 4.7 — Public service pension reforms Pension costs for public servants will continue to rise over the coming years […] an increase of 13% to over €3 billion is in prospect by 2014. Net financial impact of public sector pay/pension ‘reform’ as reflected in 4-year plan: total costs up 5% by 2014. Amen Check this out. http://larouchepac.com/node/16601 Could LaRouche be right, and might Ireland be just a pawn in the game of a fiscal empire. @EB A zero return would still be a better outcome than some of the “capital investment” undertaken by this govt. The BOI rights issue worked well, not to mention PPARs and the purchase of the e-voting machines. In addition we could throw in a few railway lines that nobody uses and a grossly overpriced airport terminal or 2. Although maybe if you do a more holisitic cost benefit analysis to include palm greasing, corruption and wasting money by overpaying for materials the return to the economy might be a bit higher. “Teachers and academic staff will work an additional hour per week” 4.6.4 p70 I think Teachers (primary) are only paid for 22 hours nominally, is this a sop or a slap? I.e will they get some time acknowledged in their (reduced) pay packets or is this to account for future reductions? Any I know work at least 30 hours on everything else a teacher has to do. They are the eager young dedicated one I suppose, some of whom have left the country in the past 3 months. RE: NPRF to pay €550m to install water meters. Makes sense, revenue generation through standing charges, so a guaranteed** return on investment of some kind, on pension time-scales. I’ve just told my cousin that what cash he has in the bank is ok as long as the Euro remains credible, with depositors insurance etc. Not something I expected to ever have to explain but the more of this report I read (this being our ‘play book’) the more the “tinned goods and shotgun shells savings fund” feeling rises in my gut. Where’s gambling tax? Slow removal of subs for racing / bloodstocks? @Andrew S – “Where’s gambling tax? Slow removal of subs for racing / bloodstocks?” Mr Magnier said “no” Annex 4 (Budgetary Projections 2010-2014) on p110 of the National Recovery Plan document has me confused and concerned. We’ve been told the 15 billion Euro program would entail 10 billion Euro of expenditure cuts and 5 billion Euro of tax increases between now and 2014. However, looking at the projections between 2010 and 2014: Gross current expenditure will decrease by € 2.1 billion (or ~ 3.5%) Net current expenditure will decrease by € 2.2 billion (or ~ 4.6%) Tax revenues are projected to rise by € 10.7 billion (or ~ 34.0%) Net tax revenues are projected to rise by € 8.9 billion (or ~ 26.0%) It seems that the vast majority of the deficit is to be closed via tax increases rather than expenditure cuts. Can someone explain? @Michael NJ USA Says: BAD://larouchepac.com/node/16601 Virus warning on my system (I do get false positives tho) I’ve not heard of this crew, but major tin hats! Jeez. And I’m feeling very “Fallout” today. @Eoin Agree. Better NPRF invest locally than in Asia. Pity about their ‘investment’ in banks. How much are they down today? @Eoin, When you put it like that one would be inclined to agree, but its impact (c. €500 mn) is likely to be small. The reasons given for this raid on the NPRF: “The key attractions of the asset class [infrastructure assets] are summarised below: – Long term horizon. – Stable cash flows. – Low volatility. – Potential for inflation linked returns. – Increased portfolio diversification.” perfectly express the attraction of infrastructure assets in Ireland to external and domestic infrastructure and pension funds. But of course we wouldn’t want to sell any assets, build up the NPRF and reduce net debt and the debt/GDP ration. Minister Ryan has secured the ring-fencing of the ESB and BGE to gouge consumers to finance his Green fantasies. Even if he loses his seat in January (which would be well-deserved) he will have bequeathed an onerous and unncessary burden on consumers and the economy. The energy prices to large energy users have been reduced by ‘re-balancing’ tariffs so that households and small businesse pay more. And I’m not sure how closely the Eurocrats read the document. BGE investment will, inter alia, continue “to build a vertically integrated energy business” (and the ESB is treated implicitly as vertically integrated business) which runs totally counter to the network unbundling requirements of primary EU legislation and the policies being pursued by DG COMP and DG ENER. There is very little evidence of the expected imprint of the IMF or EC on this document; it just looks like the usual FF/Green attempt to suspend disbelief. Interesting to see that the Taoiseach (answering a UTV reporter) is still committed to give away half a billion to Northern Ireland – sure we have loads of money to give away!!! Would that money not be better spent in this jusridiction??? @Joseph An average of 2.75% growth in each of the next 4 years. How realistic is that?… This is crucial. I think it could work (for all the wrong reasons) in the American way where there’s a huge breakaway by the ‘wealthy’, re-entering the market a la Chicago School. Feudalism (dare I make that another capital F word?). It’s the IMF. Creative destruction innit. A very poor attempt – not surprising coming from this administration – but very sad for anyone who thought this crisis would bring in a new way of thinking and acting – absolutely dreadful response. Can the new administration do better?Unlikely give that the same sterile ‘permanent governent’ thinking will be in place no matter who forms the new Govt. It’s quite vague on shaking up the professions. the only professions they address directly are the legal practitioners. but even here, their plan amounts to a stricter Taxing Master and increased use of Alternative Dispute Procedures. Both good ideas, but hardly going to introduce “rigorous competition”. Where is there anything about addressing the cap on places in King’s Inns? Or the monopoly on training Barristers that this August institution enjoys for no apparent reason? Last time I looked, Irish 10 year was about 8.9% today Debt servicing costs causing a few flutters? Richard Tol has a new thread. Overall, the four year plan repeats many of the things that we have seen before. It is not a new strategy. It is more of the same. Strikingly, there is no culling of quangos and no privatization. That just about sums it up. I suspect that the most incendiary part of this whole plan will be the suggestion of reforming the Joint Labour Council agreements (Pages 35 and 36). Although it is vague and leaves the details to be provided in a report to be published in 3 months time -by a completely different government. @Joseph Gone over 9%. ‘Irish bonds fell today, pushing the yield on the country’s 10-year debt up 38 basis points to 9.03 percent. The premium investors charge to hold the debt over German bunds, Europe’s benchmark, widened by 28 basis points to 614 basis points. The yield premium reached a record 652 basis points on Nov. 11.’ A bit early to judge market reaction. How does this 4yr plan relate to the IMF? Does it have their buy-in or would they have another plan in mind? My thoughts on energy and the environment are here: http://www.irisheconomy.ie/index.php/2010/11/24/four-year-plan-energy-and-environment/ @Ahura Mazda ‘How does this 4yr plan relate to the IMF? Does it have their buy-in or would they have another plan in mind?’ I doubt if the IMF signed off on this. Everything seems to be on the long finger which is not generally their modus .The markets will pronounce on it quickly and I am not convinced we will see a positive reaction. I have actually changed my mind on all this. I thought if we took the necessary steps, we could work our way out of this but unfortunately I have to join with the people who say that the only way for Ireland (and the Euro which in my opinion is hurtling towards self destruction) is for a major restructuring of debt. The markets are now fast moving in the direction of believing that the entire Eurozone is in danger of collapsing. This has moved past Ireland, budget deficits and the banking crisis. Europe needs to do something drastic to stop the slide. Spain is now in real danger for no logical reason as nothing has changed in the past few weeks apart from market sentiment. The market simply moved on when Ireland got the bailout. (positive sentiment lasted about 24 hours if that) As for the four year plan, I think it is a decent attempt but I don’t think it will be enough and I think the growth assumptions as mentioned above are too optimistic. @ceteris paribus I doubt if the IMF signed off on this. Everything seems to be on the long finger which is not generally their modus … Yes, the 4-year plan is the kind of damp squib that could explode in the government’s face, if I may mix my metaphors. It could all