Fairness and the budget

The ESRI’s SWITCH model analysis of the distributional impact of the budget is now available (Irish Times article here).   It will come as no great surprise to anyone who actually looked at the numbers that the budget was a good deal more progressive than much of the early commentary suggested.   Given the importance of political acceptance under the current circumstances, I cannot understand why the Government did not have this analysis completed in advance and released on budget day.

89 replies on “Fairness and the budget”

The pension tax changes will provide plenty of outings for the Law of Unintended Consequences. Salary sacrifice is an example as ESRI note and not available to the self-employed. Watch for the re-invention of the private sector unfunded scheme.

Colm McCarthy.

Your comment is hardly the most pressing equity issue in the budget. People earning from €352 to €500 will pay an extra 5% levies. People earning €2000 per week will pay an extra 2% in levies. The latter are amongst the people you refer to above that who will have loads of choices to decide what to do with their discretionary income.

The people earning from €16016 to €26000 do not have discretionary income.
The levies at lower level will have terrible consequences for these people. Pensions will be the least of their worries.

Little comment so far regarding medical card holders who up to now paid no levies will now have to pay the new rates and if over 70 the reduced rate of 4%

The fourth page of Annex C dealing with the USC contained a chart and claims that “the overall taxation system remains highly progressive after the introduction of the USC”. This chart has been distorted and misleads to justify this claim – look at the income range which is truncated and increases in irregular steps from 10,000 to 200,000. Is it any wonder that a highly progressive tax system is claimed!

Here is our version of this chart
http://www.planware.org/briansblog/resources/2011_tax_comparison.pdf

It uses a regular scale for incomes up to €1 million in 10k steps. It shows that the tax system is highly progressive for people on low and middle incomes but flat lines for those with very high incomes. This directly contradicts the Government’s claims. It also shows that the 2011 Budget tax changes will have the greatest impact on people with the lowest incomes.

Fairness and the banks

http://www.guardian.co.uk/business/2010/dec/08/allied-irish-banks-pay-bonuses-despite-bailout

Check out the reader comments . This one was particularly good :

8 December 2010 7:43PM
“There was nothing stopping the Irish government putting a windfall tax on bonuses in yesterday’s budget, court case or no court case.”

At least some English people still have an idea about what is acceptable and what isn’t. The story doesn’t appear to be on the Irish Times website. I wonder why.

“The chart shows broadly similar percentage losses in incomes – between 2 and 3 per cent – across both low and high income groups.”

How is this “progressive”? It should be blindingly obvious, but I suppose I have to repeat the point. When almost all your disposable income goes on basic subsistence expenditure, the same percentage cut is devastating, compared to its effect on those who have significant amounts available every month for non-essential expenditure.

I can’t see the chart in the online article, but when the authors say the ‘broader picture of budgetary response to the crisis’ has been ‘strongly progressive’ I think they are referring to the effects of previous budgets, not this one. (And that makes some sense).

But: “Our analysis does not include the wage or employment effects of the reduction in the national minimum wage.”

Give me a break.

This budget has hammered poor people to pay the debts of the rich.

Sorry fella, we have a situation here where the picture a GP has is of a upper-middle class house. And that’s grand, as long as he doesn’t extrapolate from that house every house and patient in his district. But he does, he cannot help it for when was the last time you heard of a doctor making house calls to a medical card patient. So sorry, but both you and the ESRI are totally in Error. Cut yourself out to Rahoon or the like and ask there about the commitments made in expectation of a stable income from the State. Central Statistics Office’s 2008 Survey on Income and Living Conditions, my eye.

@Brian Flanagan.

I see what you mean about misleading charts. Real smart, eh? Almost cute hoor you would say.

@All
There was a lady from PWC (Mary O’Hara, I think) on drivetime yesterday evening. I though I heard her say that a local authority worker on €25000 would only be marginally affected. If she said this I believe that it is incorrect. Did anybody hear that contribution? Was she correct or did I mis-hear?

@John McHale
Note that the ESRI is not part of the government. We do not see the details of the budget before everyone else does. We analyze ex-ante hypotheticals and ex-post actuals.

@Richard

I understand that. But I don’t see why ESRI researchers could not be brought in ex ante. Indeed, my understanding was that the DoF were making use of the SWITCH model ex ante for the analysis of budgetary options. It would be very useful if we could get the overall picture of the distributional implications on the day.

@John McHale

If the ESRI were given the figures before the budget was announced then the government would stand accused of abusing its position and the credibility of the ESRI’s analysis would be compromised. Over the past couple of days I’ve heard the Taoiseach imply (or I think I have?)that in drawing up the budget measures the government used the ESRI model, or something similar to it, to assess the impact of their proposals. I guess it would be surprising, and irresponsible, if they hadn’t. The real problem though is with the budget process and until that is reformed it will remain the annual political Punch and Judy show it’s always been with whoever’s in government,like Big Daddy, doling out the prizes or the punishment.

Where did “@all” come from ? The government doesn’t understand @all @all.

