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.
Showing posts with label aoife ni lochlainn. Show all posts
Showing posts with label aoife ni lochlainn. Show all posts
Tuesday, 20 November 2012
Monday, 16 July 2012
Are worker directors good for business?
Aoife Ní Lochlainn: TASC has today published a report on Worker Directors in Ireland, Good for Business? Worker Participation on Boards. This project, supported by the National Worker Director Group, aimed to examine the role and contribution of the worker director to the board and to corporate governance.
Employee participation on boards is common is many European countries. Some countries, such as Germany provide for worker directors in both the public and the private sector. In Ireland, employee participation at board level is underpinned by the Worker Participation Acts 1977 and 1988. This allowed for worker directors in a limited number of state-owned enterprises and government agencies.
The architects of this legislation had a vision of the company as a ‘social institution’. They believed that as the activities of a company had a wider social impact than that of the financial bottom line that boards should governed by the stakeholder approach rather than the shareholder approach.
In the words of the then Minister for Labour Michael O’Leary,
“Ownership of its physical assets [the company] is no longer regarded as conferring an absolute right to exercise control without taking into account other interests such as those of employees or society generally.”
Worker participation in decision-making was regarded as a right; a form of industrial democracy. It was also seen as providing other benefits to the company, including improved decision-making and a greater appreciation for the contribution of the worker.
While worker directors have been widespread in Europe for over thirty years, there is relatively little evidence on the impact that this has had on company performance and what evidence exists is equivocal. A 2011 European Trade Union Institute review of relevant studies found that the evidence was inconclusive. Ten studies found some positive effects of board level representation, while eleven studies found no significant effects, positive or negative. Seven studies found negative effects.
The TASC study seeks to examine the role and contribution of the worker director, and possible conflicts inherent in that position. A focus group comprising nine worker directors from six different companies and organisations was held. Thirteen interviews were also held in order to ascertain the opinions of non-worker director board members, company executives and independent experts. The issues discussed included the following:
Overall, it was found that worker directors were felt to be loyal, trustworthy and diligent in their duties. The contribution of worker directors to corporate governance was felt to be unique and positive by over three quarters of interviewees.
The intimate and operational knowledge of the organisation was seen as a positive contribution to the board. The role of the worker director in providing a contrary voice which could help avoid groupthink was highlighted by many interviewees.
Worker directors are generally treated as equal by their board colleagues and almost all respondents stated that they had never heard of a breach of confidentiality or conflict of interest in relation to worker directors. However, almost all worker directors interviewed felt excluded from the audit and remuneration committees, and in particular felt that CEOs would not welcome a worker director on a remuneration committee. This perception was borne out by non-worker-director interviewees, over half of whom felt that worker directors should not sit on remuneration committees due to a potential conflict of interest.
The contribution of the worker director to the area of industrial relations was seen as extremely positive, primarily as they can act as a two-way conduit for information in times of conflict.
However, it was felt by many interviewees that employees should be better educated as to the role and obligations of the worker director, to avoid any false expectations on those who are elected.
Most non-worker director interviewees felt that the model should be extended across the public sector. This was the hope of the original architects of the legislation. However, worker directors are not without their critics. In a 2003 article in the Irish Times, Niamh Brennan wrote:
“in the case of worker directors elected by staff, their central interest would in many cases be that of the employees who elected them, which would not necessarily be consistent with the legal requirement of directors owing their fiduciary duty to the company.”
A clear finding of this report is that the worker directors understood that worker directors are under the same legal obligations to the company as all other directors. Equally, the non-worker director interviewees believed that the worker directors act in the best interests of the company.
Employee participation on boards is common is many European countries. Some countries, such as Germany provide for worker directors in both the public and the private sector. In Ireland, employee participation at board level is underpinned by the Worker Participation Acts 1977 and 1988. This allowed for worker directors in a limited number of state-owned enterprises and government agencies.
The architects of this legislation had a vision of the company as a ‘social institution’. They believed that as the activities of a company had a wider social impact than that of the financial bottom line that boards should governed by the stakeholder approach rather than the shareholder approach.
In the words of the then Minister for Labour Michael O’Leary,
“Ownership of its physical assets [the company] is no longer regarded as conferring an absolute right to exercise control without taking into account other interests such as those of employees or society generally.”
Worker participation in decision-making was regarded as a right; a form of industrial democracy. It was also seen as providing other benefits to the company, including improved decision-making and a greater appreciation for the contribution of the worker.
While worker directors have been widespread in Europe for over thirty years, there is relatively little evidence on the impact that this has had on company performance and what evidence exists is equivocal. A 2011 European Trade Union Institute review of relevant studies found that the evidence was inconclusive. Ten studies found some positive effects of board level representation, while eleven studies found no significant effects, positive or negative. Seven studies found negative effects.
