The Pension Levy

For tomorrow’s Farmers Journal:

The government announced a package of measures, described as a jobs initiative, on Tuesday. There is to be a reduction in the VAT rate for tourism-related spending and the travel tax is to end. Both measures should help a recovery in this important sector. There are also to be some modest capital spending allocations for schools, road-works and home insulation. Employers’ PRSI is to be cut for low-paid employments.

 

These measures will be offset by a sharp increase in the minimum wage. In the United Kingdom, the minimum wage is £5.93 per hour, which translates to €6.74 at today’s exchange rate. The Irish minimum wage is currently €7.65, well ahead of the UK figure. The unemployment rate in the UK is only about half the Irish level, but the Irish government, while acknowledging the need to restore competitiveness, has decided to increase the minimum wage to €8.65, bringing the premium over the UK to no less than 28%.

 

The other eye-catching wheeze is a levy of 0.6% per annum on the capital amounts saved in pension funds. The retirement incomes of workers in the private and commercial semi-state sectors are paid out of the assets contributed over the years to occupational pension funds. Many of these funds are inadequate due to improving life expectancy and the weak investment returns of the last decade. As a result both employers and employees are facing higher contributions in future as well as reduced benefits. Those with the foresight to choose employment in the public service are exempt from the new levy, since the public service does not bother to fund its pension obligations. The Minister for Finance, Michael Noonan, looked a bit uncomfortable while explaining this measure on television on Tuesday evening. His justifications included an argument to the effect that much pension fund saving is invested abroad, and that his plan will see these funds ‘brought home to invest in jobs.’ Sadly some pension funds were foolish enough to invest in Ireland, in safe Irish banks and even safer Irish government bonds for example, and are nursing the biggest losses for their pains. But they will have to fork out the levy regardless, since it applies to all funded pension schemes.

 

Money accumulated in private sector pension funds belongs to the people who have saved it up, and is capital rather than income. The funds are trapped given the trust law and this makes the assets a sitting duck for a cash-starved government. In October 2008, the government of Argentina, unable to borrow in the international markets, simply expropriated $29 billion of assets from private retirement accounts to plug a budget gap. One wonders if Mr. Noonan’s advisers have been studying any other elements of Argentinean policy, which also features an export tax on agricultural produce.

 

Around 520,000 people own the €80 billion in these funds, an average of about €154,000 per person. The levy will cost them about €920 per annum on average. About 330,000 employees have entitlements under public service pension arrangements. These schemes are unfunded and thus have no taxable assets, but the total liability has been estimated by the Comptroller and Auditor-General at €108 billion. It follows that the average sum standing to each member in these unfunded schemes is about €327,000, more than double  the amount standing, on average, to those in funded schemes and liable for Mr. Noonan’s levy. The jobs initiative is being funded, in effect, not by those who are fortunate enough to have occupational pensions, but by those who have small occupational pensions. Those with the bigger pensions, public servants in the main, will not be contributing. Interestingly, since the new levy is a levy on assets, it will affect disproportionately the older members of the private sector workforce who have more substantial funds already saved. Younger workers can relax: they have too little in the way of retirements savings at risk.

 

It is of course true that tax concessions for private sector pensions were excessive for those on super-duper incomes, and there have been sensible reforms over the last few years designed to place a cap on these tax breaks. Some people were able to duck tax and accumulate multi-million pension pots while managing the banking system into spectacular insolvency. Others have retired from their labours in the vineyard of public service with enormous pensions to which they never had to contribute. But the sins of these fortunate folk are now being visited on the workers in the private and semi-state sectors prudent enough to have made funded retirement income provision. In March of last year, the government released a document on pensions policy which expressed alarm at the condition of private sector funded pension schemes, including the inadequate level of contributions and limited coverage. The new government has sent a clear signal that it is content to see these problems get worse.       

212 thoughts on “The Pension Levy”

  1. “These measures will be offset by a sharp increase in the minimum wage.”

    What increase? The measure, which was promised in the election program, merely restores the minimum wage!

    Some people can’t resist the opportunity to snip away at those least well off.

  2. One could be forgiven to conclude that the political mismanagement of this disaster, whether in Ireland or the EU, and what is the difference really, emphasizes what can be described as a class war.

  3. Younger workers can relax: they have too little in the way of retirements savings at risk.

    What follows will be the viewpoint of one such sprout.

    It is of course true that tax concessions for private sector pensions were excessive for those on super-duper incomes,

    I’m glad that this fact has been somewhat acknowledged at least. But I would go further than just “super-duper” salaries and lay the charge of excessive remuneration on a substantial section of the older generation in this country. To recycle a comment I made on another blog:

    The Generation That Wrecked The Country consists of the people who have recently entered, or will shortly be entering retirement. ~60 year olds(those born in the post war years). Now, finally, after years of avoiding the repercussions of their feckless handling of the country, this generation will finally be expected pay up themselves. No more passing the buck to the generations below them, to whom they have bequeathed negative equity, unemployment and emigration. They will not now simply be riding away into the Mediterranean sunset, travel bags stuffed with handsome pensions.

    There was a massive transfer of wealth over the last 20 years from the younger generation to the old, and it is right and proper that those who amassed such generous nest eggs on the back of that transfer, pay back what they owe to the rest of the country.

    I’m not speaking solely about the decision makers or those on “super-duper” salaries. I’m talking about the rank and file of the upper middle class who backed the boom to the hilt in word, thought and deed for 15 years. I’m talking about those with no mortgages, in secure jobs, who have suffered no significant salary cuts, taxes, or job losses since this crises began. I’m talking about the people who are today driving new cars, still taking foreign holidays, and who still long for the return of the property boom; all the while still backing what is in effect _their_ bailout. _Their_ get out clause from the tax burden they have evaded almost their entire lives.

    A mere 0.6% levy has raised €500 million. If it had been charged at the same rate as the USC, this levy would have raised over €5 billion–enough to pay for Bank of Ireland’s last recapitalisation. I think it should have been charged at such a rate, or something approaching it.

    This may sound harsh to those with pensions who are approaching retirement, but these are the kind of hardships that are being faced by all below you. Those with jobs, property, businesses, shares, blind allowances, etc have lost this and more. Now finally, you are being asked to pay your share. And once we prise the senior civil servants off the treasury, we’ll finally all be in this together!

    (Which is of course, around the time we’ll all decide to leave together.)

  4. Spot on! Nothing other than an undignified retreat by the government will save the situation.

    cf. my post on NTMA thread.

  5. Those in the agriculture and agribusiness sectors in Ireland – or at least those who take the Farmers Journal – are blessed as they are receiving sufficient instruction to become the most economically literate segment of Irish society.

    I suppose the key point here is political. The government had to do something – and be seen to do something – and every other door was shut. All more displacement activity whose costs are likely to out-weigh the benefits.

  6. @ OMF

    All very true! The issue, however, is not the objective but the method adopted which may well have repercussions, as you know, in the international financial sector.

    But that would hardly influence our new leaders were it not for the fact that the proposal is also a political own goal. The major benefit that it will have – the own goal that is – is that it will throw into sharp relief the unsustainable nature of public service pensions and the inherent inequality in society which they represent.

  7. @ Paul Hunt

    One door never shuts when another opens. Would not the cut in the EFSF interest rate fund the “jobs initiative”?

  8. I would not mind my relatively small pension pot being raided to contribute to a “jobs fund” owned by the contributors and which I could sell my share in on the market.

    My pension capital has fallen by approximately 30% (it was worse) since the beginning of 2008 under the careful management of my Dublin based fund managers. I also know I will have to pay income tax on it when I eventually retire (those public pensions have to be paid for somehow).

    Given the double taxation (new levy and income tax on draw-down), paying into a pension is only a good idea as long as the capital grows.

    A clear message from John Kay’s The Long and The Short of It is that these small annual levies make a huge difference over time. (Schiller’s lectures on Finance in Yale available online also give a great introduction to the maths of investment). The substantial cumulative negative effect on capital growth caused by annual management fees [properly called rent]. will now be exacerbated by the new annual tax.

    I don’t think I will be paying more into my pension for the time being. better to pay your tax now and at least have the money. I suppose I had better put any spare cash into a bank in Newry.

  9. I’d posted the below in the wrong thread:

    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.

  10. Cleverly, RTE have also broadcast stories of old people carrying a lot of cash on their person when admitted to hospital. This will have the dual benefit of causing more old people to be attacked and killed and to scare them into putting it into banks. It may scare others into leaving money in pensions. Swift would be proud of his influence if it were a satirical work fiction.

  11. @Conor
    The minimum wage is a relatively red herring in the context of restoring national competitiveness. The problem is at the other end of the spectrum as, based on the distribution of income, the impact of a ten percent reduction in earnings would be about ten times greater than any corresponding percent change to the NMW.

    Your points about the pension fund levy are well made. If Irish funds are no longer untouchable, why do the bondholders of busted banks remain out of reach. Is it that we can hit Irish private sector funds because they are soft targets but not German, French bondholders or goldplated Irish public sector pensions?

    OK, I know the answer – he who has the gold makes all the rules.

  12. @Colm McCarthy
    Surely a comparison of minimum labour costs is more appropriate than minimum wages.

    @zhou_enlai
    “I don’t think I will be paying more into my pension for the time being. better to pay your tax now and at least have the money.”

    Are you sure? If you put it in a deposit account you still have to pay DIRT, which at current rates is roughly equivalent to the 0.6% levy.

  13. The minimum wage reduction announced in last December’s Budget only ever applied to new entrants. Anyone that had a job had the existing rate of €8.65 could not have that reduced.

    The level of “churn” that occurs in this type of employment is quiet high but given that the minimum wage only applies to around 2% of the workforce, the €7.65 rate would have applied to a smaller proportion again.

    The big problem, as was evident in the discourse over the past few months, are the wage rates that are linked to the minimum wage. I could never understand why it was not said that existing wage rates would be pegged to the minimum wage that existed when the rates were set while new entrants would have a rate pegged to the new minimum wage. New entrants to the public sector will earn 10% than exisiting staff.

    The increase in the minimum wage to €8.65 will only apply to new employments. Existing employments have not been affected in this time. This maybe a “Jobs Initiative” but it is now more expensive to hire a new minimum wage worker than it was before. As per usual this is benefitical for those who get a job but not so great for the unseen who do not.

  14. “One door never shuts when another opens. Would not the cut in the EFSF interest rate fund the “jobs initiative”?”

    True but IMHO, it places the mooted 1% reduction in bailout interest rate in context. Hardly worth seeking! Instead, the Government should demand a reduction in the bailout interest to a nominal rate (say, 1.5%), a payment reschedule spread over decades and an immediate write down of outstanding bank bonds by about 50%. In return, it must adhere rigidly to the bailout terms and agree for purely political reasons to a temporary levy of, say, 3% on top of the sacred corporate tax rate.

    By my reckoning, government debt as % GNP will reach 144%. Even if we inflate the GNP to take account of corporation tax paid by multinationals on their profits, the rate hits 139%. This is completely off the scale and default is almost certain.

  15. @DOCM,

    The tight grip the Troika is exerting on the fiscals is highlighting the immediate costs and benefits – indeed it’s generating a form of hypothecation. Any relief provided by the Troika will have to go to fix the deficit. Remember Colm’s new ‘troika’: fix the deficit, fix the banks, get the cost base down.

    The political optics are also important. It is likely this will hit far more FG supporters than Labour supporters. As I predicted before the election, the FG/Lab combo would only work if there were reciprocal swipes at their respective sacred cows. FG may have taken a hit on this one, but note that detailed assessment of the electricity and gas semi-states is coming up in quick order and plans to move on semi-state privatisation will have to be presented for consideration by the Troika before the end of the year. Given the grief Labour will get over this, I expect FG may have to suffer further swipes at some of its sacred cows to provide some ‘balance’.

    If the combo holds together it could prove to be one of the most sado-masochistic political couplings ever seen.

  16. 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.

    And why not? Why not charge a levy of 4-5%? What makes pensions so sacrosanct? I didn’t hear all this commotion about “grabs” and “looting” when the USC came in at 7%.

    Most people in this country do not have private pensions. And most people in this country have heavily subsidised private pension schemes through both tax reliefs and more importantly through the bank bailouts themselves. Those with subsidised pensions are being ask to pay only €500 per year, a lot less than the average worker pays from the USC(I like making this comparison because in general, both charges are a “Bank Tax”, but from different ends of the income scale).

    Personally, I think the levy was too low. There’s enough money in the pension funds to save the country, and we’ve already pawned off the National Pension Reserve. You know, in the 1930s, DeValera effectively appropriated the Land Annuities to fund the free state, and this was the same man that wrote the constitution of present republic(In particular article 43.2). I realise comparing the policies of DeValera to those of a FG government is not very sporting, but I make the point anyway.

  17. What a fiasco this crisis is turning into

    Where is the implementation of pay and condition reform in the public sector?

    Why not seriously address this issue instead of moving against the assets of the prudent. And I think we can be sure that the current government will not do anything of substance in relation to public sector reform – even fine gael has no mandate to implement them, let alone labour!

    There is so much heat generated about wages of those at the top of the public sector – but while there probably is issues there – I think I’m right in saying that the evidence suggests that compared to other countries and compared to the private sector the people at the top of the public sector are the least overpaid.

    Moreover, the amount to be saved by reducing the pay of the lucky few is substantially less than the amount that can be saved by reducing pay and conditions for the broad mass of those who work in the public sector.

    However, notwithstanding the above, media attention and the attention of many commentators focuses most of its attention on higher earners. But nothing will turn on implementing cuts here – save, perhaps, people’s willingness to take cuts lower down. (but most of this is heat; when people say why not cut the guys at the top, they are often really hoping that that will obviate the need to cut other peoples wages – but it won’t or at least not significantly so)

    We have Brendan Walsh giving shocking statistics on youth unemployment and still few people seems to put the dots together.

    Wages at the lower and middle end of the public sector, and conditions at the middle and lower end of the public sector, need to fall significantly.

    It is simply unfair to have the current levels of unemployment – combined with a recruitment freeze in the public sector – while people who work in the public sector enjoy a very substantial wage premium over market rates and job security nonetheless.

    Moreover, the State is facing bankruptcy.

    Why are public sector workers paid more than their equivalents in the private sector or their direct equivalents in the UK? While I would accept that the state has obligations to its employees and that these obligations may go further than those of a private sector employer in some circumstances, paying the type of premium we see in the public sector is a form of systematic corruption, that more or less all of political parties buy into to suit their own political ends.

    The sheer hypocrisy of some is remarkable – for instance when the amount lawyers were paid by the legal aid scheme were released last year Pat Rabbitte suggested that the amount paid out to lawyers was excessive. Whether or not this is true is not my point here. Instead I want to use this is as a comparison.

    The top 100 criminal lawyers received on average of €100,000. Now there are also overheads involved but what I want to flag is that this is the TOP 100 – no mention by Pat of the average wage of criminal lawyers – in fact I would suggest that Pat doesn’t know what the average wage is – and Pat doesn’t care what the average wage is. I would suggest that the average wage is closer to €50,000 at best.

    However, when questioned on why the AVERAGE wage at ESB is €80,00 and whether that was excessive Pat’s response is simply remarkable – he says the there is nothing necessarily wrong with ‘workers’ being paid well!

    Now, I think its clear that these two positions are mutually inconsistent. The difference of course is that labour draws support disproportionately from public sector workers and favours tax and spend policies. I don’t necessarily have a problem with that.

    But if you are a tax and spend leftie, surely you also have to be someone who is strictly in favour of cost and condition control in the public sector because the bigger the public sector the more inefficiency and costly will be overpayment.

    But of course the labour party don’t take this view. They simply ignore public sector premiums and support the interests, not of the country as a whole nor do they support the general interest in fairness and good government. Instead they support the interest of those who work in the public sector so that they can be re elected.

    It’s a farce

  18. @christy

    I disagee with what you have said about the impact of cutting earning for high earners. Otherwise, I agree 100%. My figures below are dated (as they involved a special analysis by the CSO) but I don’t think that the distribution will have changed very much since then.

    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 account for 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.

  19. @ObsessiveMathsFreak: You say: “Why not charge a levy of 4-5%? What makes pensions so sacrosanct? I didn’t hear all this commotion about “grabs” and “looting” when the USC came in at 7%.”

    The USC is based on income: the new levy on prnsion funds is based on Capital. Given a rate of return on capital of 5% (just an assumption, which might be slightly optimistic), a capital-based levy of 4 to 5% would equate to a tax of 80 to 100% on the returns. Rory O’Farrell has already pointed out a 0.6% tax on capital assets is equivalent to a much higher tax on investment income.

    I would have thought that this was all to obvious a point to have to make on this blog. Get your Maths right!

