Here are the slides from a talk the Minister for Finance gave at the Irish Taxation Institute on Friday. Lots of useful material in it, most of which I agree with. Slide 11 is great. It actually says Iceland! (Less fun is the repetition of the de-listing argument as a serious point.)
Writing in the Irish Times, Pat McArdle reckons that criticism of the roll back of the cuts to higher civil servant pay is misplaced. Pat’s key argument is as follows:
The Minister appears to have been influenced by a novel aspect of the review process. For the first time, comparison was made not just with the private sector but also with six other European countries. (Of these, only Britain had any kind of bonus scheme.)
Uniquely, the assistant secretaries were found not to be paid more than in the other countries. This was taken into account by the Minister but not by the Review Body.
Here’s the relevant section of the Review Body report:
4.11 The salary for Assistant Secretary places the Irish post behind the equivalent position in the UK, the latter being 10% ahead of its Irish comparator. The salary for the role in the remaining countries is somewhat lower than that of the Irish post. The rate for the equivalent post in Finland, with which the Irish post is banded, is 74% of the Irish rate.
4.12 When the comparison is made on an adjusted income basis, it is found that the Irish post is behind that of four other countries, viz. the UK, which is 102% ahead, Germany, which is 29% ahead, Belgium, which is 6% ahead and the Netherlands, which is 1% ahead. The adjusted income value of the role in Finland is 97% of that for the Irish position.
It is open to question whether the Irish government should be factoring in high local prices levels when setting civil servant pay, particularly since we are aiming to reduce these levels to restore competitiveness.
The report doesn’t explicitly state how much weight it placed on the adjusted versus unadjusted salaries when arriving at its conclusions. It does, however, note that other considerations were taken into account including the economic environment and the current value in Ireland of the security of tenure:
in Report No. 42, we observed that “the value of security of tenure in present economic circumstances must be regarded as less than that which would apply in circumstances of high unemployment.” We also observed that we would be disposed to discount for security of tenure in different economic circumstances. Since we reported in 2007, the economic environment has, as already mentioned, deteriorated significantly and unemployment is at a very high level and still climbing. Security of tenure is, therefore, more valuable now than in 2007.
So the Review Body was balancing a number of different factors when making its decision and not just looking at the adjusted salary.
McArdle may consider recent criticism to be misplaced but he does not explain why on budget day, the Minister announced that his policy in this area would be based on the Review Body’s recommendations based on its balancing of these various factors and then later announced that it would not. Or whether it is wise to abandon the strategy of following the Review Body’s recommendations. Or whether, as a tactical matter, a government that needs to stick to its budgetary strategy is well advised to start taking steps to overturn decisions on budget day. Or whether, if budget day decisions are going to be reversed, it is advisable to focus only on reversing cuts to the salaries of well-paid senior civil servants.
Tim Besley and Andrew Scott advocate the establishment of independent fiscal committees to improve the quality of fiscal policy formation: you can read the Vox article here.
On Tuesday night near the end of his TV3 show, Vincent Browne returned to one his favourite themes, the taxation of those on higher incomes. He put the following statement to Fianna Fail TD, Timmy Dooley
In June of last year, the Department of Finance showed that in spite of efforts to close off tax loopholes in the 2007 and 2008 budgets, people earning over a half a million still pay only 20 percent of their income in tax. Now why weren’t they targeted rather than people on social welfare?
Dooley told Browne that the budget had seen an increase in the effective tax rate for these individuals to 30 percent, to which Mister Browne responded, “Not true, It’s just not true.” Later, after Mister Dooley discussed other steps taken to stabilise the public finances, Browne asserted that “You could have achieved the same thing by targeting people earning half a million and you didn’t bother.”
On the same theme, in his column in Wednesday’s Irish Times, Browne stated
How come there was no crisis when a report by the Department of Finance last June disclosed that, in spite of the alleged attempt to close tax loopholes, the average effective tax rate for people earning over €500,000 was just 20 per cent?
I’d like to address three aspects of the TV exchange and this column.