What the Danish Election tells us

David Begg: The extraordinary success of the populist, anti - immigration, anti EU, Danish People’s Party (DPP) last week continues a trend in Scandinavia. The Progress Party in Norway and the Finns party in Finland have all upset the established political order and, it would seem at first sight, delivered a body blow to social democracy in a region famed for its combination of economic efficiency and social cohesion.

Solving the Greek crisis – by making inequality worse?

James Wickham: It seems the Eurozone finance ministers - and behind them the IMF – are rejecting the last proposals from the Greek government. These proposals attempt to reverse the trend of the last years where the crisis has exacerbated inequality – and the poorest are asked to solve the crisis by accepting even further cuts in living standards.

In Greece the crisis has meant growing inequality in terms of disposable incomes.  

Do we want the fewest public services in Europe?

Cormac Staunton: One of the key indicators in TASC's analysis of economic inequality is the level of taxation and government expenditure.  We have argued that Ireland is trapped in a 'low-tax triangle' with low taxes leading to lower public service provision, leading to a higher cost of living, leading to calls for tax cuts. This is a downward spiral that ultimately exacerbates economic inequality.

Recent data confirm that there is no plan to reverse this and that Ireland will continue to have a low-tax, low public service economy. Indeed by 2019 we could end up with the lowest government expenditure in the EU.

Chart 1: Expenditure as a % of GDP in Europe (2014). Source: NERI 

UN Committee Response to Ireland on Economic, Social and Cultural Rights

Cormac Staunton: The UN’s Committee on Economic Social and Cultural Rights, in its concluding observations on Ireland’s third periodic report, makes a number of very interesting points. The report of the Committee is based a number of written and oral responses by both the State and Civil Society groups to questions raised by the Committee.

The Committee welcomes a number of recent developments in Ireland including: The establishment of the Low Pay Commission in 2015; The Adoption of the Irish Human Rights and Equality Act and the establishment of the Irish Human Rights and Equality Commission in 2014.

In the area of economic inequality, as well as welcoming some key recent developments, there are a number of 'subjects of concern' and recommendations. Here I quote some of the observations that relate to the issue of economic inequality with some additional comments.

No inflation due to low wage rises

Paul Sweeney: There has been no rise in overall prices in seven years! In fact, prices today are a little lower than they were at the peak - which was in June 2008. That was the year of the crash and prices fell substantially then – by almost 8% in a period.  Then prices rose a little they have stabilised over the past three years and are still lower than when the Crash occurred, as the graph shows.

A major reason why there has been no rise in inflation is the low or no rises in wages. Workers will now demand a share in the rising economic growth. Irish growth is very strong and the fastest in Europe. Most of the benefit is going to the owners of capital.

Lets start a race to the top: IMF on Inequality

Cormac Staunton: The IMF have released another staff paper on inequality with some very important findings for our understanding of both the causes and consequences of economic inequality.  It also contains some suggestions of policies to reduce inequality.

Most strikingly the research shows that economic growth declines if the share of income held by the top 20% increases.  On the other hand, a growth in the share of income at the bottom 20% leads to higher economic growth. The research also provides further insight into why inequality affects growth.

There are no jobs on a dead planet

David Begg: German Chancellor, Angela Merkel, appears to have achieved something of a victory in persuading the G7 group of leading industrial nations to embrace a serious initiative on climate change last week.

They agreed to back the recommendations of the IPCC, the United Nations’ Climate Change Panel, to reduce global greenhouse gas emissions at the upper end of a range of 40 % to 70 % by 2050, using 2010 as a baseline, by phasing out the use of fossil fuels by the end of the century.

This is an important development in the lead in to the crucial UN summit in Paris in December 2015. If followed through this could presage a green industrial revolution. What does this mean?

Pensions Research Conference

The Pension Policy Research Group Annual Conference will be held on Wednesday 17th June 2015 in the School of Business Trinity College Dublin.

The conference aims to promote discussion on current pension policy issues. It is intended for pension providers, regulators, trustees, advisors, academics and members of pension schemes.

The American Nightmare

Book Review of Our Kids: The American Dream in Crisis, by Robert D Putnam.

James Wickham: Some social changes come with trumpets blaring, promoted by self-serving entrepreneurs, hyped by snake-oil gurus and official pundits: think for example of the claims that we now live in the “knowledge society” of a connected digital world. Others come more slowly, advancing almost imperceptibly until we suddenly realise that the world has changed, changed utterly. So it is with the transformation of the United States of America into a society more divided by social class than any other Western democracy.

Tsipras may still have a card to play

David Begg: In a joint article published in a number of European newspapers last week a German and a French politician set out an audacious plan for completion of the European Integration Project. Sigmar Gabriel, Leader of the German Social Democratic Party, and the French Economic Minister, Emanuel Macron, proposed a Eurozone treasury with its own finance chief, single budget, tax raising powers, pooled debt liabilities, a common monetary fund, and separate organisation and representation within the European Parliament.

I'm a poor, poor farmer...