  20. @Christy
    “it’s a farce”

    The reputational damage is potentially very damaging with Ire now grouped with Argentina and Hungary. On the same day AIB announce a coercive bond buyback with a 90% loss for the participants. Does anyone seriously believe that they will ever be able to funds themselves on the bond markets again – and this is one of the pillars in the new banking construct.
    Christy, you understate the position.

  21. @ObsessiveMathsFreak
    Your conflating the USC with this new Levy.
    The USC is a charge on the taxable income you earn. This levy is simply the expropriation of savings.
    Or are you arguing that the government should have the right to simply take the savings of anyone in the is country when funding is needed.
    That is the line that is being crossed as we are now in the situation where bondholders and public servants must be protected at all costs while those of us in the private sector must bear the costs of the fecklessness of others.

    In General.
    My main concerns with this proposal is that it sets a precedent going forward that we are willing to cross formally sacrocsant lines for what is essentially a very minor jobs budget.
    This worries me greatly as the pressure on the exchequer is increasing and in my view is eventually going to lead to a soveringn default if we keep insisting on maintain our current standard of public sector pay and repaying the ECB. Unfortunately this action by the government indicates that before this stage is reached the private sector funds and savings will be raided to maintain the status quo.
    Also this plan makes it more expensive to hire a new employee by increasing minimium wage even with the PRSI reduction. If the plan is increase SME employment then i cannot see this succeeding.

  22. @MATHFREAK

    Why not just tax all the returns of people who invest?!!!!!

    Good idea – while youre at it why not say that nobody is allowed to be paid more for getting an eduction? TAX EDUCATION !!!!

  23. @ christy

    I think an exclamation mark tax might raise a bit!!!

    Think of it!!!!

    €1 per exclamation mark!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    This time next year we’ll be millionaires!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  24. Original article
    “Michael Noonan, looked a bit uncomfortable while explaining this measure on television on Tuesday evening.”
    I think that was more because Sharon started giving him a hard time. Its the first time I have seen her give anyone a hard time on six one. Maybe she was told to get a bit more combative?

    As Someone under 35 I have to agree with OMF.

    This is no longer a simple class war its going to turn into an age war too.

    The emotive language used ‘looting” is just rubbish.
    The Private credit expansion in this country has lead to a massive transfer of wealth from the Young to the old in the last 15 years. The collapse of that credit expansion and the bill is being firmly put at younger and future generations.

    Colm McCarthy is correct that it is highly unjust to exclude Public pensions form this measure.
    Yet another division in our society.
    It was said a couple of yers ago that the insiders were circling the wagons. It now seems they

  25. What is the role of the pensions board on this? Can anybody tell me that or are we putting our faith in god to help us?

  26. @Rory O’Farrell

    DIRT is a tax on interest! You don’t have to pay DIRT if you don’t make a gain. All I have is losses. That is why the state is going to tax my capital sum with this new tax.

  27. What is remarkable to me is that people are still not making the connection between high energy costs (electricity, gas) and the massive wages that these sectors enjoy. The so-called Energy Regulator has done more damage to this country over the past 10 years or so than anyone can imagine.

    A true jobs initiative would have enforced a reduction of around 50% on Gas and Electricity and at the same time insisted that the ESB and Bord Gais continue to operate at break-even (no state subvention). This would have the effect of forcing them to realign the inflated wages in these sectors with the real world. It would give both business and hard-pressed consumers some real relief. But no, our politicians are still craven when faced with the prospect of upsetting our precious PS Unions. So, it will not happen and we all suffer as a result.

  28. Those with the foresight to choose employment in the public service are exempt from the new levy, since the public service does not bother to fund its pension obligations.

    Oh we’re exempt from the pensions levy, are we? Hallelujah! Does that mean that I’ll no longer see a deduction on my pay slip labelled “Pensions Levy” and which takes upwards of 8% of my income?

    Oh, and we don’t bother to fund our pension obligations? Then what, pray tell, is that “Pensions Levy” for? You mean to tell me it has nothing to do with pensions and was just a convenient label to sell the thing to the public? You mean it was a pay cut by another name?

    It’s amazing how Orwellian all of this has become. We have always been at war with East Asia. Public Sector pay remains at pre-crash levels. Only the private sector pays a pensions levy. And down the memory hole it all goes.

    I also note, once again, an economist making comparisons in the wage rates of different countries with tools no more sophisticated than a simple conversion (at current exchange rates) of the wage of one into the currency of the other, as if that were a meaningful comparison.

    Seriously, do you guys get paid for this stuff?

  29. Ernie : PS levy is on INCOME to pay FUTURE outcgoings. this new wheeze is on ASSETS to pay for a VAT reduction on sandwiches. Is that too hard to grasp?

  30. Ernie.
    They are not comparable.
    Yours is a gold plated defined benefit pension which you pay in a fraction in a pension levy. Your getting far more out than you put in.
    Private sector pensions are essentially savings wherin we get back what we put in.
    If you exchange your Defined Benefit for a Defined Contribution with us if you like.

  31. @Brian Flanagan

    I think the conclusion you’re drawing from those figures is unjustified.

    I would say one way to look a th this issue could be to see how much would be saved by reducing the wages of public sector workers to their private sector or UK levels equivalents

    If you take the view that high earners are overpaid in the UK and/or you don’t see a problem with wage compression between levels in the public sector then you could simply analyse how much could be saved by capping all wages in the public sector at 100,000 and then compare this to how much is saved by reducing people below that figure to the amount that they would be paid in the UK.

    Either way, I would guess/estimate that the amount saved by bringing wages below 100,000 into line would dwarf the amount saved by bringing higher wages into.

    There simply is not enough big earners in the public sector to make really substantial saving from gutting their wages.

    I would also add that top earners are likely to be more able (perhaps still not a big problem – i don’t know) to find employment somewhere else (i.e private sector or abroad) at better wages (particularly if capped at 100,000) than people on lower incomes.

  32. @ Colm McCarthy

    As I am sure you know, the fairest comparison of Ireland’s minimum wage to those of any of our EU partners must take into account the difference in its comparative purchasing power. On that basis, in 2010 Eurostat placed Ireland’s minimum wage (pre the FF/Green cut) at number six in the EU, in fact lower than that paid in the UK as well as France, Belgium, the Netherlands and Luxembourg.

    If we look at the kind of living costs which will be of most concern to the low paid, there were the following increases (as published by the National Consumer Agency) in one year alone between 2007 & 2008:

    Housing, water, electricity, gas and other fuels (+9.7%)
    Food and non-alcoholic beverages (+8.1%)
    Health (+6.2%)
    Education (+5.8%)

    As far as I know, that was the only year the NCA published these statistics, but even if there have been some falls in food prices since 2008, in 2009 Ireland still had the second highest food prices in the EU with only Danish consumers facing higher prices (Eurostat, June 2010). So, in regard to these crucial costs of living, reducing the minimum wage to 2006 levels had a far worse impact on its 2011 purchasing power than simple headline inflation figures would suggest. Restoring the minimum wage to its 2010 levels is not generous even at a time when generosity is at a premium but it is socially just.

  33. It will be interesting to see whether the Irish Times will use a slice of my pension fund’s capital to reduce its cover price from 1.90 to 1.82 when the new VAT rate kicks in or will simply use the proceeds to help meet its running costs.

  34. @ Zhao_enlai

    Well the NPV of the future income stream is just the capital value. So a tax (different percentage) on the capital or capital income stream are equivalent.

    Pension funds aren’t subject to capital gains tax. It might be ‘fairer’ just to have a capital gains tax on the pension fund. But this can be hard to estimate for each individual that is part of a scheme.

    So how about we estimate the usual annual capital gain a pension fund makes? I’ll be very conservative and estimate that the fund on average makes the same as a risk-free (AAA rabobank) deposit account with AER 2.25%. To ensure that pension funds and other savings are treated equivalently how about charging the same tax (27%) to that estimated income. So the ‘Pension Fund Estimated Capital Income Charge’ works out at…

    …just about 0.6% of the value of capital.

    Does it make you feel better if its termed the ‘Pension Fund Estimated Capital Income Charge’. As this is only for 4 years a pension fund is still more tax efficient than a deposit account.

    Of course if it were made permanent the NPV of the €400million per year would be over €5bn, which could fund a reasonably substantial stimulus package. And all just by making pension fund savings somewhat more equivalent to deposit account savings.

    (I know there are also implications regarding income tax that you pay when the pension is paid out, but I that is largely offset by the original income tax relief)

  35. @Rory

    Someone once told me in relation to exclamation marks that if he was reading an email and he saw more than [pause] “none”, he was pretty sure that person was, “well, a moron”. Maybe i should stop using them…

  36. @OMF
    Er, the golden generation will escape unscathed by this measure. It is, unfortunately, only the sprouts that will suffer. Early contributions matter the most (in terms of growth).

    Those already receiving pensions will be largely unaffected. Up to recently, an annuity had to be bought by many pensioners. The result is that they are immune to any levy on assets, since they don’t have assets – they have an income that they have bought.

    @Ernie Ball
    The difference is that the new levy affects the amount that is received in final pension. The PS pension levy affects your income, but it does not reduce the final amount you will receive. Instead your unions managed to negotiate that new entrants to the PS would get reduced pensions and have to work longer. It’ll take effect, oh, some time in about forty years…

    @all
    On retrospective – what’s to stop ministers introducing a gombeen levy? Say on all bank pensions over a certain amount? On golden handshakes and bonuses too?

  37. @Ernie

    Public sector workers are paid substantially more, enjoy better work conditions, and receive far better pensions than their private sector equivalents.

    They may be annoyed about reductions in pay – were not talking about percentage changes – we’re talking about the level of pay and the level of pensions.

  38. This Pension robbery by the Coalition is merely a follow on of the previous FF Government – hit anywhere it is easy to take money from. The Coalition day by day looks more like FF in drag. Unfortunately, when it comes to dealing with themselves the Politicians have few problems just change or do not operate the Law or use the Constitution as the excuse. This robbery from Trust Funds has to be stealing and therefore Unconstitutional especially when it does not apply to the Politicians and their lackeys in the CS/PS.

  39. It would be great to have a calculation for what a public sector pension is worth in term of yearly pay. I’m sure its been done but having it to hand would be good. Then, when discussing pay in the public sector we could start to compare like with like by adding the figure for yearly pay to the figure for what the pension is worth and use that as the base line comparison whenever pay is discussed. People who didn’t use the adjusted figure would be the ones who needed to justify its exclusion as opposed to the other way round.

    Also, public sector job advertisements should include the cost of the pension. Basic advertising should do this anyway – the fact that they don’t seems questionable

  40. @ B_Eoin_B,

    This might be a little pedantic, but I said ‘retrospective nature’ not ‘retrospective’. And it’s something that legal experts would need to tease out. What I see as the ‘retrospective nature’ is that the contributor does not have the ability to remove funds and has a reasonable expectation that the conditions, which applied at the point of paying in, are respected.

    For example; this is akin to you buying a lottery scratch card at lunch today and winning ten thousand euro. You’d have a reasonable expectation of receiving this amount. As large wins can only be paid from their head office, it may not be possible for you to claim your prize until tomorrow. Unfortunately, before you can make this trip, the minister announces a 99% tax on large prizes. Is this retrospective? I think there is a strong argument to say it is.

    I read that this levy only applies to residents. I guess some of the greats of Irish finance like Mr Drumm and Mr Quinlan will be exempt.

  41. So we have an Irish Government raiding Irish citizens retirement savings accounts while protecting German citizens retirement savings accounts.

    Could this move trigger a flight of deposits abroad?

  42. @ernie

    “I also note, once again, an economist making comparisons in the wage rates of different countries with tools no more sophisticated than a simple conversion (at current exchange rates) of the wage of one into the currency of the other, as if that were a meaningful comparison.

    Seriously, do you guys get paid for this stuff?”

    Are you suggesting that public sector wages and pensions are not out of line with wages in the UK (PPP exchange rates)?

    Why not address the substance of the issue or complaint?

    Either argue that wages are not out of line with the levels in the private sector or provide a justification for such divergence?

    To me, this is the simplest public policy debate there is; stop protecting insiders at the expense of outsiders. that’s pretty much all there is to it

  43. @Hoganmahew.

    I think a gombeen levy is an excellent idea and especially approppriate for ex ministers.

  44. @bill hobbs

    If I had assets I’d move them – we’re in the middle of crossing the Rubicon – we’re not there yet – and we could turn back if things improve – but there is not that much reality to the government making the large savings in public expenditure needed to bring spending into line with taxation – the gap is too large and public sentiment to much in favour of avoiding cuts in pay and social programs – taxes, stealth taxes, levies and expropriation seem to go hand in hand with defaults – and the key question for those with assets is; Why risk it? Why not move those assets just to be sure? Do you really trust the state not to come after your savings? Higher return? Since when did you decide to put all your nest egg in to risky assets? Sure they could end up taxing that higher return in any event. And why put your nest egg at risk?

    These guys, in the middle of a depression, with an unemployment and solvency crisis, tolerate public sector pay, condition, and pension entitlements that are way out of line with private sector conditions – and there is little public or political will to do anything about it.

  45. @Christy

    My figures related to the entire workforce and not just the public sector. However, I dug out the following which may be of interest for “Public admin and defence”:

    Number earning over €2k a week = 1,173
    Aprox total annual payroll (based on average of €2500/wk) = €152 mn

    Number earning under €250 a week = 5,386
    Approx total annual payroll (based on average of €200/wk) = €56 mn

    On this basis a 10% reduction in payroll costs would save €15.2 mn for the highest paid and only €5.6 mn for the (almost) five time numerous lowest paid.

    If you think I’m singling out the public sector. I’m not – the distribution is much greater for the private sector where low paid workers are much more numerous.

  46. If one accepts the idea that setting aside one source of Exchequer funds for one Exchequer-funded spending project is usually a fairly bogus bit of political stagecraft, then isn’t it more or less as accurate to say that the pension levy is being used to fund the bank bailout, or general public spending, as it is to say that it’s paying for the “jobs budget”?

  47. @ROF

    “So a tax (different percentage) on the capital or capital income stream are equivalent.”

    There is a big difference between a tax on capital and a tax on capital income stream if you are nursing a large loss like many irish pensions!!!

    “(I know there are also implications regarding income tax that you pay when the pension is paid out, but I that is largely offset by the original income tax relief)”

    Hold your horses there! Firstly, if I pay tax now and don’t put it in a pension then I only pay tax on the income once rather than twice with the new levy.

    I will have to pay CGT if I make a gain but that is only if I do make a gain. [b]More importanly,[/b] I have the full use of all my capital and all my gains to reinvest to make future gains rather than losing a bit each year. The mathematics of a yearly levy on capital rather than a lump sum charge on gains at the end is that you lose not only the amount paid but also the compounded annual income/gain on that amount.

    Also importantly, I don’t have to pay a “[mis]management fee” to a pension fund manager if I pay my tax now.

  48. As a 55+ somebody who works in the private sector with an extremely modest pension fund, who will now have wait until 67 for a State pension, I think the pension (wealth tax) is an excellent idea.
    I would have raised a lot more through increasing the top rate of tax, but what the hell.

    The State is bankrupt. There is more to come.

    OMF makes a strong argument in relation to an intergenerational relationship that was all one for the past number of years. And still is all one way. Look at the charts produced by Brendan Walsh on another thread.

    It is extremely galling, however, that this levy will come in to take the accumulated wealth of one particular group, while public sector pensions remain untouched. The Chief Justice will still earn €275,000 pa for his role, while continuning to receive a “pension” of €94,000 from his role as AG.

    The above levy should of course have ben accompanied by the setting on a maximun payout of €50,000 on all pension paid by the State to any one individual. Lets see the figures on that saving Minister Howlin.

    However the philosophy of greed and elitism that has been nurtured and is flourishing in the upper eschelons Ireland will not change easily.

    PS.
    The farming community will tomorrow be aware that there is a 28% minimum wage differential between Ireland and the UK.
    Is it possible to know the differential in the case of university lecturers?
    And would it also be possible to get an evaluation of the single farm payment (SFP) which can give a modest farmer up to €25,000 pa without ever having to leave his bed. The largest recipients of course receive up to €500,000 (1/2 million).

  49. @ Zhao

    Suppose you are paying at the top rate now (none of my business if you are or not, but I’ll pretend you are for the sake of argument). With a pension fund, due to the reliefs you are likely to shift some of the income to a lower tax band (assuming you are not paying at the top rate when 65). There is also the benefit of discounting future tax flows.
    Of course, you lose the flexibility of having to wait until you are a pensioner to access the money.

    I think what is the better investment decision depends on people’s personal circumstances. But if this charge is only for 4 years, for most people a pension fund will still be highly tax efficient.

    I’m not sure I understand you correctly, but are you saying you must pay capital gains tax in addition to the levy charge on a pension fund?

  50. @annoym

    +1

    @Brian Flanagan

    I think that still misses the point though.