Is it specific to irish economy or more of a blog thing ?

@Richard 

I understand that.   But I don’t see why ESRI researchers could not be brought in ex ante.   Indeed, my understanding was that the DoF were making use of the SWITCH model ex ante for the analysis of budgetary options.   It would be very useful if we could get the overall picture of the distributional implications on the day.

“Our analysis does not include the wage or employment effects of the reduction in the national minimum wage”.

There seem to be a number of other omissions not admitted.

To take just some obvious examples:

* The €1.8bn cut in capital expenditure, which might reasonably be expected to impact the pupil and teacher in the portakabin rather than those in the private school

* The non-welfare provision of all services by the state, which the poor are obliged to avail themselves to a greater degree than the rich

* The role of unearnt income (primarily dividends and capital gains) in supplementing the incomes of the rich, and the preferential tax treatment of same

* The wider negative economic effect of Budget measures, including increased unemployment, which pushes layers of society down the income quintiles

In Britain, the usual form is the government brazenly claims that its measures are progressive in its own distributional impact assessment and then these are comprehensively demolished by the IFS and others in the days following. Here, the government doesn’t bother to pretend and the ESRI fills the vacuum.

The ESRI SWITCH model sounds like the Wizard of Oz.
What sort of system is it ? I hope it’s not an Excel spreadsheet.

@John, Veronica
It would certainly be possible to do ex ante analyses of likely budgets, and release an impact assessment together with the actual budget based on the closest of the ex ante variants. However, it is the Irish tradition to make decisions first and worry about the consequences later.

@Michael, Veronica
There should be two analytical bodies, one inside the government and one outside.

Why is the chart not visible on the Ir Times website? Based on what I have read of the budget, this is a very regressive budget.
If it did manage to cut back on tax shelters for the wealthy, is that fact now regarded as progressive?
We discontinued the loopholes that allowed a multimillionaire to pay only 20% tax on his income, he must now pay like everybody else!

That is supposed to be progressive? And in order to balance the books, we have kicked lower paid and welfare recipients and blind people in the teeth.
Sounds to me like the ESRI boys are having to sing for their supper.

@seafoid
SWITCH is a standard micro-simulation model. There is a representative sample of several thousand households (real but anonymous) with all details on income, taxes, and benefits.

@seafoid
“Is it specific to irish economy or more of a blog thing ?”
More of a blog thing, you see it more often on blogs that don’t allow threading. Normally, you’d use it where you start off addressing a single person (e.g. @seafoid) and then go on to talk in general to everyone (@all).

The (re)imposition of rates – the tax would have to be called by another name because of legal issues – on agricultural land was again passed over. I don’t understand why a productive resource that attracts a subsidy for effectively doing nothing is not ‘rated’ in some reasonable fashion.

Top income families losing another 10% to the government. Progressive or oppressive? At a glance I would say that whether in the private or public sector (excluding tribunal types) a reduction on that scale will wipe out most discretionary spending and that will cascade through to services, etc. Not sure how taking big swipes out of earnings will contribute to a recovery myself.

Well said Micheal Burke
“Our analysis does not include the wage or employment effects of the reduction in the national minimum wage.”
Lets say even 20,000 of those earning Min wage are switched by there employers from 8;65 to 7;65 per hour.
It means that those 20,000 people will face a % reduction in income far in excess of anyone on over 100k. They will also pay the new social levy.
It is very obvious to anyone who is not completely biased that those at the lower end are being asked to take large % cuts than those at the higher end.
If the ESRI or anyone else seek to use statistical acrobats thats their business.

Now that I have read the article and looked at the chart. Yes the ESRI boys are singing for their supper.

1. Even on their own figures in the chart Budget 2011 is regressive. It hits the poorest one-fifth by 2.8% and the highest one-fifth by 2.7. Egro regressive.
2. Only by broadening the comparison to 2009-2011 and by ‘deft’ use of chart presentation does it convey a much higher burden when 2009 is added to the equation. If we are talking about the 2011 budget, why not stick to the 2011 budget unless for an ulterior motive.
3.But lets get real, lets SWITCH. The top tax rate did not change, the 20% tax rate did not change. Virtually everybody got the same monetary credit reduction. By definition this hits lower paid and is regressive.
4. On Levies. The top people get a 2% hike, those from €16016 (€308) to €26000 get hit with 5%. Regressive.
5. To the ESRI I would say , prove your data. Forget the model. Prove it. , line by line.
6. To the Irish Times. Your headline is false, misleading and a disgrace to journalism. It does not reflect the article. The article itself admits that it is bringing 2009 into the analysis in order to get the result the Ir Times wishes to see. The headline is simply untrue based on the article itself.
A disgrace to journalism.

To Joseph Ryan: you have forgotten about the 4% increase in marginal rates for higher earners due to the removal of the PRSI ceiling.

To Brian Flanagan: all your chart proves is the (mathematically inevitable) conclusion that effective tax rates for higher incomes will converge at the top marginal rate – in this case 52%. A top marginal rate of 100% would still yield a curve of the same shape.