have been written six months ago. Was it for this that half Oirland remained glued to the box for the past week? Was it for this that the sons and daughters of Kaitlin Ni Houlihan …..? I don’t think the growth projections are particularly realistic. Besides, I don’t think the impact on tax revenue is independent of where the growth is coming from. I’d imagine growth is most likely in the export sector which will give the country a fiscal bump of 12.5c on a euro of GDP growth, whereas “job-based growth” would take people off the dole and start paying more taxes. Does anyone know if the Department have a memo on how they deal with these issues? Does anyone (Ron Davies?) know if there’s a literature on this? (Karl: typo in the title, I think.) @scorprio >> Would that money not be better spent in this jusridiction??? …thus spoke the Tory backbenchers about our €8bn bilateral loan. @ Karl Hmmm, i think it rather shows the fervour in everyones comments (justified) that it took til comment#48 from Enda for anyone to spot the typo in your title!!! yes karl, you left out the “horsemen of the apocaypse” bit @John – I could not care less about the Tory backbenchers but I very much care about what happens to my taxes. This wasteful government contunes the waste. If the Tories want to give us a present of a few billions, lets have it. If they want to give us a loan it better come at the right interest rate or else they can keep it. Pensioners unscathed – did they not benefit from the boom?? Yes, but they vote and they whinge. Lots of whinging on RTE Radio 1 right now – minimum wage, public sector numbers, pensioners….. If the cuts are not broadly based i.e. everyone takes some hit, this is going to be incendary!! Sure, not everyone should take the same hit and those who can afford more need to shoulder more of the burdon. While not fully through it yet, the plan is a disastrous fudge, a wimpish response to a hard-ass crisis. Public sector costs largely untouched (Croke Park intact). Nothing specific or structural on social welfare rates. No structural reform. Anywhere. Tax bands broadened a tiny weeny bit. Capital expenditure heads on down. Apparently once you’ve built motorways there’s nothing left to do. This document indicates to me that the govt wants to fall on or maybe even before the budget. They’ll be able to deny that they were going to cause pain to anyone and able to blame any incoming govt for all the horrid decisions that they’ll have to take. @Enda F, Agree completely. This has been my sense since market sentiment turned against Ireland. The markets are moving in for the kill. The outer perimeter formed by the peripheral countries has been breached and it’s up to the commanders in the Franco-German fortress to respond. @ Enda F “I have actually changed my mind on all this. I thought if we took the necessary steps, we could work our way out of this but unfortunately I have to join with the people who say that the only way for Ireland (and the Euro which in my opinion is hurtling towards self destruction) is for a major restructuring of debt. The markets are now fast moving in the direction of believing that the entire Eurozone is in danger of collapsing. This has moved past Ireland, budget deficits and the banking crisis. Europe needs to do something drastic to stop the slide. Spain is now in real danger for no logical reason as nothing has changed in the past few weeks apart from market sentiment. The market simply moved on when Ireland got the bailout. (positive sentiment lasted about 24 hours if that)” I am beginning to come round to this opinion myself, although I haven’t fully made that journey just yet. For me, the danger has escalated in recent weeks as the ECB has signalled its impatience with backstopping the Irish Banks (arguably its basic function). We could very quickly see a full-scale run on the banks and that would put the tin hat on this whole sorry affair, leaving default inevitable. However, I have not completely given up hope yet. I think with a new Dail and a strong Government, with a wider support base -working in consultation with the IMF, on a 4 year plan for reform of our finances and economy, devised by the opposition (assuming FF will be in opposition shortly), we can get back to being a strong surplus country, paying down public (as well as private) debts through increased output and the sale of unnecessary assets. At the moment we are in a perfect crisis where the State has lost the ability to act at a moment when it should be girding itself for the passing of a controverial budget. But this crisis will not last forever, and one thing is for sure -the budget will be passed, whether we like it or not. Post-elections and post EU/IMF negotiations, I think we will recover the ability to act and will be even more decisive for this period of despair. I think…. but truly nobody knows what’s going to come next. Suppose you have to let the government off for sticking to Croke Park and being forced to leave Irish politicians the best paid in Europe. If there had only been something in that agreement about different economic conditions, that would be different. Oh wait…..! There’s no mention of what we’re doing with all our banks either… Anywhere. That scares me. That could get worse and worse and worse rendering all this so much tears in the rain. I’m afraid I’m stuck in the ginger whingers leftist camp somewhat. All expected. All depressingly right wing. A punch in the guts of minimum wage earners. TDs and Croke Parkers ducking and weaving. They can duck and weave. Capital flights must be protected. Flights to where? Brazil? Pensioners did benefit but are they really the ones to shoulder this? They’ll put their shoulder behind their kids / grandkids as ever, and have done over the past 5 years as middle income earners tried to get liquored up on housing (how dare they!). Why put the government in there? (ok, so I’ve a bit of the right stuff in me). And all the time AIB, BOI, Anglo et al drink deep and long. /retch OK, let’s get this over with — the facts are clear enough. This Plan provides a blueprint for a return to sustainable growth in our economy Flower of the mountain yes when I put the rose in my hair It sets out in detail the measures that will be taken to put our public finances in order like the Andalusian girls used or shall I wear a red It identifies the areas of economic activity which will provide growth and employment yes and how he kissed me under the Moorish wall in the next phase of our economic development just to try with that thing they have swelling up on you so hard and at the same time so soft when you touch it specifies the reforms the Government will implement and I thought well as well him as another to accelerate growth in those key sectors and then I asked him with my eyes to ask again yes and then he asked me Reducing the budget deficit will not, by itself, would I yes to say yes my mountain flower solve our economic difficulties and first I put my arms around him yes We must build on our strong export performance and drew him down to me so he could feel my breasts by improving our competitiveness all perfume yes and his heart was going like mad We must enhance our productive capacity and yes I said yes I will Yes. THE END BTW it was James Joyce who wrote the saucy bits. @ Hugh Sheehy “This document indicates to me that the govt wants to fall on or maybe even before the budget. They’ll be able to deny that they were going to cause pain to anyone and able to blame any incoming govt for all the horrid decisions that they’ll have to take.” I don’t think so. What you say sounds logical, but it would require absolutely breathtaking arrogance and disregard for the public interest on the part of the government. While they are a national embarassment, and have been an additional burden to a State that was already in trouble, i don’t think they’d be capable of intentionally sabotaging the upcoming budget vote. It’s just too much to believe. I think this is a classic case of ignorance over malice. Yes there was malice but there’s plenty more ignorance to go around. Ten year bonds rose from 8.8 to 8.9% in the two hours after the publication of the plan. http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND @Ger – “We could very quickly see a full-scale run on the banks” In some ways, I’m surprised that we haven’t seen any tangible signs of panic. Although we have no way of knowing of course what is really going on behind closed vaults over the past few days. One wonders if with interweb banking more widely used these days that perhaps there is a run of some kind going on (the ‘first movers’ as it were) but we just don’t see queues of people outside the banks any more? A kind of internal bleeding that you just don’t see. I’m sure many (I was one of them) took their money out of Northern Rock online a day before it all blew up. I was in France working at the time and moved mine pretty fast