Water charges good, bilinear taxes bad

The government is still keen on introducing water meters and water charges, as reported in the Irish Times. I agree in principle, but not in detail. I’m glad that the government seems to have abandoned a poll tax. The current announcement, however, foresees a bilinear tax: The first N cubic metres of water are free, the rest is paid for.

Bilinear taxes are rarely optimal. In this case, a substantial share of water is untaxed so that there is no incentive to preserve water below the free allowance.

Much better, therefore, to charge for all water use — and rather than give people a benefit in kind (free water), give those on benefits a “water allowance” and those on wages a “water tax credit”.

No Explanation for Senior Civil Servant U-Turn

The year’s first week of Dail sittings came and went without much attention being paid to the government’s U-turn on its decision to cut the pay of Assistant Secretaries by 12 percent and the pay of Deputy Secretaries by 15 percent.

The lack of attention to this U-turn—the only cut in the budget that has been rolled back, as far as I know—could reflect a lack of interest from the public, who perhaps think that senior civil servants were being unfairly treated by the budget proposals. Alternatively, the lack of interest may reflect the original timing of the announcement—just before Christmas Eve and three weeks before the next meeting of the Dail, by which time other issues (such as banking inquiries) had arrived along to distract the public.

Credit then, to RTE’s Rachel English for putting a question about this U-turn to junior minister Dara Calleary on her Saturday View program. Mr Calleary’s response was “There’s a U-turn in relation to 160 people whose salaries are benchmarked against a European level unlike most others in the service.” This follows a similar line used by the Minister for Finance. The Irish Times reported:

Mr Lenihan said the pay of workers at this particular grade had been benchmarked against their counterparts in other European countries and they were not paid more than those at equivalent positions.

The benchmarking exercise that Ministers Calleary and Lenihan were referring to (the report of the Review Body on Higher Remuneration in the Public Sector) is here.

It discusses international comparisons and then recommends exactly the type of pay cuts that the government introduced in its budget. So the government’s defense of this U-turn is to use the same report that it used to justify introducing these pay cuts to now justify rolling back the pay cuts. This is hardly a satisfactory explanation.

Tax Breaks and Tax Rates for Top Earners

There has been a lot of discussion in recent months about the scale of tax reliefs in Ireland and I’ve been planning to write a couple of posts on this topic. In relation to this issue, an opinion that is commonly expressed by leading figures in the Irish media is that the very richest in Ireland pay very little in tax because of these reliefs.

NTMA Review of 2009

The NTMA has released its review of its 2009 activities. Link here.

In relation to the coming year, the report says that “The NTMA plans to raise up to €20 billion in the bond markets in 2010. This requirement is significantly less than in 2009 because of a smaller projected Exchequer deficit of €18.7 billion and a lower refinancing requirement of €1.2 billion.”

These figures do not include any allowance for any borrowing that may be triggered by bank recapitalisation requirements. That said, the National Pension Reserve Fund had a good year thanks to the rise in international stock markets and its value now stands at €22.3 billion. Excluding the €7 billion held in preference shares in AIB and BOI, this leaves €15 billion that could, potentially, be used to recapitalise the banks without borrowing.

No Pay Cuts for NAMA Staff

Just when it seems like everyone is suffering a pay cut because of the fiscal crisis, along comes a feel-good story like this one.