Cormac O'Grada: The website that is causing the IFA so much grief is both interesting and, from an equity standpoint, very disturbing.  Analysing the data properly would take some time, but here are a few extracts.

Single Payments in 2014: Numbers and Amounts

Critique of Knowledge Development Box

David Jacobson and Jim Stewart: The idea of the Knowledge Development Box (KDB) is to provide tax incentives to firms to locate their R&D activities in Ireland. In a recent submission to the Government on the KDB, we argued that it is just a substitute for the “double Irish” tax loophole, which is in the process of being removed following EU and OECD pressure.

We also argued that although encouragement of innovation is indeed an important part of a rounded industrial policy, the KDB proposal is not an appropriate way of encouraging innovation.

Equality for All - Really?

David Begg: The high turnout and the active involvement of so many campaigning groups, especially the engagement of young people, in the referendum on gay marriage conveys a strong impression of active citizenship and undoubtedly enhances Ireland’s image as a modern progressive democracy. By coincidence this theme of citizenship and how it measures up to the ideals of 1916 featured at a conference organised by the Wheel, an NGO support organisation, in the week before the referendum.

TASC exists to challenge inequality and to promote the concept of a flourishing society. This is the context in which any discussion of what citizenship is about needs to be located.

Good News on Jobs

Paul Sweeney: There is good news on the jobs front. But we should never have had such a collapse in the economy and jobs. The job of economists and policymakers should be to make economic performance boring.

Employment should match population changes, economic development should meet our material and social needs and provide equitable taxation to fund great public services.

There should never be the rapid rises and falls in growth, in unemployment and in taxation and consequently in public services.

TTIP is not a conventional free trade agreement

David Begg: Since the collapse of the DOHA round of multilateral trade negotiations the focus of global trade policy has shifted towards regional or 'plurilateral' agreements involving groups of countries.

The United States is the main driving force behind this initiative with the aim of being at the centre of an integrated trade zone, covering nearly two-thirds of the global economy and almost 65 per cent of US goods trade, according to the US Council of Economic Advisors (Wolf, 2015).

Employers' Social Contributions in Ireland

Paul Sweeney: Here on Progressive Economy, we have been examining the evidence for tax reform in recent months. In my last Blog I looked at employees’ social insurance and here I examine employers’ social insurnace.

Is Ireland “the best little country in which to do business”? It has the lowest corporation taxes in the EU, no corporation taxes for some multinationals who chose to use aggressive tax planning and very low social charges on employers.  And we had very low average income tax rates though they were increased – but only to the OECD average since the Crash of 2008.

Social Contributions in EU as % of GDP (source Eurostat) from Cherishing All Equally

Capital Markets Union – The Risk of Short-Termism

David Begg: The European Commission believes that European Capital Markets are underdeveloped. It considers that this is an aspect of the single market which needs deepening and more integration. Commissioner Katainen said recently that the goal of policy would be to create a Capital Markets Union in which the flow of capital will increase allowing business to expand and providing more options for people to save for their old age, and strengthen financial stability. With a still fragile banking system carrying €900 billion of uncertain debt this makes perfect sense, or does it?

A Polanyian double movement in Europe? Too early to say

David Begg: On Tuesday 5th May Professor Eduardo Silva, from Tulane University, New Orleans, delivered a lecture in Maynooth University on the topic ‘Learning from Latin America: Lessons from the periphery in a time of austerity’. Professor Silva was in Ireland as part of the University’s distinguished visiting scholar’s programme. The core message from the lecture was that neoliberalism and austerity, if pushed beyond certain limits, can lead to social mobilisation and the rise of the left. This is the message from Latin America and Professor Silva challenged his audience to reflect on whether this could happen in Europe, or is Europe different?

USC cuts will still benefit higher earners

Cormac Staunton: The Government today signalled that instead of changing income tax rates and bands in Budget 2016, they are likely to reduce the 7% ‘middle rate’ of USC for those between €17,500 and €70,000 to 6%.

TASC has developed a model to measure the effect of such changes on net incomes and effective tax rates (USC, PRSI and income tax) for a single person on any given gross income level. Here I use this model to show the impact of a reduction in the middle USC rate from 7% to 6% and assume all other rates and bands are left the same. We can then see who the winners are in this scenario.

Why May 7th is crucial for Ireland

David Begg:  There has always been a paradox of sorts affecting Ireland’s engagement with the prospect of European Integration. With few honourable exceptions Ireland’s elite was never much concerned with a big vision of Europe. Economic considerations and the assertion of our independence tended to dominate. But herein lies the paradox.

While we might have seen the EEC initially, and subsequently the EU, as a means of consolidating our independence from Britain, it was equally seen as vital to our interests to have Britain also engaged in Europe. We had to sit on the sidelines with Britain for a year in the early 1970’s when its application to join the EEC was initially turned down. Likewise our joining the single currency was predicated on a belief that Britain too would ultimately join.

It is this interdependence with Britain which makes the General Election of the 7th May of such interest to Ireland.