@ Joseph ryan
“6. To the Irish Times. Your headline is false, misleading and a disgrace to journalism. It does not reflect the article. The article itself admits that it is bringing 2009 into the analysis in order to get the result the Ir Times wishes to see. The headline is simply untrue based on the article itself.”
A disgrace to journalism.

Its headline on Thursday morning was even worse.
You had to go to the tabloids to get a hint at the reality.

I guess the broadsheets and tabloids just played to their audience but as a paper of record the Irish times gets a big red x and ‘must do better’ from me. 🙂

so, it’s marginally regressive; so what? all previous emergency budgets were progressive, and hence the broad thrust is progressive. If you have half the employed population outside the tax net, it’s difficult to get much more progressive, unless the fiscus starts sending cheques to the lower-paid.

point is: higher earners got whacked first (which in itself is progressive, even if the cumulative sweep of all austerity budgets were to turn out distributionally neutral, which they won’t). Lower earners were shielded for as long as possible until the system couldn’t bear it anymore…

Has the ESRI model been independently validated? How convenient that it chimes with the government’s assessment. This correlation needs to be checked .

How consistent is the output from the model ?
How does the model work at the extremes? How good is the data fit? Are any of the households in the model on more than €1.5 million? Can the model replicate Michael Taft’s analysis? If not, why not?

http://notesonthefront.typepad.com/politicaleconomy/2010/12/the-creepy-is-in-the-detail-which-the-government-didnt-reveal-social-welfare-rates-will-fall-by-4-percent-exc.html

@ the Other Andrew

I wouldn’t say this is “marginally regressive”.

I posted the data below to the other Budget thread yesterday.
– I looked at the “single” person category on the KPMG site.
(this is the category with fewest commitments and highest disposable income, on average)

Salary level Tax hit Proportion of income lost
20,000.00 -679.00 -3.4%
25,000.00 -929.00 -3.7%
30,000.00 -21.00 -0.1%
35,000.00 -491.00 -1.4%
40,000.00 -835.00 -2.1%
45,000.00 -885.00 -2.0%
50,000.00 -935.00 -1.9%
60,000.00 -1,035.00 -1.7%
70,000.00 -1,135.00 -1.6%
80,000.00 -1,270.00 -1.6%
90,000.00 -1,444.00 -1.6%
100,000.00 -1,624.00 -1.6%
110,000.00 -1,804.00 -1.6%
120,000.00 -1,988.00 -1.7%
130,000.00 -2,178.00 -1.7%
140,000.00 -2,263.00 -1.6%
150,000.00 -2,258.00 -1.5%
160,000.00 -2,748.00 -1.7%
170,000.00 -2,937.00 -1.7%
180,000.00 -3,032.00 -1.7%
190,000.00 -3,027.00 -1.6%
200,000.00 -3,022.00 -1.5%

The data is consistent with the curve in Brian Flangan’s link (when graphed).

Any claims that this budget is a ‘highly progressive’ Budget in terms of taxation would be very questionable
(for quote: http://www.rte.ie/news/2010/1207/live_budget_updates.html)
– just look at what happens to the nominal tax hit in the €180k-€200k salary range.

As Brian Flanagan clearly stated, it’s only progressive in the €30k-€40k range (the area around the industrial average, where you can assume the heaviest salary distribution lies) and after that it falls off.

In any case, they have called it a “social tax”, which might lead you to expect something more equitable.

There could have been other ways to do it. For instance, a 2% flat on salaries above €40k would have been more equitable (there is a 2% increment in the €30-€40k range) – an extreme example would be if they had maintained the progressive 2% level in bands above the €40k level – maybe more moderate would have been 0.5% progressive in bands above the €40k level (both in table)…of course these could have been capped at 6% or so. It takes just imagination. It’s not rocket science and we have plenty of programmers without work at the moment, so Brian Lenihan’s claims on the “complexity” involved in more rigorous means testing is redundant.

I think the analysis says more about the SWITCH model than the substance of how the budget will affect the population. Anything can be measured ‘statistically’ as progressive but to argue that this equates to ‘fairness’ is a step too far. I dont think this is what the ESRI analysis states but it is the implicit assumption.

Just because a group of high earning households take x percent more of a hit than a low income household does not necessarily mean (outside of a statistic) that it is fair. The reality is that someone earning €200 a week losing 2 percent of their income will be much more affected than someone earning €800 a week losing 4 percent of their income.

For example, take a PhD student on a scholarship worth €1300 a month. If you work a 39 hour week it is about the minimum wage. If you work more hours it is far less than the minimum wage. I calculated recently that it is just under €7 an hour.

Now factor in the following conservative monthly expenditure: rent (approx €500), gas and electricity (approx €80), food (approx €200), internet (€50), transport (€80), education and health (€100) and all the rest without even considering luxury goods.