The TASC study seeks to examine the role and contribution of the worker director, and possible conflicts inherent in that position. A focus group comprising nine worker directors from six different companies and organisations was held. Thirteen interviews were also held in order to ascertain the opinions of non-worker director board members, company executives and independent experts. The issues discussed included the following:
- To what extent do worker directors have conflicting loyalties between their board obligations and obligations to their electorate?
- What are the implications for industrial relations?
- What is the nature of the relationship between worker directors and other board members? Is it one of mutual respect or is it characterised by distrust and conflict
- Are worker directors treated equally to other non-worker director board members? Are there any restrictions on their participation in board committees for example?
- Do worker directors make a unique contribution to corporate governance and the operations of the board, and if so is this contribution positive or negative?
Overall, it was found that worker directors were felt to be loyal, trustworthy and diligent in their duties. The contribution of worker directors to corporate governance was felt to be unique and positive by over three quarters of interviewees.
The intimate and operational knowledge of the organisation was seen as a positive contribution to the board. The role of the worker director in providing a contrary voice which could help avoid groupthink was highlighted by many interviewees.
Worker directors are generally treated as equal by their board colleagues and almost all respondents stated that they had never heard of a breach of confidentiality or conflict of interest in relation to worker directors. However, almost all worker directors interviewed felt excluded from the audit and remuneration committees, and in particular felt that CEOs would not welcome a worker director on a remuneration committee. This perception was borne out by non-worker-director interviewees, over half of whom felt that worker directors should not sit on remuneration committees due to a potential conflict of interest.
The contribution of the worker director to the area of industrial relations was seen as extremely positive, primarily as they can act as a two-way conduit for information in times of conflict.
However, it was felt by many interviewees that employees should be better educated as to the role and obligations of the worker director, to avoid any false expectations on those who are elected.
Most non-worker director interviewees felt that the model should be extended across the public sector. This was the hope of the original architects of the legislation. However, worker directors are not without their critics. In a 2003 article in the Irish Times, Niamh Brennan wrote:
“in the case of worker directors elected by staff, their central interest would in many cases be that of the employees who elected them, which would not necessarily be consistent with the legal requirement of directors owing their fiduciary duty to the company.”
A clear finding of this report is that the worker directors understood that worker directors are under the same legal obligations to the company as all other directors. Equally, the non-worker director interviewees believed that the worker directors act in the best interests of the company.
Friday, 2 December 2011
Budget 2012: carbon tax, motor tax and motivations
Aoife Ní Lochlainn: As we get closer to the budget day (or budget days), the shape of Government plans is becoming clearer. We know, both from leaks and from the Government’s own admissions, that there will be no changes to income tax and that the majority of revenue raising will come from increases in indirect taxes.
A two per cent rise in VAT will provide the biggest source of increased revenue for the state, followed by a household charge and increases to the carbon tax and motor tax. The introduction of a property charge has been heavily debated over the last number of months and will, more than likely, continue to attract serious attention. Likewise, the decision to raise the higher rate of VAT has also attracted much comment; given its regressive nature and the implications for household consumption it will no doubt continue to do so. But how much attention will changes to the motor tax regime and increases to the carbon tax receive?
Carbon tax was introduced in Budget 2010 with the aim of providing price for carbon. It was introduced at the level of €15 a tonne and applied only to oil and gas. A carbon tax at this relatively low level will not produce a meaningful reduction in emissions. International evidence suggests that carbon taxes are most effective when combined with other policy instruments and subject to few exemptions.
As argued by the ESRI, the relative effectiveness of carbon taxes is mixed and depends on various factors such as the elasticity of energy demand and the design of the tax itself. The value of a modest carbon tax lies in its role as a price signal to consumers and businesses that Ireland is serious about carbon reduction, while raising revenue which can be used for emissions reduction programmes such as home insulation. The Government seems set to increase the carbon tax to €20 per tonne. TASC, in its pre-budget submission proposed an increase to €22 a tonne, putting the carbon tax above the current ETS level of €21.50.
However, although the rise in the carbon tax has been well-flagged and to be welcomed from an environmental perspective, it must be accompanied by measures to protect those at risk from fuel poverty. Provision must be made for an increase to the fuel allowance and the continued investment in home insulation, both private and public. If rises in the carbon tax are not accompanied by such measures then the public will conclude that the increase is a revenue raising measure rather than an environmental measure.
