The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
A few comments come to mind:
1. Lots of work clearly went into this report, well done Tasc.
2. I’m a bit disappointed by the way the Irish Times spins it, e.g. “Tasc research indicates State now the most unequal country in the EU when it comes to how the economy distributes income.”
All this relates to income prior to taxes. When you account for government intervention, Ireland’s income inequality is in line with the European average.
3. The use of GDP rather than GNP makes tax revenue (as a % of national income) look smaller than it “should”.
4. There is the usual consideration of VAT as a regressive tax, e.g. “Chart 33
shows that those at the bottom income groups … pay more of their income in indirect taxes, making this a regressive form of taxation.” This line is routinely trotted out and I think it is misleading. The fact that rich people can save more money do not VATs regressive: as long as savings are eventually spent, VATs such as Ireland’s (with lower rates on food and clothing, etc) are progressive.
Net income inequality in Ireland is lower than the EU28 average (Gini
coefficient 29.9, EU28 average 30.4; Eurostat 2012).
Well done Ireland. And well done TASC for bringing this to our attention.
@Johnny Foreigner and Enda h.
Yes, the irish net Gini Coefficient is below the EU average and falling.
In fact in six of the TASC charts showing international comparisons of inequality, Ireland is ‘roughly average’.
However, the Irish Times singles out the one chart (Chart 11) that shows Ireland in a very unfavourable light. Well done IT!
Indeed. If the IT was to follow its own logic it would report that the Irish State has a very poor education system as measured by the ability of 4 year olds to do the Leaving Cert.
AFAIK David Madden in UCD has been doing great work on this stuff for years. As has Brian Nolan.
This is a great report spun terribly by the laziness of the Irish press. I thought the point of the news is to report factually – it’s as though the entire industry has collapsed to the lowest common denominator of Irish reader.
That said, using tax data in Ireland is a big plus and Revenue are to be applauded for making these data available.
@Nat O’Connor and Cormac Staunton
Well done! Keep up the good work.
In many respects this is a very good compilation of statistics and analysis. However there are some problems:
First, I find it astonishing to read the unqualified comment on Page 76: “When it comes to comparing tax levels, percentage of GDP, not Gross National Product (GNP), is the correct reference point as all economic activity in a country is liable for taxation”. This may be right in principle, but the point is trivial in practice for most countries, where GDP and GNP are almost the same number. But not to allude to the very unusual position of Ireland where GDP exceeded GNP by 18% in 2013, is a strange omission. Tax as a % of GNP (not the whole story I admit) is about 5 percentage points higher than tax as a % GDP.
Second, in a graph on Page 79 (which seems to be inadequately referenced) the gap between Government expenditure and revenue appears to be in excess of 6% of GDP for 2015, which is well in excess of the likely number. The graph is intended to reinforce the allegation that fiscal correction has been mainly via expenditure cuts rather than tax increases, I don’t have much confidence in the numbers as presented.
Third, an old problem which arose from a report by the NERI last year. Chart 33 on page 81 indicates that indirect taxes are highly regressive, especially for the lowest two income deciles. However the underlying numbers (I have taken them from the 1010 House Budget Survey) are very strange. For all households average weekly expenditure is 90% of weekly disposable income. However for the lowest income decile, expenditure is 87% greater than income and for the next lowest it is 27% greater. There are well-known reasons for such a general pattern, such as negative transitory income for those who have become unemployed. But the sheer size of the expenditure-income gap is a big problem. How do the poorest 10% finance the excess of expenditure over income (87%). Essentially by some combination of dis-saving (running down assets) of by borrowing. The implied initial wealth of the poorest 10% is implausible, and/or the implied ease of access to credit is equally implausible. There is something very strange about the data.
There has been an earlier debate on this site about the regressivity question. It was David Madden who reminded us that expenditure could be regarded as a function of permanent income. Expenditure might occasionally be 187% of income , but not on a structural or permanent basis. Expenditure taxes may be regressive to some extent, but TASC and NERI would, in my opinion, exaggerate this effect.
There were no replies when I started to write this, but I am glad to see that others have latched on to similar problems.
Banner headline in today’s Irish Times: Ireland lose 11-5 to France.
But, in paragraph 12 small print: if Johnny Sexton’s points are included, Ireland won 18-11.
My reference to the “1010” HBS should obviously be to 2010. Maybe inequality was less in 1010, but I am sure poverty was much worse.
Net income equality looks fine but the way it is achieved is not very good. It would surely be preferable to have a lower level of gross income inequality, and a correspondly lower level of social transfers. Equivalently, more people working in well paid jobs and less money paid out in benefits and entitlements.
“It would surely be preferable to have a lower level of gross income inequality, and a correspondly lower level of social transfers”
How do you achieve this? By having the State dictate wage policies to private companies? Why not also tell them what to make, how to make it, how to distribute it, who to hire, how to advertise their products… The State can’t figure out how to move someone on a hospital trolley 15 metres into an empty bed. What makes you think they know better than Google or Apple about how to organise remuneration?
Without insight into why gross incomes are more skewed in Ireland than elsewhere, it is difficult to say what the impact of government policy on this area actually is. The high level of gross income inequality in Ireland has been noted several times on this blog, but AFAIK nobody has presented explanations. Anecdotally it seems that the highest pay levels occur in the upper echelons of sheltered professions such as law and medicine, not in traded sectors such as IT services. At the same time we have a larger number of “low work intensity” households (i.e. familiies where nobody works).
The TASC report doesn’t seem to shed any light on this question, unless I’ve missed it.
If you just look at the raw number of tax units earning more than, say, 100k then inevitably most of them will be in the private sector because we don’t have enough public servants earning that money. It is true that the public sector is massively over-represented in the +100k group compared to its overall size, but cutting the pay of the top public servants, doctors etc will not make much of an impact on overall levels of gross income inequality. I’d still be in favour of it of course – but for other reasons.
This link from Le Monde probably catches the public mood in Greece very well.
The Greek parliament is voting all the social measures promised by Syriza.
Only one small problem; who is going to pay for them?
“What makes you think they know better than Google or Apple about how to organise remuneration? ”
Any of that create income inequality in Ireland – the subject of the thread?
No, on the contrary. Wage fixing cartels lower income inequality.
Relevant to the thread ?
With its reliance on foreign capital, Ireland could be compared with a petroeconomy.
The typical farmer relies on EU welfare for 70 to 80% of income depending on food prices in a year.
The Government said in early 2013 that half the population at 2.3m was on welfare and the indigenous exporting sector alone would put Ireland vying with Greece as the EU’s most closed economy.
Pay and benefits in the MNC sector and professional services fees charged to them differ significantly from the SME sector where low pay and no occupational pensions are common.
In summary, Ireland is not a typical advanced economy.
Chris Johns nails it in this contribution.
The great benefit of the detailed availability of the data is that the general public is waking up to the reality of the level of social transfers actually taking place. This goes a long way towards explaining IMHO why public reaction in Ireland to “austerity” has been so different to that in Greece.
I’m late to this but clarification; re tax units over 100k – isn’t it the case that a unit can be a married couple assessed jointly?
Another contribution (from Dan O’Brien) that identifies, unlike the TASC report, the real problem.
The only thing missing is any reference to the clientilist poilitical system under PR which, intuitively, suggests itself as part of the explanation for the off-the-scale Irish phenomenon of workless households, whether in boom or recession. There may be no one working in the households in question but lack of employment is not a barrier to voting. Policy formation reacts accordingly.
‘… whatever serious people may want to believe, soaring inequality isn’t about education, it’s about power.’
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