    I’m not talking just about people on the lowest wages –

    for instance include EVERYBODY who earns less than 2,000 a week and compare this with everybody who earns over 2,000 a week. Cutting the wages of people over 2,000 a week will not have significant effects – because there is only 1,173 of them.

    Lets say you taxed everything over 100,000 – how much would you save?

    well lets guess that on the average wage of people over 100,000 is 140,000. Now multiple 40,000 by 1,173 – we get 46,920,000 ie 50 million

    thats nothing in the scheme of things – wouldn’t make a dint in the deficit

    lest say its 200,000 average – then its 100,000 – still not really a big saving

    High earners in the public sector is a non issue in bringing the deficit into line – but it attracts all the interest – the media feel that its there job to hold well to do people to account – and it is – these guys benefit from the state greatly and are probably overpaid in most instances – but that is not really that relevant to the debate on the deficit because the savings to be had are simply not there – there is no pot of gold to be found by reducing pay to top earners in the public sector

    and this basic fact is to be found almost nowhere in the newspapers or an the tv when this is discussed – so people are naturally skeptical about cuts to their pay because they feel the problem should be borne by those with the broadest shoulders – but those shoulders can’t support the weight of the deficit – and because there is no public acknowledgement of this – combined with the fact that there is little public acknowledgement of overpayment in the public sector – there is no public acknowledgement of the need for serious cuts in public sector pay across the board

  51. HELP–
    I’ve just gotten feedback from a potential major investor based outside the EU that the proposed “retroactive legislation” could lead them to decide NOT TO INVEST in our company.

    They said any government willing to enact retroactive legislation (clawback of previous funds; or making the new legislation effective as of 1 Jan. 2011) makes Ireland too risky a place to do business. If this law goes through, they could not trust that the government might enact other retroactive laws of any kind.

    Their words: “This is very dangerous legislation”, and “This is unheard of.”

    It’s not the specifics of the proposed pension legislation that are the main issue–it’s the principle of enacting something retroactive.

    How can I rebut this concern?

  52. @ NoGuru

    Try rename it the ‘Pension Fund Estimated Capital Income Charge’ . Tell them that its brining pension savings in line with deposit accounts. Point to how pension funds have been used in Estonia and Poland.

    Strongly contrast it with what happened in Hungary (where the entire pension funds were nationalised).

    Point to the strong constitutional guarantees against expropriation, that Ireland does not have a history of expropriation especially with regard to foreign investment.

  53. @ OMF,

    “The Generation That Wrecked The Country consists of the people who have recently entered, or will shortly be entering retirement. ~60 year olds(those born in the post war years).”:

    I don’t see that you have provided any support for that statement- -assertion.

    It seems to me the country was wrecked subsequent to 2002 and had much to do with the (culture of the) then elected govs. (which governed during the wrecking of the economy, when banks’ ‘foreign’ borrowing surged and was invested pretty much in consumption, and the permitting of which may have had much to do with “three in a row”). This would include a few more of the electorate than those over 60. Let’s see, 2002 from 2011 leaves 9. Age Of Majority is 18, so 18 plus 9 makes 27 (not 60) (- and you’re an obsessive maths freak …). My votes did not contribute to this. Did yours?

    “DeValera effectively appropriated the Land Annuities to fund the free state, “:

    … and gave us The Economic War (thanks again, FF).

    And better mention again the manifesto of 1977 – thx yet again.

  54. @Brian Flanagan

    I wouldn’t be surprised if there are more public sector workers on more than 100,000 than you have quoted there – does that include judges, consultants, those type of people?

  55. @ Eamonn Moran,

    “The Private credit expansion in this country has lead to a massive transfer of wealth from the Young to the old in the last 15 years.”:

    Do elaborate, as your logic escapes me?

  56. @ROF

    I was saying that if I don’t buy a pension but instead invest my taxed money then I will pay CGT on any capital gain.

    I agree that the future income tax treatment of my pension income is critical. It will depend what band it is going to fall into.
    The fee for fund management is also crucial.

  57. @Christy

    You wrote: Are you suggesting that public sector wages and pensions are not out of line with wages in the UK (PPP exchange rates)?

    First, I was referring to Colm McCarthy’s claim about the minimum wage, which isn’t related to public sector/private sector bullshit.

    Second, yeah, not only will I suggest that, but I will state it: public sector wages and pensions are not out of line with wages in the UK using PPP exchange rates.

    Michael Taft has done some work on this here.

    You’ll find my own modest contribution, comparing academic salaries on my blog:

    http://ernieballsblog.wordpress.com/

    It’s a myth that the public sector is particularly overpaid here.

  58. @ Zhao

    I agree with you about the compound effect (but it might be offset by the ‘bird in the hand’ effect of the tax relief).

    I know lots of funds are in deficit (and my first thoughts when hearing of the levy is what will happen to workers in Waterford Crystal who lost a huge amount of their pension). But I wonder if any pension fund actually made a capital loss over its life span. I think most funds are in deficit because contributions were reduced during the good times.

    Anyway, I think the whole pension set up here is nuts. Tax reliefs for borrowing (for a mortgage). Tax reliefs for saving (for pension). Not very consistent.

  59. @Joseph Ryan

    I don’t begrudge the state the pension tax they are getting from me either. I would prefer if it were put in a fund and I could trade my shares in that fund but that is no biggie. My main point was I won’t be investing any more in my pension. I am not sure if it is secure, I have no confidence in pension fund managers generally after educating myself on the topic, and as I am not satisfied that it is tax efficient.

    BTW, today it is Fine Gael, the most right-wing conservative party in Ireland, dipping into the pension pot. What will happen if and when SF and PBP get into power?

  60. @ ceteris paribus

    “On the same day AIB announce a coercive bond buyback with a 90% loss for the participants. Does anyone seriously believe that they will ever be able to funds themselves on the bond markets again – and this is one of the pillars in the new banking construct.”

    Mr Bond mentioned this on a different thread. I think this is extraordinary. Any more detail on this? If this is the case, how come the state controlled AIB is allowed to burn bond-holders while the state isn’t? Perhaps this belongs to another thread.

    @ Christy

    In terms of fairness, how about a couple one of whom works in the public sector and the other the private. If the one in the private sector has lost their job/taken a bit paycut, is it in their mutual interest for their partner to take a wage cut in the name of fairness?

  61. @ Ernie Ball

    Nothing Orwellian about the issue if we deal with facts.

    The Comptroller and Auditor General’s (C&AG) 2010 report published last Sept showed that the net annual cost (after all employee contributions) of a new public pension entrant is 19.5% of salary while the net cost of an additional 1 year’s service for ministers and judges is 62% of salary.

    The total overall actuarial cost for the civil service of an additional year, averaging out staff was 15.1%. It’s was at 7.8% for the health sector because of the big jump in employment of young staff.

    The Minister for Finance Brian Lenihan said in Feb 2009 that the total cost of a State pension for an Irish public sector worker, hired after 2004, was 26.1% of pay, and the employee paid on average 4.8% of the cost, before the introduction of the pension levy.

    You can retire at 60, the pension is linked to current earnings which is unheard of in private schemes and the C&AG said last year that additional years have become a feature of pension awards in universities. By way of example, in UCD 78% of staff retiring between October 2007 and September 2008 had years added to their service for pension purposes. These 42 employees had an average of 4.2 years added to their pensionable service and their average salary on retirement was €74,434.

    Similar provisions apply in other universities – – Trinity College stated that since 1972, on the basis of custom and practice the award of added years has become a legitimate de facto entitlement under its Master Pension Scheme and that Scheme members were advised that they had been granted added years.

    Guess what the funding cost would be for an additional year at 60?

    It appeared to cost nothing but in 2009, the State assumed direct responsibility for the pension funds of the old universities and deficits of about €630m led by Trinity College at €315m.

    There were no calls for burden-sharing.

    So rather than George Orwell, the contrast with the lot of the majority of private sector who have no occupational pension, and those who have who are facing deficits or payouts dependent on market returns, could be compared with Peter Sellers in I’m All Right Jack (1959).

  62. @Christy
    “Cutting the wages of people over 2,000 a week will not have significant effects – because there is only 1,173 of them.”

    Disagree. It will be significant because they earn 8 times more than the lowest paid.

    Based on the CSO data there were 27,478 workers in the State earning over €2k a week in 2006. Based on a weekly rate of €2,500, the annual wage cost was about €3.6 bn. As you say this small when compared with the estimated €59 bn national annual wage cost. I think this is your point which I accept.

    My point is that they are highly significant when compared with the 233k workers who earned under €250 a week and account for only €2.4 billion of the national annual payroll. High earners in both the public and private sectors should be the primary targets for cuts rather than the lowest paid.

    Anyone for a NMaxW wage alongside a NMinW? Everything is possible now that the Government has raided sacred, untouchable pension funds. Just declare force majeure and TEMPORARILY limit public sector salaries to max of €100k and tax any income above that in the private sector at 80% along with changes in tax rules on changing residency.

  63. @Christy

    “I wouldn’t be surprised if there are more public sector workers on more than 100,000 than you have quoted there – does that include judges, consultants, those type of people?”

    I used a narrow definition. You could also include mixed public/private sector categories like:

    Education: 1,733 earning over €2k a week
    Health: 3,252
    Elexctricity, gas, water: 824

  64. @Michael Hennigan

    There’s a very simple reason why added years are given to academics. Since you love to repeat this little factoid and appear particularly obtuse about it, I’ll spell it out for you.

    Academic jobs require a PhD. You cannot even get your foot in the door without one. PhDs, particularly good ones, take a long time to get. The average time for completion of a PhD in an American university, for example, is 9-10 years. Retirement at 65 is mandatory. This means that virtually no academic, given these constraints, would be able to retire on a full pension without the addition of pensionable years.

    You make it sound (ad nauseam) like the governing authorities of the universities are just tossing out extra pensionable years like peppermints. They are not: they do so for documented cases where staff were engaged in pursuit of academic degrees that are a requirement for the job. This is eminently fair. Moreover, it would impede the ability of Irish universities to recruit internationally (which they must do) if this practice were stopped because of the obsessions of small-minded plantation owners in Kuala Lumpur.

  65. @Brian

    I’m not comparing gains of top 10& vs bottom 10% or people over 100,000 vs bottom 10%

    What I’m saying is that we can’t meaningfully address our public sector pay bill by focusing on top earners – clearly something can be saved there – and its not totally insignificant- but the low and middle earners (ie everybody but th top earners) where the money is spent and it is from there that savings will need to be made.

    And if we accept that then it follows that this is the issue that is deserving of the most focus

    @Ernie

    I suppose if you don’t accept there’s a wage premium then there is a factual dispute that’s not easy to settle by blog posts.

    Suffice is to say though that in my opinion if you don’t accept that there is a significant premium on public sector employment, taken in the round while acknowledging that there may be exceptions – then you simply can’t be taken seriously in these debates – you’re closing your eyes to the obvious – sometimes using quite sophisticated methods to do so, more often not though- but closing your eyes none the less

  66. Gavin Kostick: “how come the state controlled AIB is allowed to burn bond-holders while the state isn’t?”

    This is subordinated debt. It’s hard to justify giving them anything at all.

  67. I don’t see that you have provided any support for that statement- -assertion.

    Expecting me to prove that most important decisions in society are made by older people is a pretty flagrant abuse of the “citation needed” meme.

    By the way, to those wondering/complaining about the legality of this levy (and moreover any moves to direct where pension funds invest), again I refer the discussion to the constitution, specifically the Directive Principles of Social Policy

    Article 45

    The principles of social policy set forth in this Article are intended
    for the general guidance of the Oireachtas. The application of those
    principles in the making of laws shall be the care of the Oireachtas
    exclusively, and shall not be cognisable by any Court under any of
    the provisions of this Constitution.
    ….
    The State shall, in particular, direct its policy towards
    securing:
    ….
    iv. That in what pertains to the control of credit the
    constant and predominant aim shall be the
    welfare of the people as a whole.

    Technically, if the Dail direct pension funds to invest the pot in Irish banks, it will actually be doing what it is constitutionally obliged to be doing.

  68. @ Paul Hunt

    I am afraid that you are not allowing for the incompetence quotient on both sides in the new coalition and throughout the Irish establishment. It is one area where Ireland comes out on top of the charts.

    @ Ernie Ball

    Your comments would impress me more if you went a bit lighter on the invective. If I follow your logic, if Ireland inflated its prices even further, Irish academic salaries would have to be twice as high.

    That is not where the problem lies. The other countries you mention have a higher tax take and a much wider social support network, including free health care, creches etc., which reduce the level of disposable income required to maintain an equivalent standard of living to that in Ireland. The overall level of salaries is also lower for a very simple reason: a large proportion are not earning excessively high salaries as in Ireland. Their societies, in a word, are more equitable.

    In addition, for valid comparisons between the public and the private sector, there has to be a capitalisation of two elements – (i) guarantee of permanent employment and (ii) payment of an unfunded defined benefit pension – which logically demand that salaries and pensions paid from the “public purse” (forget the distinctions between this branch or that branch or that category or the other) should be lower, not higher, than they are in the private sector.

    The sound of back-tracking on the funding proposal for the “jobs initiative” is deafening. However, such is the furore these rather obvious, but politically uncomfortable facts, should become more evident to the wider population especially with regard to enlightening them as who is actually paying for that “safe well-paid job in the civil service”, which one of their children may have. The answer, of course, is the other members of the family that either have lower paid jobs in the private sector, no jobs or have emigrated.

  69. @christy

    Are you the guy who wrote this?:

    Why not address the substance of the issue or complaint?
    Either argue that wages are not out of line with the levels in the private sector or provide a justification for such divergence?

    Practice what you preach. Justify your claim. It won’t do to insist that it’s “obvious” or that “everybody knows” it.

  70. @ Colm

    Are you saying that a higher minimum wage in Ireland when compared to the UK is the causal factor behind the higher rate of unemployment?

    If so, can you produce any evidence to back it up? I assume you are aware that almost every piece of research, econometric and otherwise, has found that there is absolutely no empirical relationship between lower levels of unemployment and lower minimum wages.

    When Irish minimum wages are compared to Finland, Sweden, Netherlands, Norway, Austria and Denmark we come out at either about the average or below the average. Most of these countries do not have a national minimum wage but a sectoral minimum wage. Furthermore, they have much lower levels of unemployment. Why? Because they have regulated labour markets that incentivize employers to maintain employment not shed it (and they did not have the same reckless behavior in the private sector as occurred in Ireland’s post 2000). Are they less competitive? Not by any empirical measure that is currently in use.

    We need labour economists with an understanding of the dynamic interaction effect between institutions, actors and markets to make an informed contribution to the employment crisis in Ireland?

  71. “I don’t see that you have provided any support for that statement- -assertion.
    Expecting me to prove that most important decisions in society are made by older people is a pretty flagrant abuse of the “citation needed” meme.”:

    If you can’t support a statement, indeed a charge against a section of society, …

    I find that the economy is the responsibility of the elected gov. Gov. election is by the vote of the electorate, one vote each.

  72. @ Ernie Ball

    I assume the other points will knock some gloss off your victim’s cross.

    Read the C&AG’s report and if you may see beyond your prejudices, that the issue of additional years was as in the rest of the public service, has often been arbitrary and in one university, at the discretion of the finance officer.

    So it’s not an issue of contractual terms; so why have admin staff also been on this gravy train?

    The C&AG’s report was not about contractual obligations.

    So before effusing on PhDs — read the report.

    The buck of course stops nowhere.

  73. 1. Raid on private pension funds while politicians and senior public servants pay and pensions remain at ridiculous levels versus all other comparable countries?
    2. Jobs being “created” by public spending?
    3. Banks insolvent, national debt increasing to insane levels,current public spending continues to increase
    4. New investment advisor,Columbanus AG, offers easy route to transferring funds to Switzerland.

    Does one need to be an economist to understand these trends? Hope the ECB can print lots and lots of Irish Euros to keep our elite in the state to which etc.

    Why not grab all the private pension funds and give us all a public sector pension – as Marie Antoinette Murphy would say.

  74. It is surprising that you all take the UK as a reference when discussing income or pension inequality.It is oe of the most inegalitarian country in the Western World.I suggest you use Sweden or Denmark in your comparisons.

  75. @All

    Surely there is a much simpler way to fund the jobs initiative, in fact any sort of initiative in the short to medium term for that matter, and one which seems to have been less than enthusiastically examined when looking at the contributions to Gregory O’Connor’s latest thread regarding banking capital ratios.

    Fully appreciate that bank capital ratios is not the most understood of topics but given where we’re at, it deserves more air play.

    Why for the love of God do we have to accept that our broken banks – and by every measure they are completely broken – require capital at anything approaching the levels the so called experts believe they do.