as I saw the press release before 99.9% of the public picked up the story when it broke on the news. It’s more likely than not that people who use internet banking are slightly ahead of the curve anyway in comparison to others of the general public. Alternatively, the media haven’t put that thought into the public psyche….. yet. I wouldn’t trust the Irish Star, Mail, etc. to behave responsibly at times like these. Ironically, I just took the prudent step of moving a chunk back to that NR account today. Glad I kept it open. One never knows. Good man Carolus. God bless those Sea Road Jesuits. It’s going to take a bit of time to digest it all. However a few points of pain here… 1) Payments for private rental of accomodation will no longer be exempt from income tax. That is going to hurt. 2) Pension contributions will eventually drop to 20% relief rate. That is seriously gonna hurt. Might be no reason to invest in a pension after all. Some of the suggestions are a bit wishy washy, extra hour / week for teachers in 2nd level + 3rd level. What does that mean? Patrolling the corridors at lunchtime? Well they are already doing that anyway? PTA meetings up to 9p.m. to be extended to 10p.m.??? Huh?? A lot of teachers already put in many extra hours anyway, after school sports activities come to mind, field trips and field studies etc. It will be interesting to see how the re deployment of teaching staff comes about, will one be able to put in for milage etc? You guys need to stop discussing this plan and go out, get liquored up and start rioting! I meant to say as well that one of the things that worried me during the whole time they were talking in the press conference, not one single mention of the banks. Scary. Unbelievable. Perhaps my definition of ‘cuts’ is wrong, maybe I’m reading the numbers wrong. Page 17 gives a graph showing the ‘reduction’ in spending to 2014 Page 25 gives the expected GDP figures for each year Match the two to get the cash figure for each year and guess what, they are the same for each year! Yip, not less, not by €1bn, not by €10, nope, exactly the same. They are not cutting in the you and me sense, they are cutting on the, I’ll hold off and not spend the extra couple of Euro sense. The time bomb in all this, is that while the cash figure for spending is the same, the interest rises, reducing the actual spend. This should be easy, stop spendig so much money, please. JC @Karl Whelan “So, if the deficit is 9% of GDP and nominal GDP growth is about 2.5% how does the debt/GDP ratio only go from 99% in 2010 to 100% in 2011?” Postcard from Tullamory: Cash on hand to be used now that a line of funding is secured, it makes little sense to keep it as cash. What about the banks? Hoonose. Does this say 5ish% rather than 7ish%? I haven’t had a chance to look at the other details of The Plan, but for what it’s worth, here is one labour economist who thinks that cutting the minimum wage is worth trying. I’m highly sceptical of all the supply side stuff – the time to do that was when anyone who wanted to get a job could. And most of the demand side stuff is either outside giovernment control or unaffordable as it would involve extra borrowing. The minimum wage is just about the only demand side variable in public control. There may not be strong evidence that this will promote jobs, as Rory says but nor is there strong evidence that it won’t, and it’s worth a try. (Contrary to some comments on other threads today, the evidence of a negative relationship between the minimum wage and the demand for labour is mixed). I worry too about the effect on inequality, but I worry more about the effect of long term unemployment, particularly on the young. Gotta say that on first glance some things in this seem risible. Im thinking of the debt servicing costs (p108) of between 2.5 and 5.5 %. What planet is this? Aedin Cutting the rate by what, 12%, the minimum wage I mean, assumes that there are loads of employers with pent up job demand that are priced out. Do we have any evidence whatsoever that there are such? REA’s would seem, from people I talk to, to be much more a problem. and they are longfingered @all Does the document propoese to 1. Cut the pay of the 600 top “civil servants” that were exempted last time? 2. How do m’lords fare in this document? JR 1 : Hell no : P63 “More generally, the Government has already taken action to reduce the pay of politicians and senior public servants.” 2 : See above No need to panic. FG will ride to the rescue. http://www.reuters.com/article/idUSWLA902520101124 So I have read the posts over the last hour and am getting the feeling that the general reaction is a mix of lack of belief that this will have any material effect and a sense that it is a missed opportunity? Would that be accurate. OK It is very obvious that this 4 year plan is in fact the FF Santa Christmas list. Their near last act in government is to bring out a totally unrealistic last ditch attempt at vote grabbing. I bet Ollie Rehn is delighted with it, NOT!! The lower tax rate is left untouched until 2013 Public sector pay actually goes up according to CG’s swings and round abouts. And they are going to reduce Social welfare bill even though they are going to add Thousands of Public servants, and thousands of Financial Services workers to the Dole Queue’s. They are obviously counting on a mass exodus. I thought the last two budgets were rediculous because they admitted they were being optimistic (more risk on the downside, they called it) But this is 4 year plan is a work of pure fiction. If it is true that a new government can renegotiate this within the bounds of the broad fiscal adjustment parameters, this document isn’t worth a cup of spit. In any event the market – and the caravan – has moved on. Next stop Berlin. No comment on the proposal to reduce tax relief on pension contributions as well as abolish PRSI and levy reliefs. I would have thought that might have provoked some ire. But then since the main beneficieries claim it is only “deferred tax” perhaps it makes little difference? “The Plan provides for the elimination of employee PRSI and Health Levy relief on pension contributions in 2011. It also commits, among other changes in 2011, to reducing the annual earnings cap for employee/personal pension contributions by almost 25% from €150,000 to €115,000 and to reducing the SFT. These measures combined will yield approximately €200 million in a full year. Over the following 3 years of the Plan the rate of income tax relief on pension contributions will be reduced from 41% to 34% in 2012, to 27% in 2013 and 20% in 2014. This will yield an average additional €165 million in each full year giving an overall cumulative reduction in pension tax expenditures of €700 million. In addition, a consequential reduced rate of relief on the public service “pension-related deduction” will yield a further €240 million in a full year.” @AMcGrath The pension reliefs plan is deeply silly, but since it was signaled well in advance it’s not breathtakingly astonishing. The lack of content in the rest of the plan is breathtakingly astonishing. @Ger As you may guess, I have lost ALL faith in the current govt, not just most of it. @Michael NJ USA WTF? Greg where is the death star? The lunatic fringe needs a haircut – however I do like this link – the net is closing in on lloyd b http://larouchepac.com/node/16606 @ Seafoid Let there be no praise of the Jes here please…. @ BL/ Aedin I suppose the high minimum wage attracted too much international attention. Looks good to see it lowered, but it should be accompanied by a lower vat rate on the daily essentials, or the like… @seafoid Go raibh maith agat @Brian Lucey Cutting the rate by what, 12%, the minimum wage I mean, assumes that there are loads of employers with pent up job demand that are priced out. Do we have any evidence whatsoever that there are such? Sorry, Brian. As you know the default hypothesis is basically the same for the ‘minimum wage’ as it is for the ‘minimum tomato price’: if you raise the price, you lower demand, and vice versa. Do we have any evidence whatsoever that establishing a minimum tomato price reduces the demand for tomatos? To ask that question is to answer it. To be fair, that’s not really your question. Your question is: does lowering the minimum wage by 1 euro / hour have a marginal effect on employment or does it have a sizeable effect on employment? You seem to assume by default that the effect is marginal. But why do you try to put the burden of proof on the other side? Why is your skepticism so one-sided? My hunch: you’re biased. Actually, why don’t you suggest that the minimum wage should be raised by 1 euro if there is ‘no evidence whatsoever’ that reducing it by 1 euro has any effect? And if raising the minimum wage by 1 euro has no effect, why not raise it by 2 euro or by 3 euro or by 10 euro? BTW I’m not saying that reducing the minimum wage is a ‘good thing’ in some transcendental moral sense. Obviously it’s a ‘bad thing’ for some low wage earners, and a ‘good thing’ for some unemployed on the margin. I’m just pointing out that there is a tradeoff of some kind. Now go and do your homework. Joan Burton asked if this plan is”the statement of Intent” which can be restructured before budget and election – or, she continued is it the “Memorandum” which has been agreed with EU and cannot be altered…? Minister Martin did not answer that question in his “reply” – end of programme RTE radio this afternoon @ Aedín Doris 11.5%, plus taxes, is an absolutely massive cut to experiment with. The last Quarterly National Household Survey shows employment in Accommodation and Food is stable, though Irish workers are displacing foreign workers. Page 28 http://www.cso.ie/releasespublications/documents/labour_market/current/qnhs.pdf There is zero evidence this will work. I accept that empirical evidence is mixed. But I know of no evidence of min wage cuts in a recession. The general equilibrium effects in a recession will probably further cut demand, and jobs. Low wage businesses are cutting the wages of their customers. Some income is being shifted up the distribution, where more money is sent out the economy. Its a fairly risky experiment. Finally the report shows that they even got the basic facts wrong. Ireland doesn’t have the 2nd highest minimum wage. This is as Eurostat data is based on monthly rather than hourly wages. France has a 35 hour week, we have a 39 hour week. Then there are the Scandinavian countries that have de facto minimum wages that are higher. Finally employers don’t care so much about wages, they care about labour costs. Employer social contributions in Ireland are far lower than other countries, so the minimum labour cost in Ireland is lower than the minimum wage suggests. I have experience in retail. Shop owners give workers hours to match demand. They won’t hire workers to serve customers that don’t exist. We need to boost demand, and increasing wage inequality achieves the opposite of this. This looks to me like nothing more than the FF manifesto for the general election – and the manifesto of a party that knows it is going to be in opposition. It is old fashioned Political Economics aimed at making the next government look bad – “of course, we wouldn’t have done that”. Will it trap FG into not doing the necessary? Probably. “So, if the deficit is 9% of GDP and nominal GDP growth is about 2.5% how does the debt/GDP ratio only go from 99% in 2010 to 100% in 2011? Answers on a postcard ….” Apparently the answer is that the initial debt/GDP ratio is not going to be 99% this year. I’ll put up a full post clarifying later. CG “You seem to assume by default that the effect is marginal. But why do you try to put the burden of proof on the other side? Why is your skepticism so one-sided? My hunch: you’re biased. ” Really? Biased…how? In what regard? Theres no clear evidence one way or another that MW has a major effect on the supply of low paid jobs. If we take the “its too high” meme as given why not cut to 0.01 or 0? Would that mop up some unemployed? Maybe. But i suspect that jobs follow demand, not vice versa. Go do your homework BTW – I am biased in this regard: 11% cut in the MW and ZERO in TD/Senior Civil Serv/M’luds ? FFS. That alone there deserves the whole thing to be flung out. We are a society. Or were, once. @Carolus To be entirely accurate, change any price doesn’t “change demand”. A shift in demand can change a price though. What Brian is asking, justifiably, is whether ther is any evidence that suggests the labour market is currently constrained on the demand side. Are there mployer willing and able to take on more labour at the margin, but can not because of the price floor. Something to note, that even if it is the case that the labour market is demand constrained and the redcutino in the minimum wage does increase employement (a shift ALONG the demand curve), we will also witness a shift along the supply curve as well – people will drop out of the labour market, not will to work at that lowr wage. In fact, if demand for albour is complety inelastic in the region of issue (€7-€8) and supply is elastic, then we might expect to see no change in the level of employment, but a drop in UNemployment. Wierd huh? Brian C and Brian Dobson going head to head on RTE news. Sad to see that these two handsomely paid state employees exchanging terse words. They should both relax. being overpaid by prob about 40% they wont be hurt by minor shifts in tax bands or pension rule tweaks. @Rory O F “This is an 11.5% cut, one of the largest pay cuts of any sector” Of course the “cut” isn’t an actual cut – and unlikely to be imposed on most existing minimum wage earners. I believe it should be abolished. It will find a natural level. How mobile are the Irish workforce who might be considering working for the minimum wage? NAMA keeps their rent up, government decreases their pay….. Not sure if this will generate employment or if it will do something else. @Brian BTW – I am biased in this regard: 11% cut in the MW and ZERO in TD/Senior Civil Serv/M’luds ? FFS. That alone there deserves the whole thing to be flung out. We are a society. Or were, once. Actually, I agree with you on that. Peace be unto you… @ Paul Hunt http://www.reuters.com/article/idUSWLA902520101124 The article refers to “the plank of EU/IMF bailout discussions”. Is that code for Brian Lenihan ? Ollie Rehn said this plan provided the basis for the negotiations currently taking place. So i would assume the IMF/ECB have other demands to add to it. Maybe the difficult cuts listed above are just being left to the outside bodies to announce. Well, that’s 94-0 comments trashing the plan. You really have worked yourself up into a frenzy on this one folks. No redeeming features at all? It is actually quite thoughtful in places, quite radical in others. Taken in context, I’m not sure what else you could have expected? Oh, I forgot, all you armchair revolutionaries were expecting the overthrow of the state. Can I suggest you man the barricades rather than adopt the dilletante poses revealed here? No doubt you have all penned your thoughtful remarks while gazing wistfully at your fading poster of Che. @ simpleton I’m not calling for a revolution, but there will be a march to the GPO on Saturday. A previous march to the GPO by trade unionists caused quite a stir. This one is more limited in its aims. 🙂 (I haven’t read the report in depth, just shocked at the min wage bit, but I’m happy enough with the carbon tax) The evidence on the impact of the minmum wage on employment is mixed because it is contingent on other factors. A lot of the time it seems to be close to zero, so if the question is what impact the minimum wage has on employment in general, the answer is “not much”. In the locally traded sectors in which most minumum wage, and near minimum wage, jobs are located demand for services is pretty price inelastic (at least over the short run), so demand for minimum wage workers is pretty price inelastic too. Moreover in any economy butting up close to full employment with limits on manpower supply the scope for changes in the minimum wage to impact on employment is pretty limited. But it makes sense to look beyond the general minimum wage literature to ask what impact cutting the minimum wage is likely to have under the conditions we are currently experiencing. It’s strange how seldom cost competitiveness gets an outing on this forum, other than in the easy (for most of us) area of tackling protected sectors. Despite this, insofar as there is a standard storyline about how we are going to get out of the unemployment mess we are in, it includes a sharp increase in cost competitiveness in both exporting and non-exporting sectors driving exports, which drives an increase in exporting employment, which drives an increase in, well, employment in minimum wage jobs (amongst others). There are also some export dependent and import-competing industries – primarily food and tourism – in which lower pay at the low end of the scale should have a more immediate impact on demand, and therefore a more immediate impact on employment. Cutting low end pay is only part of what needs to be done to improve cost competitiveness, but it is an important part. Yes, public service pay should be taking a hit in the plan. Yes, tackling waste in utilities should be in the plan too. But a serious strategy for recovery cannot avoid tackling low end pay too. @Rory, This is not meant to be a ‘smart’ question, but i am curious: can the minimum wage be too high? If so, what sort of level would the evidence suggest? @simpleton Good addition to that is – too high for what? For example I know for a fact it is too high for many OAPs to get their lawns cut! @BeeCeeTee Thanks for your excellent post. But I reckon no amount of evidence will ever change the convictions of the pro