You can find this paper (presented to SSISI this evening) here.
You can find the slides for the talk here.
A New Fiscal Framework for Ireland
- Post author By Philip Lane
- Post date February 11, 2010
Category: Fiscal Policy
Niall Ferguson is worried about the impact of high public debt on interest rates around the world – you can read his article here.
This story is the best explanation we’ve got so far as to how the higher civil servant pay U-turn occurred and the justification used.
THE GOVERNMENT’S controversial U-turn on pay cuts for top public servants followed strong lobbying by their staff association that any cuts should take account of money lost as a result of the abolition of a bonus scheme which averaged 10 per cent of salary.
Official Department of Finance files show the Association of Assistant Secretaries and Higher Grades said it had legal opinion that the performance-related bonus scheme, which the Government initially suspended for 2008 and later scrapped permanently, formed an integral part of members’ remuneration packages.
The key argument put forward:
The association had earlier argued in correspondence with the Department of Finance that “while receipt of the performance-related element of pay is obviously not guaranteed to any individual, the scheme is part of our members’ basic remuneration package and amounts to an arrangement whereby part of that remuneration is simply deferred pending an independent assessment of performance”.
I’m not sure what this is supposed to mean. The fact that the bonuses did not count as pensionable pay and were not eligible for PRSI suggests that they were not part of basic pay. If the legal opinion was an implicit threat that the civil servants could have sued to reverse their pay cuts, I find it pretty hard to imagine such a case being successful.
In any case, it’s still not clear why the U-turn occurred. Minister Lenihan announced the ending of bonuses in February, so he was well aware of what he was doing when he announced the pay cuts in the budget concluding with “These are permanent reductions which will be reflected in future pension entitlements.”
It would be interesting to have heard the speech that Brian Lenihan gave on this issue at the Fianna Fail parliamentary party on Tuesday night for which he reportedly received a round of applause from the faithful.
In relation to this, I appeared on the radio on Tuesday night just after this meeting (link here) and heard Fianna Fail TD Michael Mulcahy suggest that the U-turn came from following the recommendations of the Review Body report and that the U-turn occurred because the report wasn’t released until after the budget. In truth, the U-turn runs counter to the report’s recommendations and the Minister had access to the report before the budget (he mentioned it in his speech.) These didn’t seem to be very satisfactory talking points on this issue from someone who had just received a full explanation from the Minister.
If the government thinks that misleading spin is the way to make this issue go away, I suspect they’re wrong. The fact that the usually-supportive Stephen Collins has taken up the issue also suggests that the government isn’t winning people over on this one.
One of the major issues that I think needs to be addressed this year is the role played by tax expenditures in our budgetary system. Reports such as this one by TASC have pointed to closing off tax expenditures as having an important role to play in closing the budget deficit. Chapter 8 of the Commission on Taxation report does a pretty good job of listing many of these tax reliefs and recommends shutting many of them off. There are serious discussions worth having in relation to many of these reliefs, such as those for pensions, but I don’t have the time to get into these issues now.
Interestingly, one particularly controversial type of relief that the Commission report does not examine is property incentive schemes; the report argued that since the decision had been taken to close off these schemes on their completion, they should not be examined. Information on the cost of these schemes was, however, reported to the Dail by Minister Lenihan last November in response to a parliamentary question from Joan Burton. The link to this answer is here but I know not to trust links to the Oireachtas website so I’ve also put up the answer as a Word document here.
The total amount of tax revenue lost from these schemes in 2007 was €435 million. I suspect this is smaller than some people might have expected, given the widespread nature of claims that the very richest in society are managing to pay almost no tax through their extensive use of these schemes.
Still, it is a decent amount of money. It would be interesting to know what these schemes are expected to cost this year and next and whether they can legally be closed. I suspect they can. Another interesting question is whether many of the individuals that availed of these schemes are now bankrupt and wouldn’t be able to pay any tax.