    The ‘evidence’ that I’ve read is at best inconclusive regarding the appropriate levels of a banks capital, but what seems to be emerging is that anything higher than c7% Core Tier 1 equity ratios is probably excessive – but more importantly this requirement is for normal functioning banks operating in normal functioning banking economies.

    We currently do not live in such an environment and in Morgan Kelly style; find it extremely difficult to understand why the CBI Governor and the Regulator in believe we do.

    The basic tenet in banking capital is that it needs to be at its height at the top of the economic cycle to counter the effects of poor lending decisions as the cycle develops.

    Perhaps I missed it but is it not the case that we are now firmly at the bottom of the cycle (albeit making baby steps per latest GNP numbers over the past 3 quarters) but we also know that bank lending is pretty much non existent despite the improving situation – so why the need for banks to asked to hold capital in line with the likes of Barclays and BNP?

    The horse in the case of asset write downs and losses has bolted long ago, the stable has been boarded up and the windows are now being broken i.e. the losses have largely been incurred – is the CBI/Regulator expecting NAMA II or the like? Perhaps, but it seems at variance with c400 years of economic history that another balance sheet recession starts immediately after the cessation of the previous one. I’m not a believer.

    Can someone please tell my why or what good reason we have not to call Ireland and the various Guaranteed banks situated here Basel III free zones for the next 5 years and any – and I mean any – excess capital over and above 1% Core Tier 1 be reallocated from the banks to support further initiatives as announced yesterday. I can’t.

    The notion that raiding insolvent pension funds where ultimately the vast majority of the cash will eventually be spent in the country because the pension contributions
    ‘is being invested abroad’ is the most lame excuse I’ve ever heard in my entire time in this business.

    Perhaps someone should quietly tell the DoF that the vast majority of pension funds invest in secondary markets where ‘investments’ do not actually transfer cash to anyone other than previous owners – whose custodian accounts may very well reside in the IFSC for all the DoF knows – so cop outs that its not money being invested in Ireland is in many respects complete cobblers.

  76. I gather Ernie B’s defence of salaries that many would claim are a tad excessive is that “Ireland is an expensive place to live”. Now I wonder has he ever given any thought as to why that might be the case.

  77. @Michael Hennigan

    We can agree that the addition of pensionable years should be neither arbitrary nor at the discretion of a single officer. That does not mean that the practice doesn’t have good reason to continue to exist for certain categories of worker, as per my last post.

  78. @Paul Hunt

    So, Ireland is an expensive place to live, I gather, because the public sector is wildly oversized and overpaid and not because we have a lightly-regulated grocery cartel or because private-sector interests pumped up a property bubble that is taking its time deflating.

    It is interesting to me that the only ones who are ever called upon in this blog to begin the deflating are public-sector workers, via their wages and their wages alone.

    @overseas commentator

    The reason they always refer to the UK is because it’s the only place in Europe more given over than Ireland to the neo-liberal right-wing deregulatory snake oil that got us into this mess. That and the postcolonial hangover.

  79. @ernie

    I take your point but if you’re someone who is aware of Michael Taft’s research than you’re almost surely someone who is aware of the ESRI research – (which as far as I remember didn’t even include difference in pensions) – and as I don’t have the expertise to add to that report there is not really much to say.

  80. Why not grab all the private pension funds and give us all a public sector pension – as Marie Antoinette Murphy would say.

    Why not? What’s the point of a private pension sector anyway? The article notes that most funds are inadequate(i.e. insolvent) anyway, so once again, in will step the public exchequer to make up the difference. Once you factor out the money extracted in profit, and the cost of private sector fecklessness, is it really worth taking the risk of having a private pension sector at all? This argument can be applied to an entire gamut of financial services (banks, insurance, etc), as we are by now all too well aware.

    As someone under 35, my constant experience has been that private industries invariably utterly mismanage themselves, to the ruin of companies, economies, the public, and generally everyone except overpaid management. Older commentators may disagree, but I think we should simply nationalise a lot of industries, particularly financial ones. Maybe people who grew up in a world with the Soviet Union see things differently. For me, the mantras about the efficiency and reliability of the private sector and free markets have worn themselves a little thin.

  81. @ Ernie Ball

    You may not have much experience in the private sector, but due to educational inflation, many of the best-paid jobs now require graduates to have a master degree. Should they perhaps get a larger state pension at retirement for the extra time they spent in university and the extra income tax revenue they’ll generate? What about doctors? Dentists? Lawyers?

    How about we just link the state pension to the number of years spent in education post 16, surely under your logic, that is the fairest way.

  82. OK, Ernie. So we can rule out the wildly over-sized and over-paid PS. And then it’s all down to the grocery trade and the lingering effects of the property bubble (presumably being supported by NAMA).

    It’s good to know who the real villains are.

  83. @ Gavin

    its Tier 1 and Tier 2 sub debt, and the mechanism/pricing will be very similar (near identical) to that which has previously taken place at both Anglo and IRNW. Again, its actually quite sharp thinking by the govt, as they are trying to get it done and dusted before the two US hedge funds questioning the State’s treatment of subordinated debt is able to reach the courts. It’s technically a voluntary exchange, but with some heavy encouragement via the sweeper clause.

    @ Christy

    defined benefit schemes, given current rates and returns, cost around 27% of nominal wages to allow for the 66% final salary payout after 40 years of service (i believe). They should enact some mechanism which, per the “cost” of this levy, allows for a “virtual” fund to be calculated for each public sector worker, and his final benefits reduced down by the requisite amount to take account of the 0.6% levy. It would, i imagine, be a tiny change in benefits, but it would be an important message on the equality of this move. The whole issue of the non-dealing with existing public sector pension recipients is one of the worst mistakes that the previous government made and which the new one has not pledged to fix.

    http://www.ise.ie/app/announcementDetails.asp?ID=10862187

  84. @Ernie

    Its not true to say that all you get on this blog is calls for public sector pay cuts – but I would say that it is true that most people believe that there is a wage premium – (thats what the evidence tells us) – that wages are a very large part of the government budget – that we face a serious debt problem – that we face serious levels of unemployment – and that the best way, or at least a good way – to cut public expenditure without effecting public service provision is to cut pay.

    I suppose you probably only disagree with the first point i.e that there is a wage premium – but I mean – honestly – do you really believe that? No premium? None – even including pension entitlements? Even including compensation for job security?

  85. @ ObsessiveMathsFreak

    Have you a guaranteed job in the public sector?

    There is no Utopia anywhere but your view of the private sector reflects an ignorance of it.

    The buck stops nowhere culture in Ireland hardly supports mass nationalisation.

    Do you think that the cheap computer you’re using was produced by a public committee?

  86. @Paul Hunt

    If you’d like to provide some evidence that Ireland spends an inordinate amount on its public sector as a percentage of GDP (or, since you’re all GNP fetishists: GNP) relative to other countries, please feel free. It doesn’t.

    Nevertheless, the cost of living is considerably higher here than elsewhere. I therefore conclude that the causes of this should be sought elsewhere. QED

  87. @Ernie Ball

    You seem to be confusing
    (a) a worker having to pay towards a pension (e.g. pay cut which was caled a “pension levy” but was clearly a pay cut), and
    (b) a worker having part of their pension payout future permanently reduced with immediate effect.

    Unfortunately, public sector pensions will be cut substantially in years to come. You will understand the nuances then.

  88. @Bond

    thanks – 27% of nominal wages – 40 years service

    Thats big and I’d say its quite abit bigger for shorter service.

    Are you listening ernie?.

  89. @ Peter Kineane

    “Do elaborate, as your logic escapes me?”

    There was massive credit expansion in this country over 15 years up to 2008. The country was booming and profits were being made in an economy that was “growing” faster than jacks beanstalk. Many people (the vast majority of which would have been between 40 and 65) became very wealthy on the back of this.
    What was the basis for the massive level of credit expansion?
    Easy. The banks were prepared to role out the dosh. Why? access to international money markets and bank employees being paid on how much they could shove out the front door.

    In other words it was a massive ponsi scheme.

    And now who is going to be left to carry the can for for all the people who are at the bottom and middle of the Ponsi? The ones who didnt cash out before 2008?
    Well it will be mainly the sons and daughters of the people at the middle and bottom of the Ponsi as well as those who didnt even participate in the scheme. We are just seeing our bill grow over the last 2 years its drip fed to avoid a heart attack. Somewhere between 200 and 250 billion depending on who you listen too apparently.

  90. @Ernie,

    I thought we’d decided to put the PS to one side. You then fingered the grocery trade and a slowly deflating property bubble. Is that it? Or are there more?

  91. @Finfacts

    “It appeared to cost nothing but in 2009, the State assumed direct responsibility for the pension funds of the old universities and deficits of about €630m led by Trinity College at €315m.”

    That’s shocking – i heard nothing of that

  92. @Ernie
    You are paying for a pension, sure, just not the pension you’re expecting to get.

    I’m paying for the rest of your pension, after I pay for my own and after I compensate for the loss imposed by the levy.

    Meantime, we’ve exchanged notes before on the forfas report on public sector pay. I’ll simply put in the link to the sbpost article. http://www.sbpost.ie/news/irish-public-sector-workers-among-worlds-highest-earners-50628.html

    So, on the basis of what I – and most other people – see, the current measure screws the private sector very assymetrically.

    If this levy applied to Public Sector workers and would impact their final pension payments unless they took money out of other sources, we’d be hearing all about it.

    Right now the PS is getting higher pay (subsidised by the private sector), better benefits (subsidised by the private sector) and comparatively huge pension benefits (subsidised by the private sector).

    As for the time it takes to get a PhD justifying an arbitrary addition to academic pensions, it takes years to reach high paying jobs in lots of places. You won’t find companies offering to add huge lump sums to pension pots just because the people have lots of experience – at least not outside the Irish banking industry…and hey… .. I’m paying for that too!

  93. @Paul Hunt Where is the evidence for a wildly oversized PS? Do we have more teachers, social workers or hospital consultants than comparable places?

    As for the “raid” on pension funds, is this not what Daniel Gros suggested in a paper a few threads back? i.e. that Ireland has adequate savings, just that the government doesn’t have them. I have some issues with it, but the pension funds are analogous the equivalent of the grain being exported during the famine.

  94. @ Dearg Doom

    i actually agree with you on this measure being reasonably enacted on private sector pensions, i just think that the government should also look to enact something similar upon the “virtual” €110bn public sector pension fund as well. That would generate another €2.5bn over the 4-year period via a 2.4% reduction in calculated benefits.

  95. @Eoin Bond As public sector pensions have declined less than PS salaries in most cases, such an adjustment would be reasonable.

  96. @ernie

    The CSO (2009) study analysed data from the October 2007 NES. The CSO‟s Blinder-Oaxaca analysis of full-time permanent employees aged 25-59 yielded an average public sector wage differential of 12.6%, with a premium of 10.4% for males and 15.1% for females. Further analysis of the differential at differing points throughout the earnings distribution showed that the premium was largest at the lower end of the earnings distribution and generally decreased as earnings increased.

    The recent Irish literature addressing the issue of the public-private pay differential has consistently shown that the average public sector pay differential in Ireland is positive and is large when compared to that estimated in other OECD countries using similar techniques. The estimated pay gap is not constant and varies throughout the earnings distribution, with public sectors workers at lower percentiles receiving much larger premia than those at higher percentiles.”

    This is before the differences in pension entitlements

    You are turning your eyes form the evidence.

    Why o why o why do left wing people almost invariably fall into the obvious trap of blindly supporting public sector employees?

    I think its the left’s roots in the trade union movement – but that was originally a private sector thing – now the left is tied to the state and has long ago abandoned the cause of labour – now the left is just represents different vested interest than the right – you can even see this is the income levels of labour supporters – wasn’t there a survey out during the last election saying that labour voters typically have higher incomes than voters from other political parties?

  97. I wonder why the government doesn’t go the whole hog and nationalise the private pension funds. Then perhaps it might use the €80bn (€470m / 0.006) to buy Irish debt or even more shares in Irish banks or invest in revenue generating employment rich infrastructure (roads, broadband, energy).

    Presumably that would be regarded as bordering on anarchy but haven’t we started going down that road anyway with the 1% levy this year (€470m for seven months will be equivalent to 1% annualised).

  98. @Gavin

    “In terms of fairness, how about a couple one of whom works in the public sector and the other the private. If the one in the private sector has lost their job/taken a bit paycut, is it in their mutual interest for their partner to take a wage cut in the name of fairness?”

    sorry i missed your post –

    i don’t see what you’re getting at there? Is this family an analogy for the state? If its not, well the answer is obviously the cut will reduce their income – so its not in this particular families financial interest to take a pay cut on the public sector wage as well.

    In general, I’m not talking about percentage cuts – I’m talking about the level of pay not the change in pay that has happened so far. I’m talking about inflexible working conditions – I’m talking about pension entitlements

  99. Interesting exchanges above. Useful info. As I view the situation, it appears that we are headed for the Mother of All trouble – economically.

    I am assuming that an assumption has been arrived at that, that some sort of growth resurrection will be forthcoming, going forward into the future. I fear not.

    The global economy is facing severe stress due to a shift(ing) of loci of production and consumption, and the manner in which these two activities have been kept going.

    Could anyone explain to me why we neglect the massive accumulation of debt (which grows exponentially, totally without any nutrients) in arriving at a metric of economic wellbeing? Debt is, as I understand it, a (negative form) future income. In the current circumstances it appears that there can be NO future income at all. Its all bespoken for! And now those illigitimates are taking my savings (aka pension) as well.

    What shall I exist on? Virtual income to pay for virtual necessaries? Nice one. Anyway, it good to see more folk getting exercised about this issue. Maybe, just maybe, the pols will get a fright. Hope so.

    BpW

  100. @ christy

    FAS also transferred a deficit of €268m to the NTMA.

    Letter from B. Linehan to Denis Naughton TD:

    http://www.finegael.ie/upload/img843.jpg

    It can be argued that these deficits were always part of a big black hole.

    However, the funds were set up with legal obligations of prudence etc as with other pension funds.

    Public professional staff have also the option of buying extra years of service up to a max of 10 years, which is regarded as an attractive investment for those who can meet the required provisions as the benefit is defined/guaranteed.

  101. @Winelake

    Was this not what that guy the other day meant when he said we should lump sum tax domestic owned foreign assets?

    the crazy thing is I see a small, perhaps very small, but realistic chance of this type of thing happening

    I could see that happening before I could see public pay and pensions reduced to levels that are the same as in the private sector – another 25-30% cut in public pay? Not happening – particluarly with labour in power

  102. @Finfacts

    Its jobs and pensions for the boys off balance sheet until something goes wrong- and sure then we will look after you – farsical

  103. @Dearg Doom,

    I’m distinctly NOT saying that we have a wildly over-sized PS. I’m an agnostic is this area. All I understand is that there used to be a compact that PS workers received lower pay than any equivalent measure of pay in the private sector and were compensated by job security and unfunded defined benefit pensions (and often other benefits in the terms and conditions of employment). I don’t think anybody can deny that PS pay increased along with general pay levels during the bubble period. Some of that has been clawed back and the PS pension levy is simultaneously a further pay cut and a contribution to general government revenue.

    I abhor this private v public conflict because it is totally counter-productive at a time when we need national solidarity. Ernie B asserts that pay is high because Ireland is an expensive place to live. He has identified two culprits for this. I’m keen to identify more. If the cost of living can be cut disposable incomes will rise and more equitable burden-sharing that will avoid this futile public v private conflict may be possible.

  104. @Brian woods

    “Debt is, as I understand it, a (negative form) future income.”

    In the aggregate there is no debt – one persons debt is simply another persons asset – one person’s repayment another’s income stream

    Debt is only or at least mainly a problem when there are externalities involved – i.e. at a micro level the transaction costs of bankruptcies and associated damage to reputation which increase the costs of trading – or at a macro level the fact that credit constrained consumers and businesses may cut spending by a larger amount than their creditors increase it – so that when interest rates fall debtors increase there spend by more than their creditors reduce it driving up demand

    the world has zero net debt

  105. @Ernie

    In a world where the well worn constraints of risk and return are accepted as part of the capitalist system – public sector workers should ALWAYS earn less than their private sector equivalents.

    If the return I get for the provision of my labour is subject to the whims and flows of the market and economic cycle then the risk I assume whilst working in the private sector is higher than the public employee equivalent, compensation should always reflect these risk differentials. Its nothing to do with academic profiles etc its to do with economic risk.

    The whole basis for an entrepreneurial economy lives and dies on the understanding of risks and returns. Those who choose to take an economically safer route with their labour (and I stress economically safer route – not physical) should always be willing to accept lower compensation resulting otherwise the entrepreneurial thesis fails as public service does not operate within an equivalent economic risk profile.