minimum wage ideologists. It is an article of faith among them that even a major reduction in the minimum wage will only have a marginal effect on employment and challenging it just makes them hot and emotional. Again, I ask: if they’re so convinced that reducing the minimum wage by 1 euro/hour will have no effect, why don’t they propose raising it by 1 euro? Ideologists just love to have their cake and eat it too. Talking about the march on Saturday – apparently ICTU believe that the economy should be wrecked – not just in how the government are doing it I’m not kidding – I look forward to see the placards: THERE IS A FAIRER BETTER WAY – TO WRECK THE ECONOMY or: TRATIORS “The protest for a fairer better way to the Government’s plans to further wreck the economy will assemble at 12 noon on the 27th November at the Civic Offices on Wood Quay in Dublin and march to the GPO on O’Connell Street.” http://www.siptu.ie/PressRoom/NewsReleases/2010/Name,11983,en.html @simpleton I don’t have a portrait of Che on my wall. I have quite a few pictures of my kids, which might explain my lack of patience for people (including the current govt) who seem bent on buggering up my country. @ simpleton Well €100/hr would obviously be too high. As BeeCeeTee said there are so many other factors that affect the analysis. In most cases the min wage is set at a ‘moderate’ level. An EU target is 60% of the median wage. So all the studies refer to such moderate levels. When Britain introduced their min wage they deliberately set it at a low level, and then gradually increased it. I don’t know of any natural experiments when governments set very high min wages. Maybe there is something from the reunification of Germany, and different min wages in different states. The phrase ‘too high’ suggests their is an optimum. But is the optimum that which maximises employment, or incomes of the low paid? I don’t want to define what is the moral optimum because everyone has their own view on that. But suppose incomes go up 10%, and employment down 5%. If workers switch jobs a lot their average income is up 5%. As an aside, I’ve been to a various conferences on the topic. I was actually surprised to find Norwegian and Singaporean trade unionists against a minimum wage in their countries (though for different reasons) and employer representatives for cleaning and security sectors in different countries actually in favour. Two points: 1. Those that drafted the plan will not implement it and those that will implement it are saying they will change it. So, the plan has limited relevance. 2. The plan is silent on the banks which will throw petrol on the fire and destroy what might be left of the economy. If the 4-year plan is rejected then a plan for the banks has little prospect of success. Back to square one. A cut in the minimum wage will contribute very little to national competitiveness. According to the 2007 National Employment Survey 14 percent of all employees in the State had hourly earnings below €10 while a similar percentage had earnings above €40 per hour. When account * is taken of hours worked, employees earning less than €250 a week represent only 4 percent of the national wage bill as compared with a 13.5 percent share for those earning over €1,500 a week. A ten percent reduction in wages for all 233,000 employees earning less than €250 a week would reduce the national payroll by 0.4 percent whereas a similar reduction for the 233,000 highest paid employees would reduce the national payroll by eight times as much. For maximum impact, any campaign to improve national wage competitiveness should start with high-paid employees, directors, public sector workers, politicians and self-employed rather than with the lowest paid. * This required a special analysis of NES data by the CSO. I doubt that the pattern has changed very much since 2007. Reuters reports on the skepticism in markets, as expressed by S&P: “Credit rating agency Standard and Poors said Cowen’s government was too optimistic in assuming growth and the Irish economy would struggle to expand at all in the next two years. Dublin forecasts real GDP will grow an average 2.75 percent from 2011 to 2014. But S&P said nominal GDP — not taking inflation into account — would be close to flat in the next two years. “There is a meaningful difference,” said Frank Gill, director of S&P’s sovereigns rating group EMEA.” This is the nub of the problem – we cannot grow enough while cutting so severely. It’s a fiction. And as a result, the debt needs to be restructured. Why are we still waiting for the endgame Via FT, RBS (incidentally the bank has big Irish exposure) not too convinced. “We believe the quoted banks need Eur16bn of capital and Eur38bn of a funding lifeline or Eur54bn in total from the EU/IMF. We have made an allowance for further deposit outflows on the back of the instability of this past week and the multinotch sovereign downgrade by S&P and imminent similar action from Moody’s. This assumes the balance sheet stands still and that there is no further terming out of the balance sheet. If we include these two items then the funding component of the quoted banks needs would rise materially.” “The differential between our estimates and the market speculation of a total package for Ireland in the range of Eur85bn can be explained via the following: i) We use BIS3 not BIS2 because it is challenging to believe in any credible method of the banks ‘earning’ their way to ‘new world’ ratios in the current [climate] ii) Our figures look at the quoted banks only but clearly the other main players (Anglo, INBS and EBS) would need support iii) our figures also exclude the sovereign needs. iii) Mental maths would lead us to a larger total figure for Ireland than Eur85bn once we include these missing elements. We believe that the funding lifelines may not be as big as we think but it all depends on how conversative the EU/IMF officials want to be.” Germany is actually quite an instructive example. It mostly has sectoral pay setting arrangements that operate nationally. After reunification, unemployment in what was formerly East Germany shot up above 20%, and remained at an appallingly high level for many years. The persistence of the problem is typically blamed on nationally-set pay levels making former East German workers uncompetitive. What finally solved the problem is that Germans have just gone through something resembling a 10 year national pay pause, which has made the Eastern part of the country competitive again. That’s a large part of why the German economy is doing well now, while large parts of the rest of the EU are ****ed. @Rory O’Farrell Good comment. Just one point to add: It is important to distinguish between the empirical and the moral dimension of the minimum wage issue. The empirical dimension is at least in principle soluble, with sufficient observation and non-cherry picking of the data. I am pretty clueless here but at least I am aware of my limitations while Brian Lucey is convinced that he is right, although he is also clueless. The moral dimension is not soluble because of the subjectivity of moral values. For extreme libertarians will favour absolute freedom of contract even if the sky falls in and extreme egalitarians will always favour coercion regardless of the human costs. Since this is supposed to be a ‘science-friendly’ blog, we should really stick to the empirical dimension and exclude the what-would-Jesus-do element as much as possible. @ All http://www.rte.ie/news/2010/1124/economy_depts.html Good page showing the cuts per department and what Colm n the boyas in An Bord Snip Nua had recommended. @Brian, What I think you are missing is that the number of people whose pay is de facto referenced to the mimimum wage far exceeds the number of people actually on the minimum wage. Workers don’t like being paid the minimum. Employers don’t like paying them the minimum because it demotivates their people, because they can get better performance by paying a bit more, and because they like to be able to reward experience. If you drop the minimum wage, you drop the reference against which the pay of many people being paid at a higher level is set. Big impact. grumpy “Mental maths would lead us to a larger total figure for Ireland than Eur85bn once we include these missing elements.” Mental is right. Absolutely Radio. Simpleton, You have got to be joking. You have consistently decried the lack of brain power in the DOF yet mirabile dictu these dunces have produced a coherent plan. Is it a coherent plan..hell no *the growth assumptions are optimistic and are completely at odds with your model as sketched in numberous posts. Have you changed? *the debt service projections take no account of prevailing interest rates, the likely bail out rates and the additional burden of bank bail outs *the burden of adjustment falls squarely on the users of public servants not the providers. Take the education