The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
The details are here.
“Gizza Job!” Boys from the Black Stuff; Eighties united return!
1. Minimum wage up to 8.65 per hour= €346 for 40hr week an increase of around 10% in direct labour costs when employers prsi is accounted for.
2. Employers PRSI halved for those earning under €365 per week-a decrease of around 6% in direct labour costs (but zero for those availing of the Employers PRSI exemption scheme).
The net results is that hiring costs have gone up for employers or am i missing something?
Furthermore, the PRSI reduction is meant to affect 600k workers yet the minimum wage only affects approx 2% of the workforce (circa 36k). While part-time employment might account for some of the difference (perhaps 180k on the assumption that have of all part-time workers earn less than double the minimum wage) this still leaves a shortfall of around 400k (given that some part-timers will be in around the minimum wage – perhaps 20k, possibly more) to make up between those earning the minimum wage and those on weekly earnings of less than 365 euro per week. This doesn’t seem plausible although again i may be missing something.
Kind of says it all Philip, three hours plus and not much interest or belief.
Dig hole in the ground.
Fill hole in.
Just another load of Keynesian magic.
Still as long as the “people” are ignorant the State can steal their retirement savings.
All Hail Neo-Keynesians.
“The Programme for Government sets out a commitment to resource a Jobs Initiative
within the first 100 days of the start of the Government’s term in office. This document
provides detail on the measures that are being introduced as part of this Initiative.”
Only a Communist could write that.
Or in the Latter Day Church of the European Union ……
All Hail The Failed Reich.
“These measures are intended to assist in employment generation,”
First things first.
The Citizen who wrote that should be fired on the spot.
No compensation. No pension. Just fired.
“Gizza Job!” Boys from the Black Stuff; Eighties united return!
We had the USC, pension cuts for the blind, massive job losses, and interest rate rises. But a mere 0.6% levy on pensions means we’re “back in the eighties?”. Some people actually don’t know that there’s a recession going on it seems.
As I said elsewhere on another thread, this is just pi55ing into the wind.
At best, it might stem the bloodflow of workers in the tourism sector (with little creation of new jobs). God only knows what the thousands of graduates over the past two years are going to do as this is only really aimed at low paid service sectors with a couple of thousand building jobs thrown in for good measure…. other than an extra €50 on top of their dole to take internships. one of a few internships. There are four hundred and odd thousand people unemployed for goodness sake.
Actually, I do know what they are going to do – same as the last lot – get out of the country.
I was expecting something bolder. Is anyone out there making big foreign employers offers they simply cannot refuse? How about moving NATO or the UN or the European Parliament to Dublin? I just give up. Have applied for contracts in Belgium and Malaysia over the past two days. Please let one of them come up. I’ve got to get out of this country.
Slave labour is right.
No fear of 500 posts here!! After all 85% are still employed!
Carmen Rheinhart recently warned of financial repression and so we’ve got it with the pension raid.
Picture the same people who in Dec 2009 succeeded in having a bonus for nothing regarded as pay, scratching around for ‘painless’ cuts.
Interesting that Joe Durkan of the ESRI has said according to the IT that his pay should be cut by 20%.
Somewhere between that and Morgan Kelly’s 50% could help.
I really, really wish that people would stop saying this is “only” a 0.6% levy. The real cost for private pension holders is much, much higher than what it sounds.
I am in my mid-thirties and earn a little over the average industrial wage.
The last time I checked, my pension stands at €70,000 and I contribute €3,600 a year. My pension fund provider has told me, based on current contributions, I am basically looking at retiring on 25% of my wage. In other words, my contributions are already inadequate. This new levy is going to take (let’s be honest about this, this is theft) €420 out of my fund every year. This means just to get back to where I was, I am now going to have to increase my contributions by €420.
Calling a spade, a spade; this is really just a 1% tax on my pay.
Before I start work:
The pension “levy” is unacceptable. Noonan wittering on as if the money in the funds somehow belonged to funds themselves and not the pension savers is an insult. Is there anyone in his department who understands economics or finance or business?
