The effect of marginal tax rates

It has sometimes been suggested that marginal tax rates in Ireland are too high, and that raising them would harm growth. They may affect the incentive to work. It is true that they are 10th highest, of the 34 countries in the OECD. Also the marginal rate hits in relatively low (affecting average earners). Helpfully, the OECD provide the data here.


However, what is the link between marginal tax rates and the economy?

 

As can be seen in the above graph there is no negative relationship between GDP per capita and marginal tax rates. In fact it is slightly positive. Of course this is not conclusive evidence of a positive link, but the evidence certainly does not support the hypothesis that high marginal rates harms GDP.

But does it affect the incentive to work?

No relationship is found between unemployment rates and marginal tax rates in the OECD.

High tax rates are not the problem. In other countries, such as the Nordic countries, high tax rates are used to fund social services such as child care, which make it easier for people to work in the market economy.

Open debate on paying the promissory notes - the long countdown

Tom McDonnell: Various official sources (including Ministers) have been making the claim in recent days that the 2012 promissory note to the IBRC went unpaid. Sadly this is untrue.
The ECB insisted all along that it receive its ELA repayment from the IBRC on time on 31 March and this is exactly what happened.  The repaid money was then destroyed/deleted/burned/expunged on time and as scheduled.

It is true that the money promised to the IBRC was initially paid to the zombie bank by the state-owned NAMA (in exchange for a 13 year government bond given to IBRC by the Irish State) rather than by the exchequer. Nevertheless it was paid using 'our' money - we own NAMA after all. Following a series of subsequent exchanges the bond is currently held by Bank of Ireland.

A slightly irritated ECB watching the shenanigans merely acknowledged that it got paid on time as expected and that it had observed certain transactions betwen various Irish state institutions.

That the promissory note was paid (by issuing a sovereign bond) is stated clearly in the Department of Finance's Medium Term Fiscal Statement. Much of the confusion may stem from the media's general failure to accurately report and explain what happened on 31 March - understandable given the byzantine nature of what occurred. Fortunately not everyone in civil society has been taken in by the official line. For example the Debt Justice Action group has a letter in today's Irish Times which draws attention to this issue.

The government's next payment to the IBRC will not be made for 108 days. There needs to be an open and honest public debate about the subsequent promissory note payments to the IBRC. All options have to be on the table.

TASC's more detailed response to Budget 2013

Nat O'Connor: TASC's more detailed response to Budget 2013 is here.

Budget Transparency Pledge Weakened by Lack of Detail

Nat O'Connor The issue of budget transparency is so important that it deserves special mention.

With the possible exception of elections, there is no other single most influential event in our democracy than the national budget. The budget is where all is revealed in terms of the values and priorities of the current government and it is often when it comes to spending money that promises made in manifestos are fulfilled or broken.

While the Government is moving towards some important reforms, like the strengthening of the Freedom of Information Act, there were some major surprises in the dilution of the quality and depth of information provided in the Budget 2013 documentation.

The current Programme for Government agreed by Fine Gael and Labour is full of commitments to openness and transparency. Not least, on page 23, the pledge that “We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics.”

Yet, for the first time in years, we were not given a full break down of spending decisions to the level of expenditure programmes and organisational budgets for a number of Departments. What might have been three or more pages of detail in a previous budget for some of the key departmental blocks of voted expenditure was reduced to just one page per vote block in the Budget 2013 Expenditure Report. The votes affected were: Gardaí; Prisons; Courts; Justice and Equality; the local government fund under Environment, Community and Local Government; Education and Skills; and Agriculture and Food. Only Social Protection and Health provided the same break down of sub-heads as last year.

What this means in effect is that some publicly-funded organisations are no wiser after the budget about what level of change has occurred in their individual budgets for next year, which begin in a few weeks’ time. It also means that policy analysts and journalists cannot give people in Ireland as full a picture on what promises and policies are implemented or not through the decisions made by each Minister on how his or her budget allocations will be spent.

For example, we know that in Vote 24 (Justice and Equality) there will be a 20 per cent reduction in programme expenditure to ‘promote equality and integration’ (line item D). That’s a €5.8 million reduction in that programme.

The equivalent information in Budget 2012 was part of item G: ‘equality, integration and disability’. However, in last year’s document the amount of money going to 10 different line items is shown, such as ‘grants to women’s organisations’, ‘equality proofing’, ‘Traveller initiatives’ and so on, with the specific changes to each area open to scrutiny.

Such missing detail means that people in Ireland have far less clarity on what is being done with their money and in their name. This lack of transparency is a retrograde step from the point of view of Ireland’s democracy.

TASC's initial response to Budget 2013

Nat O'Connor: TASC's initial response to Budget 2013 is as follows. (PDF available here).

Lost opportunity to provide a pathway to an equitable economic recovery
Continued pensions inequality and cuts to investment underline the need for a process of equality proofing and economic impact assessment to improve Budget process

In an initial analysis of the measures introduced in Budget 2013, TASC Director Nat O’Connor welcomed the introduction of the local property tax, but expressed concern at the likely damaging effect of others measures on economic equality and on job growth.
“As TASC highlights in its own pre-budget analysis, property tax is shown by international evidence to be the least damaging form of tax on jobs and growth.” Dr O’Connor noted. “Likewise, the introduction of deferred payment options makes sense from an equity perspective, whereas a bad precedent was set by the waivers given to those who can afford to buy an empty house in the next three years, as that waiver will be paid for by many people who cannot afford to buy.”

“It is surprising and disappointing that, despite a range of announcements in Minister Noonan’s speech, the Government has not in fact made any real change to Ireland’s pension tax breaks for 2013. All that has been substantively announced is that the Government will consider changes in future years. Pension tax reliefs favour better off sections of society and those subsidies are paid for by other taxpayers who will never enjoy those benefits. The ESRI has shown the 80 per cent of the benefit of pension tax reliefs goes to the top 20 per cent of earners. It is a missed opportunity that TASC’s proposal of reducing relief to the standard rate was not adopted, as this would have raised €500 million that will instead be found through less progressive tax measures and cuts to public services that people on lower incomes rely on more heavily.” Dr O’Connor concluded.

Commenting on the overall Budget package, TASC economist Tom McDonnell expressed serious concern at the cuts to capital expenditure. “The disproportionate cuts to capital expenditure are a false economy and represent a failure of economic policy, which will undermine our medium-term growth potential. All the international evidence shows that an economy’s capacity to grow depends on productive investment. Yet Ireland is projected to have by far the lowest level of investment (gross fixed capital formation) of any country in the EU for the coming years, which is highly likely to mean a weaker growth going forward.”

“The PRSI changes made in the budget represent a highly regressive form of tax increase on earned income that will almost certainly worsen economic inequality in Ireland. TASC has repeatedly emphasised the need for equality proofing of budget measures in advance, in order to ensure that Ireland’s budgets reduce rather than increase inequality.” Mr McDonnell concluded.

Lessons from the UK

Nat O'Connor: The UK's Chancellor of the Exchequer, George Osborne, gave his Autumn Statement early this afternoon, as the UK too examines its debt and deficit levels. One striking feature is that he cited at length the independent Office of Budget Responsibility, which generates the growth forecasts used by the UK Government instead of the civil service predictions used in the past.

Despite presumably being disappointed by those independent forecasts (including the prediction of UK GDP decline of 0.1%), the Chancellor nevertheless praised the independence of the OBR. Given the history of optimistic growth forecasts by the Irish civil service in recent years, there may be a lesson for us in the value of having independent growth forecasts.

The OBR notes that problems in the Euro zone will "constrain growth for several years to come" in the UK. The Chancellor (citing the IMF and others) laid the blame for the UK's low economic growth on the problems abroad. Limited growth in the UK likewise affects Ireland greatly, as they remain our major trading partner. Of course, Ireland's woes are part and parcel of the Euro zone's problems and our growth will be even more constrained than the UK's until strong action is taken to repair the institutional weaknesses in the Euro zone.