The motor industry has already made clear its objections to any further change to the motor tax system, as have some environmental groups. Friends of the Earth described the proposal as unfair to those who had purchased greener cars and 'a stab in the back’ for motorists”. Motor tax and VRT were restructured in 2008 to take account of carbon emissions from vehicles. This had a substantial effect in terms of new car ownership, with consumers choosing more fuel efficient cars and many drivers switching to diesel. Richard Tol and Hugh Hennessy in an ESRI paper (2011) describe the shift to diesel cars as dramatic and conclude that this shift results in lower but not substantially lower emissions, as diesel cars are heavier. They predict a rise in emissions from car travel over the next 15 years due to an increasing car stock and a preference for larger cars. This rise, they argue, “is offset by the switch towards diesel cars”, but “as distances driven do not change (and indeed may well increase), the drop in emissions is limited”.
A €5 increase in the carbon tax is projected to increase the price of petrol and diesel by 1 cent per litre. When viewed with the restructuring and increase in motor tax, motorists and the motorists’ lobby will no doubt claim that they are unjustly bearing the brunt of the increase in taxation. The effect of this may well be to change the debate on carbon tax and motor taxation policies from one on emissions reduction to attacks on motorists. Support for environmental policies are hard won and it is incumbent upon policy makers to ensure that the public understands the policies and their aims. The public embraced the changes to the VRT and motor tax systems and may regard any further changes to these systems extremely cynically. This may have the effect of making it harder to gain public acceptance of environmental policies in the future.
However, the Minister could address some of these concerns by presenting a carbon budget as his predecessor did. This would allow the public to understand the environmental aims behind the policies. Furthermore, it would demonstrate that there is a co-ordinated approach within government to emissions reductions. Carbon tax and the switch to more fuel efficient cars have their place in the policy basket, but like other environmental measures, they work better when co-ordinated with other emission reductions policies.
While reducing emissions (or indeed slowing the growth of emissions) through promoting fuel efficiency is valuable, its effect would be greater if accompanied by other measures, such as the development of better public transport. However, the Government has already delayed key public transport infrastructure projects such as the Interconnector and parts of the Western Rail Corridor, and it indicated earlier in the year that the CIE group will see a large cut in its funding (PSOs). Therefore, as highlighted by Toll and Hennessy, even with better fuel efficiency, emissions from private car use will rise due to the distances travelled.
One must conclude, therefore, that climate change concerns do not figure largely in budgetary decisions. A possible decrease in emissions from increases in the carbon tax is a welcome side-effect perhaps, but if viewed alongside the possible changes in motor tax and the decreases in support for public transport, it is clear that there is little co-ordination on this issue. If Ireland is to reach its 2020 target of a 20 per cent decrease in emissions, then better co-ordination is required. The recent decision to delay climate change legislation does not bode well for future policy making. Without the co-ordinated approach to policy making that would be required by legislation, budgetary decisions will continue to be made in a haphazard fashion, with environmental aims last on the list of policy concerns.
A two per cent rise in VAT will provide the biggest source of increased revenue for the state, followed by a household charge and increases to the carbon tax and motor tax. The introduction of a property charge has been heavily debated over the last number of months and will, more than likely, continue to attract serious attention. Likewise, the decision to raise the higher rate of VAT has also attracted much comment; given its regressive nature and the implications for household consumption it will no doubt continue to do so. But how much attention will changes to the motor tax regime and increases to the carbon tax receive?
Carbon tax was introduced in Budget 2010 with the aim of providing price for carbon. It was introduced at the level of €15 a tonne and applied only to oil and gas. A carbon tax at this relatively low level will not produce a meaningful reduction in emissions. International evidence suggests that carbon taxes are most effective when combined with other policy instruments and subject to few exemptions.
As argued by the ESRI, the relative effectiveness of carbon taxes is mixed and depends on various factors such as the elasticity of energy demand and the design of the tax itself. The value of a modest carbon tax lies in its role as a price signal to consumers and businesses that Ireland is serious about carbon reduction, while raising revenue which can be used for emissions reduction programmes such as home insulation. The Government seems set to increase the carbon tax to €20 per tonne. TASC, in its pre-budget submission proposed an increase to €22 a tonne, putting the carbon tax above the current ETS level of €21.50.
However, although the rise in the carbon tax has been well-flagged and to be welcomed from an environmental perspective, it must be accompanied by measures to protect those at risk from fuel poverty. Provision must be made for an increase to the fuel allowance and the continued investment in home insulation, both private and public. If rises in the carbon tax are not accompanied by such measures then the public will conclude that the increase is a revenue raising measure rather than an environmental measure.
The motor industry has already made clear its objections to any further change to the motor tax system, as have some environmental groups. Friends of the Earth described the proposal as unfair to those who had purchased greener cars and 'a stab in the back’ for motorists”. Motor tax and VRT were restructured in 2008 to take account of carbon emissions from vehicles. This had a substantial effect in terms of new car ownership, with consumers choosing more fuel efficient cars and many drivers switching to diesel. Richard Tol and Hugh Hennessy in an ESRI paper (2011) describe the shift to diesel cars as dramatic and conclude that this shift results in lower but not substantially lower emissions, as diesel cars are heavier. They predict a rise in emissions from car travel over the next 15 years due to an increasing car stock and a preference for larger cars. This rise, they argue, “is offset by the switch towards diesel cars”, but “as distances driven do not change (and indeed may well increase), the drop in emissions is limited”.