We have Kenny, Noonan and Howlin involved in this, among others. All are state primary school teachers and by virtue of that and long political careers have pensions that are unavailable to the people affected by the levy. Very high pension amounts that are related to salary and that will increase with pay rates are not available to most of us. They do not understand what it means to have a “defined contribution” pension.
The people affected by this levy pay for the gold-plated pensions of politicians and civil servants etc through their taxes. Then there’s the extra tax to pay for these pensions, to fill the “National” Pension Reserve Fund. (Orwell would have loved that “National”). In short, people who make no contribution to the personal pensions of those affected by the new levy, who force them to make contributions to their own personal pensions, and who are unaffacted by this levy, are now commandeering money from the pensions of those affected by the levy.
I have started to move my saving out of Ireland and will continue to do so until further notice. The damage this will do to the economy is greater than the damage the levy will do to my pension. I advise everyone affected by the levy to withdraw as much of their money as they can from the banks; keep it under the mattress if necessary, send it abroad, whatever. A saving strike like this will make the pirates in government take notice.
According to the basic concept of democracy, the state exists and is governed with the consent of the governed. Does anyone know the office one should contact when one wishes to withdraw that consent?
@MM-ff. That’s some count. Now you know what gets attention!
Jobs Initiative: Ho hum (political) stuff. The math will dictate the outcome. You only make something if you can sell it – for a real profit. What we are actually doing is churning some existing local cash (increasing the velocity a little) whilst using the State Credit Card at the State ATM. State Credit Cards do have limits? Yes? No?
The other bit is that any sliver of income that can be spared will be used to pay off any debt. That’s the destruction of that money. So, how will it be replaced. Oh, from that ATM. Teriffic!
How about the 500 million job seekers in Chindia, now loaded up with the latest technology – willing and able to produce anything we might be able to consume and pay for … Oh! God, not from THAT ATM, again! Yep!
Now you know why MK got 600 hits and why some of the Sheeple are getting a bit snotty. Its known as Reality (Interesting) Time.
Why do we have incomes anyway? Do we really need social transfers, pensions? How did we end up here? Between the rock of debt and the hard place of declining income, with a political briar stuck up our collective arse?
I wonder if the consumer representative on the pension board has anything to say about this first instance of what a number of commentators have called financial repression…
Rumour had it before the pensions levy that self-administered schemes would be exempt. Is this still the case?
From my understanding, the ‘rich’ use self-administered schemes. So the levy will fall on the middle. Those with enough to save, but not enough to be cute.
Raiding private pension schemes is nothing short of Michael Noonan breaking into my house and stealing money from my wallet while Im sleeping. That is my money, put away through savings to provide for my retirement. If my pension dwindles because of bad investment options then that is my own doing. If they want to put a levy on future contributions that is fine because at least we have the option to contribute or not. But to steal money from one section of the community is simply unjust. This is the very same as the Government taking a slice out of deposits in Irish banks and those who have any money left on deposits will see this. I can see a huge flow of deposits out of the Irish banks after this.
Whether its the same people in power or not it does not matter, the Govenment of this Country encouraged us to put a slice of our wages into pensions , PRSA’s etc and now they are stealing money from it.
If they needed to “borrow from tomorrow to pay from today” then thats what they should have done but I didnt hear any mention of them suggesting that this money is ever going to be paid back. You wont burn the European bondholders but you will burn the non risk taking citixzne sof the Country who tried to private for their retirement so that they would not have to rely on the state. Shame on you
@MH et al.
Yes I remember Carmen Reinhart saying a while back that there had never a been a case of a country growing out of very high debt level without at least one of default, restructuring or financial repression happening. Also a couple of commentators here flagged the potential for a raid on private pensions about six months ago (Hungary had done something similar I think). So the question is – what comes next? If you are sitting in government buildings and have been tasked with writing the “Financial Repression Roadmap 2011 – 2015” what do you put in there after the first step of raiding private pensions?