If you take 2 percent (€26) away from a monthly expenditure of €1330 it would have a significant impact upon purchasing power as the individual is spending everything they earn and saving nothing.

In contrast – if you take 4 percent (€240) away from a monthly expenditure of an associate professor earning €6000 it will certainly be noticed. But it would not exactly break the bank or lead to a significant change in their consumer behaviour (the individual might save less money or avoid the extra bottle of wine when out for dinner).

The SWTICH model is not at all convincing when trying to assess the ‘fairness’ of this budget. It is mathematically neat but qualitatively very dubious. The budget will undoubtedly affect low income earners more than anyone else.

Again, as on the other thread…wasn’t the point of this budget to correct for the fact that the previous taxation situation was already excessively “progressive” and to bring people in to the tax net who had previously not been paying tax? After all, if you keep being progressively progressive you’ll end up with a kind of bassackwards flat tax….one where everyone pays however much tax it takes to make them all have the same take home pay.

Oh dear, did I just step into VB’s world?

Then, to repeat myself, I just love the Orwellian nature of the words “progressive” and “regressive”.

Sometimes I don’t know which are the bigger shills: journalists or economists. Articles like this one put the two peas in the same pod.

@Hugh Sheehy
re: Again, as on the other thread…wasn’t the point of this budget to correct for the fact that the previous taxation situation was already excessively “progressive” and to bring people in to the tax net who had previously not been paying tax?
Was that the point of the budget? I understood the budget was about attempting to achiev a balance between income and expenditure for the country.
The point you draw attention to was merely spin and cover as to how that balance would be achieved. There were many ways of achieving balance. This budget choose a regressive approach.
It will indeed have many ‘unintended consequences’, even for those high earners who were protected this time. Even enlightened self interest should have encouraged better off people to support a more equitable budget. But ‘enlightened’ is not a word one would apply to anything this government has done.
This first and enduring result of this budget will be a hardening of battle lines.

Some of the arguments here are instantiations of the ‘no true Scotsman’ fallacy — it seems as though for the egalitarians no tax is ‘truly’ progressive unless it virtually eliminates pay differentials altogether. At any rate, there is certainly a gray area between the extremes of regressive and progressive taxation — a ‘dialectical penumbra’, to use the terminology of the immortal Nicholas Georgescu-Roegen. There is no point on arguing over gray areas other than winning ideological brownie points.

http://www.springerlink.com/content/31t172q2823356v4/

The crux of the matter is that the budget is not primarily intended to promote ‘social justice’ (whatever that is) but to reduce government expenditure and to foster productivity. One time-proven means of achieving this end is to cut welfare benefits. This reduces the effective demand for poverty (by making poverty less attractive) and encourages welfare beneficiaries to seek employment. The proponents of this policy should of course state openly that that is what they have in mind. If this requires making taxation more ‘truly’ regressive, then so be it.

@ Carolus Galviensis

I think you are moving off point. Our policy-makers have gone on record stating that the budget is ‘highly progressive’ terms of taxation (the strength of the adverb confirms Brian Lenihan) but this is not the case as clearly illustrated in Brian Flanagan’s link.

The term “progressive taxation” is not open to semantics – but “social justice” certainly is ;o)

It seems to me that some folk on here reckon a budget would be regressive if marginal tax rates on “the poor” (from 1 Euro up to the commenter’s personal income) went from 0% to 3% whereas marginal rates on the “rich” (which I am assuming to be the commenter’s personal income +1 Euro) went from 98% to 100%.

“Taxes on the poor up 3%! On the rich up 2%!!!!!1!!”

I’m not passing judgement on the budget herein as I haven’t had an opportunity to read the figures in detail. It seems the same amount of data hasn’t stopped others making sweeping conclusions.

Surely a structured default is the only way out of this maze of debt? Got to cut a deal and cut lose, otherwise the millstone will bring us to the depths…

Just a few points of clarification about the SWITCH model, and the analysis of Budget 2011/Budgets 2009-2011.

1. The model itself is a static tax-benefit model, similar in structure to those used in the UK (e.g., Institute for Fiscal Studies), the US (e.g., Tax Policy Center) and many European countries. It has been described and used in a range of publications including national and international journals as well as ESRI publications. Some papers that may be of interest in the present context are listed here:

“Assessing the Impact of Tax/Transfer Policy Changes on Poverty: Methodological Issues and Some European Evidence”, Research in Labor Economics, Vol. 25
http://www.esri.ie/publications/search_for_a_publication/search_results/view/index.xml?id=2121
“Analysing the Effects of Tax-benefit Reforms on Income Distribution: A Decomposition Approach ”
http://www.esri.ie/publications/search_for_a_publication/search_results/view/index.xml?id=2639

ESRI Working papers 344 and 359 available at http://www.esri.ie

2. The basic approach, which uses a wage-indexed budget to provide a distributionally neutral comparator, is the same this year as in all previous years. We have always made it clear that this distributionally neutral budget – which would see incomes rise or fall by the same percentage at all income levels – is a technical benchmark rather than a policy recommendation. It allows the distributional impact of actual policy to be measured accurately. Some may argue that policy should be made more progressive, others that it needs to be made less progressive. Our analysis helps to establish the facts – determining the most desirable outcome, in the light of public finance and economic constraints, is a matter for social and economic judgement, as is made clear in our article.