The UK is not cutting spending in its Revenue service, but is instead clamping down on tax evasion and avoidance, including measures to close hundreds of tax loopholes and tax breaks, including pensions tax relief (which in Ireland has been described by the IMF as tax relief for richer sections of society).

The UK government is also increasing capital spending by a modest amount (£5 billion GBP) to improve economic infrastructure, which is exactly what is needed to foster long-term growth. Another lesson for Ireland there, as our capital expenditure has been slashed in recent years.

The UK is also creating a new business bank to ensure lending to SMEs. The lack of credit from Ireland's dyfunctional banks is currently killing businesses in Ireland.

The UK has capped rail fare increases for the next few years, unlike in Ireland where they continue to rise - including Dublin Bus's recent fare increase of c.18 per cent following a rise of around c. 15 per cent earlier this year!

Not that I'd agree with a lot of the Chancellor's other measures or rhetoric. Some bad moves include limiting welfare increases to below inflation (which will lower aggregate demand), tax incentives for shale gas extraction (which will be environmentally damaging) and ruling our further property taxes (which are less damaging to job growth than any other tax increases). But it will be interesting to compare the measures taken by the UK coalition with our own coalition budget later today.

The deficit and debt repayments

Nat O'Connor: The brief ten pages of the 2013 Estimates include the stark reminder of just why the Government is set on €3.5 billion of tax increases and spending cut today. Receipts in 2012 were just under €41 billion, wheresas spending was around €56.5 billion. That's a gap of €15.5 billion.

The actual deficit in the General Government Balance is slightly less, at €13.4 billion (Table 1a in the same document).

The gap shows the growing importance of the national debt interest repayments in making the public finances unsustainable. Servicing the national debt cost us nearly €6.5 billion in 2012 and is set to rise to €8.1 billion in 2013. That's nearly as big as the entire education budget (€8.7 billion in 2012). The details of public spending can now be seen at DoPER's databank.

This point is graphically illustrated on page 12 of the Medium Term Fiscal Statement, which is the other document currently on budget.gov.ie. A copy of that image is below:

The debt interest burden is projected to peak at 16 per cent of all Government revenue in 2014.

A serious concern with these projections (and the assumption that the deficit and debt interest payments will stabilise) is that projections of economic growth have repeatedly been over-optimistic. The IMF now calculates that austerity in developed economies means that for every €1 taken out through tax or cuts, between €0.9 and €1.7 will come out of economic output (GDP) - see page 43 of IMF's World Economic Outlook. There is a real risk that even this grim picture of debt interest repayments may be over-optimistic.

At any rate, it is certainly the case that a major win on reducing the bank debt part of the national debt (and annual debt servicing costs) needs to be achieved.

#Budget2013

Nat O'Connor: As the new era of budget transparency dawns (or should that be New Era?), the Government's official information service (MerrionStreet.ie) will be tweeting budget soundbites to the nation, via hashtag #Budget2013

For more conventional information, official documents will be made available on the Government's Budget website budget.gov.ie as the day progresses.

Clamping Down on Tax Injustice—Sharing the Price of Austerity

Daragh McCarthy: On Wednesday, the EU’s tax commissioner will outline a set of proposals aimed at reducing the level of tax evasion and aggressive tax planning in the EU. The Commission estimates that tax dodging, in all it's various guises, deprives Member States of almost €1 trillion every year.

Reports suggest that the plan will detail the need to agree a concrete, shared definition of a "tax haven", and to create a blacklist of jurisdictions that match the definition. It is hoped that this measure will make it easier to tackle tax evasion and to take action against jurisdictions that fall outside the norms governing the taxation of cross-border corporate transactions.

The Commissioner's report will look at ways of closing-off access to loopholes that facilitate the development of aggressive tax avoidance structures. To this end, it has been suggested that states adopt "general anti-abuse" legislation that would allow tax authorities to disregard any corporate arrangements deemed to solely serve the purpose of tax avoidance. In addition, the Tax Commission will outline the need for countries to insert a clause into their double-tax agreements specifying that one country is precluded from taxing income only if that income is taxed in the other contracting state. It is hoped that is would prevent double non-taxation of income.

Efforts to extract a greater tax yield from transitional businesses must address several challenges. TASC's report highlights the difficulty of assigning a market value to transactions between subsidiaries of the same parent company. By making it hard for officials to identify and place a true value on intra-group deals that purely facilitate tax reduction, multinationals retain the capacity to substantially reduce the potential effectiveness of some of the measures being proposed. The 2006 European Court of Justice ruling in favour of Cadbury Schweppes established that putting subsidiaries in low-tax countries was not necessarily tax avoidance—so long as the activity carried out by the operation was not "wholly artificial"—which makes legislating for reform more problematic. Finally, Feargal O'Rourke recently argued that the increasing prominence of online business is reducing states' ability to collect tax from corporate entities, though it's difficult to establish the extent of the hindrance that this creates.

Effective regulation of the problem requires enhanced international co-operation. It's a well-worn argument, but aggressive tax code competition between countries results in jurisdictions that unilaterally decide to take a harder line with regard to taxing transitional subsidiaries being punished through the loss of foreign investment. Ireland's model of industrial development is, however, largely predicated on enticing multinationals to the jurisdiction on the basis our low-tax regime, so, in the medium term, the proposals represent a potential threat to economy. If the Commission's ideas gain traction—and the EU moves closer to the creation of a Common Consolidated Tax Base—pleasing the multinationals while remaining a full-fledged member of the EU could become an increasing precarious balancing act.

Making Equality Count—the Case for Budgetary Impact Assessments

Clara Fischer: Ireland’s next budget is only around the corner, and people all over the country are bracing themselves for what is set to be another harsh exercise in cuts and tax increases. While much of this will be presented in abstract terms – a few percentages increased here, a few numbers decreased there – the very real effects of Budget 2013 will be keenly felt, especially by those already marginalised within our society.

Given the government’s reluctance to equality-proof or gender-proof the budget, it is more than likely that Ireland will continue in the current trajectory toward increased inequality and poverty, thus exacerbating a situation that has been worsening since the beginning of the economic crisis. In 2010 alone, there was a 25% increase in inequality in Ireland, with the top 20% earning 5.5 times the income of the lowest 20%. The percentage of people in Ireland living in consistent poverty increased, as did the percentage of children at-risk of poverty, which stands at 19.5%. Just recently, it was established that one in ten people in Ireland experiences food poverty.

Those are harrowing statistics, especially in light of the fact that people at the higher end of the socio-economic spectrum increased their wealth by 8% in 2010. The research clearly shows that ‘burden-sharing’, ‘collective belt-tightening’, or whatever similar misnomer successive governments have used and continue to use as a means of justifying disproportionate hardship for those at the bottom, is simply that – empty rhetoric that is not based on fact. The truth is that, at present, the government simply doesn’t have the required information to devise, implement and review policies that might actually result in a more level spreading of the economic burden across different sections of society. Instead, we are seeing the continued,disproportionate targeting of lone parents, people with disabilities, and women, to name but a few, as impact analyses are not undertaken, data is not collected, and information is not made available.

While one could be uncharitable about the political motives behind this, it is important to note that other countries do things differently. In Scotland, for example, it is common practice to publish a draft budget in September, which can then be debated before being finalised in January. Importantly, the draft budget is published alongside an “Equality Statement”, which provides a full impact analysis by equality category (such as gender, age, disability, etc.), as well as by budget theme (e.g. “health and wellbeing”). The budget process itself is also significantly at variance with the Irish process, as an Equality Budget Advisory Group, made up of civil society and government actors, ensures that equality is fully integrated in economic policy-making and planning. The meeting minutes of this group are readily available on the Scottish Government’s website, as are the draft budget, and the attendant Equality Statement.