As Ireland is effectively using a ‘foreign currency’ and there are no capital controls I don’t immediately see how something like the USA’s old regulation Q would work (force low interest rates on bank deposits, and then force the banks to lend the deposits to the government at below market rates). What will Ireland’s regulation Q equivalent look like?
What other taxes exist on pensions? Do they pay capital gains tax? I don’t know.
DIRT is currently 27%. So if someone gets 2.222% AER on their savings (AAA rated rabobank offer more) they are paying about 0.6% of their deposit savings.
Just a bit of context.
@ James/Paul Power et al
genuinely confused about the anger on the pensions issue.
1. they’re the only unencumbered assets outside of cash deposits left in the country – should we not consider temporarily taxing them in order to help safeguard the stability of the sovereign as a whole?
2. they benefitted from massive tax reliefs over the last decade, so this only represents a moderate reversal of that relief.
Assuming that self-administered pension funds have not been exempted as Hogan queried, then does this not seem somewhat reasonable in its construct?
@ Paul Power
The people affected by this levy pay for the gold-plated pensions of politicians and civil servants etc through their taxes.
Cry me a river. 41% tax relief on pension contributions has been a scandalous transference of wealth to the middle-class. Far better to have concentrated attention on putting in place a proper health-care system like the NHS (of vastly more value to most of us us when we get to retirement age, and are starting to suffer from various expensive illnesses).
Last year, the C&AG estimated the accrual on public staff pensions was €129bn.
From the €70bn private fund total, if the rich pots are separated, what’s left is for about 700,000. More than half the private workforce have no coverage and can expect a third of the avg industrial wage as a pension.
The CSO reported last month that while there is blanket coverage in the public sector, the number of self-employed workers with a pension fell sharply – – from 47% in early 2008 to just 36% towards the end of 2009.
2011 – – maybe 20%?
The annual cash cost of public staff pensons is €2.7bn; 10 year annual returns on Irish managed funds before adjusting for inflation is 1.5%.
Pension plan deficits amounted to €4.5bn for Irish public companies in the Irish Stock exchange’s ISEQ index at the end of 2010, according to Mercer. The deficit amounted to 40% of market capitalisation.
This is just a sample of about 70 firms.
Anyone with a defined contribution scheme say from 2001 to 2020, can expect little.
Irish funds have seen a record reduction in average equity allocations since 2010, dropping from 59% to 50%. Allocation to equities across the rest of Europe remains low, particularly for many funds in Germany (5%), due to local regulatory restrictions. In the Netherlands pension funds hold an average equity allocation of 26% and in Switzerland 30%.
During the bubble, Irish funds had over 70% of investments in equities.
The public system linked to earnings for existing staff, in a bankrupt country, surely cannot be maintained? Not to confused with Shirley.
There’s a lot more than bondholders deserve to feel some fire.
My pension fund provider has told me, based on current contributions, I am basically looking at retiring on 25% of my wage.
And you didn’t realise this when you started putting money in?
A vested interest cries let them eat cake…
I don’t support big tax reliefs for wealthy people; I believe the contrast between the lack of coverage in the private sector with what’s available in the public sector, is a disgrace.
Gardai retiring on full pension at 50 and so on
“Raiding private pension schemes is nothing short of Michael Noonan breaking into my house and stealing money from my wallet while Im sleeping.”
How do you feel about the bank guarantee ? And the bailout ?
Interestingly Anne Maher, former head of the Pensions Board was one of the directors of AIB in 2008 . Everything is connected innit.
btw, i also think public sector pensions should be reduced alongside this measure on private sector pensions, if we wish to be fully equitable with the sharing of the burden.
Re:Thieving private pension savings – Although 0.6% is not too penal, what is to stop them from returning to the honey pot? Will they paw out a couple more percent to pay for x,y or z next year. Will they start ordering pension funds where to invest?
