Costing a Universal Pension for Ireland

Gerry Hughes: Social Justice Ireland has published a detailed and fully costed study by Adam Larragy which proposes to replace the current contributory and non-contributory state pensions with a universal pension as of right to every Irish citizen and resident over the eligible age. In common with the TCD Pension Policy Research Group, TASC, the National Women’s Council, and other organisations and individuals, Social Justice Ireland argues that to avoid poverty in old age the target level for a universal state pension should be set at 40 per cent of average weekly earnings.

The study estimates that a universal pension would cost €0.7 billion more than current expenditure on the state’s contributory and non-contributory pension schemes and that this cost could be met by reducing the tax expenditure on top earners private pension schemes. The additional cost of introducing a universal pension in 2014 could, therefore, be met without imposing an extra burden on middle and lower income taxpayers and without having an adverse impact on the public finances.

Using official projections of the population up to 2046, growth and earnings, it is shown that, contrary to arguments in the Green Paper on Pensions, paying for a universal pension “would be no more difficult than funding existing arrangements”. However, a universal pension would have considerable advantages in ensuring gender equality by not penalising women who take time out of the labour force to care for children and relatives, reallocating resources from private pensions for higher earners to middle and lower income earners who derive little benefit from the private pension system, providing a secure framework in which people can plan for their retirement, simplifying the administration of the state pension system and providing older people with a guaranteed income to protect them from poverty

Apparent growth of inward investment to Ireland is largely a mirage

There has been much media attention recently to the apparently very high inflows of foreign investment into Ireland.  According to a report prepared for the American Chamber of Commerce Ireland, US firms invested $129.5 billion in Ireland over the five years to 2012, fourteen times the level of US investment in China.

Meanwhile, the CSO has reported a total foreign direct investment (FDI) inflow into Ireland of almost €30 billion in 2012 alone.

Yet employment in foreign firms here (most of which is American) has been falling – by eight per cent between 2007-2011 according to Forfás data – while sales have increased only marginally (by less than five per cent).  How can this be?

The main part of the answer lies in how statistics agencies measure FDI flows.  Thus, earnings of foreign companies that are reported in an economy but are not taken out are considered to be “reinvested earnings” (even though very little of it may be directed to productive activity) and are counted as an inward investment flow.  

Last year, these earnings accounted for three quarters of the total recorded FDI “inflow” into Ireland.  Most of these earnings actually originated abroad but were declared in Ireland for tax purposes.

It is also instructive that almost 60% of this FDI inflow went into financial activities (the bulk of it in financial intermediation) which have little connection with the real world where people work in producing goods and services.

According to The Irish Times (October 4), the person who wrote the report for the American Chamber stated that the investment in question was “real stuff…It is sticks in the ground, money being used for goods and services”.

While there certainly is a significant amount of new productive investment coming into the economy every year, the great bulk of the FDI inflow does not match this description.  It is as much a mirage as the large proportion of exports by foreign firms which consists of profits generated abroad and transferred to Ireland through transfer price manipulation (rather than representing goods and services produced in Ireland) and the large proportion of service inputs of these firms which consists of arbitrarily-set royalty payments.