I’m just back from spending a few days at the McGill Summer School in Donegal. Joe Mulholland is to be commended for having put together a very interesting line-up of speakers and I very much enjoyed my couple of days there.
One strange aspect of the McGill event, however, has been the media coverage. Judging from newspaper front pages, one would conclude that the sessions involved heated discussions about proposals to cut the minimum wage. In fact, this was not the case.
Thanks to Patrick for posting the links. He mentioned George Lee’s talk, which I have just read.
I have blogged about Deputy Lee and I state again that I dont have any connections with him or his party. He is improving the quality of the political debate around economics in my view. Whether his position is correct can be left to the comments and hopefully the comments can stick to the economic merits of these suggestions rather than more personalised political arguments that are best debated on the many politics blogs in the Irish landscape.
The speech, unsurprisingly, is critical of government performance and policy. A summary of the substantive economics points is as follows:
– The size and swiftness of the current proposed fiscal adjustment is too large. The government should reconsider trying to get the budget deficit back to 3% by 2013. “What’s so sacred anyway about having a General Government Deficit of 3% of GDP by 2013, especially if achieving that target runs the risk of turning an economic recession into a depression?”
– The tax base was narrowed too much during the economic boom and should be broadened. “Taxes on the average worker were cut to the lowest combined rates in the developed world outside of Mexico and Korea. Despite the fact that global interest rates were historically low and that access to credit both at home and abroad had never been easier, massive tax breaks were given to property developers and investors. This was an irresponsible approach to the structure of the taxation system and of our economy that has now blown up in our faces.”
– Guaranteeing all bank debts is irresponsible. “There is no sane reason why Irish taxpayers should continue protecting investors who bought bonds issued by Irish banks….The protection given by the Guarantee to bond investors in Irish banks should be removed September next year when the first two-year term for that Guarantee is up. This shouldn’t preclude the Government from renewing the Guarantee for normal wholesale borrowing by Irish banks. It would, however, help send a message to the international financial markets that the Irish Government is reducing its debt exposure in a rational way and is not lumbering ordinary taxpayers with debts obligations they should have no liability for.”
The EU Commission today published a report on the EU dairy market. It is mainly concerned with setting out the portfolio of measures available to alleviate the very difficult milk market situation. Demand for milk products, particularly the higher value products such as cheese and fresh products which account for 70 per cent of EU production, has been adversely affected by the economic downturn. At the same time, there has been a collapse in world market prices, due to a combination of production increases by other suppliers (New Zealand, Australia, Argentina, Brazil) responding to the dramatic increase in dairy product prices in 2007-08 and a drop in global demand due to the economic crisis.
The report also deals with the widening gap between the price paid to farmers for milk and the prices charged to consumers for milk products. The figures for Ireland are particularly startling, even if the pattern for other EU countries is broadly similar. Between Q4 2007 and Q1 2009, the price paid to farmers for raw milk in Ireland fell by 43%, with corresponding reductions in the wholesale prices paid for butter and skim milk powder of 44% and 41%, respectively. However, the CPI for the product category ‘milk, cheese, eggs’ (which includes other milk products but excludes butter) actually increased by 9% over the same period, compared to a 4% increase for food products generally. From the CSO databank, I calculated that the corresponding increase for butter was 2%, which while smaller, is still extraordinary in the light of the 44% decrease in the wholesale price of butter over the same period.
The Commission report underlines that this is not just an Irish problem. However, the Competition Authority’s recent investigation into grocery prices which recommended a relaxation of planning restrictions to encourage greater competition in the retail trade does not seem an adequate response to this total absence of price transmission in the dairy supply chain. At a minimum, we need much greater transparency in how margins are distributed between producers, processors and retailers.
I would be interested in Cormac’s considered opinion on this.
The reaction to An Bord Snip Nua’s proposed spending cuts in the agriculture, forestry and fishing (AFF) area has been predictably intense. The overall savings proposed are €305 million, out of total voted expenditure of €1,985 million (or €1,655 if EU receipts under the Rural Development Programme which count against this expenditure are excluded), amounting to a reduction of 15.4% on voted expenditure (18.4% on the national contribution to this voted expenditure). Taking all of public expenditure, An Bord Snip Nua identified potential savings of €5.3 billion or 9.3% of relevant expenditure. It therefore seems as if the AFF area will be asked to take a disproportionate share of the overall cuts. However, while I have some quibbles with the details, it is hard to disagree with the overall thrust of the proposals, and indeed I think some expenditure schemes were lucky to survive. I look at the details of the proposals with respect to agriculture in this post.