3. It should be clear both from the article and the chart that the impact of Budget 2011 was broadly similar across income groups. Exactly identical percentage changes for each group are not to be expected, but the pattern for Budget 2011 is of similar percentage changes across the 5 income quintiles. In assessing this outcome, the impact of previous budgets responding to the crisis (from October 2008 on) is also relevant, so we have reported the cumulative change for all Budgets since October 2008. These results show a progressive pattern. Again, judgements on both Budget 2011 and on the cumulated budgets will vary: what we have supplied are the basic facts regarding the distributive impact.

4. The Irish Times web headline for the article – 7 words not written by us – was misleading, and contradicted the findings in the body of the article and the chart. The web headline has now been changed.

@Peter
See my point above. Wasn’t the taxation system already highly, indeed excessively “progressive”? Hadn’t the govt, and even opposition, said that the tax base had to be widened – and hadn’t Lenihan and others repeated on various occasions that this had to be corrected?

Isn’t the taxation system still highly – perhaps still even excessively – “progressive”? Perhaps the incremental effect of the changes in the budget this year are not very “progressive”, but the overall taxation regime is extremely “progressive”.

*IRISH LAWMAKERS TO VOTE ON EU/IMF AID IN PARLIAMENT NEXT WEEK

Anyone know is this an ACTUAL vote, or simply some type of resolution by the Labour Party??????

From FF: “”to force the opposition to take a definitive position on the matter”

@ Hugh Sheehy

Brian Lenihan’s remarks on this years budget can be taken in isolation. This changes in taxation in this budget are not progressive.

IRISH INDEPENDENT MP SAYS HE AND FELLOW INDEPENDENT MP WILL VOTE FOR THE IMF/EU DEAL – Reuters

Still likely to be passed if so. Political blame gaming going on here, FF trying to hurt FG in my view.

I don’t care what Comical Leni tries to spin this as, Peter. I’m looking at the budget as it is, not as his PR handlers want us to believe. However, do you believe that an adjustment of this size can be made on the Irish economy in an absolutely progressive way? If so, please share the numbers with the group.

Looks like politics as usual. And it appears it’ll go for a bit longer than we thought as the Greens are keen to do as much legislative damage as they can before they’re evicted. FF could do us all, including themselves, a favour by pulling the plug sooner rather than later.

@Peter
If you take this budget in isolation the taxation system is extremely, and IMHO excessively, “progressive”.

As for the Dail vote, it’s a nice thought experiment to wonder what would happen – financially and politically – if it fails to pass. I hope it never gets past a thought experiment.

17:04 09Dec10 DJN-DJ IRELAND’S FINE GAEL: TO DECIDE POSITION ON AID PACKAGE NEXT WEEK
17:04 09Dec10 DJN-DJ IRELAND’S FINE GAEL: AID PACKAGE VOTE “GRANDSTANDING” BY GOVT
17:04 09Dec10 DJN-DJ IRELAND’S FINE GAEL: TO DECIDE POSITION TUESDAY AT MEETING

@Eoin Bond:
Agreed. Every FF action at the moment seems to be aimed at highlighting the gaps between Fine Gael and Labour and showing that a coalition would not work.

They’re probably right. Unfortunately anything with FF in it doesn’t seem to work either. None of them seem to be terribly interested in the economy or stuff.

bjg

Interesting, though, that the tribal urge to hurt FG is so powerful that the Dail will be forced to make the formal, historic and resonant decision to bow the knee to the oversight of foreign powers whose oversight, apparently, was not invited.

On the minimum wage: I think about 50,000 are currently at that level. The government has said the lower rate will only apply to new hires so it seems unlikely to affect 20,000.
On the other hand such a policy gives firms an incentive to not renew contracts for minimum wage workers so they can hire others at a lower rate. So it could generate some churning.
Anyway the whole point of this policy, conveniently ignored by most, is to give low skill workers a chance to get out of unemployment since the labour demand curve slopes down, even in Ireland. But the self styled protectors of the low skilled prefer to see them priced out of the market.

@Tim Callan (3.15pm).
Your ref points to the following abstract re SWITCH.

“It involves the construction of a “distributionally neutral” policy, which can be approximated by a policy which indexes tax allowances, credits and bands and welfare payment rates in line with a broad measure of income growth”

Are PRSI and all Levies specifically included in the model or is it just tax allowances as the abstract says?
What are income breaks for the catagories compared in your model?

@DJC

re: To Joseph Ryan: you have forgotten about the 4% increase in marginal rates for higher earners due to the removal of the PRSI ceiling.

