Bank Resolution Mechanisms Conference (recordings of talks, slides, papers now available)

Bank Resolution Mechanisms Conference

23 May 2013, Institute of Bankers, Dublin 1

A joint academic-practitioner conference with the theme Bank Resolution Mechanisms was held in Dublin on Thursday 23 May 2013, organised by the Financial Mathematics and Computation Cluster (FMC2), the Department of Economics, Finance & Accounting at National University of Ireland Maynooth and the UCD School of Business at University College Dublin.

Speakers included:

Ajai Chopra (International Monetary Fund), Patrick Honohan (Governor, Central Bank of Ireland), Zhenyu Wang (University of Indiana), Viral Acharya (New York University)

Talk details including slides, related papers and recordings of the talks can be downloaded from the conference webpage:

http://fmc-cluster.org/index.php?option=com_content&view=article&id=203

Property Tax

IMF survey paper here.

Summary: The tax on immovable property has been characterized as probably the most unpopular among tax instruments, in part because it is salient and hard to avoid. But economists continue to emphasize the virtues of the property tax owing to its relatively low efficiency costs, benign impact on growth, and high score on fairness. It is, therefore, generally considered to be underutilized in most countries. This paper takes stock of the arguments for using real property taxation, and presents an updated data-set for high-and middle income countries to illustrate its use. It also reflects the renewed and widespread interest in property tax reform globally, and discusses the many policy and administrative issues that must be carefully considered as prerequisites for successful property tax reform.

Scottish Constitution Blog

David Bell in Stirling has recently launched a blog on economic and policy issues surrounding the Scottish Constitutional debate. A link to the blog is here and it is already turning into a very useful source of information and insight on the key issue dominating Scottish public debate at present. There is obviously quite a lot of discussion ongoing about the lessons to be learned from the Irish experience including yesterday’s post on what would happen to national debt in a post-independence environment. Would be interested in people’s views on how Irish experiences more generally across policy domains should impact on the Scottish debate.

Never ending Irish success?

Paul Krugman has a thoughtful post (ht Niamh Hardiman) on Ireland’s role as poster child for austerity. He points out that those in power continually cite Ireland’s imminent recovery as proof things are getting better and sticking to their plan works. Paul doesn’t mention our lack of fiscal headroom or the need for fiscal consolidation of *some* kind–whatever that might be-but I think it’s implicit.

At any rate, his point is more about how Ireland is used as an example of what great things austerity policies can achieve, when clearly, they can’t. At least, not on their own.

Austerity could only ever bring Europe so far

A letter on the above signed by the following;

  • László Andor, Commissioner for Employment, Social Affairs and Inclusion,
  • Pervenche Berès, Chair of the Employment and Social Affairs Committee in the European Parliament,
  • Joan Burton, Irish Minister for Social Protection,
  • Yves Leterme, former Prime Minister of Belgium, and
  • Henri Malossem, President of the European Economic and Social Committee,

is available here.

The Challenges of Public Private Partnerships in Turbulent Times

A Half-Day Seminar with Networking Reception

Wednesday, May 29th 2013, 14h00 – 17h00.

Department of Economics, University of Limerick

The ‘Stimulus Plan’ announced by the Irish Government in July 2012 places Public Private Partnerships at the heart of plans for national economic recovery. The majority of projects earmarked for investment under the €2.25bn plan will be procured under PPP. However, mobilising a renewed wave of PPP procurement in Ireland will be challenging for reasons such as constraints on the availability of private finance and the complexities of procurement under PPP.

The Challenges of PPP in Turbulent Times seminar will bring together academics, public sector procurers and private sector participants to explore the challenges involved in a new wave of PPP procurement in Ireland. The seminar will be jointly hosted by the Privatisation and PPP Research Group at the Department of Economics, University of Limerick and the Cornell Program in Infrastructure Policy at Cornell University, USA.

Speakers on the day include:

Professor Rick Geddes, Cornell University, USA;

Professor Edgar Morgenroth, Economic and Social Research Institute;

Mr. Brian Murphy, Chief Executive Officer, National Development Finance Agency;

Dr. Eoin Reeves, University of Limerick.

For more information contact privatisation@ul.ie, pdf of the programme is here.

International Corporate Tax

The international tax principles underlying the taxation of corporate income are attracting more and more attention.  Ireland, in particular, has come under the spotlight.  There is merit to some of the complaints made but most of it is little more than political posturing.  Few substantive proposals are being made.