A €5 increase in the carbon tax is projected to increase the price of petrol and diesel by 1 cent per litre. When viewed with the restructuring and increase in motor tax, motorists and the motorists’ lobby will no doubt claim that they are unjustly bearing the brunt of the increase in taxation. The effect of this may well be to change the debate on carbon tax and motor taxation policies from one on emissions reduction to attacks on motorists. Support for environmental policies are hard won and it is incumbent upon policy makers to ensure that the public understands the policies and their aims. The public embraced the changes to the VRT and motor tax systems and may regard any further changes to these systems extremely cynically. This may have the effect of making it harder to gain public acceptance of environmental policies in the future.
However, the Minister could address some of these concerns by presenting a carbon budget as his predecessor did. This would allow the public to understand the environmental aims behind the policies. Furthermore, it would demonstrate that there is a co-ordinated approach within government to emissions reductions. Carbon tax and the switch to more fuel efficient cars have their place in the policy basket, but like other environmental measures, they work better when co-ordinated with other emission reductions policies.
While reducing emissions (or indeed slowing the growth of emissions) through promoting fuel efficiency is valuable, its effect would be greater if accompanied by other measures, such as the development of better public transport. However, the Government has already delayed key public transport infrastructure projects such as the Interconnector and parts of the Western Rail Corridor, and it indicated earlier in the year that the CIE group will see a large cut in its funding (PSOs). Therefore, as highlighted by Toll and Hennessy, even with better fuel efficiency, emissions from private car use will rise due to the distances travelled.
One must conclude, therefore, that climate change concerns do not figure largely in budgetary decisions. A possible decrease in emissions from increases in the carbon tax is a welcome side-effect perhaps, but if viewed alongside the possible changes in motor tax and the decreases in support for public transport, it is clear that there is little co-ordination on this issue. If Ireland is to reach its 2020 target of a 20 per cent decrease in emissions, then better co-ordination is required. The recent decision to delay climate change legislation does not bode well for future policy making. Without the co-ordinated approach to policy making that would be required by legislation, budgetary decisions will continue to be made in a haphazard fashion, with environmental aims last on the list of policy concerns.
Friday, 11 November 2011
The need for climate change legislation, or, the best laid plans . . . need a big stick
Aoife Ní Lochlainn: Minister Phil Hogan has responded to claims that he “has no intention of introducing legislation to set out Ireland’s stall on how we are going to tackle the fundamental challenge of climate change.” Dismissing concerns over the delay of legislation, he argues that “policy development to underpin deeper mitigation is the most urgent issue and must therefore be the immediate priority. This is an entirely sensible approach”.
As argued by many commentators over the past week, this “sensible approach”, is at completely odds with the approach taken not only by the last Government, but also by the opposition, of which he was a member.
The previous Government introduced the Climate Change Response Bill in December 2010, following the publication of a framework document in 2009. During 2010, the Department of the Environment engaged in a public consultation on the bill, which was concluded in January 2011.
Running concurrently with the Government legislative process, the Oireachtas Joint Committee on Climate Change and Energy Security produced its own all-party proposals for legislation and a Private Members Bill was introduced by the opposition in December 2010. Between these two processes, the objectives and design of possible climate change legislation had plenty of airing and consultation over the past three years.
At the dawn of 2011, therefore, one could perhaps have been forgiven for thinking that there was a level of political consensus on this issue and that we would see the passing of a climate change bill in the following twelve months or so. The Minister, however, has changed his mind.
The Minister defends his decision by arguing that it is more important to develop policy to underpin legislation, than to develop the legislation itself. There is, however, no barrier to policy development in parallel with the creation and enacting of legislation and a great many issues can be worked out through the legislative process. Here, the debate may seem like it is descending into the pedantic discussions of the policy wonk, but with regards to climate change, where time is genuinely of the essence, such discussions take on great importance.
Aside from the setting of targets (which evolve at the international level), climate change legislation has the value of ensuring that Government, at all levels can be obligated to plan for climate change mitigation and adaptation. The idea of the obligation to plan is of great importance. Targets may change, but it is our ability to direct the machinery of Government towards climate change actions over the next decade or so which will ultimately ensure that we are in a position to meet those targets, whatever they may be. The abandonment of sectoral targets, points to a level of proposed ministerial responsibility which will be far below what is required to meet those targets that we already have.