Given the retrospective nature, it will be interesting to see if it’s legal. And if retrospective taxes and laws are the way to go, there are a lot more equitable places to start.
I don’t like the spin linking ‘the looting of pension funds’ to ‘job creation’. It is underhand. Why not say that tax from beer and cigarettes are to fund ‘job creation’ and the pension fund booty is going into anglo. Michael Noonan is no Robin Hood.
@ Eoin Bond
Agree that a levy on pension funds is probably a good way to tap what little untaxed resources remain in the economy, and in the short run will not be economically damaging.
I think the anger arises from the fact that this is a retrospective tax. It impacts most on those with a large pension pot, ie those that are closest to retirement. They have been paying into a pension scheme for years having been made certain promises by government, which are now changing at the eleventh hour, and cannot go back in time and change their past investment and spending patterns. Had they known when they began to save for their pension that this measure would be introduced in 2011, they may have made different decisions.
Personally, I think that under the present economic circumstances we can’t really attach much weight to that argument (we all have to take a hit, etc), but I would be concerned about the future impacts of this policy. Allowing pension funds to become taxable, on top of the measures introduced in the last budget re pension contributions, could further discourage future investment in private pensions, which is probably the last thing we need as the population ages.
I think the temporary nature of the levy does indeed mitigate these arguments somewhat. However, remember how the health levy was supposed to be temporary? These things have a habit of becoming permanent, which means those who have contributed for a long time into a pension fund will find themselves paying a huge amount over the years to come for investing prudently under the taxation laws that existed in the past, which have been reversed at the stroke of a pen.
Public sector pensions have already been reduced (a knock-on of the public sector pay cuts).
I fully agree, and have said so in the past. However, IBEC et al will fight a decent mandatory pension for every worker tooth and claw, won’t you agree?
(The last was @Michael Hennigan)
“Public sector pensions have already been reduced”
Not those that are currently retired, correct? And hasn’t most of the public sector pay “cut” come via the pension levy (right?)?
“And you didn’t realise this when you started putting money in?”
Of course I did. My choice is pretty stark though. I either put what little money I can afford (like many, I have these expensive things called a family and a mortgage) in now, or else I retire on 0% of my salary.
This really is the thin end of the wedge. That’s to stop them hiking this levy again? Maybe they’ll just take the next step and start allocating part of your pension into Irish banks? What about dipping into your savings? I used to scoff at these folks putting their money into gold; now I’m starting to think that these guys had it right all along.
This is something I find interesting. People both borrow (for a mortgage) and save (for a pension).
It seems a bit strange(though it is promoted by the tax system). Would it not be better to ‘save’ by paying down your mortgage?
I don’t know what your personal circumstances are, but for many people the best way to save is just pay down debt. Its a 100% risk free investment, and often offers a good return.
I suppose it only makes sense due to the tax incentives.
It’s not tax relief; it’s tax deferred. The state gets its cut on the other side. The money doesn’t become de facto the government’s just because they’ve agreed – for sound public policy reasons – to defer taxing it for the time being.
Of course they’re going to start ordering pension funds where to invest next. That’s what the sovereign annuities ‘deregulation’ was for.
BTW, the agreement between the state and the citizen on private pensions has been that if you prudentially put your money away for a few decades to fund your retirement – instead of being destitute and dependent on future wealth transfers from other citizens via social welfare – nobody can touch it. Not us, not you. That is no longer the deal.
I wish I lived in your world!!
“Cry me a river. 41% tax relief on pension contributions has been a scandalous transference of wealth to the middle-class. ”
What “transference of wealth”? All that has happened hitherto is that the state has not taken 41% of this portion of people’s money.
When retirement comes, the retiree will pay tax according to the rate applicable on the pension income.
What you want is double income taxation: you want us to pay now on the income we save for our retirement and then pay tax on it again when we get our pension.
Bond, Eoin bond:
“they benefitted from massive tax reliefs over the last decade”
Can you explain what these reliefs are?