The latest is a report prepared for US Senators Levin (D) and McCain (R) which includes a very interesting appendix on Apple.  The appendix opens:

“The Apple case study examines how Apple Inc., a U.S. corporation, has used a variety of offshore structures, arrangements, and transactions to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than 2%.”

The submission by Apple to today’s Senate hearing is here.

There are no special corporate tax rates in Ireland.  There are rules (which apply to all companies) on how taxable income is calculated to determine the figure to which the 12.5% rate is applied.  This rate is applied to taxable income not gross profit.

Royalty payments for intellectual property licenses are one of the largest differences between gross income and taxable income for some companies.  For example, if a company with a gross income of A incurs a trade charge of B for royalty payments then taxable income (to which the 12.5% rate is applied in Ireland) is A minus B.

Effective tax rates can be calculated using gross profit as the base but tax is actually charged on taxable income.  Aggregate figures from the Revenue Commissioners show that the effective tax rate in Ireland on the gross income of companies in 2010 was 6.0%.  However, the effective tax rate on taxable income was 10.3%.  The important thing is how taxable income is calculated not “special” rates.

Are royalty payments on intellectual property licenses a legitimate business expense? Yes.  Are there issues in how the prices for such licenses are set? Yes.  Are the rules for setting these prices individual to each country? No.

The report accuses Ireland of being a tax haven on the basis that the effective tax rates on Apple’s gross income are very very small.  They are.  But this is achieved because the trade charges on intellectual property are very very large.  The intellectual property (which was not created in Ireland) is held somewhere else and subject to tax there.

The intellectual property used by Google is held by a Bermuda-resident company and its income is subject to the 0% rate of corporation tax there.  The interesting thing in the Apple case is that the Levin-McCain report suggests that the holding company is not tax-resident anywhere!  These profits will not be subject to Irish tax but should be tax-resident somewhere.

The main problem from a US perspective is when these companies are subject to the 35% tax on corporate profits.  This has to be paid when global profits are repatriated to the US.  From a US perspective it doesn’t really matter how much tax is paid in Ireland, Bermuda or the like.  The US wants its 35% share.

The problem is that companies are indefinitely deferring this tax by holding the money offshore and not repatriating it.  The money will be subject to the 35% rate when it is repatriated but the companies refuse to do so. 

Apple has more than $100 billion of cash (mostly held by subsidiaries outside the US) but recently issued $17 billion of bonds to engage in a share-buyback to return some of that cash to shareholders.  Apple didn’t use its own cash because that would have meant repatriating it and incurring the 35% tax.  This key concern of the US has very little to do with Ireland.

The provision that allows these companies to defer their US corporation tax is the “same country exemption” for Subpart F Income in the US tax code.  The scheme for royalty income works because of this exemption granted by the US rather than any provision in the Irish tax code.  The body of the Levin-McCain report discusses the “same country exemption” and a useful, short summary of Subpart F Income is here.

International taxation is hugely complex and should not be reduced to simple sound-bites but I can’t resist.  Ireland is not a tax haven.

Breugel: assessments of Troika programmes to date

Worth a look, Breugel’s assessment of the programmes in Greece and Ireland in particular, and the differential roles and internal tensions played by the individual members of the Troika, particularly the Commission. The large effects these programmes are having on unemployment is a key feature of the report.

Income inequality

This week the OECD released an update of their income inequality statistics which was covered in an article by Dan O’Brien in yesterday’s Irish Times.  For household disposable income Ireland is not unusually unequal.

  • Gini co-efficient: Ireland 0.307 versus OECD average of 0.313
  • 90/10 income share: Ireland 7.5 versus OECD average of 9.4

Under both measures Ireland is less unequal than the OECD average.  Data is for 2010 except for 2009 data from Hungary, Ireland, Japan, New Zealand and Turkey, and 2011 data from Chile.

The OECD dataset also includes a gini-coefficient for direct income (i.e. household income prior to taxes and transfers).  Direct income includes employee earnings, employer social insurance contributions, self-employed earnings and other direct income.  There is no data for Hungary, Mexico or Turkey.  The following chart has the most recent figures (mainly 2010) for this gini coefficient (most equal first).

For the 31 countries shown, Ireland has the highest level of inequality for direct income, and by some distance. The (2009) Irish figure is 0.591 compared to an arithmetic average for the sample of 0.470. 

