(from LorcanRK) The Department of Finance published their review today:
http://www.finance.gov.ie/documents/publications/reports/2009/Dfincapacityreview09.pdf
Well worth reading for any that want to get an insight to the way the place works (or is supposed to work)
With the risk of being ridiculed for self-promotion, readers may want to have a look at some recent computations.
Earlier, Callan, Keane and Walsh had a look the impact of recent changes in taxes and benefits on nominal income. They found a sizeable redistribution from rich to poor.
An Bord Snip Nua argued that benefits should be indexed on the consumer price index, which would be tantamount to a 5% cut.
In the paper with Jennings and Lyons, we compute the consumer price index per income decile. The highest incomes have seen the fastest deflation, up to 5.1% for the period July 2008 to June 2009 for the top 10% earners. The three lowest income deciles have seen deflation in the range of 3.0 to 3.4%.
By the argument of An Bord Snip Nua, a 5% cut in benefits thus seems a bit harsh.
On the other hand, deflation has been slower for lower incomes because local authority rents have continued to go up even as the rest of the housing market collapsed. As local authority rents are indexed on renters’ incomes, a cuts in benefits would in fact induce deflation for this, particularly vulnerable group.
A 3% cut in nominal benefits would therefore mean that the poorest people in Ireland would see a rise in their real income.
In this guest post, David O’Connor and Odran Reid make the case to use NAMA as an opportunity for better spatial planning: you can read it here.
The BIS has released a new comparative study of the impact of the different types of financial sector rescue programmes pursued across countries: you can read it here.
Abstract:
We analyse the wide array of rescue programmes adopted in several countries, following Lehman Brothers’ default in September 2008, in order to support banks and other financial institutions. We first provide an overview of the programmes, comparing their characteristics, magnitudes and participation rates across countries. We then consider the effects of the programmes on banks’ risk and valuation, looking at the behaviour of CDS premia and stock prices. We then proceed to analyse the issuance of government guaranteed bonds by banks, examining their impact on banks’ funding and highlighting undesired effects and distortions. Finally, we briefly review the recent evolution of bank lending to the private sector. We draw policy implications, in particular as regards the way of mitigating the distortions implied by such programmes and the need for an exit strategy.
There has been understandable focus on what NAMA will pay for distressed assets, and the risk of over-payment. This is the biggest component in considering the broader problem of re-constructing the banking system at minimum cost to the Exchequer, but it is not the only one.
Excess Exchequer cost could also be incurred if NAMA comes under pressure to dispose of assets on anything other than best commercial terms, and this pressure has already commenced. A ‘social dividend’ from NAMA has been suggested, notably by ICTU president Jack O’Connor. Mr. O’Connor called on RTE radio on Friday for the State’s newly-acquired property portfolio to be deployed in the provision of schools, sports facilities and health centres. There seems to be some support for this approach from Green Party spokespersons, and it is all too easy to see the notion growing legs.
Disposal of assets at less than best commercial value is a direct cost to the Exchequer, € for € as costly as excess payment for those assets on acquisition. There may well be a case for improved provision of schools, sports facilities, health centres, and indeed lots of other things, but it is an illusion to pretend that the State’s imminent acquisition of an enormous property portfolio at enormous cost somehow relaxes the overall Exchequer constraint.
NAMA will of course need to avoid over-payment. It will also need to avoid becoming an adjunct to the National Lottery Fund, dispensing property assets to worthy causes.