The Village on Poolbeg

James Nix, master’s in real estate, barrister, and unsuccessful candidate for the Green Party, has a piece in the Village: “Incinerating money: the economics of Poolbeg”.

The summary is interesting: An overwhelming success story of private sector dynamism in recycling is set to be undone by an oversized incinerator at Poolbeg – at massive cost to Dublin’s businesses. This was told to me in confidence, but it is good to see it confirmed in print. IWMA is not against incineration. Rather, they know they cannot compete. Nix champions the local companies who are fighting to maintain their grip on an undersupplied market.

Nix claims (as are others) that the Poolbeg incinerator is vertically integrated with waste collection. It is not. The incinerator will burn waste from any collector.

Michael Smith, Village editor, has a companion piece: “The Poolbeg incinerator: an essay in cynical lobbying”, in which he argues that Minister “Gormley has faced an insidious onslaught from multiple quarters” — a cabinet member victimised by the powers that be.

This was published yesterday. Smith write: “[t]he most blatantly inaccurate presumption was that emissions from the Poolbeg incinerator would be included under the EU Emissions Trading Scheme. This resulted in a significant underestimate of the costs of the facility.” This is disingenuous. After inclusion of CO2 emissions, incineration externalities are still far below the Eunomia estimates.

Smith also writes that “John Gormley is […] sitting on the foreshore licence” something that the Minister has repeatedly denied (see latest example).

More on Taxes

The debate on taxation policy has heated up in recent days.   Readers might find KPMG’s Income Tax and Social Security Rate Survey 2010 of interest.   It is available for free download here.  The Economist has a piece on the survey, but does not include Ireland in its main comparison figure for the effective tax rate at an income of USD 100,000 (gross).   The effective rate for Ireland is 30.3 percent, which puts us in the middle of the pack (pages 11 & 12). 

Some other tables and figures in the survey show that we should not exaggerate the extent to which Ireland is a low tax country for middle to higher earners.   See the table for the highest rate of income tax (2003-2010) on pages 9 & 10; and also the figure showing the US dollar income at which the highest rate kicks in on page 28.   I’m sure our tax experts will have some quibbles with the calculations.   But it does help to put tax rates for higher earners in a useful comparative context. 

Corporation Tax and the EFSF

There has been a lot of discussion over the past few days about the implications of Commissioner Rehn’s comments about Ireland not being a low tax country in the future. While the comments didn’t explicitly mention the 12.5% corporate tax rate, many have inferred from the comments that the removal of that rate would be part of the price of an EFSF bailout for Ireland.

Two points on this issue seem worth discussing. The first is: What would be the effect of an increase in the corporation tax rate? The take from this tax this year is projected to be €3.2 billion (actually it’s running ahead of target but let’s stick with the original projection.) A purely mechanical extrapolation would see an increase from 12.5% to 15% raise an additional €640 million in revenue while keeping Ireland’s corporation tax rate low by European standards.

Of course, that assumes no negative effects on declared profits. So the €640 million figure may be too high. That said, I don’t think there’s reason to think that 12.5% is a magic Laffer-curve point whereby revenues decline when the tax rate is raised.

Over the longer-term, however, there may be more serious repercussions from a decision to raise the 12.5% rate. Even a small increase would represent a significant departure in policy from the line-in-the-sand approach that has been taken up to now. The real risk may be to that those considering future FDI projects in Ireland (or perhaps making decisions about whether to keep current operations here or consider further investments in them) see an increase to 15% as potentially being the first of a number of increases. Rhetoric about how we’d never change the rate again would not be too credible. On balance, I think the arguments for keeping the rate as it is win out.

The second point worth discussing is whether indeed access to the EFSF bailout would require changing the corporate tax rate. As I understand it from the facility’s framework agreement, the dispensing of funds from the facility does not require each Euro-area parliament to approve. Instead, agreement on a plan must be reached with the Eurogroup of finance ministers.

I’m not prone to anti-European conspiracy theories, so the idea that the Eurogroup finance ministers will be happy to hike Ireland’s corporate tax rate substantially, even if it would have negative effects on our economy and possibly lead to sovereign default, doesn’t strike me as correct. More generally, my sense of IMF-style rescue packages is that the package negotiations usually feature lots of nasty options but that the government can pick which areas it wishes to prioritise for protection. So (and these could be famous last words) I don’t think access the EFSF funds would imply changing the corporate tax rate.

Poolbeg and drinking water

While I am still waiting for someone to explain to me why you do not need a foreshore license if you own land, An Bord Pleanala has cleared the Compulsory Purchase Order and construction of the Poolbeg seems set to continue (according to the Irish Times).

UPDATE: JD DUG UP THE PERTINENT LEGISLATION

While a lot of effort was spent (in vain, it appears) to stop incineration in one particular constituency, there is a warning about the quality of drinking water. We said roughly the same thing over a year ago and the EPA issued warnings before that. Although there is an investment deficit, it is not likely that drinking water quality can be improved without institutional reform. There is no sign of that.

Economic and Social Review

Vol 41 Issue 3 (Autumn 2010) of the Economic and Social Review is available online now at http://www.esr.ie/vol41_3/ESRTOC41_3.htm

 

 

The Economic and Social Review invites high-quality submissions in economics, sociology and cognate disciplines on topics of relevance to Ireland. Contributions based on original empirical research and employing a comparative international approach are particularly encouraged.

Published papers are listed in the Social Sciences Citation Index.