Eminent economist James K. Galbraith, who spoke recently at the TASC Annual Conference, tackles the issue of planning for climate change mitigation and adaptation in his 2008 work, the Predatory State. He argues: “either the problem of climate change will be planned out, by a public authority acting with public power, or it will be planned away by private corporations whose priorities lie in selling coal, oil and gas-burning cars. If the latter happens, then within a century or two, the industrial or developed world as we have come to know it, may no longer be around. Nor will many of the people whose lives that world has showed itself, uniquely, capable of supporting. The transition will inevitably be ugly.”
In one way we are well used to planning. From the development of T.J. Whitakers Programme for Economic Recovery to the current four year plans, we seem to churn out plans on an almost annual basis. We've had our fair share of national plans, sectoral plans, spatial plans and indeed climate change plans. These plans did little to stop a rise in emissions, unsustainable development and economic collapse. Our current four year plan is designed to provide international funders and the public alike with confidence in the direction of the Irish economy. But what gives us the confidence that Ireland will adhere to this four year plan? The big stick that is the IMF/EU/ECB. Legislation could provide a similar big stick for climate change policy development and implementation.
So why is it important to act now on legislation? Well, first it provides a signal that Ireland is serious about tackling climate change. This signal is important at a national and international level, it shows the international diplomatic community that Ireland will make every effort to reduce emissions and it shows the international business community that Ireland is a good place in which to invest if your business is green or has a strong corporate social and environmental agenda.
The second important reason why this should not be delayed is that we are at a critical juncture in our economic development. Budget 2012 will make some important decisions on spending and tax. In particular, decisions which have an impact on our ability to reduce our emissions, such as those on public transport infrastructure. There have been suggestions, for example, that public transport subsidies will be cut, further eroding our public transport services. What level of carbon tax are we likely to see and how will the proposed sale of the ESB impact on our ambitious renewables targets and plans? Will the Government introduce further measures to support the development of a green economy through support for research and development and through tax policy?
Yesterday saw the launch of the Infrastructure and Capital Investment Plan 2012-16. As had been widely anticipated, the Government has decided to delay (or drop) key public transport investment, such as Metro North, the DART Underground, and sections of the Western Rail Corridor. Investment in public transport infrastructure will decrease from 15% of the capital envelope to 8% of the capital envelope. Investment in roads, on the other hand will increase from 16% of the capital envelope to 17% of the capital envelope.
You may or may not have been a cheerleader for every proposed public transport project, however, you cannot but agree that the Government has prioritised roads over public transport. Arguing that the spend on roads is old and the spend on public transport is new is classic obfuscation. Clearly, the choices that were made on capital expenditure were not made with climate change in mind.
If we had a decision-making structure which included the obligation to plan on a national and sectoral basis, those decisions could be made subject to evaluation on the basis of their climate change impacts and then maybe we would be making different decisions. The obligation to report annually on climate change measures and establishment of an expert advisory body or commission (a feature in both bills) which in turn would publish reports would greatly enhance both the quality of debate on climate change and the transparency of decision-making.
It will be interesting to see what measures Minister Hogan will introduce in his upcoming carbon budget statement: if he chooses to give one, the lack of climate change legislation means that he is not obligated to.
Even within the straitjacket of the EU/IMF/ ECB programme, there are choices that the Government can make, issues it can prioritise. It can choose to prioritise climate change. Not having the structures in place means that the Government will not be obligated (other than through existing international targets) to consider climate change impacts when making decisions. The Minister has abolished Comhar, the Council for Sustainable Development and shifted its responsibilities to NESC. While this is a new area of work for NESC, it has been mandated by the Minister to undertake a “study to inform the policy development process”.
The Minister hopes that this review will be completed by the end of 2012. It is highly unlikely that the study will be completed and possible legislation enacted before preparations for Budget 2013. Therefore, we are looking at two years of budgetary actions before a climate change framework is in place. Budgets 2012 and 2013 will see overall cuts to capital spending of approximately €1.3bn and cuts in current spending of €3.15bn. There will also be new €2bn raised in new tax measures.
This is one of the many reasons to be dismayed at the Minister’s about turn on climate change legislation.
It need not be so; two climate change bills have already been produced and are ready for debate in the Oireachtas. One of them will have undergone extensive discussions by senior officials at the inter-departmental level and consultation with the public. The other has been debated in an open forum at the cross party level in the Oireachtas. It should not be beyond the ability of Government to introduce one of the bills and guide it through the houses, amending it to its desired specifications, while at the same time conducting new policy development.
Yesterday the International Energy Agency warned that the world is headed for irreversible climate change in five years. The world will “build so many fossil-fuelled power stations, energy-guzzling factories and inefficient buildings in the next five years that it will become impossible to hold global warming to safe levels, and the last chance of combating dangerous climate change will be ‘lost forever’.” The message is clear, we cannot afford to postpone climate change measures, we must take action now and that means ensuring that decisions taken at the highest and lowest level of Government are taken with climate change in mind.