Charts showing the impact each country’s tax and transfer system has on the gini coefficient and the resulting gini coefficients for household disposable income are below the fold.

Continue reading “Income inequality”

Final Reminder: Conference on Bank Resolution Mechanisms

The conference on bank resolution mechanisms is next Thursday at IFSC, attendance is free but requires enrolment via Irene.ward@ucd.ie. Details of the poster session presentations are also now available and are shown below the main presentations.

Thursday May 23, 2013

Irish Institute of Bankers Conference Hall, International Finance Services Centre

9:15 am – 9:45 am: Registration and Opening Reception with Poster Session

9:45 am – 10:30 am: Ajai Chopra (International Monetary Fund) “A Banking Union for the Euro Area”

10:30 am – 11:15 am: Zhenyu Wang (University of Indiana) “On the Design of Contingent Capital with a Market Trigger”

11:15 am – 11:30 am: Coffee Break

11:30 am – 12:15 pm: Viral Acharya (New York University) “Analyzing the Systemic Risk of the European Banking Sector”

12:15 pm – 1:00 pm: Patrick Honohan (Central Bank of Ireland) “The Shifting Goals of Bank Resolution”

1:00 pm – 1:30 pm: Closing Reception with Poster Session

Presentations at the Poster Session: We encourage comment and discussion with poster presenters at the two poster sessions which open and end the conference.  Poster presentations include: Continue reading “Final Reminder: Conference on Bank Resolution Mechanisms”

ESRI QEC; Understanding GDP / GNI(GNP) data

The new ESRI QEC is out –  executive summary here.

John Fitzgerald has a note on the impact of re-domiciled firms on Irish national accounts data here.  This relates to the phenomenon of international firms locating the headquarters office here for legal/tax reasons, even if all of its activities are elsewhere. A feature of balance of payments accounting is that the retained earnings of these firms are counted as part of Ireland’s gross national income (GNI)  [GNI used to be termed GNP until it was accepted that income was a better term than product, since the concept does not relate to domestic production].

John’s article shows that these retained earnings have been very large in recent years, so that the level of GNI has been boosted (with a large impact on the current account). This is why it it is important to also keep an eye on the international investment position (IIP), since the liabilities to the foreign investors that own these redomiciled firms rise in line with retained earnings and this will be reflected in the IIP.

If the pool of retained earnings is depleted by the payment of dividends to the shareholders, then GNI will decline –  so the initial boost to GNI is eventually reversed.

Also, some of these redomiciled firms are now shifting HQ back to the UK, which will also undo the effect.

So, the Irish national accounts now features two unusual elements:

(a) the large-scale operations of the affiliates of foreign multinationals mean that there is a large gap between GDP and GNI due to the high recorded profits of these firms. Moreover, the high import content of the exports of these firms means that there are analytical issues in understanding the dynamics of valued added in Ireland. To the extent that transfer pricing means that true imports are understated as a means to boost recorded profits, it also means that the trade surplus is overstated (but one-for-one net factor income is understated, so the current account is unchanged)

(b) the more recent feature is the impact of redomiciled firms which are counted as Irish firms, since the headquarters are here and even though these have virtually zero domestic activities and the ownership is entirely foreign.  As shown in John’s note, this sharply alters the interpretation of the GNI data –  but has no impact on the GDP data (which relates to domestic production).  It also sharply alters the interpretation of the current account data, which is a key variable in the European Commission’s “macroeconomic imbalances” scorecard.

So – both GDP and GNI data need to be handled with care. In particular, the traditional short cut of interpreting GNI as a better measure of true domestic activity is not wise  –   it is an income measure, not an activity measure.

It is important to emphasise that these are interpretation issues rather than measurement issues (the CSO implements the globally-agreed rules).

DEW Meeting: Land-Use Regulation in Britain

The Irish planning and land-use system is very similar to the set-up in the UK. There is a re-think under way across the water and one of the main contributors will be visiting;

Speaker: Christian Hilber (LSE)

Topic: The British System of Land-Use Regulation: Key Features and (unintended) Economic Consequences 

Date and Time: June 30th at 5.30 pm

Venue: Davy Stockbrokers, 5th. floor, 49, Dawson St., Dublin 2.

Admission is free but you are requested to book – email Breeda.McRann@davy.ie

The Workshop is kindly sponsored this year by Dublin Chamber of Commerce.