The Scottish approach is far more transparent, and affords equality a central role in economic policy-making, planning and review. There is no reason why such an approach could not be introduced in Ireland. Given the pressure the government currently finds itself under, especially with regard to economic policies being perceived as unjust and unfair, adoption of an approach more akin to the Scottish model would actually take some of the sting out of the debate. The government would be able to point toward impact assessments and research, and could show that its decisions are based on evidence and carefully planned examination of the circumstances of different sections of Irish society with a view to implementing the most equitable policies. Equality budgeting would also halt the increases in inequality and poverty we’re currently experiencing in Ireland, while satisfying citizens’ demands for economic justice and true ‘burden-sharing’.

For the last number of months, the Equality Budgeting Campaign has been working toward the introduction of such a more transparent and equitable approach to economic policy-making, and has successfully won the support of the Sinn Fein parliamentary party, and of Labour, Independent and ULA representatives. More pressure must be brought to bear, however, upon the powers-that-be if a substantial reform like this is to be made a reality. The urgency of doing so cannot be stressed enough, as the brunt of the economic crisis continues to be borne by those least able to do so. For anybody interested in pursuing equality budgeting with us, we invite you to contact us or to follow us on Facebook, Twitter, or via our website. We also have a petition for the introduction of equality budgeting here. For further details on equality budgeting, see our information booklet here.


Contact:equalitybudgetingcampaign@gmail.com

Dr. Clara Fischer holds a Ph.D. in political philosophy and is a co-ordinator of the Irish Feminist Network. The network is part of a broad-based coalition of civil society organisations and concerned individuals seeking the introduction of equality budgeting in Ireland.

Ireland – caught in the low corporate tax trap?

Daragh McCarthy and Aoife Ní Lochlainn: In the wake of the Public Accounts Committee in the UK interrogating a trio of multinational executives on the meagre sums of corporate tax paid by many trans-national companies, last Saturday’s episode of the Business on RTE featured a segment on the topic that closed with Feargal O’Rourke of PwC saying that he expected to see these companies pay “a fairer rate of tax” in the coming years. It appears that the pressure for reform is building.

The issue has garnered a significant amount of media attention over the past couple of months—from the storming of Google’s offices in Paris to the naming and shaming of Facebook, Starbucks and Apple in the UK press. Senior government officials in many EU countries are openly voicing their discontent with the increasingly aggressive tax dodging strategies employed by these corporations, and the European Commission is scheduled to discuss the international tax practices of multinational businesses on December 5th. It remains to be seen if this is simply bluster, or if there is a genuine will to devise a coordinated pan-national strategy to reduce tax avoidance.

A recent report by TASC, Tax Injustice: Following the Tax Trail highlighted how the Irish tax system is a key component of a subsidiary-based structure that drastically reduces the overall tax bill of transnational businesses. A friendly tax environment has been a central part of the effort to lure multinational corporations to Ireland. FDI of this nature has been at the core of successive governments’ industrial policy for over half a century, and this policy is generally regarded to have been successful.

Accommodating these companies has come at a substantial cost, however. Contributors to this site have noted the obsessive focus on FDI is likely to have hindered the development of indigenous firms. The contribution made by multinationals to the Irish exchequer has diminished considerably in recent years; currently it is down 2.5 per cent year-on-year. The recent spike in media attention heightens the risk of damage to the state’s reputation. This summer, the US Senate’s Permanent Subcommittee on Investigations sought to establish Ireland’s role in “tax practices that range from egregious to dubious validity.”

However, while much of the media focus of the past few weeks has been on the use of tax loopholes to decrease tax bills in European countries, it remains the case that these countries are still better equipped to address the consequences of such corporate behaviour than countries in the Global South. Tax avoidance by companies and individuals hampers the capacity of these states to develop their economies and pay for much needed public service.

According to Christian Aid, between 2005 and 2007, six Irish Aid programme countries lost nearly €82 million in tax revenue to EU or US – almost 17 per cent of total Irish Aid budget for the countries concerned. A recent report by the Tax Justice Network (TJN) claimed that since the 1970s, 139 low-to-middle income countries have lost a total of $7.3 to $9.3 trillion to tax dodging by the super rich. This vast sum is more than enough to cover the debts of these countries, whose aggregate gross external debts stood at $4.08 trillion in 2010.

The TASC report contains a number of recommendations for tackling tax injustice, including the introduction of country-by-country reporting. However, while increased transparency would help countries better understand the methods of tax avoidance, it will not in and of itself solve the problem and is unlikely to appease many of Ireland’s critics.

The Default Option - Cancelling the Odious Debt

Tom McDonnell: We have seen again in the last few days that the troika are a not a monolith. They disagree quite fundamentally on many issues.

It is widely understood that the debt crisis professionals (the IMF) were overruled at an early stage by the debt crisis amateurs (ECB/European Commission). Greece was originally prevented from defaulting and then not allowed to default to a sufficient degree to restore its debt dynamics to a sustainable path. A second default is now certain within the next eighteen months.

According to Der Spiegel the inevitability of the second Greek default is well understood in Brussels and Berlin as indeed it must be to any competent analyst.

Ex-IMFer Ashoka Mody has an excellent piece in today's Irish Times making the case for defaults in the European periphery. Defaults are an entirely normal (even expected) thing when it is clear that debt levels have spun out of control.

Over at the Irish Independent Stephen Kinsella makes the case - articulated repeatedly on this blog and indeed on many other blogs - that the promissory note payment to the IBRC should not be paid on 31 March. I would echo Stephen's reference to this debt as 'odious'. The government failed to get a deal last year. Months of pleading have gotten them nowhere and the working group is missing in action. TASC's position is that the promissory notes should now be immediately suspended pending a full renegotiation. It is time to start rethinking the debt default option. Reducing the debt burden is an essential component of a Greek recovery and failure to strike an acceptable deal on the legacy bank debt will delay Ireland's recovery for years to come.

The importance of secondary benefits

Aoife Ní Lochlainn: Today, TASC appeared before the Oireachtas Committee on Education and Social Protection to discuss our proposals for Budget 2013.

In our pre-budget document Closing the Gap: TASC’s Proposals for a More Equitable Budget, we propose a ratio of tax measures to spending cuts of four to one. This includes no cuts in capital expenditure or social welfare payments. You can read our full proposals for tax and spending here. 

Any savings made in current expenditure must not be made through further cuts in social transfers of through cutting services which impact on vulnerable or low income groups.

Last year’s budget introduced a range of cuts in health and in social protection which targeted vulnerable or low income groups. In particular, the focus on the cutting of so-called ‘secondary’ or ‘non-core’ social protection payments, left many families significantly worse off.

Many secondary benefits are designed to reflect the fact that there are groups of people for whom accessing work is more difficult.

The barriers to meaningful work are both visible and invisible to those who do not face them. These groups have specific needs which must be addressed through the development of appropriate policies and supports.

One such group is lone parents. Lone parents often face challenges that other people of working age may not face or understand. The general lack of proper affordable childcare facilities impacts on most parents, but the negative impact is much more acute for lone parents. The vulnerable position of these families can be seen in the fact that according to EU SILC data for Ireland, in 2010, lone parent households experienced the highest rate of depravation, at 49.8 per cent.

In a study of Budget 2011, TASC found that the category most negatively affected by the budget was the ‘single with children’ group. Budget 2012 imposed further harsh cuts through focusing on secondary benefits and the restriction of certain schemes. In a recent ESRI study on the Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012, it was found that in Budget 2012, there were “greater proportionate losses for those on low incomes . . . as against those on the highest incomes.” (ESRI 2012: 55)

It can be quite difficult to understand the impact of cuts in secondary benefits on certain groups, as many families and individuals will be in receipt of a number of payments and when these are cut, the cumulative impact on recipients can be quite severe.