    The empirical evidence from the crisis over the past number of years clearly indicates that those who entered the crisis under permanent working contracts within the Public sector have not experienced anything approaching the job losses that their private sector equivalents have suffered. In fact they have been largely insulated from the economic cycle.

    Arguments to the contrary have, and always will fail this acid test in times of economic stress.

    It’s risks as well as returns which need to be considered – most commentary including those noted always forget this fundamental issue.

  106. @Paul

    High pay in the public sector vs the private sector can never be justified by the cost of living – sure we all live in the same country

    When doing international comparisons purchasing power parity can be used to net out the effect – Ernie knows all this

  107. @Paul

    The “conflict” between public and private is not futile – far from it – it is part of a debate about avoiding default – a fundamental issue. You say

    “I abhor this private v public conflict because it is totally counter-productive at a time when we need national solidarity. Ernie B asserts that pay is high because Ireland is an expensive place to live. He has identified two culprits for this. I’m keen to identify more. If the cost of living can be cut disposable incomes will rise and more equitable burden-sharing that will avoid this futile public v private conflict may be possible.”

    In particular look at the bit “I’m keen to identify more”. I suspect that’s what ernie does – assumes away the issue – and then goes to find explanations for the data – starts saying things like “neo liberal agenda” or some other weak explanation that is divorced from the data or at least can’t be numerically tested against it

  108. I am glad that the discussion about pension levies has come up which highlights the the glaring difference between public sector and private sector while simultaneously highlighting perceived inequalities within the public service and “fat cat bonuses” for pension fund managers.

    1) IMHO the following levies should apply to public service retirement pensions under 66 years of age:
    A)60-66 12% levy on Entire pension
    B)55-60 -15% levy on Entire pension
    C)50-55- 20% levy on Entire pension
    D) Under 50 (yes there are quite a few) 25% on Entire pension

    2)Public Service retirement pensions over 66 but under 76: (we are a compassionate society which cannot expect the real eldely to adjust in their twilight years) the levy should be 12% on all pensions over 18000 and all lump sums over 80000Euro should be taxable. Retired public servants over 76 may be in the “golden generation” but I doubt if there was much “glitter”60 years ago for most of them..

    3)Private sector levy: Moaning about a 0.6% levy is only IMHO an expression of vested interest concerns. Any pension fund which cannot absorb this levy without passing it on to customers should either leave the business altogether or replace their existing fund managers.(and their redundancy/early retirement packages should be subject to the similar treatment suggested above).Private Sector lump sums over 100000 should also be taxable.

    4)Private Pension funds: if Michael Hennigans figures are correct i.e 520000 members of private pension funds and 330000 in Public Sector schemes) then this means that over 1 million people are not contributing towards a pension other than their social welfare obligations. Apparently from 2014 this will change which could result in an extra 2billion Euro per annum into the pension industry. Hopefully it will also inject real competition into the market.

    5) @overseas commentator and Paul Hunt.
    IMHO you are both right and we should compare ourselves more with similarly sized countries such as Sweden and Denmark who also happen to be post banking crisis”peripheral” northern countries.

    Those countries regard a decent basic pension and a decent standard of living in old age as a civic right . By maintaining similar values it would be easy to develop a situation within 20 years where public and private pensioners in Ireland enjoy equally decent lifestyles (courtesy of social welfare and employment pensions)following careers which allowed them to revolve between the private sector and public sector without fear of losing “Rolls Royce” entitlements.

    In Ireland we have thousands of talented public servants who would rather be working at a different job but are trapped in jobs they often dislike solely because they are afraid of losing priileges. While at the same time we have thousands of people who would be useful to Public Service but who are not “connected” enough to gain employment in those areas.

  109. @christy,

    Those on the left will always avoid consideration of factors in PS or semi-state service provision that increase the cost of living. My comment of 11:50am tries to sketch the political context. Under direction from the Troika, all these factors (private, PS and semi-state) will have to be exposed and dealt with. The quicker this were done the better. It should have kicked off at the end of 2008, but better late than never. Ireland, unfortunately, may be in the Troika’s treatment room for some time.

  110. @ Eamon Moran,

    * * As Someone under 35 I have to agree with OMF.
    This is no longer a simple class war its going to turn into an age war too.

    The emotive language used ‘looting” is just rubbish.
    The Private credit expansion in this country has lead to a massive transfer of wealth from the Young to the old in the last 15 years. The collapse of that credit expansion and the bill is being firmly put at younger and future generations. * *

    * There was massive credit expansion in this country over 15 years up to 2008. The country was booming and profits were being made in an economy that was “growing” faster than jacks beanstalk. Many people (the vast majority of which would have been between 40 and 65) became very wealthy on the back of this. *

    The massive credit expansion made its way into many pockets. I’ve seen the figure of 41% as going to gov. coffers. Private sector and indeed semi-state workers associated with the projects would have received a further high percentage. So, that would be a fairly fair scattering of it. What’s left would certainly not seem to be the lion’s share.

    Taking up your line: “As Someone under 35 I have to agree with OMF.”:

    ‘Much’ of the two streams I’ve outlined would then have gone to funding the third level programming of our now 20 to 35s. ‘I say, send them abroad to work and tax then until they show a profit’ . 🙂

  111. @NoGuru.

    How can I rebut this concern?

    Tell them not to invest.
    If they have investment funds tell them that there is risk free investment in Irish and other assorted European bonds.
    Risk is guaranteed by the ECB on pain of economic annihilation to defaulters and underwritten by the citizens of the issuing country.

    A veritable investors paradise. Why bother to invest in real goods and services when there is loot to be earned from real shakedown.

  112. Livonian
    do you mean on the actuarial value remaining of the pension or on the pension ; ie the pot or the payment?

  113. @Peter Kinnane

    The younger generation will win this argument. They have youth on their side.
    They may and possibly will refuse to pay for the benefits of the ageing population when their time comes.
    It may even be called payback time.

  114. @ Christy

    “The estimated pay gap is not constant and varies throughout the earnings distribution, with public sectors workers at lower percentiles receiving much larger premia than those at higher percentiles.”

    That is actually a misinterpretation of quantile regression. For the CSO to estimate the pay gap for different elements of wage distribution would require a non-parametric analysis.

  115. @ Joseph Ryan,

    I’ve fair hope in good fortune in the dynamics of life, based on my philosophy system (and dismissal of much of Einstein) and that all that money swirling around over the years may fortuitously have scattered some of its seeds, which even now may be breaking ground germinating.

  116. @ Joseph Ryan
    PS.
    The farming community will tomorrow be aware that there is a 28% minimum wage differential between Ireland and the UK.
    Is it possible to know the differential in the case of university lecturers?

    Farmers Journal readers were treated to a comparison of University lecturer salaries in an early 2010 edition.

  117. @finfacts
    Notional years for public service pensions can be purchased but at actuarial rates and I suppose this might be considered good value as long as you think the state will be in a position to pay out. Would you put your money into them in current circumstances ?

  118. @Brian Flanagan

    As a low paid public servant, I wish I could agree with you, but what you’re not taking into consideration is the high marginal rates of tax and other contributions made by high earners in the public and, to a lesser extent, the private sector.

    (Of course, to some degree they can offset this by investing in private pensions and other tax avoidance measures, but the difference in marginal rates is important in terms of revenue raising and cost reduction.)

  119. Don’t forget Patrick Honohan’s “network of contracts” argument that put senior bank bondholders out of reach.

    Gordon Brown did away with advanced corporation tax credits in ’97 or so, actually at a time when pension funds were not in trouble with their returns. He was warned at the time that eventually the public would view it as a stealth tax – which they eventually did. It removed much of the incentive to allocate assets to shares that paid dividends towards things like, er, internet companies. Pension funds are largely stuffed now and funds have gone defined contribution to avoid being closed.

    Colm McC makes the point about UK Irl comparisons over the minimum wage. He is right tio point up what looks plainly cracker to the electorates of Ireland’s creditors, but don’t think all that irritates them is the minimum wage. The whopping salaries paid for out of borrowed money are at least as much of a red rag. Go and live in the UK and be amazed at the fact that cutbacks are being made all over the place that in Ireland it wouldn’t even be worth wasting the time thinking about because they just will not happen. Ireland is exempt from the need to scramble around to the extent its bigger and solvent neighbour has volunteered to. It is much cannier. If it cannot repay loans they will be written off, then things carry on more or less as before.

    Perhaps a more realistic representation of the 100 and odd billion Euros liability for public pension commitments would be to declare these “Euros” to be specifically backed by the full faith and credit of the Irish state instead of Eurosystem.

    Time to pay a few bills using that method perhaps – Ministers salaries and pensions would be an obvious start and I cannot imagine them being unwilling to accept (what kind of message would that send?).

  120. @Rory

    Ye – i dont anything about quantile regression – wiki says its used for median estimation and other quantiles – I suppose I was quoting from it more to show that …

    “The recent Irish literature addressing the issue of the public-private pay differential has consistently shown that the average public sector pay differential in Ireland is positive and is large when compared to that estimated in other OECD countries using similar techniques.”

    to make the point well – what it says – we overpay our public sector and we do it by more than other countries

    And, as we are also facing bankruptcy we should cut public sector pay

    And this is before we take into account pensions – where there very substantial differences

    and this is before we take into account job security – where there are very substantial differences

    The case is overwhelming – obvious I would say – but you can’t convince people of things they don’t believe by choice

  121. @Kevin
    I agree with you about the impact of marginal rates for high earners. A public sector payroll saving of €50k might translate into a net saving of only about half that for the Excehequer. This underlines how difficult it is to make real and substantial savings.

  122. @Eoin Bond
    I am amused that a banker would consider the AIB coercive bond buyback where the holders is told lose 90% or all your money as being a clever move.
    When would you believe that AIB will be able to raise money in the bond markets again?

  123. @ FinFacts

    I confess I don’t understand pensions – but I guess if I earn 80,000 and my pension is worth 20% of salary – that is 16,000 per annum – but then given at
    least until recently there is a 50% tax back for my pension for it to really be worth 20% of salary the contribtuion would be 32,000. Over 35 years (I’ve subtracted the 4.2 years) this (returns free) would result in a pot of 1,120,000.
    If I then earnt 5% per year this would give me 55,000 without touching the capital – if I run down the capital at a sensible rate I supose such a fund would yield say 150,000 a year – I wonder since my pension statement says I will get 40,000 if I should complain?

    The public sector is paid more than the UK in general but then so is the private sector – see the Union Bank of Switzerland study. Comaprisons regarding gross pay are grossly inaccurate. For example see the European university Institute acadamic pay scales – look at the gross pay – Irish academics are clearly overpaid – then look at the adjusted for cost of living it is not so clear – the data is for 2006. Since then Irish university acadmics have recieved pay rises (3% in benchmarking) but so did acadmics elsewhere. Irish academics also got a 7% pay cut and a 8.5% pension levy – so I very much doubt that Irish acadmics are really overpaid in real terms.

    The public sector is samll compared to other EU countries but unfortunately it is not as small as the tax take.

  124. @Brian Flanagan

    I would expect it to be significantly less than 50%. I’m on the standard rate of tax, and my marginal contributions are 39c in the €1.

  125. @ Ceterus Paribas

    “When would you believe that AIB will be able to raise money in the bond markets again?”

    Glad i can amuse! 😀

    Well they aint gonna be raising sub debt again any time this side of 2020, but sub debt is gonna be a rarity across the entire European banking system going forward after this crisis and the new capital regime being brought in by Basle III. Pure equity is gonna be a much bigger player than before.

    But this in many ways backs up the decision to protect senior debt – there is a clear differentiation in the way that senior has been treated vs sub debt, it has been protected, sub has been toasted. Therefore, there is a reasonable chance (note im only using the word chance) that senior debt could be issued again on its own in a couple of years time, and thats probably the most important thing going forward (though with the deleveraging process, less so than before). Senior debt was always about creating funding, and subdebt was always about making capital cheaper for equity holders. Thats why we are treating one as risk capital, and not the other.

  126. To those who object to the levy.

    The maximum tax credit available to individuals earning at the income limit and contributing to a pension scheme is given below. Next to that figure is the total value that the fund would have to be before that individual started to lose out on the State tax subsidy to his/her pension fund.
    I do appreciate that not all earners earn €115,000 but the figures are instructive for those who do.

    Age Real Taxing point.
    30 1,571,667
    40 1,964,583
    50 2,357,500
    55 2,750,417
    60 3,143,333

    The whingers, particularly those on large salaries benefiting at 41% could do well to reflect on those figures.

    n his State fund value Based on current tax reliefs being used to the full on a salary of
    Many of the objectors to the pension, including @Colm McCarthy have failed to quantify the have failed

  127. @Hugh Sheehy

    You really aren’t following. You cite a Sunday Business Post report as though that were probative. Yet that very same report: 1) does not even bother to take the “pensions levy” into account; 2) is making international comparisons without adjusting for purchasing power. Doing this is meaningless. Salaries are proxies for what we’re really interested in: relative standard of living.

    You also write:

    You are paying for a pension, sure, just not the pension you’re expecting to get.

    I’m paying for the rest of your pension, after I pay for my own and after I compensate for the loss imposed by the levy.

    Yeah, I hear this a lot self-pitying nonsense a lot. It amounts to saying that all of the state’s obligations fall entirely on the private sector. Look, you pay tax. I pay tax. The state also has lots of other revenue other than what we pay in tax. What we pay we pay to the state. The state pays public-sector salaries and pensions and buys lots of other things, too. I don’t have a say when the state decides to build some road I’ll never use which I am, by your lights, “subsidising for others.” How is this any different?

    What lurks beneath this attitude is Libertarianism, including the idea that nobody should ever have to pay for anything that benefits someone other than themselves. This idea is inimical to the very idea of government and the very idea of a society. And it is largely this attitude which has underwritten the demolition of the social democratic compact over the last 30-40 years, the final culmination of which was the crisis we are now suffering through. You’d think some here might be a little more reserved in insisting that we plunge further down that path.

  128. About 5/6 years ago, a few weeks before the a ceiling of €5 million was put on pension “pots”, there was strong rumours of a big transaction by an Irish person, no doubt tipped off as to what was coming.

    It was said that €75 million was put into a pension fund. Not only that but that person did not have to write a cheque. By some wizardy or other substantial properties amounting to that value were transferred into the fund. It was even so neat that stamp duty was also avoided on the share transfer.

    All to keep growing within the pension “pot” tax free from then to eternity. Well eternity is now a finite concept.

    At least there will now be some money coming back to the State.
    But watch for the scramble in valuing privately owned and privately managed pension funds.
    Also watch how quickly these funds will “relocate” to sunnier climes.

  129. @ Christy: Thank you. But its the sub-terranean slicing of the transaction costs (aka: commissions) that do the damage. Real money is removed. Its replaced with virtual money.

    In the aggregate there are ‘gainers’ and ‘losers’ with a nett of zero: factually (in terms of the model) correct. Mathematically (in terms of the different quantities of real and virtual money) incorrect. Its just that those gainers are few, and the losers are many. Like the Casino or the race track.

    Anyway, its the divergent growth rates that are the real problem. Debt grows (without any inputs) exponentially. Income growth is variable. It mandates physical inputs. So something has to be subbed in to get the rates equal. Like to guess? Otherwise the system will implode. And it has – in SloMo! This business has been festering for approx 40 years.

    Apologies for delayed reply. Was away from desk. Thanks again.

    BpW

  130. @Ernie
    There’s a difference between what the state does for the “common good” and what it does for sectional favouratism.

    What we’re seeing in Ireland is the latter, not the former.

  131. Ernie, the “purchasing power” element is what demonstrates that Ireland is out of line in both costs and payroll. Both have to be normalised, at least in part. You cannot aim to keep both high unless the country has some unique value to add that its international competitors cannot.

  132. Ireland staggered along for decades (at least half a century) after 1932 with an over priced labour force coupled with low productivity. Sean Lemass was the first politician to voice concern about our lack of competitiveness and hemorrhage of young people to well governed countries. Ireland is a deja vu all over again and again country. The EU saved us from ourselves for over thirty years during which we enjoyed a prolonged period of prosperity. We then experienced a period of governance characterised by an abdication of responsibility that would boggle the mind of most sane people.

    Today we are back to 1932 blaming everyone but ourselves as the Gov’t reverts to the usual Irish “Head waiter (Taoiseach) and the waiters (TDs’)” mode of Gov’t. Competitiveness, sure that is for others we have our low corporate taxes. Exorbitant legal and medical costs, sure aren’t our boys and girls the best in the world, they deserve to be paid more than their counterparts in foreign countries. Ireland has not evolved to the stage where citizens vote for good Gov’t we are still at the stage where we are sending clerks to dish out the candy on Kildare Street.

  133. I’ll admit to reading only half the thread (so far) but wanted to initiate discussion on the following, which I haven’t seen discussed elsewhere:

    1. Under what legislative authority does the government deem it has the power to undertake this vile act ? Is it a corollary to the emergency bank resolution powers it granted itself recently ? Does our constitution not clearly delineate property rights and limit the power of the state in relation to them, or am I thinking of a free country ?

