Author: Karl Whelan

AIB and BOI Oireachtas Submissions

Last week, I wrote a post about the appearance of AIB and Bank of Ireland executives before the Oireachtas Committee on Finance and the Public Service. A transcript of the appearance is available here. They refer to submissions that the banks gave to the committee but which are not on the Oireachtas website.

The Committee’s staff have kindly made these submissions available to me on request. Here is the AIB submission and here is the Bank of Ireland submission. The AIB submission is particularly interesting because of its focus on funding costs and margins. Somewhat depressingly it states that “Our pricing guidelines could lead to a customer being charged 4% to 5% over Euribor.”

CSO on Cross-Border Shopping

I hadn’t seen anyone else on the blog link to this CSO publication from last week on cross-border shopping (based on a special module of the QNHS for 2009:Q2) which was brought to my attention yesterday. The results are interesting and the microdata associated with the module could be used for a nice research project.

Based on a quick read, the survey results suggest that the cross-border shopping issue has been substantially over-hyped by the media. A couple of highlights:

  1. Based on the estimates in the survey, total household expenditure on shopping in Northern Ireland between 2008:Q2 and 2009:Q2 was €435 million. This figure seems low relative to others that have been reported—for example, here.
  2. Outside of the border region, there are only very modest levels of cross-border shopping with average numbers of shopping trips less than or equal to one per year for all other regions. There is almost no cross-border shopping in the Mid-West, South-West and South-East regions.
  3. The average amount spent on alcohol per shopping trip was €32.
  4. Only 9 percent of respondents reported that they had shopped more in the North during the year up to 2009:Q2, while 1 percent reported that they had shopped less.
  5. Seven percent of respondents reported that they intended to shop regularly in the North in the coming twelve months.

TARP Congressional Oversight Panel Report

When it passed the TARP Bill authorising the Treasury Department to spend €700 billion to stabilise the US financial sector, Congress set up a Congressional Oversight Panel (COP) to oversee how the TARP money was spent. The COP is chaired by Elizabeth Warren, a law professsor from Harvard and has held regular hearings and issued monthly reports. This month’s report is “Taking Stock: What Has The Troubled Asset Relief Program Achieved?”

Continue reading “TARP Congressional Oversight Panel Report”

Tax Deductibility of the Pension Levy

Eilis Quinlan of ISME has been at it again. On the Last Word on Today FM this evening, she again said that it was a mistake to say the public sector pension levy was a pay cut. The key argument she produced as to why the reduction in net take home pay related to the levy was a pension contribution rather than a pay cut was that it was tax deductible, just like other pension contributions.

Let’s think about this for a second. Consider a worker on €50,000 facing a 20% marginal tax rate. Now the government introduces a pension levy that see her gross pay reduce by €3,000. The pension levy isn’t taxed, so the worker now has a taxable income of €47,000. Consider the alternative in which her pay is cut by €3,000. In this case, the worker also has taxable income of €47,000.

So, in either case, whether it’s a pay cut or a “tax deductible” pension contribution, the worker has the same level of taxable income—the pension levy may be tax deductible but the government also can’t tax salary that a worker hasn’t been paid.

In other words, from the point of view of the worker’s take-home pay, the pension levy is identical to a pay cut. Now, of course, there are reasons why various tax breaks exist to encourage people to make pension contributions: The government wants to encourage people to put additional money aside to build up their pension entitlements. But, of course, the payment of the “pension levy” doesn’t add a cent to public sector worker’s pension entitlements.

To recap, the fact that the pension levy was tax deductible doesn’t make it different from a pay cut. It makes it exactly like a pay cut. And the fact that it doesn’t add to pension entitlements means that it has all the features of a pay cut and none of the features of a pension contribution.

To be honest, I don’t see how it serves the interests of the hard-pressed small and medium-sized businesses of Ireland to have the Chairman of their representative organisation continually making provative and misleading statements that only serve to upset thousands of public sector workers that have experienced very significant losses in take-home pay.

UK Pre-Budget Report

Proof we’re not alone on the fiscal crisis front: The UK Pre-Budget report. The UK government plans to reduce its deficit from 12.6 percent this year to 12 percent next year and then gradually to 4.4 percent in 2014-15. One highlight of the statement: An immediate 50% supertax on bankers’ bonuses paid between now and April. Bankers, apparently, are furious and were seen crying into their Dom Perignon all over the City of London.