In order to help show some of the possible impacts, we have compiled two tables below to show the effect of lasts year’s cuts on two types of families. As can be seen from these tables, last year’s budget brought a significant loss of income to many lone parents. TASC is therefore calling for no cuts to social welfare payments, primary OR secondary in Budget 2013.

Examples of the effects of Budget 2012 on lone parents and their families

¹This was discontinued for children aged two and three in Budget 2012

² Contribution towards rent for those on rent supplement was increased by €6 a week.

³ Contribution of €25 per week for those doing a VEC course and availing of VEC provided child care, introduced in 2012

¹Fuel allowance for smokeless fuel (€23.90 a week in 2011) was abolished in September 2011 and replace with the fuel allowance for non-smokeless fuel at €20 per week.

² Child benefit for the 3^rd child was reduced to €148 in Budget 2012

³Abolished for new claimants in 2012 and replaced with €20 top-up

⁴The payment for those on CE was abolished where they were claiming under One Parent Payment

Closing the Gap

Today we launched Closing the Gap: TASC’s Proposals for a More Equitable Budget.

Our basic message is that there is a risk of major, negative and long-lasting social harm from the Government's target of another €8.6 billion of tax and cuts (including €3.5 billion to be announced in December) along the same lines as previous budgets. We need to change direction and look at tax reform and a plan to achieve sustainable Western European standards of public services, underpinned by major tax reform to pay for them.

We have chosen costed measures (on the basis of available data from official sources) to put together a package of proposals that meet the Government's target for €3.5 billion in the most jobs-friendly, egalitarian way possible, with 80 per cent coming from tax reform.

Our major prooosals include:
- An annual 0.35 per cent residential property tax, with an 'ability to pay' system of deferred payment. Our figures assume a 25 per cent rate of deferrals;
- Changes to CAT
- Substantial reform of pension tax reliefs
- Excise on economic 'bads' such as saturated fat, salt, added sugar
- Increasing carbon tax to €25 per tonne of CO2

As an imperative, we argue that no measures in Budget 2013 should reduce social transfers or public service supports to low income and vulnerable groups.

New Book on Social Enterprise in Ireland

Guest Post, Gerald Doyle and Tanya Lalor: Our new book is entitled Social Enterprise in Ireland: A People’s Economy? and it is an edited volume that draws together contributions from leading academics as well as practitioners in the social enterprise, finance, and community development sectors in Ireland and Europe.

It aims to examine the concept of social enterprise, and what part it can play in the renewal of our economy and in addressing key issues facing Irish society. The key themes and issues discussed in this book not only will contribute to the debate on social enterprise, but will act as a resource to communities, policy-makers and those with an interest in the sector.

Ireland has a strong history of social economy organisations and collective action, notably such organisations as the GAA, the agricultural co-operative movement, and the credit union movement, the last being the world’s largest (per capita) financial co-operative. Although social enterprise arguably is under-developed in Ireland, relative to other countries – in terms of practice, policy and, indeed, ideology – this book illustrates the benefits of social enterprise to local communities and wider interests, such as the State.

The concept of social enterprise has gained attention in recent years and increasingly is seen as one viable response to the economic trauma Ireland has experienced. Social Enterprise in Ireland makes a strong case that social enterprise increasingly needs to be part of the way we do business.

Contents include:
1 Social enterprise in context in Ireland Michael Punch
2 Social enterprise or social entrepreneurship: economic solidarity or market hegemony? Deiric Ó Broin
3 Social enterprise and the green economy Gerard Doyle
4 Support for social enterprises Tom Daly, Gerard Doyle and Tanya Lalor
5 Social enterprise in action – A Traveller organisation’s experience Anne Costello, Margaret O’Riada and Martin Ward
6 Housing – an engine for social enterprise Chris White
7 Procurement and social enterprise Tanya Lalor
8 Finance and social enterprise Kieron Brennan
9 The private sector and social enterprise in Waterford Senan Cooke and Helen Kavanagh
10 Social enterprise in Sweden and Scotland: local and national responses Tor Justad
11 The European Union as a champion for social enterprise Erdmuthe Klaer
12 Co-operatives – what relevance now? Bridget O’Carroll, Olive McCarthy and Mary O’Shaughnessy

Social Enterprise in Ireland: A People’s Economy? is published by Oak Tree Press and is available from www.oaktreepress.com and good bookshops nationwide.

Social Enterprise in Ireland: A People’s Economy?
Editors: Gerard Doyle & Tanya Lalor
ISBN 9781781190708 : Paperback : €24.95
ISBN 9781781190715 : ePub ebook : €7.99
ISBN 9781781190722 : Kindle ebook : €7.99
160 pages: September 2012

Guest post: A discussion on the merits of Site Value Tax (SVT) as an alternative to a Property Tax is being held on Saturday, 27th October, 2012 at 4:00 pm in Castleknock Hotel and Country Club, Castleknock, Dublin 15. Hosted by: Dr. Camillus Power & Ms. Ethna Dorman.
Tel: 01 6406319; Mobile: 087 2235780; ethnadorman@gmail.com.

Guest Speakers: Emer O’Siochru – editor of “The Fair Tax”; Ronan Lyons, Economist, Trinity College Dublin and Balliol College Oxford; Judy Osborne, Spatial Planning Consultant; Chair: Dr. Camillus K. Power

Equality Authority Books Available

The Equality Authority’s Research, Policy and Good Practice Publications are available free-of-charge for collection from their offices.

VENUE : Equality Authority, 2 Clonmel Street, Dublin 2

15th October 2012 – 19th October (Monday - Friday 9.15 am – 5.15 pm)
This may be extended to next week also.

Are you a researcher, an academic, a teacher, a student or a NGO working on equality? Would you like to get free publications on equality?

Organisations, libraries, universities, schools, businesses, etc., are welcome to browse and take away equality publications free of charge. It will be possible to take multiple copies of a number of publications.

For further information: sminervino@equality.ie or ring Stefania at (01) 4173374

Jobs and credit crises call for clear policy response

Michael O'Sullivan (author of Ireland and the Global Question) has written a lucid article on what's required for job creation in today's Irish Times.

While Ben Bernanke, head of the Federal Reserve, voiced “grave concern” over high unemployment for “the enormous suffering and waste of human talent it entails”, Michael O'Sullivan argues that we are failing to address the fundamental barriers to job growth here.

Exploring alternative pathways

Tom Healy: With my colleague Rory O'Farrell we have reviewed the evidence about the impact of 'Plan A' and 'Plan B' over the coming 6 years. The paper was recently given at the Dublin Economic Workshop and is available online here.

Revolt of the Rich

Nat O'Connor: A concern with the "predatory super-rich" as the new secessionists in the USA is very clearly articulated in this article ('Revolt of the Rich') in the The American Conservative.

It begins: It was 1993, during congressional debate over the North American Free Trade Agreement. I was having lunch with a staffer for one of the rare Republican congressmen who opposed the policy of so-called free trade. To this day, I remember something my colleague said: “The rich elites of this country have far more in common with their counterparts in London, Paris, and Tokyo than with their fellow American citizens.”

Choices Around Cutting Child Benefit

Nat O'Connor: Despite the helpful reminder from Joseph Stiglitz that "Austerity has almost never worked", the Government has decided to cut further and deeper in the next Budget, with reports that Minister Noonan will again prefer two-thirds spending cuts combined with one third tax increases.

There are no easy choices left for the Government, as it seeks to close the deficit through €3.5 billion of measures. While it is necessary to close the deficit, there are a couple of significant questions to be asked that provide important context for any consideration of cutting Child Benefit.

First of all, what is the Government's end goal in terms of public versus private provision of vital matters like health and education, childcare and housing, pensions and income?