    2. Why are people sleepwalking into the trap of parroting the propagandist’s lies calling this a Pension Levy or even a tax, when it is clearly theft, plain and simple. The trap has already allowed Noonan (and Bruton, singing off the same spin sheet of course) to exclude themselves, oops, I mean the public sector, by claiming they already have a pension levy in place. And I’ve seen one commentator try the same tack here, and another on p.ie. Goebbels would be proud. Black is white.

    All I can say is, if this survives a constitutional challenge, our constitution is worthless. We already know the president is. What is left ?

  134. @Ernie Ball

    What lurks beneath this attitude is Libertarianism, including the idea that nobody should ever have to pay for anything that benefits someone other than themselves.

    They have not gone away you know. It is a testimony to the distribution of influence in modern western societies that after a global financial crisis and depression caused essentially by a fanatical faith in the powers of market liberalism and unregulated capital that what we get is the right, who just happened to be in power when things went wrong , baying about how we can not afford social democracy (it is so uncompetitive!) while also insisting that private investors have to be protected to prevent the downfall of civilization as we know it (moral hazard being a movable feast).

    In Ireland’s case the the benefits of the free market have been even more comically awful, we find that the sectors that are the least regulated and most subject to market discipline (my little joke) are the most significant contributors to our high cost of living (housing, fuel and food) and therefore our ability to adjust to reduced circumstances. Obviously this means we need more privatization.

    However, even if we acknowledge that the root of our problems is the current flavour of capitalism and the EU’s reduction to a currency protection organization we still need to work within those constraints. When we have a lower deficit than the median European one we will get a certain freedom of action, until then it is cuts in services and wages accompanied by tax increases, like the pension levy. Morgan Kelly or oblivion.

  135. I have just heard on the radio that the large pension funds, the ARFs, will be exempted from the pension levy. So the person with the €75 million pension “pot” gets off scot free.

    The smuck with a €100,000 that might pay a pension of about €4,000 per year will pay the levy.

    Up the Republic!

  136. @ Have a Heart

    Leglislative authority?

    It’s a similar move to the introduction of the DIRT tax in the 1980s.

    @ Shay Begorrah

    The imperfect world comes in technicolor not in black and white.

    I assume you welcome competition in consumer products that keeps prices low?

    As for food, is there too much regulation or too little? Have you heard of the pan-European welfare programme known as CAP which restricts food imports?

    However on the positive side, the reduction/elimination of tariffs and barriers has had an impact of momentous proportions on the lives of billions.

    Like everthing in life, it’s always easy to find the negative as a comfort to neutralise inconvenient facts!

  137. @Have a Heart

    IF Residential Property tax was legal and constitutional, this tax is legal and constitutional. Both residential property and pension funds are income generating assets and there’s no legal reason why either of them can’t be taxed.

  138. @Kevin
    How about if we only had residential property tax on houses owned by private sector workers but exempted the property of TDs, public sector workers, etc.

    Comfy with that one?

    Ah sure why not. Isn’t the cost of living very high.

  139. @Joseph Ryan
    “The whingers, particularly those on large salaries benefiting at 41% could do well to reflect on those figures.”
    So lower the limits.

  140. @grumpy

    Ernie, the “purchasing power” element is what demonstrates that Ireland is out of line in both costs and payroll. Both have to be normalised, at least in part.

    Fine. When I hear you braying with equal frequency and enthusiasm for the firm regulation of the grocery cartel as you do for public-sector cutbacks, I’ll know you’re serious about this. In the meantime, I note that most of those who trot this one out are only interested in curtailing the purchasing power of the public sector and no one else (cue Pat Kenny: “if we increase taxes, the rich will leave!”). Everyone else is, as Shay Begorrah points out, subject to market “discipline.” Do the supermarkets seem like they’re being disciplined by the markets? But there I go forgetting my catechism again: The private sector is always, by definition, “lean and mean” and the public sector, of course, is always, by definition, “bloated.”

  141. @HS

    “They have not gone away you know. It is a testimony to the distribution of influence in modern western societies that after a global financial crisis and depression caused essentially by a fanatical faith in the powers of market liberalism and unregulated capital that what we get is the right, who just happened to be in power when things went wrong , baying about how we can not afford social democracy (it is so uncompetitive!) while also insisting that private investors have to be protected to prevent the downfall of civilization as we know it (moral hazard being a movable feast).”

    I wouldn’t consider myself right wing – or at least I wouldn’t be happy about about it if it turned out I was but it is a complete misrepresentation of right wing views to suggest that they support bail outs of private sector companies – the only people who object to bail outs more than fringe left wingers are people on the right

    I think your man over on the baseline scenario has been pretty persuasive on this point. Nobody supports bailouts – save the ‘reasonable center’. It is not a left vs right issue. It is the financial sector vs the rest

  142. @Peter Kinane

    You are correct.
    I did benefit from very inexpensive third level education but genuinely thats about it and my kids wont.

    And a bit like David Mc Williams theory on markets I will ‘have no memory and be forward looking’.

    As for
    “The massive credit expansion made its way into many pockets. I’ve seen the figure of 41% as going to gov. coffers.” One word. Benchmarking!

    This country is in dire need of wealth taxes. Emotive rubbish from people like have a heart don’t change the fact the country needs to increase taxes from those that can afford it most, and fast.
    I think 2012 will be the year of divide and conquer. Young v old, private v public sector, rich v poor, Irish v non Irish. Morgan Kelly’s prediction of a new far right party would become a lot more likely in this environment.

  143. @Michael Hennigan

    The CAP might indeed cause food prices to be artificially high but it does not explain the difference between the rest of the EU and ourselves for that component of the cost of the living.

    There can be little doubt that Ireland’s business environment and its business culture are a substantial component of the high cost of living and therefore the demand for high wages. How do we address this given that deregulation does not work for us and that better regulation and enforcement has poor economies of scale in a small state?

    This is not to say that the semi-state and state sector must not be more leaner and more efficient, the lack of dynamism and the excess of job security is a noose around the neck of the state. There is zero reason for the state to be more tolerant of under performing staff than the private sector, quite the reverse.

    @Ernie Bell

    How do we manage our problem though? We genuinely need to balance the budget, we do not have the option of capital controls and the rest of Europe is in a centre right policy funk that guarantees no confrontation with the current configuration of the European financial sector or the wider structural problems with the EU economy.

    We need solidarity of some kind to escape this trap (and we can escape it) so how do we fairly spread the burden in Irish society of recovering from the Washington consensus?

  144. @Michael Hennigan

    DIRT is a tax on unearned income (interest), not a tax on balances. No interest, no tax, and if you don’t agree to those terms you can opt out by relocating your capital. That is very different from a direct confiscation of from the balance, all the while enforcing that no one who’s already in can choose non-participation until after they are 65.

    @Kevin Walsh

    I’m no tax expert (as is I will presently demonstrate) but it seems to me that property tax on homes is justifiable in consideration for the exchange of public land/national territory/commonage to private parties. There is no moral equivalent in taxing a fund existing in a cyberspace created by private industry.

  145. Apologies for the English as a Third Language style of my last posting. Painful to read.

  146. @Ernie
    I, alongside others like MH and PH, have spoken about the high cost of living in Ireland and said that the protected parts of the private sector should be opened up to competition. Neither they nor the public sector have a moral basis on which to gouge money from those in the competitive private sector. They can do it, but it ain’t moral.

    Also, since you mention grocery, the ongoing nature of the Irish grocery industry was partially or largely created by government restrictions on new competitors coming into the market…these restrictions being based on planning law and put in place to protect existing players. The restrictions were put in by our government in a way that was always likely to screw the consumer and that was driven by industry lobbies.

    Similarly, the govt’s socialisation of banking debt can hardly be called free market in action. Even Joe Higgins calls on fre market rules to complain about that one. I am also on record pointing out that the govt’s actions were always going to cause a lack of competition in Irish banking which would – ultimately – screw the consumer.

    Meantime, on the main point, the expropriation of pension assets to fund short term (albeit mildly attractive) job “creation” schemes is unwise even if it isn’t formally illegal. The expropriation of assets from private sector workers only is egregiously sectionalist and unfair.

    See this link for mention of the situation on grocery. http://www.irishtimes.com/newspaper/ireland/2008/0911/1221039054870.html

  147. This will be an interesting study in behavioral economics.

    -Do Irish workers reduce or stop collecting capital in the form of paper investments for retirement, reducing funds available in the future to pay retirees?
    -Do ordinary Irish start looking for tax havens? Or ‘misallocating’ their wealth to non productive but easily hidden assets like bullion, bank notes, or even worse antiques.
    -Do Irish stop using these ‘tax advantaged’ investment vehicles and hold their investments in normally taxes accounts?
    -Do Irish become less ‘foward’ or long term thinking due to lack of belief sacrificing in the short term will not pay off in the long term?
    -How much of the tax will be born by the investment companies not their clients? Has anything been done to allow more competition for the funds to reduce non tax expenses?
    -Will the Irish find a way to rely, perhaps foolishly, on unfunded retirement vehicles?

    The tax was constituted to seem small but 0.6% over 4 years is really a 2.38% hit, assuming the claim of just 4 years is true. The tax is also a much larger junk or investment gains that underlying assets (28% of the Euribor rate of 2.15%). Will it last just 4 years and how do Irish react to this uncertainty? I am almost wishing that it is extended to see what happens.

    I hope the Irish make every effort to collect meaningful and accurate statistics on their countryman’s reaction to this. Perhaps the jobs aspect of this will materialize in the econometrics area.

  148. [
    Around 520,000 people own the €80 billion in these funds, an average of about €154,000 per person.
    ]

    Yes – but the distribution there is obscene. Some have tens of millions. And others have 5 thousand euro.

  149. @Hugh Sheehy

    I, alongside others like MH and PH, have spoken about the high cost of living in Ireland and said that the protected parts of the private sector should be opened up to competition. Neither they nor the public sector have a moral basis on which to gouge money from those in the competitive private sector. They can do it, but it ain’t moral.

    I think you might be side stepping the point.

    You, MH and PH have almost exclusively focussed on the market distorting behaviour of the state without addressing how badly the less regulated and “freer” market parts of the economy have failed us.

    The largest component of Ireland’s high cost of living is gouging by the private sector (Tesco, the mobile phone companies, insurance, banking and so on). Countries with larger tax burdens and heavier regulation enjoy a lower cost of living than we do.

    There is no evidence, in an Irish context, that deregulation led anywhere other than concentration of control and abuse of market dominance or that privatization here led to markedly lower prices or better services. Ireland’s domestic economy is simply too small to rely on deregulated markets, its not theory – it is recent history.

    Why keep on plugging market liberalism when the evidence of the last ten years overwhelming shows how dangerous and damaging it is? What exactly do you imagine caused the global financial crisis? Over regulation? Protectionism?

  150. @Shay

    Countries with larger tax burdens and heavier regulation enjoy a lower cost of living than we do.

    > as do countries with lower tax burdens and lighter regulation

  151. @Have a Heart

    On enjoying a lower cost of living than Ireland does.

    as do countries with lower tax burdens and lighter regulation

    Really? Are there island democracies of similar size/demographics to Ireland with better life expectancies/child mortality rates and where the proportion of private enterprise is higher and the economy is less regulated? Do these countries have a better ratio of median wages to cost of living?

    I do not dispute that this is possible but examples are being kept very quiet, and quiet is something I have never associated with the libertarian right.

    I have to say that I really did think that the whole global financial crisis and depression would have finally put the cult of the free market out of our misery. It shows how much I know about human nature.

  152. Funny that as soon as govt policy turned out to be a factor in causing high prices the debate went all sideways. I’d be perfectly happy to have well regulated highly competitive markets across the board (including services like education, health, etc), especially since it wouldn’t necessarily require high taxation at all.

    Meantime, on the main point, the expropriation of pension assets to fund short term (albeit mildly attractive) job “creation” schemes is unwise even if it isn’t formally illegal. The expropriation of assets from private sector workers only is egregiously sectionalist and unfair.

  153. @Shay,

    As usual, you raise some valid points and, since I’ve been mentioned in the dispatches (I doubt if it is the Governor of the ICB), I’m going to rise to the bait – even if we’re heading a long way from Mr. McCarthy’s post on the pension levy.

    You’re absolutely correct. The Irish market in a number of sectors is simply too small to present the conditions that would generate consumer-benefitting competition. And the roll-out of full retail competition in some sectors, in particular, those which employ long-lived, specific assets (both here and throughout the EU) undermines the natural economic functioning of these sectors and imposes excessive costs and burdens on final consumers. And to top it all, the Competition Authority (CA) is underempowered to punish, remedy or eliminate anti-competitive practices in those sectors where some genuine competition is possible and would benefit consumers.

    No Irish government would have the guts or gumption to tackle these problems. So we’re relying on the Troika. And all they’ve come up with, after they ran the slide-rule over the shop very quickly last November (and probably with senior civil servants whispering in their ears), is to give the legal eagles, GPs and pharmacists a whack, to enforce some vague re-empowering of the CA, to remove any siting restrictions on the big multiples and to have a good look at the semi-state electricity and gas businesses with a view to privatisation.

    The possibility of doing anything sensible with the energy semi-states is constrained by the accumulation of policy and regulatory dysfunction over the last decade and by EU Directives and Regulations. It’s a similar story in many of the other semi-states. The banks, our Twin Pillars, will be given licence to gouge their way back to profitability. Apart from the three professions trageted, all other private sector service providers will continue merrily with their gouging when there’s any sign of the economy picking up.

    What’s required is effective statutory advocacy of consumers’ interests in an adversarial fashion, but, guess what, the totally ineffectual statutory consumers’ protection body has been rolled into the CA – a cost-saving measure.

    It was ever thus…

  154. @Paul Hunt

    We are a long way from the pension fund levy question but it seems generally agreed that it is mostly harmless and hardly consequential given the more serious problems with the lack of a proper national pension system.

    On deregulation and competition I have said before that I believe that the problem in the legal profession is chiefly one of patronage and transparency (I would nationalize the legal profession or set maximum fees) but otherwise I agree with your depressing conclusions.

    Our policy on private cartels, corporate regulation and enforcement is not well developed or implemented, we show no signs of trying to develop it and there are a variety of entrenched interests agitating against any kind of change in either the private, sort of private or public sectors.

    I might cry now.

  155. ernie,

    For the record Ireland has costs that are too high and it needs to sort them out. It also has pay rates, mainly but not exclusively public and semi-state, that are too high and need to come down. Bankers were and are paid too much, pharmacists etc are too expensive.

    The right way to do it is simultaneously.

    There is not a vast reactionary anti – tacckling – the – supermarket – cartel majority that is preventing polticians from tackling this. If there was maybe it would be worth going on about. There are plenty who understand that already.

  156. @Shay,

    If you have tears, prepare to shed them now.

    The galling thing is that there is no independent analysis of this price and profit gouging. Those who could perform it are comprised or conflicted in some way and are well-rewarded to join in the ‘hear no evil, see no evil, speak no evil’ three monkey act protecting the elites. All citizens know they’re being ripped off, but they feel powerless to do anything about it. And even if they were informed, because the country is so darned small, they would be constrained from trying to do something about it as the outcome could impact the livelihood of a family member, another relative, a neighbour or a friend.

  157. @Shay

    Ok, I won’t rise to the bait either, especially as I’m new here, and in fact don’t have enough to say or time to give to contribute on an ongoing basis.

    But on your question: Are there island democracies of similar size/demographics to Ireland with better life expectancies/child mortality rates and where the proportion of private enterprise is higher and the economy is less regulated? Do these countries have a better ratio of median wages to cost of living?

    My answer is: I do not know. But in fairness, that implies a much different premise than your previous blanket statement (and mine), which are both indisputably true.

  158. @Shay

    You also said “There is no evidence, in an Irish context, that deregulation led anywhere other than concentration of control and abuse of market dominance …”

    How about taxi plate deregulation ? I think that is one example of deregulation that did the opposite of what you are claiming. Of course one can cherry pick examples either way, but to say there is “no” evidence is an overstatement, I think.

    >”Why keep on plugging market liberalism when the evidence of the last ten years overwhelming shows how dangerous and damaging it is?

    That is a good question, unless of course it is not “market liberalism” that failed. I think there is evidence that every sort of market/social arrangement tried to date has been dangerous and damaging at someplace/sometime in history. In my opinion the reasons are not yet understood despite great minds working furiously on it. I’m going to go on a limb (having no expertise) and say that there is a lot of evidence of success for all models as well, for various definitions of success. Lifting large percentages of the world’s population out of poverty is one that can be accredited to what I surmise would be policies you are objecting to.