“I think the anger arises from the fact that this is a retrospective tax. It impacts most on those with a large pension pot”
I’m furious and 20 years from retirement.
The benefits from deferring the payment of income tax are that we discount future cash flows, and tax-smoothing reduces the overall amount of tax paid (due to different tax bands).
Benefits to the individual that is.
Agreed on the public sector pensions.
Ideally of course they would be separately funded..
@ Jon Ihle/Paul Power
Example: high earner, lets say he earns 150k a year. Lets say for the final few years of his working life he sticks most of that straight into the pension fund, thus avoiding income tax on it @ 41%. He then draws it down over the next 30 years, availing of his TFA every year and so massively reducing his effective tax rate on this “deferred income”. Therefore the tax is not deferred, but erased, no?
Yes, this is only one type of worker/pension contributor, but i think we know an awful lot of relatively middle class employees availed of some form smart tax/pension planning over the last decade.
I admit this initiative is lukewarm but given the constraints the government is operating under I am inclined to welcome this initiative.
IMHO any “initiative” is better than no initiative.
By targeting a few specific aresa the chances of success are increased and leaves room for further “initiatives” later on when we know exactly how much the bank “stress test” is going to cost and what conditions we will eventually be working under in the Pan European scheme once informally referred to as “the bailout” .
When we know those two facts than the government can then start talking about “stimulus packages”. By which time hopefully most of the Public Service will have realised that they actually have more to fear from(public reaction to) the antics of some of their trade union representatives than from the Irish Government and Irish people.
If the preferred initiative – to free up money for job creation – is to raid mostly underfunded private sector pension funds rather than reducing the excessive spending and promises for public sector pay and pensions, then this is not better than no initiative.
While I’ve always been skeptical of the integrity of states and politicians, this completes my disillusion. The state will find any way it can to screw me and my family to protect those it favours, particularly if I am prudent and honest. It has become my duty, in a way that it never was before, to take any steps possible to protect myself from these thieves. For me at least, the last threads of the social contract are broken.
Only a republic where the same rules apply to everyone can possibly reclaim my trust. I don’t live in such a state.
Interesting that Joe Durkan of the ESRI has said according to the IT that his pay should be cut by 20%.
Thank you for bringing that to my attention.
It is good to hear that somebody of Joe Durkan’s stature is calling it as is needs to be called.
I heard him say on VB that he always makes sure to stay in touch with local businesses etc. to inform himself.
IIRC, Michael Hennigan posted in one of the other threads that the State was paying out ~€2bn in public sector pensions a year. In other words, you’d have to cut public sector pensions by 25% right now to raise the same level of funds, and that would cut into current consumption.
The whole point of the initiative is to raise funds in a way that doesn’t reduce consumption. There is nothing you can do to public sector pensions or pay that will meet that goal.
“In other words you`d have to cut public sector pensions by 25% right now to raise the same level of funds and that would cut into current consumption”
I agree that a 25% cut would effect consumption but we also have to recognise that there is currently a high savings rate which must be coming from somewhere.
IMHO there is a level of “cut” proportional to the level of pension which would not effect domestic consumption.I would venture to guess that consumption within the domestic economy would not be adversely effected if public service pensions above a certain level were cut quite significantly.
In any case there has to be a “re-balancing” of current Public Service pensions to take account of the current salaries these pensions are based on. It would not surprise me if such “cuts” would yield 200 million Euro annually without effecting domestic consumption. Which could provide another 800 million Euro “initiative”.
Having said that I still believe that private pension funds should be able to absorb the current levy without passing it on to their customers.
If they cannot they should not be in the business and should make room for competitors who can which is probably what will happen from 2014 anyway when, I understand, everyone has to start contributing to pension funds.
“The state wil find any way it can to screw me and my family…”
I can understand the sentiment but I am still idealistic (naive?)enough to believe that “the state” is actually all of us and those who run it ignore “us” at their peril.