Secondly, if 'everything' (including Child Benefit) is on the table for discussion, what are the values and principles that will guide the decisions about what to cut and who to tax?

As this chart shows, the net result of budgets to date has been to 'flat line' Ireland's overall level of taxation while reducing public spending. Any talk of a 'balance' between tax measures and spending in the actual effect of recent budgets is simply not true.

The figures are based on the Government's plan (in Economic and Fiscal Outlook, Budget 2012, page D.19) to end up with total revenue of 34.6 per cent of GDP and total public expenditure of 37.5 percent of GDP by 2015. While these figures might be slightly different in Budget 2013's documentation, there is little evidence of a changed strategy by Minister Noonan.

What level of public services can be delivered through spending at around 37.5 per cent of GDP?

The answer is, not anything like as much as what was delivered at the height of the boom and not the same kind of 'welfare state' as most Western European countries. The long-term EU27 average level of spending is roughly ten percentage points higher than Ireland. As such, if the Government chooses such a low target level of public spending, it should come as no surprise that some core elements of the 'social contract' between Ireland's State and its citizens are now being questioned.

One of those core elements is Universal Child Benefit. There are three clear features of this payment, which indicate fundamental values and principles: (1) It goes to all children equally; (2) It is paid to all citizens with children regardless of their income, as part of the 'return on investment' of taxation and social insurance; and (3) It is a payment from everyone to Ireland's children, regardless of whether or not they have children of their own.

Universal Child Benefit should not be considered a 'sacred cow' any more than the 12.5 per cent corporate tax rate or the existence of the Senate. However, these are major building blocks of the Irish social contract and they should not be radically changed without serious discussion of the implications.

Instead of an open discussion on the issue, there is a risk that the guiding principles underpinning Universal Child Benefit are being discarded without adequate discussion of the changed nature of Ireland's welfare state and social contract that is implied by those changes.

For example, there are endless reports that wealthy people don't need Child Benefit and should not get it. Somehow it is taken as the 'obvious' and 'easy' solution to means test Child Benefit or tax it. However, this argument sweeps aside all three guiding principles. Universal Child Benefit is a social contract, not an individual contract between a person and the State. It is only from an individualistic perspective that it makes sense to say Person A is too rich, therefore tax or cut his/her Child Benefit.

In reality, the administrative burden involved in means testing, plus the highly contentious issue of deciding who needs it and who can't have it, is expensive and fraught with difficulties. A much simpler solution is to say that, if some wealthy people don't need Child Benefit, than simply increase general taxes on wealthy people. At the end of the day, we all benefit from Ireland's children who are the future tax payers, health workers and others that we will need when we are old (whether or not we have children ourselves).

However, if we decide that Universal Child Benefit in its current form is too expensive (because of the decision by Government to target public spending at 37.5 per cent of GDP) than it is possible to imagine alternative uses of public money that would uphold the values and principles of the welfare state.

For example, if we decided that the provision of municipal crèches and pre-school education was a pressing social need (which it is) then we could provide places free-of-charge, to all children equally, regardless of their parents' means and paid for by everyone; because we will all benefit from all children in Ireland having a better start in life and better educational development.

For example, the OECD advises on the benefits of spending early on children.

This chart from another OECD presentation shows that Ireland (in 2008) had the highest net childcare costs in the OECD. No wonder so many families rely on Child Benefit payments!

What is so rarely mentioned in Ireland is that when taxes are low, people end up paying privately out their own pockets. It can be cheaper to pay more tax or social insurance to purchase certain kinds of goods and services collectively. And of course, when we pay collectively, we all share the cost of our children from whose future contributions we will all benefit. When we pay privately, the burden of paying individually is placed squarely on the shoulders of young families, who are not the best placed to carry that burden.

If we see Universal Child Benefit being systematically dismantled in the next Budget (as is suggested in recent reports), while we retain tax breaks, such as those for private pensions that massively benefit people with the highest incomes, then the fundamental values underpinning Ireland's budgetary policy need to be questioned.

The next three or four Budgets are not just about closing the deficit, they are about the nature of the future relationship and social contract between citizens and the State in Ireland for decades to come.

Guest post by Arthur Doohan: The EU's FTT - a good idea badly done

Arthur Doohan: Tax policy in this jurisdiction is a mess and has been so for a long time. This mess has been a significant contributor to the State’s fiscal deficit through the use of ‘pro-cyclical’ transaction taxes and through tax-breaks that exacerbated pre-existing construction dependencies and excesses in the domestic economy.

I welcome TASC’s effort to debate and suggest much needed development in this crucial aspect of fiscal reform, especially in light of the regressive aspects of the last budget.

However, I am very sad to see another transaction tax being proposed and in a manner at odds with the quality of the rest of the analysis. I refer here to the Financial Transaction Tax (FTT) which has the superficial qualities of a betting tax in that it seeks to punish a perceived vice while raising lots of money for the Exchequer and, at the same time, making life harder for everyone’s favourite “scapegoat du jour”, the bankers and hedgefunds.

I am not against an FTT in principal. In fact, I support the idea. But I am against badly designed public policy of any type and the FTT as proposed here falls into that impractical category.

The core of the FTT idea is that low transaction costs and excessive liquidity facilitates speculative trading in markets dominated by financial corporations which leads to price gyrations that hurt the ‘real economy’ while generating ‘excess profits’ for the ‘players’ in these markets. An FTT, it is supposed, would ‘calm’ these markets while at the same time raising money that could better be spent by Government on ‘widows and orphans’. Derivatives trading comes in for especial criticism in this regard as a ‘smoke and mirrors’ ‘work of the devil’ excessive extravagance of markets.

The TASC paper supports the draft EU Commission proposal for a transaction tax on bonds and shares at 0.10% and at 0.01% on derivatives. No mention is made of foreign exchange or commodities trading. The report includes a sentence “The proposal (the EU Commission one) was focused on open market activities and movements (i.e. trading) and excluded inter-bank transfers and trades which might occur in the normal course for business.”

After this prescription several reasons are advanced in the report to support the introduction of the FTT. Firstly, to ‘establish real-time monitoring mechanisms for the various flows of financial transactions happening each and every day’. Secondly, to raise lots of filthy lucre for the Exchequer. Thirdly, to stop speculative trading, the bullying of small nations and profiteering that damages the ‘real and useful’ economy.

I should like to point out, before critiquing this proposal, that the root cause of the OECD economies problems was the repeated and consistent overvaluation of property assets (residential and commercial) and, in Ireland’s case, the attendant excess supply of same over the decade after the repeal of the Glass-Steagall Act. What systemic failures there were happened in the areas of securities ratings and poor legal administration; neither of which are remedied by an FTT. I am in favour of massive reform of how we do banking but, again, I would rather we have effective and productive reform than mere public whippings of various “Aunt Sally’s”.

On a first point, the rates suggested, while seemingly trivial, are in fact massive proportions of the current quoted prices. It is not made clear whether these rates are the total or the individual counterparty rates but it is clear that both sides to any trade are to be taxed. Even if it is the total due, where derivatives are quoted in spreads of 4 or 5 basis points (0.01% is a basis point), then a tax rate of 1 basis point is a rate of 20 or 25%. Where bonds are quoted in spreads of less than 25 basis points this is a 40% tax rate. Further, if derivatives are the real ‘bogeyman’, why are they being charged the lesser rate?

There is no explanation of why foreign exchange trading is excluded which is most odd since, despite our obsession with the evolution and fate of the ‘Euro’, the EU is still a multi-currency construct. Nor is there a rationale given for the exclusion of commodities which means that fuel oils and foods are not covered yet these are indeed major components of the ‘real’ economy.

Excluding trades ‘which occur in the normal course of business’ is meaningless and would provide a get-out clause for all and any trades since these are all transacted out using the same processes and settlements.