  159. @Have a Heart

    These are big ideas which I will leave to finer minds to explore, or until another thread tangentially touches apon them when I am tired, drunk, emotional and in control of a keyboard.

  160. Here’s a question I got from Wall Street, where a disconnected eye finally saw the pension move. (doesn’t work on Ireland in any way, so didn’t immediately see the plan)

    “Ireland is going to raid private pension plans now?
    Wouldn’t outright default be less damaging?”

    Of course it’s an interesting question from a strategic point of view.

    If Ireland defaults it affects mostly foreigners who hold the debt. That should be “good”, but since we need to borrow more money from these foreigners it’s actually “bad”.

    If Ireland instead expropriates domestic assets it’s “bad” because it’s stealing from one set of Irish people to give to another set of Irish people and to a lot of foreigners. But these assets are a captive supply of money and the victims can’t flee with their money, so it’s actually “good”.

    In the long term the breach of faith with its own citizens may be an even bigger “bad” factor, but hey, when did politicians ever care about the long term?

    Ah, the tangled webs immoral governments can weave.

  161. @ Hugh

    at a headline level this may, in some people’s rational view, be the same as “raiding” people’s pensions. But given that level of the levy that we’re talking about, 0.6% p.a., i think its an incredibly inaccurate description. You’d earn more on a Rabobank cash deposit. You’d earn more on a German Bund for that matter. Your pension fund manager will charge you more just for the privilege of you being allowed to place your cash with him, regardless of the return or what service he is alleged to provide you with (they charge the same for their cash fund as their actively managed equity fund, for instance). Inflation will devalue its intrinsic worth by more than the levy will, probably by a factor of 4-5. It probably ranks as the world’s smallest ever expropriation. People seem to be getting more upset with the principal of it, rather than the far more straight forward arithmetic of previous tax reliefs vs this temporary, emergency levy.

  162. Eoin

    The vast bulk of people that will be subject to the levy are members of group pension schemes. The largest schemes can have management fees as low as 7,8 or 9 basis points. You only get fees above 0.6% on small group or individual arrangements. The argument that fees in Ireland are above those charged in the UK is completely bogus. All UK or international managers are free to set up operations here but none do. They will only pitch for business in the €50m+ bracket of assets under management. If there is such a gravy train in Ireland why don’t they jump on board? The thing that gets to people is the inequity of what is proposed – it applies to private sector not public sector, it applies to most pensions but not ARFs (there are very few ARFs with less than a couple of million euro invested), it applies to those below retirement age but not those above retirement age. All of these people got tax relief on contributions, but the people who got the most tax relief (pensioners and ARF holders) are exempt. There is no justification for this inequity – none whatsoever.
    PS – I dont work in investment management

  163. Indeed, both the principal and the principle. Both count. For me, things like this call to mind the idea of being a little bit pregnant. Some things are more like binary; on or off. Fair or unfair.

    The principle of stealing principal from some people to help an ongoing attempt to featherbed others is repugnant, vile, sneaky and nasty. It’ll also almost certainly turn out to be a mistake, to borrow Colm Mc’s term.

    If it’s this much of an emergency to merit expropriation of general pension funds then why are we not seeing the other steps you might expect….’cos we’re not seeing them. David McWilliams’ insiders romp home unmolested.

    I omit the question mark from the above sentence because it’s a rhetorical question, really. There’s no doubt. This is a pure theft of convenience. It’s expected to be an easy win. The key question for the govt will be the electoral mileage they can get by stopping stealing people’s money a year before the next election…this being a 4 year levy after all.

  164. As Ronald Reagan might have said, a government big enough to guarantee all your liabilities is a government big enough to seize all your assets. There is no sense in approving “confidence-building measures” or whatever in 2008 and bitching when your nest-egg is confiscated in 2011.

  165. @Hugh Sheehy
    I agree with your view and am equally angry and I think that the insider bias is unbelievably blatant. I would prefer if they completely removed the tax relief for pensions, which I would understand as the country is screwed (or maybe left some relief for people with a few years to go before retirement) because it is future money that you can decide not to invest. If they decided that they would set up some funds that the pension funds would invest in some companies or something – even if that ended up losing money – I would prefer that. And, yes, it is personal as most of my savings are involved and I am worried that they will take it all and leave me with nothing but my mortgage. I would rather take it out now and just pay off the mortgage rather than leave it there but am stuck.

    I don’t have a problem with paying more taxes, the USC etc to help fix the finances but for me this crossed a line and I am really opposed to it. People who I have talked to at work (also taxpayers) are really annoyed as well.

    The other comments that I find really annoying from the bunch of teachers running the govt who dont have to worry about pensions (they don’t have a clue really, in their little bubble – very evident) are about the level of tax relief granted by our munificent Exchequer. As far as I can see, as about half the population (I think the figures are something like that?) did not pay tax during the boom or actually received money from the minority who paid income tax, I feel that as a taxpayer (i.e sucker) this was my money which was not taxed yet rather than something being granted. So, I don’t feel beholden to the wonderful taxpayer for this “gift”.

    I also think this is a mistake strategically as gives out a bad signal as it looks like the rules are changed or made up as they go along – who would invest in a country like that. Its short term thinking. It may not generate confidence as someone I spoke to said that she would move any other savings out of the country to her UK bank account asap as it spooked her. Also, if they are trying for solidarity – according to Brendan Howlin, they are going the wrong way about it.

    Having said that, I know the govt has very little room to manoeuvre and wants to do something – I hope that the money wont be wasted just to look like they are doing something

  166. Eoin Bond

    Surprised you don’t see the difference. A properly-designed wealth tax would hit a common definition of wealth, applicable to all.

  167. @ Colm

    so the difference is in its application, rather than the basic principal of it? I agree 100%.

    However, most of the critcism’s of this measure have been about its principal. I don’t think i’ve seen many people describe a “wealth tax” as a “raid” on private assets. What we’re talking about here is the taxing of a previously very heavily protected private asset (pension fund). The fact that these protections have been so quickly removed, albeit temporarily, have caught people by surprise, but i don’t see that as a reason for anger given the very clear arithmetic that should be easy for all to see.

  168. @Colm McCarthy
    Exactly. They are targeting a specific group of people who have a specific asset they also have very different financial positions.
    People who are unemployed and whose oension funds have been hit will also be hit. I have a friend who is unemployed and who is really only getting back her AVCs as the pension fund went wallop – it was defined benefit. She will presumably be targeted for this “wealth tax”.
    People are very happy for someone else to pay if they have not saved for a pension themselves and are not hit. It says it all about this country.

  169. @Colm McCarthy/Eoin Bond.

    It is a poorly designed wealth tax that exempts the wealthiest even within that wealth catagory that it does tax.

    Still, why the special pleading? The country is bankrupt.
    Surely one cannot expect the load to be borne by those at or close to the minimum wage.
    A reduction of the minimum wage will not affect the public sector wage bill by as much as one euro. The levy (wealth transfer) might help create some jobs.
    On the other hand it might be used to to continue to pay PS pay increments and to pay the enourmous increase in the pension bill for those retiring with gold plated pensions.

  170. @Hugh Sheehy

    Firstly, this measure is not about public vs private sector workers. There are plenty of private sector workers who don’t have pensions, and there are public sector workers who have private pensions. But perhaps it would be equitable to reduce my pension by 0.876% (the same reduction as anyone else who is retiring in 32 years time and continues to make contributions at the previous level will get, assuming a 3.5% rate of return). I honestly wouldn’t notice the difference.

    @Joseph Ryan

    Increments are a totally separate issue from the general levels of public service pay. They’re a function of the ‘age profile’ of the public service, how long people have been in their current grade. 5 years from now there will be very few people getting an increment. Stopping increments would mostly impact people at the lower end of the scale and would leave APs, POs, Secretary Generals etc. untouched.

    In general, I think the ARF thing is an anomaly that would probably best be solved by abolishing ARFs, since I can’t see any reason to permit such a tax shelter to have existed in the first place.

  171. @Kevin
    0.6% of the assets of private pension funds will be taken each year in the next four years, essentially in cash. Now the cash was protected but it was also inaccessible. Either way, it’s going to be gone.

    If the govt did an actuarial calculation of the current value of funds required to pay public sector pensions and demanded 0.6% of that, in cash, from the future recipients then we’d be hearing all about it.

    @Eoin
    This is so far from a wealth tax I’m surprised you ask the question. It’s a “only that kind of wealth and only those people” tax. Both exclusions are unfair.

  172. @ Hugh

    you say its not a wealth tax, but then you say it kinda is? As noted above, if thats the correct interpretation of your view, then its the application and the exclusions which are the issue, not the concept of it itself, no? As i noted above, i’m completely agreed on that. What i’m not agreed about though is that this amounts to “raiding” or “expropriation” or “theft” or “breaking into my home” as many have suggested on here.

    I will ask again, conceptually, ignoring the exclusions etc, how does this differ from a wealth tax, and why do people not use these emotive words when talking about wealth taxes? Given that pensions are unencumbered and un-leveraged (right?), and therefore pension fund value is the true real value to the beneficiary (as opposed to a house with a loan attached), its actually far closer to a proper wealth tax than any property or other asset-based tax would be that didn’t take into account outstanding debt on those assets. As noted above, the historic protections of pensions appear to have surprised people enough to make them not think this issue through properly in my view.

  173. @Hugh Sheedy
    “In the long term the breach of faith with its own citizens may be an even bigger “bad” factor, but hey, when did politicians ever care about the long term?”
    Yep. Reinhart and Rogoff pointed out that domestic default is far more common than international default for precisely the reasons you mention. Unfortunately, I think it has extremely negative consequences in the longer term. While it can be argued that international markets have short memories, domestic markets do not. People remember that the government ‘stole’ from them. The internal reputational damage is greater than the external reputational damage and for such a small amount.

    Anyway, wait until you see the property tax and the basis that is levied on… exemptions for speculators and lifestyle-debtors is my guess…

    @Eoin
    The difference between this and a wealth tax is the perverse nature of it. For all my working life (twenty years) governments have been trying to encourage people to save for their own retirements and not to rely on the state. Little did we know it was just so that there would be a bundle of cash to be raided.

    I blame Mr. Lenihan and his raid on the NPRF…

  174. @ Hogan

    we have encouraged people strongly to buy houses over the last 30 years, and we will likely shortly introduce a tax on that too. As i said, why will that not be considered a theft? The answer could, of course, be that you have the option to sell your house and avoid the tax, but we all, i assume, accept the impracticalities of that for a country with 70%+ home ownership rates.

  175. @Eoin
    We’ve also – for a very long time – encouraged people to invest in education but hit them with high marginal tax rates when that education pays off.

    Taxation policy is often perverse, no argument. If Irish tax policy had a slogan on its t-shirt it’d be very rude, with the f-word in it.

    If your point is that this tax policy is – in many ways – no more inequitable or perverse than other taxes then I agree. However, this measure is much more inequitable and perverse in several key ways. I’ve mentioned a property tax that only applied to private sector workers. This is essentially similar.

    As for its “unwiseness”, which was my other complaint, that’d get into a much wider and longer debate on taxation policy overall and how you need to incentivise people to do things that will increase their own and the national wealth and wellbeing (the right things) rather than things which do not (the wrong things).

    Having Irish people save money in long term investments (and perhaps having these investments overseas is actually better for this purpose) so that there is usable wealth for their old age is, IMHO, a good thing and I fear it will turn out to have been a bad mistake to take this measure.

  176. @ kevin Walsh

    “In general, I think the ARF thing is an anomaly that would probably best be solved by abolishing ARFs, since I can’t see any reason to permit such a tax shelter to have existed in the first place.”

    Well prepare to be amazed as this loophole gets left open. I wonder why?

  177. @Kevin Walsh

    We can agree that ARFs should never have existed. Remember the strong rumour of a person who put €75 million into an ARF a few years ago.

    On the increments point.

    Increments are a totally separate issue from the general levels of public service pay. They’re a function of the ‘age profile’ of the public service, how long people have been in their current grade.

    About 60% of the people in the organization that I work have been incremented to zero pay by means of a p45 within the past three years.
    Its hard to feel positive towards increments against this background.

    However I have full sympathy for lower paid people but the PS needs to realise that the senior grades have used the legitimate concerns of lower grade PS to enrich themselves, much like the IFA used the grievances of smallholders to enrich ranchers.
    The biggest benificieries of the Croke Park deal were the people who negotiated the deal on behalf of the government. Mr Moral Hazard probably convened the meetings.

  178. @ Hugh

    “If your point is that this tax policy is – in many ways – no more inequitable or perverse than other taxes then I agree.”

    That was basically my point. A lot of people seem to have a knee jerk reaction to the thought of pensions being affected in this way, but not other assets. There’s no rational reason for this, but its simply a creation of the previous assumed safeguards in place for pensions (including, but not unrelated to imo, bankruptcy or legal actions in many situations), and the previous highly beneficial treatment of pension provisioning.

    Lets be honest – the govt had to create a massively beneficial treatment of pension contributions in order to encourage people to pay into their pension funds. They literally tipped the scales so far to one side that you’d have to be insane not to put invest your money into one. Is this new levy unfair in its application on one particular type of pension holder? Yes, absolutely, and i’d urge the govt to both close off the ARF-loophole as well as figure out a way to make sure that equality is maintained vis a vis public sector pensions. But that doesn’t take away from its intrinsic concept as a simple wealth tax that exists in many other countries in other forms. Calling it a “theft” is tabloidesque in the extreme imo, unless you wish to term all taxation as “theft” as well (and which many extreme libertarians, for whom i have a deep sympathy with, believe). We live in the real, practially application world – the country requires govt provided services (including aiding financial stability), the govt requires funding or investment to this end, it therefore requires revenue, and revenue is provided by taxing income or assets, with various pro and con economic reactions to those taxation policies. Its as simple as that.

    In terms of its long term “unwiseness”, i’m less worried about that. The facts are that we need the money now, and Ireland is still on net metrics a very wealthy country. Arguments about long term pensions/savings incentives seem like an awfully big luxury to have for a country in danger of bankruptcy. As i noted above, inflation and management fees will take away much more (x5) of your pension fund in the next 4 years than this levy ever will, so a bit of perspective is required.

  179. The biggest impact of this small scale smash and grab from my persective is that it highlights that pensions funds are by far the largest privately held store of liquid value that cannot easily be moved beyond the government’s reach at short notice.

    If the country is insolvent, running a large negative primary balance and only liquid for as long as people who do not have our interests at heart keep the lending spigot open, there has to be a good chance that a crunch will come when expropriating that store of value looks like a responsible option for government to take. It might either be to keep the show on the road or to pay off the ECB, Germans etc.

    Of itself, taking roughly 2.4% of pension fund assets should not be a dealbreaker for pensions. The implied threat that they may come back for the other 97.6% is another matter.

  180. Hugh Sheehy and others would have more credibility when complaining about taxes that are not universal and apply only to a specific group if they had raised similar objections to the public service “pensions levy,” which had nothing to do with pensions but was all about the government taking money where they could get it (a “pure theft of convenience” as it were).

    Go ahead, Hugh, and read the preamble to the PS pensions levy legislation and tell me then that it’s all in keeping with high-minded principles of fairness.

    The good news for Hugh is that, unlike the PS pensions levy, the new one only applies for 4 years (as opposed to: forever) and only takes 0.6% of his pension fund as opposed to 7.5% of all his salary.

  181. @Eoin,

    I wish I had some background on the moral justification of taxes in general, as I’m left guessing. But my intuition tells me a property tax on houses/land is more morally justified than one on money for a couple of reasons.

    First, houses are built on the land that is otherwise owned by the state, by all the inhabitants of the country. The land is a shared resource, and to grant a piece of it to a private party via national laws, should come with some onus towards the common good, in exchange.

    Second, taxing home ownership is not directly removing a part of the asset, but rather impacts on a derivative of it (the future money value of the house). Taxing pension principal is like taking bricks from the house.

    You’ve also mentioned that the amount being taken is insignificant, and this may be true. However, principle matters. Once that is violated, there is no justifiable argument against taking, say 100% in the next budget.

    Finally, consider this: one of the rationalizations trotted out about why we can’t “burn the bondholders” is that they have parity with depositors, and we can’t burn depositors. Another is that the bondholders include some pensions funds, and we don’t want to hurt ourselves by damaging the pension funds.

    The pension expropriation exposes both of these arguments as the shambolic lies they really are.

  182. @ Have a Heart

    i think the argument for not burning bondholders that were Irish pension funds, was that any savings would be negated at an overall economy level. So there would, for Ireland Inc, be no net saving. Yes, it would possibly go from the rich to the rest, but it’d be within the big Irish tent, and we should at least not kid ourselves about that fact. If we still want to proceed, then go for it, but lets not pretend that we would be burning some nefarious European investors like some would try to pretend.