As argued by many commentators over the past week, this “sensible approach”, is at completely odds with the approach taken not only by the last Government, but also by the opposition, of which he was a member.
The previous Government introduced the Climate Change Response Bill in December 2010, following the publication of a framework document in 2009. During 2010, the Department of the Environment engaged in a public consultation on the bill, which was concluded in January 2011.
Running concurrently with the Government legislative process, the Oireachtas Joint Committee on Climate Change and Energy Security produced its own all-party proposals for legislation and a Private Members Bill was introduced by the opposition in December 2010. Between these two processes, the objectives and design of possible climate change legislation had plenty of airing and consultation over the past three years.
At the dawn of 2011, therefore, one could perhaps have been forgiven for thinking that there was a level of political consensus on this issue and that we would see the passing of a climate change bill in the following twelve months or so. The Minister, however, has changed his mind.
The Minister defends his decision by arguing that it is more important to develop policy to underpin legislation, than to develop the legislation itself. There is, however, no barrier to policy development in parallel with the creation and enacting of legislation and a great many issues can be worked out through the legislative process. Here, the debate may seem like it is descending into the pedantic discussions of the policy wonk, but with regards to climate change, where time is genuinely of the essence, such discussions take on great importance.
Aside from the setting of targets (which evolve at the international level), climate change legislation has the value of ensuring that Government, at all levels can be obligated to plan for climate change mitigation and adaptation. The idea of the obligation to plan is of great importance. Targets may change, but it is our ability to direct the machinery of Government towards climate change actions over the next decade or so which will ultimately ensure that we are in a position to meet those targets, whatever they may be. The abandonment of sectoral targets, points to a level of proposed ministerial responsibility which will be far below what is required to meet those targets that we already have.
Eminent economist James K. Galbraith, who spoke recently at the TASC Annual Conference, tackles the issue of planning for climate change mitigation and adaptation in his 2008 work, the Predatory State. He argues: “either the problem of climate change will be planned out, by a public authority acting with public power, or it will be planned away by private corporations whose priorities lie in selling coal, oil and gas-burning cars. If the latter happens, then within a century or two, the industrial or developed world as we have come to know it, may no longer be around. Nor will many of the people whose lives that world has showed itself, uniquely, capable of supporting. The transition will inevitably be ugly.”
In one way we are well used to planning. From the development of T.J. Whitakers Programme for Economic Recovery to the current four year plans, we seem to churn out plans on an almost annual basis. We've had our fair share of national plans, sectoral plans, spatial plans and indeed climate change plans. These plans did little to stop a rise in emissions, unsustainable development and economic collapse. Our current four year plan is designed to provide international funders and the public alike with confidence in the direction of the Irish economy. But what gives us the confidence that Ireland will adhere to this four year plan? The big stick that is the IMF/EU/ECB. Legislation could provide a similar big stick for climate change policy development and implementation.
So why is it important to act now on legislation? Well, first it provides a signal that Ireland is serious about tackling climate change. This signal is important at a national and international level, it shows the international diplomatic community that Ireland will make every effort to reduce emissions and it shows the international business community that Ireland is a good place in which to invest if your business is green or has a strong corporate social and environmental agenda.
The second important reason why this should not be delayed is that we are at a critical juncture in our economic development. Budget 2012 will make some important decisions on spending and tax. In particular, decisions which have an impact on our ability to reduce our emissions, such as those on public transport infrastructure. There have been suggestions, for example, that public transport subsidies will be cut, further eroding our public transport services. What level of carbon tax are we likely to see and how will the proposed sale of the ESB impact on our ambitious renewables targets and plans? Will the Government introduce further measures to support the development of a green economy through support for research and development and through tax policy?
Yesterday saw the launch of the Infrastructure and Capital Investment Plan 2012-16. As had been widely anticipated, the Government has decided to delay (or drop) key public transport investment, such as Metro North, the DART Underground, and sections of the Western Rail Corridor. Investment in public transport infrastructure will decrease from 15% of the capital envelope to 8% of the capital envelope. Investment in roads, on the other hand will increase from 16% of the capital envelope to 17% of the capital envelope.
You may or may not have been a cheerleader for every proposed public transport project, however, you cannot but agree that the Government has prioritised roads over public transport. Arguing that the spend on roads is old and the spend on public transport is new is classic obfuscation. Clearly, the choices that were made on capital expenditure were not made with climate change in mind.