I imagine there are plenty of former TDś (and “insiders”) from a certain party who actually feel pretty”screwed” right now even though they were convinced that the they were among the “protected” and “favoured”.
I also suspect that the more savvy “politicoś” in the current coalition are also only too aware, that having experienced the transformative power of the ballot box, the Irish electorate will not hesitate to exercise that power again next time around.
I am open to correction on this point, but I seem to remember that the most recent budget reduced public pensions in order to match the pay cuts imposed in the December 2009 budget.
I know the pension levy is effectively a pay cut, and I think the decision not to label it an actual cut was a cynical attempt by Fianna Fáil to retain the votes of pensioners by ensuring that they wouldn’t be affected, but if they are going to reduce pensions based on the value of the levy then I think it’s only fair that the government should stop charging PRSI on monies paid on the pension levy.
I used to think that the state was all of us and that – in a republic – both voters and politicians actually cared about justice and equity, even if only a little.
I became more cynical and skeptical over time. Now there is no doubt. There is no other game other than administrative theft.
@ HS: “Now there is no doubt. There is no other game other than administrative theft.”
Spot on. Its happening on a heroic scale in US – financials are fleecing consumers (mostly illegally it would seem). And admin stares into mid-distance. Its extraordinary.
Expect a lot more on this. The judge’s acidic comments (yesterday and to-day) on our Banksters has opened a Pandora’s Box. If the pols do not move fast on this one they are likely to get a ‘United Irishman’s Pike’ inserted into an uncomfortable location. Oh I wish!
On the whole I’m not very impressed with the initiative itself -however, I think the most important thing is that the new government is willing to engage with the jobs issue instead of simply waiting for it to sort itself out as the last government was doing for the last 3 years.
However, the specific measures in this package don’t appeal to me.
Raising the minimum wage is a funny way to tackle unemployment.
Cutting PRSI on restaurants/newspapers is eff3ectively a tax cut for the rich/influential.
Given the alarming inflation figures in the services industry, it seems likely that the most likely outcome will be expanded profitmargins rather than expansion.
IMHO if your pension provider passes this “tax” on to you it might be a good idea to start shopping around for another pension fund provider over the next few years. I am guessing quite a few will start appearing in Ireland over the next few years as they have recently had ample opportunity to observe the level of expertise within Ireland.
While you are doing so it may also be a good idea to check with your pension provider what they define as “retirement age”: 60, 65 or 68.
I am not being an apologist for the state but I am also not extremely impressed by financial service experts in Ireland at the moment.
At least the politicians realise they beter start tackling the jobs crisis if they want to keep their own jobs. Whereas a “financial expert” in the pension industry may be more concerned about the price of yachts on the Italian riviera or the spiralling costs of gold watches.
It would not surprise me if many pension fund managers would find this levy as a convenient excuse for lame performance (and retention of bonuses) rather than doing what everyone else in business has to do which is remain competitive by factoring in a multitude of costs.
I am also open to correction on this point. I only seem to remember a 4% levy being imposed on public service pensions over 12000Euro in the last budget.
The Irish Government are idiots. This is confiscation of private property and is an attack on our freedom. I can only see this leading to a catastrophic run on the banks, resulting in the bankruptcy of Ireland and the loss of all of our pensions. It’s communism. It’s corrupt. And I fear this will escalate quickly into further and larger confiscation of private property as people try to withdraw their cash from their bank accounts and discover the ATMs are empty. When the ordinary man in the street finds that he can’t get access to the money in his bank account because the government is restricting access, I wouldn’t rule out a violent outcome. After all, history shows us that’s the Irish way: no reaction to provocation, followed by more nothing, nothing, nothing followed by a sudden violent nuclear reaction.
The most anyone can possibly lose from this levy (assuming the four year duration commitment is adhered to) is 2.38% And they’ll only lose that much if they make no pension contributions after the levy expires. For someone like myself who’s 32 years from retirement, it’s a drop of less than 1%. That’s rather smaller than 4%
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