    Taxing a house has cashflow implications on Day 1 for the beneficial owner, where as taxing a pension only has future cashflow issues, and depending on how the underlying value of the assets fare, one i might never have to meet. As we know from inheritance tax, most people might prefer the future cashflow problem as opposed to the one today.

    On the land/common good issue, count me unpersuaded – i buy a piece of land, its mine, forever or until i sell it. Thats what most people understand. If you want to tax my ownership of it, then go ahead, it will make me and others reconsider its intrinsic value and costs associated with its ownership, but i won’t be thinking about it as a shared common resource, and i doubt most others will too.

    @ BeeCeeTee

    i think people need to stop making this a moral debate, it a case of basic simple arithmetic. The country remains wealthy at an overall level, but with massive difference in who and where the wealth resides. I’m in absolutely no way a socialist, i’m simply a realist, and i think this was the argument Dan O’Brien, no left wing nutjob himself, made in the IT during the week:

    “Against all those cons, in times as grave as these desperate measures are justifiable. This one probably is, for a number of reasons. First, pension contributions have enjoyed very generous preferential tax treatment in the past. Some clawback is justified under current circumstances.

    Second, as a means of raising tax revenues, it is among the least damaging to already feeble consumer spending in the short run.

    Third, given that the pensions industry charges fat fees to manage funds, it is likely to encourage the consumer side to seek a reduction in those fees to offset, partially at least, the new tax.”

    It’s an emergency, and we have a large, previously heavily protected, tax-aided, and completely unencumbered asset, one whose beneficial owners are also in receipt of very generous state pensions as well (ie for all the talk of not relying on the state, having a private pension does not reduce that reliance by very much, it simply increases your standard of living). It’s easily justifiable in my view.

  183. @Kevin Walsh

    Two separate events this week appear unconnected.

    1. The exemption of ARFs from the pension levy.
    2. The raid on the IFA HQ on foot of a complaint from a major retailer.

    It makes me wonder if the government was advised that certain things needed to be done. The prospect of a major retailer finding itself in ‘foreign’ ownership might not make good political news.

  184. @Eoin

    I see your point, although I don’t think cashflow impact is a determinant in the legality of a tax, except maybe in extremis. 41% – how’s that for cashflow impact ? But your point illustrates perhaps why you think the government justifies this new levy, on the basis that it is only 0.6% i.e. low cashflow impacting. If the cut was much larger, presumably it couldn’t be justified, but that would be based on the cashflow impact rather than the principle of it. If that’s the government’s reasoning, I find it frankly amoral.

    You’re right, once a private party owns land it is forever theirs until they dispose of it, and is not a common resource. I wasn’t saying otherwise (unless unclearly). But it is the power and protection of the state that enables the legal contract for this ownership. And the land was originally owned as a shared resource by the state (I believe this can still be seen in action in the new world, where wilderness still exists and can be purchased or licensed from the government/people).

    I think the above permits a case of taxation on moral or natural justice grounds. But – that’s all just my own rationalization that allows me to accept property tax. Here I am opposing a pension grab that’s going to hit me for peanuts, but becoming supine in the face of a property tax.

    As I stated in an earlier post, I would really like to hear from someone who knows the constitutional basis for raising taxes in Ireland, presuming the constitution precisely lays this out and limits it, and can comment on the legality of this new “levy”. Or someone who can argue from first principles on the natural justice of it all.

  185. @Eoin
    The tax treatment of pension savings is to avoid them being double taxed. I wouldn’t characterise only taxing income once as “massively beneficial treatment”. Any beneficial treatment is, in any case, no better than the punishment inflicted on the undeferred income in the form of “massive marginal tax rates”.

    Meantime, on the “theft” point, the key difference on taxation to differentiate it from theft is that it’s money raised to be spent on the common good and that it’s raised in an equitable way. This tax seems to fail one of these tests very clearly and potentially both.

    Now, I’m not someone who regards all taxation as theft, but in Ireland more and more of it is certainly in that category. You might be right to regard that description as “tabloidesque” but tabloid headlines are often noted for their ability to sum things up in an evocative but accurate phrase so I won’t reject the description. “Theft” seems about right. Again, the arguments for this move boil down to convenience. It’s a convenient target. A burglar would use exactly the same reasoning.

    As for making this “a moral debate”, isn’t it about time Ireland had a morals debate?

    @Ernie
    I’d have no problem if public sector workers didn’t have to pay the PS pensions levy if they were not in receipt of such disproportionate unfunded promises on the other side…promises which other taxpayers will have to make good.

    Of course, I don’t think we’ll see you or the public sector unions making that proposal….to make the PS levy optional and to move in parallel to defined contribution pensions where the employer contributes, say, 10% of salary to a DC fund. While we’re at it we’d transfer existing promises into that DC fund at actuarial rates and see how the fund does over time. It’d be fair and equitable. You ok with that kind of equality? Again I confess I doubt that either you or the PS unions would go for it. The unions at least can do the math.

  186. @Hugh Sheehy

    Well, I’m a CO, and provided I remain a CO, I would be a mug to stay in the state pension scheme instead of using that money to pay down my mortgage. Of course, the pension-related deduction is actually totally unrelated to my pension, as can be seen by the fact that it’s paid by temporary staff, who don’t have any pension entitlements, and that I pay it on my overtime pay, which doesn’t increase my pension entitlements by a single penny.

  187. @Kevin
    Well, then there’s grounds for alterations in the PS Levy. I’d be more than happy to fight for fair and equitable treatment on that…but “fair and equitable” has to cut each way.

    Congrats on having overtime too. Most people I know are what’s called “exempt” from overtime.

  188. The ‘pension contribution’ levied on public servants was just a pay cut, and it would have been better all round to describe it as such. How can you have cash contributions to an unfunded scheme?

  189. @Colm,

    Re the PS pension contribution: Unlike a pay cut, you get it all back, and then some. It’s an investment that feels like a pay cut in the short term.

    And this feeling of a paycut is only in comparison to the previous paycheque. Unfortunately in these reduced times, the previous paycheque constitutes a false premise. It is gone, kaputz, and irretrievable. The net effect of a pension contribution is an improvement over the alternative, not worse.

  190. @Colm

    If they had cut pay instead of introducing the “pensions levy,” then 90% of the posters to this blog wouldn’t be able to go on and on (and on) about how overpaid the public sector are. Calling it a “pensions levy” allows everyone to pretend that public-sector pay hasn’t been cut (or, rather, only once) because it only reduced the net pay, not the gross.

    @Have a Heart
    I guess you didn’t get the thrust of Colm’s rhetorical question.

    @Hugh Sheehy,

    You’ve presented your objection to the new pension levy as principled. The fact that you didn’t object at all–and were, in fact, quite pleased if memory serves–with the PS pension levy–indicates that your objections aren’t principled at all. You have no objection to taxes that target particular sectors, as long as the sector targeted is the public sector.

  191. @colm mccarthy

    I agree that economically it’s a nonsense. However, for whatever reason, the deductions listed as ‘pension contribution’, ‘lump sum’ and ‘survivor’s lump sum’ on my payslip are actually treated as if they’re genuine contributions, which is to say that temporary staff don’t pay them, and overtime pay is unaffected. The pension levy, however, is exactly like a pay cut, except that it doesn’t reduce my pension, and I now pay PRSI on it.

  192. @Ernie
    Resorting to near-insult from behind a pseudonym. How principled of you.

    My views on public sector pay have been consistent over time. It’s both unreasonably and unsustainably high. This would be true even if we weren’t in a crisis, but it is hugely true since we are in a crisis, in receipt of IMF bailouts, borrowing billions etc. etc.

    I can’t remember ever suggesting taxes that specifically targeted the public sector. I do remember often saying that public sector pay needed to be cut because it was too high. There’s a difference.

  193. @ Hugh Sheehy

    I don’t see where I insulted you. But no matter.

    There’s very little evidence that public-sector pay is particularly high here now after two rounds of pay cuts. If you have some evidence, feel free to present it. Otherwise, your view should be dismissed as the myth that it is.

  194. @Ernie
    Having previously quoted chapter and verse from a Forfas report where the “too high” conclusion was very clear and where they explicitly said they HAD included the pay cuts – only to have you put on a pantomime voice and say “OH NO THEY HAVEN’T” – I see very little point in starting again.

    I’m going to go out with the kids and leave you with the recent press reports on the IMF and EU point of view. Me believing in your “myth” is probably the least of your problems. If our lenders believe in the “myth” then the pressure is likely to stay on.

    http://www.independent.ie/opinion/columnists/john-drennan/john-drennan-imf-slams-outrageous-public-pay-rates-2596280.html

    Meantime, I’ll stick to my use of the word “mistake” to describe the pension levy. I’m using Colm Mc’s terminology. I hope he doesn’t mind.

  195. @Ernie,

    I didn’t miss the rhetorical question, I missed the clever and insightful sarcasm.

    You’ve made the distinction between gross and net pay levels, saying that since the pension levy doesn’t affect gross level, some people don’t see it as a pay cut. Presumably you are implying that the real measure of PS pay should include the pension levy, i.e., net levels.

    Do you use the same criteria in private sector pay levels – i.e., net of pension contributions ?

    @Kevin Walsh

    I think you made some good points that aren’t well known or generally made, regarding how the PS pension contribution isn’t applied in a manner consistent with funding a pension. I would support addressing these anomalies. But I don’t think it follows that these contributions are therefore “exactly like a pay cut”. I wouldn’t mind a pay cut if I could still legally and correctly say I got paid the same level as before (on a mortgage application, for instance), or if I got it all back when I retire. Both of these latter two points apply to the PS pension levy but not to real pay cuts.

    @All

    My monthly mortgage premium will increase next month. This will have exactly the same effect on my cash-flow as a pay cut would. Therefore it is a pay cut, right ? If you ask me, this is the argument put forward claiming the PS pension levy is a pay cut.

  196. @Have a Heart

    Look, you and Hugh are talking out of both sides of your mouths on this. As Colm McCarthy makes clear, it makes no sense to talk about the pensions levy as a (cash) contribution to a pension scheme that is unfunded. That plus the fact that temporary staff in the public service and those without pension entitlements still have to pay it indicates that it has nothing to do with pensions.

    So what is it, then? There are two possibilities.

    1) It’s a pay cut by another name. Colm McCarthy and Karl Whelan have endorsed this view. The fact that one must pay PRSI on the money also seems to suggest that this is so.

    2) It’s a special tax only on those working in the public service.

    Now, you and Hugh have to choose between those two. But note what this entails. It means that either:

    1) You’ll have to give up screaming about how unfair the new private sector pensions levy is insofar as it targets one group and exempts another.

    or

    2) You’ll have to stop acting as though the pensions levy is anything other than a pay cut and figure it in when making claims about whether or not the public sector is overpaid.

    @Hugh Sheehy

    So John Drennan’s opinion pieces in the Sunday Independent (the mouthpiece for big capital) are now to be taken as gospel? You really want to commit yourself to believing what you read in that rag? Did you notice what that article was missing? That article entitled “IMF slams ‘outrageous’ public pay rates” fails to provide a single quote from anyone in the IMF, let alone one that uses the word “outrageous” (which is in quotation marks in the headline). But of course you’re ready to take this is somehow probative of something other than your own prejudices. And you wonder why I call it a myth.

    As for my previous response to your claims about the Forfas report amounting to a childish “OH NO THEY’RE NOT”, I reproduce that response here. If anyone else is still reading, they can judge whether that characterisation is accurate or whether, alternatively, it isn’t the sort of thing one reads in a banner headline in the Sunday Independent:

    You quoted this sentence in the report: “Forfás research for the NCC highlights that pay levels for a range of public sector professions (teachers, nurses, hospital consultants) are high in Ireland relative to other developed countries.” There follows a footnote (47) that cites the source of this information as being this report: “National Competitiveness Council, Costs of Doing Business in Ireland 2010 Volume 1, July 2010″

    So we look at that report. It’s an extraordinarily sloppy piece of work. To take only one example, on p. 48 it says this: “The starting salary for primary teachers in Ireland in 2010 is 15 per cent above the OECD-25 average, while the top salary scale for primary school teachers in Ireland is 33 per cent above the OECD average (Fig. 7.4.1).” You look at figure 7.4.1 and it has nothing to do with this claim. The relevant figure is Figure 7.4.4 and there the reference is to the OECD-24, not the OECD-25. These clowns can’t even get the basics right: I have no confidence that they can handle the tricky bits.

    Then there’s this little gem, which you must have missed: “While these salary levels reflect the impact of recent public sector pay cuts, they do not capture the impact of the public sector pension levy.”

    That pensions levy is the gift that keeps on giving, isn’t it? It allows you to cut pay and, all the while, insist that you haven’t cut pay in order to justify further cutting pay. Orwell’s imagination couldn’t have done better.

    But on to the matter at hand (limiting myself to teachers’ pay). On p. 402 of OECD Education at a Glance 2010, you have a table that shows teacher pay in the OECD countries in 2008 (i.e., before both the pensions levy and the recent pay cuts). Using the terms of the Forfas chart 7.4.4 let’s look at starting Primary Teacher pay, after 15 years and at the top of the scale. Forfas claims that “The starting salary for primary teachers in Ireland in 2010 is 15 per cent above the 2007 OECD-24 average. The remuneration for teachers in Ireland with 15 years experience and for those on the top scale salary is the second highest (after Luxembourg) of the benchmarked group.”

    What does the 2010 OECD report say? First, the starting salary for primary teachers is not 15% higher than the OECD average, it’s 12.8% higher, again, not taking into account the pay cut or the pensions levy. The remuneration for teachers with 15 years experience and at the top of the scale is not “second highest.” For those with 15 years experience, the salary is exceeded by those in Germany, Korea, Luxembourg and Switzerland. Pay at the top of the scale is exceeded by pay in Japan, Korea, Luxembourg and Switzerland. Again, this is all before the pensions levy and the pay cut took an average of 15% off these scales. But the claim in the Forfas report is clearly false.

    There’s still more to be said about this, however. One has to wonder why the report only chooses to look at primary school teachers rather than other kinds of teachers. Why not look at, say, Upper Secondary teachers? Why indeed.

    Pay in 2008 for starting Upper Secondary teachers in Ireland was 2/10 of a percentage point above the OECD average (and remember that the OECD includes the likes of Poland and the Czech Republic which pay their teachers buttons). It is exceeded by the pay in: Australia, Belgium (both parts), Denmark, Finland, Germany, Luxembourg, Netherlands, Spain, Switzerland, USA. This is, at the risk of belabouring the point, before the two rounds of pay cuts here. At the top of the scale, Irish pay was 12% above the OECD average but exceeded by the pay in Austria, Flanders, Germany, Japan, Korea, Luxembourg, Netherlands, Switzerland.

    Given that none of this includes the two rounds of pay cuts, I conclude that there is no evidence to support the claim that teacher pay (again, taking only that) is “high” relative to other countries. This is still less the case when one considers three other facts: 1. Irish teachers teach more hours per year than those of most other OECD countries; 2. Irish teachers teach larger classes than those in most other countries; 3. Irish students perform very well on standardised tests.

    Facts 1 and 2 have enormous impacts on the amount of work done. I would expect those posting on an economics website to have the minimal sophistication to know that, when evaluating a salary, it won’t do simply to compare numbers without comparing the amount of work done for the salary. Alas, that sophistication is apparently not even in evidence at Forfas.

    The Forfas report does not include the effects of the PS pensions levy. At the time you insisted that that’s because the pensions levy is not a pay cut. That implies that you’ve opted to view it as a special tax on workers who happen to work in the public sector. In which case, all of your complaints about such taxes (but only when imposed on the private sector) in this thread are just so many expressions of wanting to both have your cake and eat it. Again, if the PS pensions levy is a pay cut, then stop pretending it doesn’t exist. If it’s not a pay cut, then stop complaining about the fact that the private sector pensions levy is not universally applied. Or continue doing both and risk being branded an unprincipled hypocrite.

    Finally, on teacher pay, see my refutation of Ronan Lyons’ tendentious presentation of the 2009 data in the comments to this post. It is also a refutation of some of Hugh’s unanswered claims in our previous debate on these matters. The fact that Forfas repeats many of the errors hardly speaks in their favour.

  197. Irish pension funds played a significent role in destroying the Irish economy by their use of toxic Irish commercial lease law. Toxic Irish commercial lease law i.e upward only rent reviews tied to long leases, did not just destroy the tenants, it was the rocket fuel for the valuation model which created the monster commercial property bubble which wiped out the banks. No third world country and certainly no other eurozone country tolerates this toxic lease law.

    This toxic lease law has destroyed tens of thousands of sustainable Irish jobs. High rents are the symptom , the lease law is the disease. Commercial property should be a service to enterprise,trade and jobs ,in Ireland it destroyed all three.

    Irish pension funds destroyed the Irish economy.

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