If we had a decision-making structure which included the obligation to plan on a national and sectoral basis, those decisions could be made subject to evaluation on the basis of their climate change impacts and then maybe we would be making different decisions. The obligation to report annually on climate change measures and establishment of an expert advisory body or commission (a feature in both bills) which in turn would publish reports would greatly enhance both the quality of debate on climate change and the transparency of decision-making.
It will be interesting to see what measures Minister Hogan will introduce in his upcoming carbon budget statement: if he chooses to give one, the lack of climate change legislation means that he is not obligated to.
Even within the straitjacket of the EU/IMF/ ECB programme, there are choices that the Government can make, issues it can prioritise. It can choose to prioritise climate change. Not having the structures in place means that the Government will not be obligated (other than through existing international targets) to consider climate change impacts when making decisions. The Minister has abolished Comhar, the Council for Sustainable Development and shifted its responsibilities to NESC. While this is a new area of work for NESC, it has been mandated by the Minister to undertake a “study to inform the policy development process”.
The Minister hopes that this review will be completed by the end of 2012. It is highly unlikely that the study will be completed and possible legislation enacted before preparations for Budget 2013. Therefore, we are looking at two years of budgetary actions before a climate change framework is in place. Budgets 2012 and 2013 will see overall cuts to capital spending of approximately €1.3bn and cuts in current spending of €3.15bn. There will also be new €2bn raised in new tax measures.
This is one of the many reasons to be dismayed at the Minister’s about turn on climate change legislation.
It need not be so; two climate change bills have already been produced and are ready for debate in the Oireachtas. One of them will have undergone extensive discussions by senior officials at the inter-departmental level and consultation with the public. The other has been debated in an open forum at the cross party level in the Oireachtas. It should not be beyond the ability of Government to introduce one of the bills and guide it through the houses, amending it to its desired specifications, while at the same time conducting new policy development.
Yesterday the International Energy Agency warned that the world is headed for irreversible climate change in five years. The world will “build so many fossil-fuelled power stations, energy-guzzling factories and inefficient buildings in the next five years that it will become impossible to hold global warming to safe levels, and the last chance of combating dangerous climate change will be ‘lost forever’.” The message is clear, we cannot afford to postpone climate change measures, we must take action now and that means ensuring that decisions taken at the highest and lowest level of Government are taken with climate change in mind.
Wednesday, 2 November 2011
TASC Pre-Budget Submission
Aoife Ní Lochlainn: With the conclusion of the latest round of elections and referendums, public attention will now turn to the upcoming four year plan and Budget 2012. As usual, the budget rumour mill has been churning since early summer and various kites are in full flight: €1bn cut in welfare spending, €1bn cut in capital spend, a hike in VAT, and so on. This will be the Government’s first budget, and thus it presents an opportunity to make a decisive break with the past and to show that, although it is required by the EU/IMF deal to make savings in the order of €3.6bn, it can take a different, more progressive path to recovery.
TASC, in its Pre-Budget Submission launched yesterday, suggests a number of policy proposals aimed at reducing the deficit, supporting jobs and protecting low-income groups. Since the advent of the economic crisis, successive budgets have focused narrowly on closing the deficit, to the detriment of both low-income groups and the economy as a whole. The ranks of those on low incomes have swelled over the past number of years with increased unemployment and decreases in earnings, and it is here that the pain of recession is felt most keenly.
As demonstrated by a recent analysis conducted by TASC, the introduction of the Universal Social Charge (USC) and the decrease in social welfare payments meant that those on lower incomes were left disproportionally worse off by Budget 2011. Not only do reductions in the incomes of the lower paid increase inequality, but they also lead to reductions in aggregate demand, which of course has knock-on effects for our economy.
Planning to cut the deficit should not preclude investing in people and infrastructure. If Ireland is to emerge from this crisis in the next few years we will need to ensure that we have a well-educated, highly skilled labour force ready for work. If we are to attract investment and return to growth we need to continue to improve our infrastructure. TASC is proposing that the Government take €1.2bn from the National Pension Reserve Fund and invest in education, skills and training. Capital spending should be maintained at its current level.
Current spending should also be kept at its current level. There are certainly savings to be made in the public sector, but any efficiencies gained should be re-invested so that frontline services are maintained and low income groups are protected.
The Celtic Tiger years left our taxation system unbalanced and disproportionally reliant on consumption and transaction taxes. With the recession and the collapse of the housing market, this has lead to a serious erosion of our tax revenues. While the previous Government had begun to address some of these imbalances by increasing income tax, introducing a carbon tax and beginning the process of reducing harmful tax expenditures, there remains a lot more the current Government can do to create a more stable and equitable taxation system. As mentioned above, the introduction of the USC in Budget 2011 disproportionally affected lower earners; the Government should ensure that any changes in taxation do not further disadvantage these groups. In particular, the Government can remove the remaining property-based ‘Legacy Reliefs’ on non-residential property and cut the level at which individuals and companies can claim interest rates against tax for residential properties. A reduction from 75% to 40% will yield in the order of €350m for the exchequer.