A further major omission is that there is no mechanism suggested where transactions by non-financial corporations for practical hedging purposes of the financial risks of the ‘real economy’ can be excluded from the tax net. So the FTT as proposed will fall equally heavily on those with genuine need but less financial expertise.

The suggestion that the authorities are not aware of market prices and flows is fatuous in the extreme. The Central Bank is a Bank and has its own dealing room and it participates daily in a small but distinct manner in the principal markets. In addition, there is a large and comprehensive reporting mechanism for most forms of transactions. Lastly, the ‘need for real-time monitoring’ argument is further revealed as nonsense in light of the fact that ALL derivatives settle at some significant date point after they are entered into so the need for 'realtime' data is superfluous.

With respect to the notion that the yield would be significant several points arise. This forecast makes the same error that the DoF was excoriated for over its dreadful VAT return forecast of the last budget. It is undeniable that anyone one who accepts the existence of 'elasticities' must accept that there will be a reduction in trading volume, especially as suppression of volatility is a prime aim of the tax. There is no assessment of the likely volume impact provided here or referenced. It is also suggested that the FTT tax would come out of profits and not be passed on to consumers. I am not aware of a single instance where tax burdens are not passed on to consumers and no mechanism is suggested that could ensure this result.

In the case of profiteering and speculating at the expense of small nations, it is in the nature of human beings to describe profitable trades as ‘investments arising from one’s own insight and inspiration’ and to attribute loss making trades to the ‘speculative actions of others’. Every transaction requires a buyer and a seller and as such implies someone who believes an argument/opinion and one who disagrees. Shorting of bonds or shares is not a unilateral action. Further, where 'short selling' has been banned it normally creates more sellers unsettled by the change in rules and the whiff of panic and, consequently, usually worsens the situation.

In capital owning democracies, people are entitled to decide whether they believe a governments policies are credible/effective and to vote with their assets if they disagree. Manipulating market rules to suit Govt. preferences is a form of censorship and suffers from all of the hypocrisy and ineffectiveness that goes with censorship.

I note also that the report indulges in discussing “the best place to use the additional resources an FTT would generate." This section smacks of counting chickens before they are hatched. More importantly, hypothecation of tax receipts is generally regarded as poor practice for a whole host of reasons .

Lastly, I would like to point out the complete absence of complaint or comment by the banks themselves on this topic.

Partly, of course, it is because they know that any such pleading on their part would likely harden hearts and prejudices against them. The real reason is because it will cost them practically nothing to circumvent the tax. The FTT makes explicit the intention to tax trades in their ‘domicile’. So, in exactly the same way as every trade executed on Wall Street is booked through entities in the Grand Cayman Islands, every trade in Dublin, London, Paris and Berlin will be routed through entities in Gibralter, Jersey or Malta the day after the legislation is passed and, consequently, hardly any ‘transaction tax’ will be collected. And this will happen without moving a single trader or company. The EU proposes to tax on the basis of residence but if the US authorities have not managed to shut down the Cayman loophole, I do not see how the EU with its vastly more complex legal hinterland will be able to do the equvalent.

This FTT proposal is long on wishful thinking, short on concrete details and absent a working knowledge of the operation of the market and its systems. Proponents of it need to "up their game" somewhat in order to have it gain serious consideration.

Creating rather than destroying jobs

Tom Healy: The Nevin Economic Research Institute has published the Autumn Economic Observer here. The key messages are:
* We have choices
* A smaller fiscal consolidation (€2.7 bn) combined with an accelerated investment stimulus next year (of which €500m 'off the books') could create 21,000 additional jobs compared to 'Plan A'
* A Plan B would raise revenue starting with the highest income households (>€100K p.a.) and maintain front line services while re-investing any 'savings' into priority areas such as a Youth Guarantee for unemployed school and college leavers.
* Plan B envisages -7.5% government deficit in 2013.

We have used HERMIN to model the impacts. We have gone with Department of Finance projections and estimates and used the model to show how a reversal of planned cuts would be beneficial and just as efficient in reaching 'Troika' targets. A seminar will present the results today while my colleague Rory O'Farrell and I will present a paper on 'Alternative Fiscal Adjustment Pathways' at the Dublin Economics Workshop to be held this year in Galway next month.

Event on tax justice

As part of the Dóchas EU Presidency Project, and to coincide with the visit of Christian Aid's 'Tax Justice Bus' to Irelnad, Christian Aid is organising an event on 'Tax Dodging Hurts us All' on Thursday, September 27th, from 6 pm to 8.30 pm in the European Parliament Buildings, Molesworth Street. It will be chaired by Senator Katherine Zappone, and speakers will include Ricardo Barrientos (senior economist at ICEFI, former Deputy Minister of Taxation Guatemala), journalist Justice McCarthy and Professor David Jacobson, well-known to readers of PE.

Guest Post by Vic Duggan: Treading water beneath the surface

Vic Duggan: From its peak at the back end of 2007, the Irish economy sank like a stone for two solid years, seasonally-adjusted quarterly GDP falling 10.7% in real terms. Ever since, it has seemed alternately to be sinking more slowly or rising gradually. In reality, for two and a half years it has been treading water beneath the surface. Between the first three months and the second three months of 2012, estimated GDP was within a rounding error of zero growth, avoiding a technical recession – two quarters of successive GDP contraction – by less than one euro for every person in the country. In the 10 quarters since end 2009, GDP has increased just 2.6%, barely keeping pace with population growth. The unemployment rate remains stranded at 14.8%. The domestic economy is starved of the oxygen it needs to grow: consumers are overburdened with debt; businesses are either afraid to invest because of weak demand or unable to invest due to lack of credit; government is reinforcing the problem through ongoing, enforced austerity. The one bright light is Ireland’s continuing strong export performance, even in the face of a challenging external environment. Those who until recently were writing Ireland off as an ‘export laggard’, in need of aggressive austerity to restore competitiveness, must now surely see that the opposite is in fact the case. Cost competitiveness has been largely and painfully restored, and exports remain robust, but austerity is undermining confidence at home and sapping domestic demand. The CSO’s mid-September data dump tells us the following:

GDP was flat in the second quarter, but is half a percent lower than it was a year earlier.

GNP increased unexpectedly by 4.3% in the second quarter, clawing back some of its recent losses to reach almost exactly the same level it was at in Q3 2010.

The unemployment rate remained flat at 14.8%, but there were 13,700 fewer people employed than three months previously, and 33,400 fewer than a year ago.

Long-term unemployment surged to 8.8%, from 7.7% a year earlier, now accounting for 6 in 10 of all people unemployed and 1 in 11 members of the labour force.

The labour force – the number of people available for work – fell by 29,500, or 1.4%, due to a combination of increasing emigration and declining participation (i.e. people giving up on finding a job).

1 in 4 members of the labour force is now either unemployed or under-employed, working part-time because they can’t find a full-time job.

The Current Account hit a record surplus of EUR 3.2bn in Q2.

The Trade Balance for goods hit a record surplus of EUR 10bn.

The Trade Balance for services hit a record – and rare – surplus of EUR 1.3bn.

Quarterly national accounts are often an imperfect guide to the state of the economy. Quarterly numbers are volatile, and the latest data points are estimates subject to – sometimes substantial – revision. GNP figures, often labeled a convenient proxy for the domestic economy in Ireland, are notorious in this regard. While the debate on whether GDP or GNP is the best measure of wealth, output etc. may never be settled – in most economies they are near identical, but the large multinational presence in Ireland means they differ by about a fifth – but at least quarterly GDP figures are not susceptible to the profit repatriation policies -and their execution – of the multinational sector. One can argue the toss as to whether the economy is still sinking or slowly rising, but it’s crystal clear that the surface is still a long way off.Vic Duggan is a Consultant Economist with the World Bank, writing in a personal capacity.He blogs at vicduggan.wordpress.com

Local Government Fostering Job Creation

Nat O'Connor: The County and City Managers Association (CCMA), the umbrella group of the local authority head managers, has published a study showing 2,323 projects and initiatives where local authorities have helped boost job creation.