Incorrect.
I did include PRSI at the higher levels going from 0% to 4% over €75036pa. This was previously a freebie for high earners not allowed to those from €26000 to €75036. However to compensate these higher earners total other levies at 9% were reduced to the new USC of 7%. Net levy increase 2%.

The new USC is 7% at €16016 (303pw). Total levies prevoiusly 2% between €15036 and 16016, are now going to 7%, an increase of 5%. And from €18304 (352pw) to €26000 (500pw) prevoius levies 6% going to 11% – an increase of 5%.
The effect is a 5% ‘Tax’ rise from €16016 to €26000.
I suppose that is PROGRESS for some.

These people need not concern themselves the pension tax changes and salary sacrifice issues that have been referred to in the article..

@ Brian J Goggin
Ta for the link.

Brief look through the TASC ‘Response to Budget 2011’

Search for term ‘public sector’
Reader has finished searching the document. No matches found.

Seach for term ‘Croke Park’
Reader has finished searching the document. No matches found.

Now for the light relief:

TASC’s objective is to bring about economic equality in Ireland; that is, there should be a more equal distribution of society’s resources as part of a well-regulated social market economy.

Whether or not one agrees with this objective (basically: focus on equality as opposed to contractual and individual freedom), it is totally incompatible with the preservation of the sheltered public sector.
Where to put the TASC response?

Pour la poubelle

@ Kevin Denny

[T]he whole point of this policy [i.e. lowering the minimum wage – CG], conveniently ignored by most, is to give low skill workers a chance to get out of unemployment since the labour demand curve slopes down, even in Ireland.

The minimum wage is sacrosanct in Holy Ireland — even though it is still the second highest in Europe (1462 euros), coming only after Luxembourg (1683 euros):

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Minimum_wage_statistics

Who cares for the unemployed or those fancy-pant demand curves? 🙂 It’s the good intentions that count.

Behold the Gadarene swine, as they rush for the abyss.

@Carolus.
I have just fished the Tasc report from the bin.
I found charts one and two especially interesting in the light of this thread.

I hope the contributors visit the site and those two charts in particular.

Taxes up, rent relief down, weak tenants rights. While at the same time, mortgage holders staying in homes without paying anything.

Yep, Ireland is really a divided land. Haves and have nots.

Any news about changes in laws regarding personal bankruptcy?

When will the first wave of repossessions happen so that the ones who can but won’t pay their mortgages start paying again?

@Jesper
Ah, but those people on mortgages will also get subsidy to improve the family home, tax benefits for improving the family home, ongoing tax breaks for paying for the family home, and near total protection from ever having to leave the family home in case they can’t pay for it.

Those nasty renters don’t contribute to their local communities remember, so they get little tenant rights, little ability to upgrade a property, and if they stop paying for whatever reason they’re out on their ear.

@Joseph Ryan
If the only place that the budget has regressive tax anomalies is to let some self employed people keep more of their money then it hardly counts as a scandal, in the greater scheme of things. After all, if self-employed lose their jobs the state gives them SFA and the unions – normally so assiduous about the rights of the working man – couldn’t give a flying fork either. Meantime their pension savings are now going to get brutalized – all in the name of equality. I have a horrible feeling that the discussions in TASC would have revolved around whether or not they had to make it clear that this curve only applied to self-employed people, or whether this little detail could be obfuscated a tad.

@Carolus
There’s a nice image for the minimum wage on the Eurostat website
http://epp.eurostat.ec.europa.eu/statistics_explained/images/e/e9/Minimum_wages_in_the_EU,_EFTA_and_Candidate_Countries.PNG

You can also get historical data and inter-country comparisons from Google’s publicdata service by searching for “minimum wage ireland” on Google.

@Joseph Ryan

I have allowed myself some unpoetic licence. My point is that the TASC report circumvents the key issues. Equality is a side-show when a country’s economic survival is at stake. Ignoring the disastrous impact of the overpaid and overmanned public sector is also scandalous.

Indeed pushing for equality is part of the problem — it’s the likes of TASC ideologues that have helped push Ireland to the brink.

Imagine a clone of Fintan O’Toole as Minister for Finance. Brian Lenihan is a dream come true in comparison.

@Hugh Sheehy

Thanks for the link. The real tragedy is that it is the well-intentioned ‘TASC brigade’ who are killing the proverbial goose that lays the golden eggs. They don’t understand the distinction between the members of society who create wealth and those that merely consume it. They don’t understand the ‘fable of the bees’.

Their chief accomplishment is turning on the waterworks with tales of woe about the ‘most vulnerable members of our community’. They have the intellectual sophistication of children who believe in Santa Claus. They are an ill wind that blows nobody good.

@Carolus Galviensis,

I think it is a bit of a stretch to say ‘the likes of TASC ideologues…. have helped push Ireland to the brink’. I assume you are referring to social partnership which has been disastrous (and which culminated with trade union leaders on six figure salaries morhping into the very political establishment they were ostensibly trying to oppose).