budget-pay up 200m over the plan, non pay down 500m. why-fees/user charges/lower services. *the quangos still live on untouched-FF are not going to touch their mates. *many of the cuts are not cuts they are stealth taxes-wait for the detail to emerge This is little more than an appeal to the PS unions-stick with FF and we will look after you. “By 2014, net pay for a single person on €55,000 will be reduced by €1,860 per annum (€36 per week) or 4.8%. The net pay for a married one-income family on €55,000 will be reduced by €2,310 per annum (€44 per week) or 5.4%.” p102. I see Barrier Reef has noted already that they can’t do their sums. I don’t see any reference to double-income couples. @BeeCeeTee “If you drop the minimum wage, you drop the reference against which the pay of many people being paid at a higher level is set. Big impact.” Yes, I’m sure you are right in relation to some pay rates above but close to the min. However, I don’t see any pay levels at the top dropping just because the minimum fell. @Eoin, A useful tally-card – and will continue to be useful when FG comes up with its take (reported to be next week). Labour will probably be forced to be a bit specific as well. But I think the game has moved on. The market isn’t really bothered about this. This Government won’t be in power to implement it. FG and Labour are signed up to the big numbers and the time-scale – even if the compositions are different. This must be causing a bit of concern to the markets, but reality should prevent a repeat of the ’80s. The Irish banks have now become an Irish and an EZ/EU problem, rather than just an Irish problem – which is where the EU would like to keep it, but it seems the markets aren’t buying it. This is the end-game, which shouldn’t take long to play out, as Ireland can’t take all the pain. It would make sense to call a general election now and let the people decide on the Govt’s current effort and on what the opposition parties will produce as alternatives. So lets see here: Lowering the minimum wage first will lead to lowering of higher wages? Any studies confirming this? & if it actually worked would not lowering the top level wages first lead to lowering of all the wages in between? I’m guessing the lowered wage will lead to improved margins which will lead to improved likelihood of rent being paid for the business which leads to a stabilisation of property prices. & high property prices is what it is all about isn’t it? This budget probably killed off any chance of a bilateral loan from Sweden. The opposition in Sweden is all for solidarity & will show it the Irish way: No support for the slackers. @Eoin Shame they didn’t do the same with the commission on taxation. I could have sworn they said that it was anomalous that the self-employed paid PRSI and Health levy on pension contributions and deposit income and that that should be removed… not sure they said put it back onto the PAYE worker… Still, you can’t fault them for spotting an anomaly to iron out in their favour… 6.9 Carbon Tax “It is proposed that over the period of this Plan the price of carbon will be doubled to €30 per tonne thereby contributing €330 million to the overall correction. This will entail a €10 per tonne increase in 2012 and a further €5 per tonne in 2014..” The idiocracy continues. Oh look it’s a drowing Polar bear. Quick raise a tax. Yeah I know. Off topic. tull mcadoo “You have consistently decried the lack of brain power in the DOF yet mirabile dictu these dunces have produced a coherent plan. Is it a coherent plan..hell no” But it’s more choherenter that their usual guff. They had help though. IMF? @Brian, I don’t see pay at higher levels dropping because the minimum wage drops either. We need different policy instruments for that. Dropping the minimum wage is just part of the package that is needed, and while it should have a significant impact in isolation it’s not sufficient by itself. @Greg, There’s a melting iceberg for your polar bear over on Richard Tol’s thread on environment and energy. re: Minimum wage Let the race to the bottom begin! What kind of jobs are we trying to attract/stimulate with this manoeuvre? Any ideas? Danish minimum wage is about €12 according to a mate. Is Denmark suffering from a lot of long grass? Paul Hunt “There’s a melting iceberg for your polar bear over on Richard Tol’s thread on environment and energy.” I might pay a visit. But Richard doesn’t like me. I use harsh words like EcoFascist. And make statements like, “Catastrophic Anthropogenic Global Warming is a scam” 😆 It seem to me a reasonably tough and balanced plan which restructures Irish finances in the correct ways and could do a lot of good. So in my view the IMF and EU technocracy (Olli Rehn) are correct in supporting the plan and the majority view expressed in this blog thread is wrong. @BeeCeeTee Pay adjustments must start at the top and work downwards rather than be confined (as to date) to the very lowest level. Indeed, if pay levels are compressed from the top down, there might be no need to cut the minimum wage by much in order to restore national competitiveness. BTW. Assuming that some people working in the public sector are on the minimum wage, does the €1 cut not breach the Croke Park Agreement? Or is it that the CPA is only intended to protect the better paid ranks? Gregory Connor “It seem to me a reasonably tough and balanced plan which restructures Irish finances in the correct ways and could do a lot of good. So in my view the IMF and EU technocracy (Olli Rehn) are correct in supporting the plan and the majority view expressed in this blog thread is wrong.” Puleaseeeeeeee !!!! It’s their plan. 🙄 @ Gregory i think people see this plan as FF taking the easy way out, whacking the easy low hanging fruit, but making little or no attempt to tackle the genuine problem areas which may have actually required p1ssing influential people off (hello Croke Park Agreement). We’re supposed to be a country on the brink, and this is the best they could do? It’s depressing. Biffo, i believe, remains the highest paid politician in the EU… @ Brian Flanagan There are low paid public sector workers, but I don’t think any are on the minimum wage. Anyway, it would be discretionary for an employer to reduce wages to €7.65. Hopefully most won’t, but I wish they hadn’t that option (though as far as I know there is an inability to pay clause for the min wage anyway). Obviously the unions are very unhappy about this. But given laws regarding sympathy strikes, and low union density among those on the minimum wage, what can they do? Reversing this decision will require broad support. Hopefully that will be shown on Saturday. @ Greg How do you do the rolly eyes thing? Gregory Connor: It seems to me a reasonably tough and balanced plan which restructures Irish finances in the correct ways and could do a lot of good. Hmmmm… What matters is what it will seem like to the market. We’ll know soon what the ultimate sovereign thinks about it. What do you think about the government’s slavish commitment to the delusional Croke Park Agreement, BTW? @ Rory, since we’re taking 6bn out of the economy this year, I imagine the GE effects of cutting the MW will be overwhelmed by other matters. I don’t expect the wages of many workers currently working at or near the MW to be cut in any case. My hope would be that young workers whose best available alternative is an early and extremely damaging long-term spell of unemployment might be taken now. @ Carolus, it’s not necessarily the case that you can think of a minimum wage like a minimum price for a tomato. There’s increasing evidence that employers have monopsony power, and if that’s true, (small) rises in the minimum wage cause employment to increase – counterintuitive, but it’s been found in some empirical studies. No ideological bent is required to be in favour of the minimum wage in this case. However, when demand for labour is falling because of falling demand for goods/services, even in the monopsony model that is most favourable to the minimum wage, the minimum wage will cause employment falls in affected industries to be higher than otherwise. And cutting it will cause employment to be higher than otherwise. There may well be other things that should have been done too. But that doesn’t make the MW cut a bad idea. @Andrew S Denmark isn’t in the dataset, but Ireland’s minimum wage is pretty high. http://www.google.com/publicdata?ds=z3ennpo156rm1e_&met=minimum_wage&idim=eu_country:IE&dl=en&hl=en&q=minimum+wage+ireland#met=minimum_wage&idim=eu_country:IE:GB:ES:FR:NL:BE:BG:CZ:EE:GR:HU:LV:LT:LU:MT:PL:PT:RO:SK:SI @Eoin I don’t know. Maybe it is elastic by design? So as not to trammel a future government too much or provide bullets for a new government? Not much point in FF saying “introduce universal health care”, the government changing, the opposition doing it and it turns out to be a disaster. So by just doing the usual ad-hoc