TASC's proposals target mainly passive income, which means that they are less harmful to economic growth. The introduction of a property tax, for example, based on valuations rather than a flat tax, can raise a billion Euro per annum. If such a tax is equality proofed, i.e., incorporating a system of deferrals for those who cannot pay is introduced, it is a more equitable way of raising revenue than an increase in income taxes which hit low to middle income earners. Ireland is in the minority of developed nations in not having any form of recurrent property tax. Our reliance on property transaction taxes (stamp duty) rather than a recurrent property tax can be said to have contributed to the housing bubble, along with the bogeymen of lax regulation, bad planning and harmful property reliefs. The Government should also look at ways in which our taxation system can help address environmental concerns. A modest increase in the carbon levy for example, coupled with other emissions reductions policies will help Ireland lower its carbon emissions.
Finally, TASC has made proposals to save €2bn a year from 2012 to 2023 by restructuring the Anglo Irish promissory notes. These promissory notes are not covered by the EU-IMF deal and therefore the Government could argue with its European counterparts that any restructuring would not constitute a breaking of the deal. Saving €2bn per annum over the next decade would bring a massive boost to the economy and help narrow the deficit, ensuring that the need for damaging cuts and tax increases can be reduced.
TASC, in its Pre-Budget Submission launched yesterday, suggests a number of policy proposals aimed at reducing the deficit, supporting jobs and protecting low-income groups. Since the advent of the economic crisis, successive budgets have focused narrowly on closing the deficit, to the detriment of both low-income groups and the economy as a whole. The ranks of those on low incomes have swelled over the past number of years with increased unemployment and decreases in earnings, and it is here that the pain of recession is felt most keenly.
As demonstrated by a recent analysis conducted by TASC, the introduction of the Universal Social Charge (USC) and the decrease in social welfare payments meant that those on lower incomes were left disproportionally worse off by Budget 2011. Not only do reductions in the incomes of the lower paid increase inequality, but they also lead to reductions in aggregate demand, which of course has knock-on effects for our economy.
Planning to cut the deficit should not preclude investing in people and infrastructure. If Ireland is to emerge from this crisis in the next few years we will need to ensure that we have a well-educated, highly skilled labour force ready for work. If we are to attract investment and return to growth we need to continue to improve our infrastructure. TASC is proposing that the Government take €1.2bn from the National Pension Reserve Fund and invest in education, skills and training. Capital spending should be maintained at its current level.
Current spending should also be kept at its current level. There are certainly savings to be made in the public sector, but any efficiencies gained should be re-invested so that frontline services are maintained and low income groups are protected.
The Celtic Tiger years left our taxation system unbalanced and disproportionally reliant on consumption and transaction taxes. With the recession and the collapse of the housing market, this has lead to a serious erosion of our tax revenues. While the previous Government had begun to address some of these imbalances by increasing income tax, introducing a carbon tax and beginning the process of reducing harmful tax expenditures, there remains a lot more the current Government can do to create a more stable and equitable taxation system. As mentioned above, the introduction of the USC in Budget 2011 disproportionally affected lower earners; the Government should ensure that any changes in taxation do not further disadvantage these groups. In particular, the Government can remove the remaining property-based ‘Legacy Reliefs’ on non-residential property and cut the level at which individuals and companies can claim interest rates against tax for residential properties. A reduction from 75% to 40% will yield in the order of €350m for the exchequer.
TASC's proposals target mainly passive income, which means that they are less harmful to economic growth. The introduction of a property tax, for example, based on valuations rather than a flat tax, can raise a billion Euro per annum. If such a tax is equality proofed, i.e., incorporating a system of deferrals for those who cannot pay is introduced, it is a more equitable way of raising revenue than an increase in income taxes which hit low to middle income earners. Ireland is in the minority of developed nations in not having any form of recurrent property tax. Our reliance on property transaction taxes (stamp duty) rather than a recurrent property tax can be said to have contributed to the housing bubble, along with the bogeymen of lax regulation, bad planning and harmful property reliefs. The Government should also look at ways in which our taxation system can help address environmental concerns. A modest increase in the carbon levy for example, coupled with other emissions reductions policies will help Ireland lower its carbon emissions.
Finally, TASC has made proposals to save €2bn a year from 2012 to 2023 by restructuring the Anglo Irish promissory notes. These promissory notes are not covered by the EU-IMF deal and therefore the Government could argue with its European counterparts that any restructuring would not constitute a breaking of the deal. Saving €2bn per annum over the next decade would bring a massive boost to the economy and help narrow the deficit, ensuring that the need for damaging cuts and tax increases can be reduced.
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