The press release and 30-page full report can be accessed on www.lgma.ie. There is also a spreadsheet list of the various initiatives.

Many of the initiatives are small scale (less than €10,000) although some major investments (€1m+) are included too.

It is an interesting exercise in both openness about spending plus showing where efforts are being made to foster employment. It would be worth detailed analysis at local level to see what initiatives are working well (or not), which ones are cost efficient and what different counties can learn from one another. Obviously, local authorities have been asked to play a role in the national Action Plan for Jobs. This report gives some indication of what might kinds of actions might be possible in that space.

Budget Transparency Reduced by Oireachtas Website Changes

Nat O'Connor: Public access to the official record of Oireachtas debates has been diminished by the bizarre decision of the Oireachtas website to cease publishing the record of debates using the universal standard format XML. This means that a popular website (KildareStreet.com) used for searching the official record no longer can be updated.

KildareStreet.com has issued an explanatory statement.

Whether by accident or design, this could not have come at a worse moment for anybody concerned with the upcoming budget, as well as the vital debate on matters of national importance (like Ireland's deal with the EU/IMF). Access to the offical record will be significantly hampered by the decision, as the Oireachtas website does not provide the same quality of search features as KildareStreet.com, which makes it easier to search for individual TDs and key phrases in the official record.

This Government is committed (in the Programme for Government) to the following: "We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics." (page 23).

In fact, the Programme for Government is full of commitments to openness and transparency that are belied by this move (intentional or not):

"We will develop Ireland as a ‘digital island’ and first-mover when it comes to information technology by ensuring more progress on e-Government and moving Government services online, investing in ICT in schools, and investing in information technology in the healthcare sector." (page 9)

"Government is too centralised and unaccountable. We believe that there must also be a real shift in power from the State to the citizen. We will legislate on the issue of cabinet confidentiality. We will legislate to restore the Freedom of Information Act to what it was before it was underined by the outgoing Government, and we will extend its remit to other public bodies including the administrative side of the Garda Síochána, subject to security exceptions. We will extend Freedom of Information, and the Ombudsman Act, to ensure that all statutory bodies, and all bodies significantly funded from the public purse, are covered."(page 20)

"Real reform of the public sector will require a commitment from the whole of government to become more transparent, accountable and efficient. It will require: ... • Citizens having a basic right to key information on the performance of key services." (page 28)

"Open Government: Where there is secrecy and unaccountability, there is waste and extravagance. We will pin down accountability for results at every level of the public service – from Ministers down – with clear consequences for success and failure. Ministers will be responsible for policy and procurement and public service managers for delivery." (pages 28-29)

"Government services websites, public offices, telephone services, and helplines will be reconfigured to facilitate access to a broad range of government services through a single point of contact." (page 31)

"We will complete ratification of Aarhus Convention on access to information, public participation in decision-making and access to justice in environmental matters." (page 61)

What now for open and transparent government, and an open budget process?

It is an entirely reasonable expectation for public information not only to be available, but to be made available in standard, easy to use formats, which allow citizens to avail of contemporary information technology to access and search that information.

FEPS vacancy: economist

Nat O'Connor: FEPS (the Foundation for European Progressive Studies) is advertising the important post of Economic Policy Advisor. More details here: http://www.feps-europe.eu/en/vacancies.

German Call for EU Programme of Investment

Nat O'Connor: The major German social democratic foundation (Friedrich Ebert Stiftung) has circulated a cogent 24-page analysis outlining the case for an EU-wide investment programme which, they argue, "must emulate the successful Marshall Plan after the Second World War" in order "to arrest the downward spiral" that the EU currently faces.

National Income and Expenditure 2011

Michael Burke: The argument in favour of ‘austerity’ measures is that the overriding objective of policy must be to reduce the government deficit, that this must be done by cutting spending and that there is no alternative to current policies. The release of the latest Irish National Income and Expenditure for 2011 should serve to dispel the several fallacies contained in that argument.

GDP has contracted by €30bn since 2007 in nominal terms, down 6.8 per cent in real terms (Tables 5 and 6). GNP, which excludes the distortions of multi-national corporations who book profits in Ireland to avail of its ultra-low corporate taxes, has fallen by €35bn since 2007 - a contraction of 11.1 per cent in real terms. If the overriding objective of policy were the optimum sustainable prosperity and well-being for all citizens then clearly the current measures would be a spectacular failure.

However, the objective to cut government borrowing on a sustainable basis is also not being met. ‘Austerity’ measures began towards the end of 2008 (unprompted by any international agency, but as a domestic policy choice). From 2008 to 2011 government current receipts have fallen by €6.3bn while current expenditure has risen by just €0.5bn, a total increase in the deficit of a little over €6.8bn despite all the fierce ‘austerity’ measures (Table 21). Worse, in relation to GDP this current deficit (excluding capital spending and receipts) has risen from 2.2 per cent of GDP to 6.7 per cent. Even if debt interest payments are excluded, the ‘primary deficit’ has risen by €4bn.

The only reason supporters of current policy can claim success in deficit-reduction is because the huge one-off payments to rescue the bank bondholders have come to a halt. These ‘grants to enterprises’ have amounted to over €43bn in the 4 years to 2011. But, even if they have now come to an end (which is at least questionable), they cannot be taken as evidence of any underlying improvement in the deficit arising from economic policy. That can only be gauged with reference to the government current income and expenditure, which is deteriorating.

What Is Policy For?

These data are of course well known in the Department of Finance, whose officials advise Ministers. It is improbable that both government and the Troika are unaware of the underlying state of government finances. If current policy even closely matched the success claimed for it, there would hardly be any need for the threatened further ‘austerity measures in the forthcoming Budget.

Yet current policy will be maintained and even deepened. This is because there has been some success, of a kind, for policy. In Fig.1 below data from Table1.1 of the NIE is shown (click to enlarge).

Source: CSO

Even though GDP has been contracting throughout the period, profits have risen in the last two years. At the same time employees’ remuneration has fallen sharply. In a recession the natural tendency is for profits to fall. This is because profits are the surplus after fixed costs and costs of labour and other input costs are deducted. Since fixed costs for firms are often unchanged, the fact the wages do not fall faster than sales means profits decline. This is what happened to profits in both 2008 and 2009. However, after ‘austerity’ measures were introduced in 2008, wages fell in 2009 and have continued to fall since. This has allowed the natural fall in profits to be reversed, at the expense of wages.

To put this in perspective, labour’s share of national income has fallen so far in 2 years that it could be increased by 8.7 per cent over 2011 levels and this would still only have the effect of returning its share of national income to the crisis levels of 2009.

It is argued that the policy measures which have the effect of lowering wages and increasing profits are necessary in order to generate recovery, often described as ‘restoring competitiveness’ even while there is incessant and misplaced boasting about the rise in Irish exports.

But it is impossible to engineer a sustained recovery without an increase in investment. The decline in Gross Fixed Capital Formation (GFCF) is greater than the total decline in GDP, €32bn versus €30bn (Table 5). Yet, from 2009 onwards, when profits rose by €8.6bn, GFCF fell by €9.5bn. The policy of transferring incomes for labour and the poor to capital and the rich, which is the real content of austerity, has been an utter failure in reviving growth.

Policy ought to be aimed at the optimum sustainable growth in prosperity for all citizens. The policy of transferring incomes to capital and the rich does not achieve that, nor does it foster investment, the determinant of all future prosperity. Meanwhile the bluster about an improving deficit position should be recognised for what it is, just bluster.