measures, there is sufficient room for future governments to meet the fiscal targets, but change the specifics (since ad-hoc measures aren’t all that important, except in the costs they save). Rory O’Farrell “How do you do the rolly eyes thing?” Copy and paste from here. http://codex.wordpress.org/Using_Smilies @Brian, it’s a peculiar idea that reductions in pay should have to take place in descending order of existing pay. But there are quite a lot of relatively well paid paople (including most of the maligned public service and many in your own profession) who have already suffered reductions in pay in excess of 11.5%. I suspect that there are not that many people in the public service on the minimum wage. Even if there are a few, I think you will find that their pay does not follow the minimum wage down, so there will be no breach of the Croke Park agreement in this respect. @simpleton re Can I suggest you man the barricades rather than adopt the dilletante poses revealed here? No doubt you have all penned your thoughtful remarks while gazing wistfully at your fading poster of Che. May I answer you with Brian Lucey comments: I am biased in this regard: 11% cut in the MW and ZERO in TD/Senior Civil Serv/M’luds ? FFS. That alone there deserves the whole thing to be flung out. We are a society. Or were, once. In my case the document will change my vote from Left to Hard left. The time for comfortable middle class blogs is coming to an end. Wow, did Colm McCarthy just send out a b1tchslap to some of his academic breathren on PrimeTime? @ Brian Lucey Colm McCarthy is slagging you off on Prime Time. When several contributors to a once serious blog suggest that the nutcase , ex-con, and anti-Semite Lyndon LaRouche has any insight for Ireland’s future I’m tuning out for good. I found some of the material posted here over the past few months useful and helpful, but this blog has imploded into drivel. Like Eoin, just heard Colm McCarthy make a very pointed reference to the Vincent Browne show last night. You see, now, I’m all confused again. And that was just when I thought I was getting my head around what’s going on. Which figures are right? Give or take a few billion. By the way, thanks to Grumpy, Eoin and Robin for pointing me in the right direction on another thread. Unfortunately, I now have a whole bunch of additional questions to ask but I’ll wait for the next bank related thread to appear. @Aedin Doris There’s increasing evidence that employers have monopsony power, and if that’s true, (small) rises in the minimum wage cause employment to increase – counterintuitive, but it’s been found in some empirical studies. That New Jersey phone survey of MacDonald staff or sumthin? Sure, there are always exceptions. Nothing is ‘counterintuitive’ if the circumstances are such that it is consistent with the data. Gotta say, very impressive, restrained, and mature performances from Colm Mc and Michael Noonan on PrimeTime. No hysteria on the plan, just some pointed critiques, some nice clarification on the debt figures, and some ominous comments that down the road the EU/ECB may regret their current positioning. @ Greg Do you not have access during the daytime? Is it those derivatives ? The future minister for finance just fired a few shots at the ECB. Looks like were closer to Boston than Berlin after all. Colm McCarthy V Brian Lucey…where, I will bring the popcorn @Carolus Galviensis. re:Again, I ask: if they’re so convinced that reducing the minimum wage by 1 euro/hour will have no effect, why don’t they propose raising it by 1 euro? Ideologists just love to have their cake and eat it too. Clearly a reduction on top level salaries has a different economic result that a reduction in the minimum wage. That is why there was no reduction for the top boys. General Haig would surely have concurred with the cossetting of the officer corps. @BeeCeeTee @Rory O’Farrell If there are very few people on the NMW in the public sector, why was the €1 reduction included in the 4-year plan at all, at all. Its inclusion in a 4-year plan for national competitiveness (like those produced by Forfas) might make some sense alongside proposals on utility charges, rates etc.. If wage levels had to be addressed, surely the starting point would be the introduction of a competitve national maximum wage for the PS? I wonder if the NMW was included because reducing wages is one of the key items on the IMF’s standard checklist. Conor McC said tonite that only 4% of the workforce was on the minimum wage which confirms that the targeting of these people is virtually irrelevant in the context of improving national competitiveness. @Carolus “What matters is what it will seem like to the market. ” Stock market seem to like it for a start – AIB was up almost 13.5% in NY today but BOI was down a little. Can’t tell from the headlines if the “4 plan” is the driver. http://finance.yahoo.com/q/bc?t=5d&s=AIB&l=on&z=l&q=l&c=IRE @AMcGrath Thanks. I hope you are right. Well, no, I hope that I am right and that I can gloat: I told you so. @ Brian Flnagan “I wonder if the NMW was included because reducing wages is one of the key items on the IMF’s standard checklist. Or to provide a blind for additional reduction of welfare perhaps. Reducing minimum wage by €39 per week means similar reduction required in welfare rates or incentive for entry/reintegration is skewed out of whack. @Eoin “We’re supposed to be a country on the brink, and this is the best they could do? It’s depressing. Biffo, i believe, remains the highest paid politician in the EU” Truly depressing. How do they justify hitting the lowest paid whilst leaving politicians and the senior civil servants intact. Every major move is long fingered. The markets and S&P won’t buy this plan. Can we put a different angle on this ‘default’ thing? “You can have all your money back that you invested but we are going to deduct any interest we paid you before returning it.” @Joseph An elegant solution. Simple yet brilliant. @Joseph I just read an article in the WSJ on the bankruptcy of General Growth Properties, the largest mall operator in the USA. They went into chapter 11 owing 27b and exited owing 20b with all the debt extended out 5/6 years. Now the major banks are lining up to provide cheaper debt through CMBS issuance. They cleverly negotiated a window in which they could refinance without the usual penalty. Lessons for us? Recent Market and narrative trend points to austerity drives including this 4 year plan being sidelined by bigger concerns re scale of bank losses and capacity of States to absorb these. If default happens and risk / logic of this is simply increasing, do we know what the likely consequences are for (a) immediate financing of deficit (b) the euro and wider real economy (c) remaining solvent EU states? @Brian Lucey – “11% cut in the MW and ZERO in TD/Senior Civil Serv/M’luds ? FFS. That alone there deserves the whole thing to be flung out. We are a society. Or were, once.” Too right. And also see my earlier question about whether new TD’s after the general election will be on 10% less than existing ones as per other new public servants. @AMcGrath – “Of course the “cut” isn’t an actual cut – and unlikely to be imposed on most existing minimum wage earners.” You’ve clearly led a sheltered life that hasn’t brought you into too much contact with the types of people who employ others on the minimum wage. They will be rubbing their hands in glee tonight and if they haven’t already told the workforce about their new pay cut, they will be in the morning. @Bond Eoin Bond – “Biffo, i believe, remains the highest paid politician in the EU…” Well, you know what they say about the highest paid guys in the room….. 