In the end it was a failure in our economic governance and therefore our political governance which brought us to the brink. This isn’t the thread for going into detail but, in my view, the key agents in bringing us to this horrendous pass were our Taoiseach, government ministers, senior public servants, including finance and regulator, our top central bankers, and bankers in general. These were the people charged with the stewardship of our economic and financial well-being and clearly they failed catastrophically through a hideous mix of ineptitude, self-interest, corruption, deception, and arrogance.

Someone above said that looking at the four budgets that overall comprise the correction thus far is wrong. On the contrary I would say that looking at the overall burden is the only way to establish if the regression in living standards is being shared fairly. In that sense, the ESRI analysis backs up what I would have felt: previous budgets hit middle and especially high earners harder, and they hit the public sector. This bugdet is without question harder on the lower paid and welfare recipients.

We have to keep the overall picture and where we are headed in mind. The tax net had to be widened. I my view the current budget brought in those at the bottom end too sharply.

But let’s not forget either that (even if we are lucky and europe doesn’t spiral into a worse crisis) further significant adjustments are necessary. The next government will have to opportunity to aportion the burden of those corrections as they see fit and in all likelihood will switch the emphasis back to the upper median of the income spread (small comfort for those taking what is a harsher step down in their standard of living now).

@Tomaltach
I think it is a bit of a stretch to say ‘the likes of TASC ideologues…. have helped push Ireland to the brink’.

OK let’s say 0.1% — intellectuals / ideologues (left, right and centre) generally go unnoticed anyhow.

This budget is without question harder on the lower paid and welfare recipients.

That is true. It is also a necessary evil – a kind of ‘tough love’ to incentivise people who are not contributing to their country’s wellbeing to change their ways (in the case of welfare recipients) and to open up the labour market for the unemployed.

The alternative is ‘social equality’ — at the level of the gutter.

@Hugh Sheehy

I’ve just been reading your 6 May 2010 posting on TASC. Marvellous stuff – I’ve copied it into my album of quotables.

The only really good thing about TASC is that they’re a barn door for satirising. They write like something out of ‘The Onion’ or ‘Private Eye’. 50% of GDP for education and 50% for health and the rest for the rest of us.

I used to think the TASC way when I was 17.

@CG

Old proverb -if you are not a socialist in your 20s you have no heart but if you are still a socialist in your forties you have no brains

“a kind of ‘tough love’ to incentivise people who are not contributing to their country’s wellbeing to change their ways (in the case of welfare recipients) and to open up the labour market for the unemployed”

And TASC is airy fairy?

You could fry an egg on the stones out here if you had an egg .
You could drive the Minimum wage to E3 and there wouldn’t be any jobs for builders in Mayo. The dole in Ireland is not a lifestyle choice especially for those with 3rd level and professional qualifications. Taking E10 per week off the legions of unemployed architects and solicitors is cowardly when the Government stood over the payment of 70bn to foreign bank bondholders and threw 60bn into the banks this year.

Most of the 450,000 unemployed lost their jobs when the neoliberal experiment went tits up. And an awful lot of them have mortgages.

The ECB shafts Ireland because its leaders are supine and the people are a soft touch. The Government targets the working poor and the unemployed because they are not organised and have no lobby group. The Government could have hit the AIB bonus swine with a 99% windfall tax but the government doesn’t do that type of action.

And if you were a good capitalist in your 50s your bank shares are worthless. And you were a moron.

Thanks for the link. The real tragedy is that it is the well-intentioned ‘TASC brigade’ who are killing the proverbial goose that lays the golden eggs. They don’t understand the distinction between the members of society who create wealth and those that merely consume it. They don’t understand the ‘fable of the bees’.

I must make sure to tell my (no doubt not that far off minimum wage) barista in the morning that she doesn’t “create wealth”.

They are an ill wind that blows nobody good.

Unlike Carolus (apparently), I cannot comment one way or the other on the sexual prowess of TASC members (some fine-lookin’ women in there, though).

I hear a chap on the wireless saying that Fine Gael will reverse the cut in the minimum wage.

bjg

@Carolus
The bee fable is inadequate. A market economy has a lot more roles than creator and consumer, and people create and consume many more types of wealth than merely money.

As a stuttering example, a cleaner in a pizza bar..their efforts can ensure that the pizza place is selling salmonella free pizza (or in a hospital, ensuring that the operating theatre is clean). This cleanliness is worth a lot. However, many people can be trained to clean and the capital investment required to do cleaning is low, so cleaning is not a high paid activity. The wealth, or value, or surplus of the cleanliness accrues more to the restaurant owner and the pizza buyer, not to the cleaner. This is sensible, but are you sure who is the creator or consumer of wealth in this picture?

Anyway, even the public health inspector has value to add….as long as his pay isn’t too high. 🙂

@seafoid

You could fry an egg on the stones out here if you had an egg .
You could drive the Minimum wage to E3 and there wouldn’t be any jobs for builders in Mayo. The dole in Ireland is not a lifestyle choice especially for those with 3rd level and professional qualifications.

