Budget 2015 and the 2014 Finance Bill

The 2014 Finance Bill was published yesterday and it is available here with related documents.

There’s not a lot new in the Bill.  One of the very minor changes relates to mortgage interest relief, with the relief now available to Income Tax payers in Ireland (who derive the bulk of their income in Ireland) for qualifying loans on PPRs in the entire European Economic Area rather than just Ireland.  There are plenty of other minor changes.

On the changes to corporate residency rules announced in the budget The National Law Review in the US has published a useful article under the heading: Death of the “Double Irish Dutch Sandwich”? Not so Fast. re: Irish Incorporated Non-resident Companies.  It is available here.

Earlier in the week the Minister for Finance and the Opposition Finance spokespeople gave statements to the Dáil on the pre-budget statement of the Fiscal Advisory Council.  The transcripts of these Dáil statements are here.

Austerity Talk at Battle of Ideas in London

The ‘Battle of Ideas’ festival held at the Barbican in London last weekend included a panel session entitled ‘Piigs can’t fly: Democracy/Technocracy/Austerity’. I was invited to make a 7-minute presentation of my views as expressed at various crisis conferences over the years:

Back in 1986, long before most people imagined that the single currency would really come into being, Paul Krugman wrote of the potential fiscal co-ordination problem: a bias towards excessive restriction because each country ignores the impact of its actions on the exports of others. “Achieving co-ordination of fiscal policies is probably even harder politically than co-ordination of monetary policies. There is not even temporarily a natural central player whose actions can solve the co-ordination problem. None the less, in surveying the problems of European integration, it is hard to avoid the conclusion that this is the systemic change most needed in the near future”.

Without this problem ever having been addressed, the potential for exchange-rate realignment was locked down. As many US economists warned, the euro was a federalist project lacking in federalist foundations, whether minimalist (banking union or federalist insurance schemes) or maximalist (a Washington-style federal budget).

In the face of this existing (anti-Keynesian?; pre-Keynesian?; antediluvian?) institutional structure, Ireland had no choice but to impose austerity (which would have been required even in the absence of the disastrous bank guarantee of 2008). The large primary budget deficits – which meant that government spending would still far exceed tax revenues even if interest payments ceased – precluded debt default.

The actions of the ECB in 2010 in forcing us to pay off remaining unsecured bank bonds (by threatening to cut off liquidity) appear to have been beyond its mandate and it is difficult to think of any reason not to support economist Colm McCarthy’s call for this to be brought to the ECJ. But, as he notes, the need for  retrenchment would have remained.

The Irish experience under austerity has been distinguished by remarkable industrial peace. Paddy Teahon, the chief civil servant behind social partnership, argued that the process had promoted a shared understanding among unions, employers and the government of the key mechanisms and relationships that drive the economy. I wrote back in 2009 that “the Teahon view will be seen to be of validity if some agreement can be reached to reduce public-sector pay until the current crisis is overcome”.

As to whether austerity has worked, it has achieved what it was supposed to achieve, which was to close the deficit and slow the accelerating debt ratio. It was never supposed on its own to get the economy back to work, but rather to position the economy well for when markets rebounded. The flexibility of the labour market makes it easier for Ireland to bounce back from austerity than is the case for Greece for example. So does the openness of the economy, as long as export markets recover.

[All of the other panellists having been hostile to ‘the displacement of democracy by technocracy’, I suggested that:] Many or most economists of my acquaintance in Ireland were content enough with the policies espoused by, and implemented at the behest of, the troika. Technocracy can be viewed as an advantageous buffer between government and – on the other hand – purveyors of snake oil and the representatives of powerful entrenched interests (though technocrats too are not immune, of course, from regulatory capture).

Budget 2015

There’s plenty to discuss from yesterday’s announcements but any OP is not likely to be followed by related comments.

All the relevant documents from the Department of Finance are here.

This is a summary of the aggregate budgetary changes (in €million).

Here are two vintages of the debt interest table.  First from the April 2013 SPU.

And this from yesterday’s Economic and Fiscal Outlook:

There are lots of opinions I’m sure on how this (temporary?)  improvement was used.

Economics and Psychology Workshop

The seventh annual one day conference on Economics and Psychology, co-organised by researchers from UCD, ESRI and NUIM, will be held on October 31st in the UCD Geary Institute. The purpose of these sessions is to develop the link between Economics, Psychology and cognate disciplines in Ireland. A special theme of these events is the implications of behavioural economics for public policy though the workshops have covered work across all areas of intersection of Economics and Psychology. Programmes from the previous six events are here. We welcome students, academics, policy-makers, industry representatives and others with an interest in this area. Registration is free of charge but you should sign up on the link below if you are attending. Other questions about the event can be addressed to Liam.Delaney@stir.ac.uk

Sign up to attend here 

The programme is available below.

Continue reading “Economics and Psychology Workshop”

Sinking, fast and slow

For well over a year now some of us have been pointing out that the Eurozone crisis was entering a very dangerous phase, in which slowly increasing unemployment would eat away at the foundations of Europe’s societies, while short-sighted politicians and excitable journalists proclaimed that the Euro was saved. The invaluable Eurointelligence has been doing a great job recently tracking the apparently inexorable deterioration in the economic fundamentals of the Eurozone, with Germany itself now apparently affected. But for both political and personal reasons I find myself worrying most about France.

Twiddling their thumbs and hoping that something (the economy) will turn up, flawed macroeconomic policy notwithstanding, seems to have been the French government’s master plan up till now. As a result it is hard to see Francois “Say” Hollande, or any other Socialist for that matter, getting through to the second round in 2017.

You may think that Paul Krugman is being too alarmist when he raises the possibility of President Le Pen, and I hope you are right. But Sarokozy’s apparent return to the political fray does worry me. Of course, you may think that if he wins the UMP nomination, the Left will rally round and vote for him when it comes to the second round.

How confident are you about that?