🙂 And yes, that sounded like a bitchslap to me too. As I mentioned in another thread discussions about minimum wage comparisons between countries are not too meaningful without similar comparisons of the cost of living and the distribution of income levels; again cutting pay for the low paid reduces demand more than cuts on the better off. A cut in the minimum wage seems to be mainly favoured by those who having a sneaking regard for Thatcher, “revelling in inequality” and all that. I assume it is also potentially a vote haemorrhage stauncher for FF as their main constituency is now those who blame school teachers, immigrants and the long term unemployed for the crisis in the financial sector. pcadogan Says: November 24th, 2010 at 3:25 pm There is a limit to expenditure cuts. They reduce the size of the economy more than a good tax. Taxes were always going to be the main method. These are insufficient as they have not yet worked out that we are in a depression that due to modern financial astuteness, is taking decades to work its deflationary impact. See Japan! Deflation will happen. It has to happen as capital was converted into revenue but the capital has to be paid back now. The inflows have stopped, so that is a double whammy! They know this, in that they have only one weapon that will work fast enough: taxes. They have to increase these, too. Remember, the falsehoods of the trickle down school? One is that decreasing taxes increases revenue. Only if the banks are blowing a bubble and their borrowing is made into income for someone! Anyone agree or are you all ?????? Raising taxes raises revenue for government use. Always has. Always will, suckers! Andrew s LaRouche are a little extreme, but they are not for common folk. They are well into the elites that exist. The rich and the mega rich are their concern and they analyse their methods fairly well. They have been active for over a decade and have been on the money for much of it, but not for investors unless you can throw away millions and say well next year will be better! I’ve lost touch with them, but they were once a mainstay of Rense.com . At their level, what they comment upon will be fed back in and may alter events, invalidating what they have said. But only on some issues. Four plan Fore play I spotted it str off … Carolus Very entertaining. This crisis is driving many of us mad! Welcome to the club! Again, folks, most comments betray no sense of history? This is standard. We have many stages to get through yet. As costs and prices fall, then Croke Park may be revisited. That only happens if the depression deepens, as it will! Think of trickle down!!! This is not the disease, it is the cure. Borrowing, and intending to repay, is the disease. The plan was always only going to be a start, despite the rhetoric about front loading. Many commentators still do not appreciate that the banks are really, really, insolvent and have been for a long time. Their costs are too high and they are making no net lending. The longer this continues, the more you and I will pay. Their borrowing now is paying staff costs! Theyu publish a profit by funny accounting. The exact figures are frightening, but have started to come out recently. They are all estimates, but the longer this goes on, the worse it gets. The taxes should be far higher and will be in the next budget, probably in June 2011. All in all, a good start, but it will not be seen to be front loaded in a year or so’s time? You really have to look at what has happened to realize that tax rates of 50% for all are in the cards if we want to settle this quickly. As no one will do that straight off, we will be faffing about for a few years more. Think 70’s rates. Interestrates were high then and came down. Now they are low and heading up! Which do you prefer? People have been irrational for a long time, fooled by nlp in advertizing which then leaked into rights. We are entitled to …… Well guess what? It eventually has to be paid for by producing something! Finance, Insurance, Real Estate produce nothing, but convert capital into income! Some of our most eminent economists have still not acknowledged this, but they do not deny it either! Thier pension funds are paid up now!!!! Everyone who comments has a bias! I’ve identified mine. Most commentators have not. I am tryiong to convince you that I know what is going down, but idiots are saying “no one knows…..” Idiots never listen. Never learn. Many of us, in a TV age, have been programmed to make up minds in less than a second. That is not thinking!!! Arbeit macht frei! To those dedicated to dividing the country into private versus public: Increasing taxes cuts everyones pay, and the highr that pay, the more it is cut! Pat Donnelly Says: “November 25th, 2010 at 3:28 am LaRouche are a little extreme, but they are not for common folk. They are well into the elites that exist. The rich and the mega rich are their concern and they analyse their methods fairly well. They have been active for over a decade and have been on the money for much of it, ” LaRouche is well and truly a complete and utter NUT. An ex-con, a lunatic and an anti-Semite from way way back. Any support of his utter nonsense is simply pathetic. Pat Donnelly: You are a ridiculous fool. Pat Donnelly is a Nazi @Brian Flanagan If there are very few people on the NMW in the public sector, why was the €1 reduction included in the 4-year plan at all That’s why I’m so surprised it was included. @Aedín Dorris You’re argument for younger workers is only an argument for cutting the wage of younger workers. I still strongly doubt it will increase employment. How can someone support a family on €15,514 a year, because that is the situation people will be put in. Why not just increase inheritance tax and create jobs by building schools? @ Rory First mention I’ve read on inheritance tax… tackling structural inequality…good idea @ Niall Technically its Capital Acquisition Tax which might be why people don’t talk about inheritance tax, but yes I would use it to tackle structural inequality. It would help overcome the inbred nature of company boards, which I think was one of the causes of our problems. That we as a society have to make massive adjustments is obvious. The only choice we have is whether to do it in a way that leaves us with a more or less equal society. 1. What this 4 year plan intends to do to someone on the dole. Reduce the dole from €196 to the level of 2006 i.e €165 so a reduction of about 16%. They will also be hit most by the loss of services as they rely on them most. Breakfast before school for their kids and homework clubs plus all the health stuff. 2. Minimum wage. Reduce this by 12%. Also lower a tax band which will cost 1000 per annum or (about 50cent per hour another 6%). Also have to make payments to social contribution fund. As yet unknown. 3. Lower paid worker. Yesterdays example of someone on 55,000 getting a €1,860 5% hit masked that people on lower income of 30,000 would have the same tax hit of €1,860 but that would obviously be a larger %. The tax rate was not increased. The bands were moved. This was very regressive. It seems to me that the further you are down the food chain the Larger a percentage of the Burden you are being asked to take under this plan. But this was always going to be the case. Tax cuts affect the top half of society in pure money terms more than the lower half and cuts generally affect the bottom half of society much more than the top half. Simplistic but generally true. From the outset we were told that the cuts would be 2/3 of the pain and taxes would only be 1/3 of the pain. How could such a policy not lead to a less equal society? @Eamonn Moran: “That we as a society have to make massive adjustments is obvious. The only choice we have is whether to do it in a way that leaves us with a more or less equal society.” Not so: we have other choices. In particular, we have a choice between making adjustments that might convince the bond markets and choices that might keep Irish rent-seekers quiet (and willing to resume voting for FF after a while). I’m not commenting on whether those whose interests you defend are amongst the rent-seekers; if they are, they’re certainly not alone. But it seems to me that the choice of more or less equality is, at this moment, of less importance than the other choice … especially if the government has chosen the wrong option. bjg There must be a better way of structuring debate on this blog. I find with a pbig topic like this, it just takes off and there’s no practical way to keep up with it. Our dynastic form of democracy has bred a political product which has no academic or intellectual pedigree. Mammy /Daddywas a TD therefore the party must select the son/daughter to follow in the parent’s foot steps etc. In commerce, banking, insurance and in toe civil service this family is extended to cover relatives and associates, party hacks and insiders of many hues. Follow this into the advisers selected , many are family and friends … that is the primary 9 probably the only qualification). On then to the quangos, state boards etc.More friends etc remote family and associates are dumped here. This gives the irish nation politicians and bankers etc which have a political incestuous relationship. Not good breeding stock for the development of sound independent thought. Look at the party whipping systems in the dail, deaf, mute , clones of party policy and rhetoric. Such inadequate issue has to defer to some one with a brain to shore up every piece of flawed rhetoric. hence the era of the academic Prof this and economist that has said that I the finance minister am right. School can never be out for these brainless wonders. Politicians are supposed to take advice( in private) and then pronounce in rhetoric and policy as a decisive political act on behalf of the electorate. These clowns need a ring master to defer to in all things. There should be no ring masters volunteering for clown support. It is a sure end to any academis’s crewdibility. Honohan and Elderfield have taken a seat with our Mr P Neary. Their Sept “final figures” have made them look very foolish. Comments are closed.