So what do you propose? Three of my third-level educated nephews have simply emigrated (Asia, New Zealand, Australia). Perhaps that really is the only option.

@Hugh Sheehy

The bee fable is inadequate. A market economy has a lot more roles than creator and consumer, and people create and consume many more types of wealth than merely money.

Hugh, I’m quite aware of that. But there is a certainly a distinction between those who add net value to society (from the lowly binman to the self-employed grocer to the highly paid brain surgeon) and those who do not (etc. welfare recipients, parts of the civil service, unfunded pensioners). One can argue until the cows come home as to the ‘fairness’ of transfers between the former and the latter, but the ideologues of TASC seem unaware of the tradeoffs that are inevitably involved between equality and total wealth generation.

To ALL.

Is there is serious error by the Dept of Finance in the budget figures for USC? I refer to page B6 of the budget document.
No contribution is estimated for 2011.
This is sheer nonsense. Looking at the figures, I would estimate that the amount should be at least €500m and probably closer to one billion.

Let me give the reason.

The difference between the total levies for 2010 and 2011 for employees are as follows.
Gross Pay Gross Pay PRSI
Annual Annual Health/Income
From To USC
% Incr (Net increase fronm 2010 to 2011)

0 4,004 0.0%
4,005 10,036 2.0%
10,037 15,028 4.0%
15,029 16,016 2.0%
16,017 26,000 5.0%
26,001 31200 1.0%
31,201 52000 1.0%
52,001 75036 1.0%
75,037 100100 2.0%
100,101 260000 2.0%

How can these increases yield no additional revenues as indicated on page B6 of the budget document?
It is simply not credible.
May I ask the contributors to say what in their view, these net increases in levies should generate in 2011.
May own guess is that we are talking of up to one billion net increase.

@ Carolus Galviensis,

You were perhaps blinded by your own prejudgement when looking for Croke Park in TASC response to the Budget. The clue is in the title; response to Budget 2011.

http://www.tascnet.ie/upload/file/TASC%20Response%20to%20Budget%202011.pdf

In it, you will find our arguments that the economic logic of the Budget and four-year plan simply do not stand up to scrutiny.

Four quick examples:
(page 3) Consider the highly optimistic growth forecasts of the Department of Finance. Others have also criticised there, but the bottom line is – if they are wrong, we will not close the deficit by 2015, and probably never without default.

(pages 7-8) The charts show the redistributive effects of the Budget measures. Whatever personal objection you might have to a more equal society, it is nevertheless a strange market distortion for people on €25,000 to pay 4.6% more tax/charges, while those on €30,000 pay only c.0.5% more. That just looks badly thought out by the Government.

(page 11) The Government’s four-year plan was simply wrong in its calculation of the cost of tax expenditures, which perhaps illustrates unwillingness to fully examine this area.

(pages 12-14) The lack of transparency around the Budget documentation and lack of access to data are major problems. If we had had better explanations for budgetary decisions over the years, we might not be in such a dire economic situation. It will be crucial to see what parts of the Budget vanish or mutate when they are put in the Finance Bill, and what new measures are introduced.

@ Joseph Ryan

i believe the USC was supposed to be revenue neutral. The main reason is that the health/income levies are levied on ALL income, while the USC will only be on wage income (as opposed to ‘non wage income’ like rent/dividends/investment income etc – pls correct me if im wrong anyone?). This will automatically mean a like for like reduction, but this will be offset by the abolision of the PRSI ceiling.

@Bond
re: I believe the USC was supposed to be revenue neutral.

So did I.
That is the my question. Is it? I don’t think it is remotely revenue neutral based on the % increases.
BTW I hope you not correct in saying that the USC does not apply to non-wage income? But nothing would surprise me at this stage.

The study seems to be focused on where the extra revenue comes from. But it leaves out where the money is going, to guarantee repayment of debts owned by the banks and the state. I should think that if this is taken into account the effect is very firmly a transfer of wealth from the poor to the rich.
Now I know you don’t like people even talking about default, but surely it is fair to take everything into account.
I can see the case for saying Ireland is a much more integrated advanced economy than Iceland and can’t use the same technique they did. But if the spending is going to the rich surely the tax raising should also be overwhelmingly on the rich for the net effect to be “progressive?”

@David Blake
I’ve commented before on the morality of the transfers from poor to rich involved in making the bondholders whole.

However, even if much of our spending is going to the “rich” then you’d have to be taxing the same “rich” for it to be progressive, not just any old “rich” people….or don’t you care?

Hi Joseph
“That is the my question. Is it? I don’t think it is remotely revenue neutral based on the % increases.”

It should be about revenue neutral.

The exchecquer will gain 2% from a lot of lower middle income serfs/people but they will have to pay back a lot of money to a few.
Mainly millionaire landlords.

Let them eat cake!

http://notesonthefront.typepad.com/politicaleconomy/2010/12/the-creepy-is-in-the-detail-which-the-government-didnt-reveal-social-welfare-rates-will-fall-by-4-percent-exc.html

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