Unequal societies do encourage criminality

Colm O'Doherty: According to Dan O'Brien there is no relationship between inequality and law breaking (Irish Times 24/08/12). This bogus statement is grounded in the same kind of statistical modelling which economists relied upon to predict ‘soft landings’ for economies with sound ‘fundamentals’ . The predictive capability of economics here is based on a positivism which seeks generalizations which are independent of culture. For Dan O’Brien and other neo-liberal commentators the hubris of positivism is manifested as a fetishism of numbers, an illusion of precision and the donning of the status shield of science. As we now know the so called pragmatism of economics as trumpeted by a large technocratic mainstream was nothing more than a policy driven skate on the thin ice of casino capitalism.

There is more than a whiff of this neo-liberal policy agenda in Dan O'Brien’s promotion of a mechanistic relationship between objective conditions and human behaviour. There is no natural science of society, and of crime in particular. The perspective on social order which is espoused in this article is well known to us all : it is the ‘orthodox’, the ‘conventional’ the ‘taken for granted ‘ world carried by mass media and the establishment. Namely that society is a fundamentally rational and consensual arrangement where deviance and crime is seen as a marginal and minority category. The deviants and criminals are seen as different from the ‘ normal’ population and there is generalised agreement on what constitutes criminal behaviour.

However, in reality, during the boom years, when inequality between the bankers, speculators and property developers and the rest of the population spiralled, particular types of criminal behaviour flourished. Consider anti-social behaviour. The concept of anti-social behaviour which has been disseminated by the media and the establishment in recent years is focused on a whole range of behaviours such as begging, neighbourhood disturbance/nuisance, public drunkenness etc. It is fair to say that poor and socially excluded populations are portrayed as the culprits here and that cracking down on anti-social behaviours is viewed as an exercise in the creation of social order in such neighbourhoods. If we examine anti-social behaviour using an interpretative rather than a mechanistic and positivistic orthodoxy lens we will see that the fallout from the anti-social behaviour of the bankers, speculators and developers has major repercussions for everybody. Our health services are in crisis, our education system is under stress and the vulnerable are abandoned. So the figures and statistics used to advance the arguments in the piece are concealing the reality that as inequality has increased in the US, the UK here and in other highly marketised economies so has the incidence of serious white collar crime. During the boom years poverty decreased but the crimes of the wealthy – as we are now discovering- increased. Crime statistics do not reflect this increase.

Apart from the conceptual limitations of his arguments Dan O’Brien also takes some liberties with the available statistics. There is a large body of evidence showing a clear relationship between greater inequality and higher homicide rates –see Heisch and Pugh’s (1993) review and Wilkinson and Pickett’s (2006) review.

The MOU, Big Box economics and shopping centres

Paul Sweeney: The Rule Book by which Ireland is presently run, “The Memorandum of Understanding” (MOU) between the Troika and the Government, is forcing the government to impose a high level of austerity and some welcome reforms, like the belated regulation of the rotten banking system; reform of the legal system which is run by lawyers for lawyers; and then some other “reforms”.

One such other “reform” in the MOU which has actually been implemented is to allow more Big Box supermarkets on the edges of towns, with vast car parks, hollowing out urban centres.

Right wing economic ideologues love Big Box economics. Some little ideologue slipped this “reform” into the MOU and now it is being enacted. They hope that it will bring down prices. It may for a while, till the competition has been eliminated and urban centres destroyed.

Too many economists are indifferent to the non-economic impacts of economic decisions. The destruction of urban centres and replacement by Big Boxes is outside “pure economics”, they will argue. They may however, concede that once competition has been wiped out, prices may rise again, but console us with their belief that the market will operate and it will eventually bring in other Big Boxes in competition with Big Box No 1.

Dundrum Shopping Centre, while less of a Big Ugly Box than many others, has sucked much of the heart out of Rathmines, Dun Laoire, Bray and other south Dublin urban town centres.

Supermarket sizes had been regulated by the state under retail planning laws in Ireland. They were “relaxed” to allow IKEA to drop its vast box into Finglas. IKEA threatened to hover up all the business from Northern Ireland and not to pay any VAT here. The government caved in.

Now more big boxes are to be allowed to be built all over Ireland thanks to the section on retail size inserted into the MOU.

In the light of the news that Ireland has the highest number of shopping centres per head of population in Europe, this will not happen too soon. This information on the flood of shopping centres is revealed in a survey of 24 countries by the commercial property consultancy, Jones Lang Lasalle. I do not think we needed a survey to find out that we had lots of empty shops, but nonetheless such empirical evidence is very useful to inform future decisions.

The survey found that Ireland had almost 500sqm of shopping centre space per 1,000 people - more than twice the average European of 179sqm per thousand. Most of our shopping centres had being constructed during the boom. Too many are located in regional locations which cannot now sustain all of their units.

It is therefore no surprise that even when the bust ends, Jones Lang Lasalle predicts that even a return to a healthy retail trade will not be enough to provide tenants for all of the retail space that has resulted since the boom.

State regulation has its faults, limits and errors are made, but the superiority of the market as the alternative has been found deeply wanting in Ireland, even before this relaxation of the retail planning laws. The inane property boom has cost us all muchos dineros, but will leave also a horrible physical blight on our cities and towns for decades to come.

Perhaps after we say goodbye to the Troika, if it happens, in 2014, the government will reassert itself as a government for the people and will reinstate the retail planning laws to protect our urban heritage from this clause in the MOU which enshrines suburban retail Big Box Blight all over Ireland.

Invoking Luther

Tom Healy: Writing in today's Irish Times Steven Ozment claims that German Lutheranism explains and justifies the stance of the current German administration. 'According to polls', writes Steven Ozment, Germans 'hold tight to their belief, born of staunch Lutheran teachings, that human life cannot thrive in deadbeat towns and profligate lands'. I am not convinced and while not an expert in Lutheranism I am not convinced, either, that Brother Martin of Erfurt would see justification for what is sometimes inappropriately referred to as the 'German view' on Europe and the 'German approach' to European integration and co-responsibility.

Nat O'Connor has already posted about a statement by Peter Bofinger, Juergen Habermas and Julian Nida-Ruemelin. In truth there is no one German view or solution anymore than there is an Irish one. If the current European crisis has exposed deep inter-country tensions and rivalries it has also shown up the underlying social tensions within countries and across the entire continent.  There are many incidents of 'profligate lands' and 'deadbeat towns' (One hopes that this is not a reference to NAMA land only!).

The diagnosis of the European political-economic crisis and the appropriates solutions depends to some extent on how one sees the problem. If you see it as the cartoon image of the irresponsible Irish or Greeks living off the hard-working Germans then the solution is one involving pain and redemption for the indolent and misbehaving. We all know where that mind-set and thinking in the 1840s led the official response to the famine in Ireland (the age of self-reliance, market freedom and work ethic etc).

 If, alternatively, you see the problem as one of systemic failure in the private sector aided by systemic failure in public regulation and governance then the problem shifts from one of national or sectoral blame-shifting to one of how we overcome the neo-liberal world order. If you want to put it in biblical terms - the wages of neo-liberalism is death - death of social cohesion, death of social justice and in the end death of civilisation. Yes, individuals are responsible - but systems and structures are also part of the problem I suggest.

The problem and challenge is now to create a stronger European dynamic and solidarity while retaining the principle of subsidiarity so beloved by the early pioneers of the European project. We must avoid lazy stereotyping of national groups (the profligate peripherals versus the disciplined core etc) as well as enlisting the backing of this or that figure from the rich and diverse cultural tapestry of Europe. Scandinavian Lutheranism could arguably have some connection to the civic values and practices of our Nordic neighbours at least in terms of cultural history and economic conditions.

I will conclude with a quote from one of the greatest thinkers and heroes of the last century, Dietrich Bonhoeffer - a German and Lutheran who was martyred in 1945: '“We are not to simply bandage the wounds of victims beneath the wheels of injustice, we are to drive a spoke into the wheel itself.”