Arthur Doohan: In chess, the quality that separates the 'grandmaster' from the 'talented amateur' is the number of moves ahead that each player can mentally keep in mind and manipulate. Something similar is said to be true for champion tennis and snooker players.
I am not one for conspiracy theories as experience has to date shown me far more evidence supporting the 'Murphy's Law' theory of management of human affairs.
None the less, there are in all realms, whether jurisdictional or professional, at any given time a handful of competent persons with both a breadth of vision and a depth of ability.
The 'European Project' was built by men widely adjudged to be 'political grandmasters'. Adenauer, de Gaulle, Brandt, Mitterand, Delors; none of these were, or are, regarded as vain or shortsighted or incompetent. Patiently and with great care and at considerable cost and in the face of much dissent, the various layers of the EU have been put together.
Yes, there have been many compromises and the 'project' is far from complete and the final form is not clear to anyone. But there was a vision behind the efforts of these men and there was, most certainly, a bitter awareness of what the possible costs of failure could be and what the outcome of failure would look like.
In the context of all that wisdom, ability and effort we now have to re-examine the crisis that envelopes the 'European Project'. The 'design flaws' in the single currency were clearly enunciated before its adoption. The bumpy evolution of the ERM gave ample warning of how tough life might be for some members of the monetary union.
The driving ambition of the proponents was not merely to enhance European trade or reduce the profits of foreign exchange traders. They did not seek some empty token of pseudo-unity for Europe.
What they wanted was a means of preventing a repetition of the abuse of power and the greedy expropriation of financial wealth that the US imposed on the rest of the world when it unilaterally and without warning or dialogue abandoned the Bretton Woods agreement in 1971.
The only way to achieve this would be to build a currency with the strength and depth of the 'mighty dollar'.
That level of integration has always been regarded as politically impossible to achieve and, in many ways, has been 'tabu' to both those who would propose it, as well as to its instinctive opponents.
Nobody 'walks the plank' out of choice. Standing at the end of the plank, one jumps into the water because certain death awaits at the other end and there is some hope, however slight, amongst the fish and the sharks.
The designers were well aware of the risks and the flaws of the design of the Euro. They had knowledge of, and personal experience of, financial disasters of national and supra-national scale and impact. A crisis of the type we are currently dealing with was inevitable with only its timing as a matter of debate. Almost certainly it has come sooner than most observers expected and has probably been brought on and exacerbated by the US debt crisis.
We are now hearing calls for the 'federalization' of problem debts from predictable, and from most unlikely, sources. Of course, no one mentions the corollary of this federalization which would have to be federal tax raising powers. At which point the EU project would be complete.
This is an alternative to the disintegration of the Euro and the EU as a solution to the unviability of the debt mountain that has been piled high in the storehouses of Europe. And as solutions go, while unpalatable to many, it looks less painful than the alternative.
So I leave you with this thought and a quote.
Did the designers of the Euro hope to achieve, through a crisis, a level of European integration that would never be possible by normal negotiations?
“And whether or not it is clear to you, no doubt the universe is unfolding as it should.”
- Desiderata by Max Ehrmann
Friday, 15 July 2011
Thursday, 14 July 2011
The butler did it
Michael Taft: On Morning Ireland, Fergal O’Brien, economist from IBEC, stated:
“Austerity is not killing the economy."
Oh. We are treading into, what Michal Burke called ‘the realm of forgetting’. Forgetting the past, forgetting the link between fiscal policy and economic impact, forgetting basic lessons in Economics 101. Fortunately we have a source to help us remember – and from no less an institution that has done its fair share of forgetting: the Department of Finance.
In the previous Government’s Information Note on the Economic and Budgetary Outlook, published prior to the last budget, it stated that it’s growth projections:
‘ . . . takes account of budgetary adjustments amounting to €6 billion, which are estimated to reduce the rate of growth by somewhere in the region of -1½ - 2 percentage points.’
In other words, for every 1 billion of fiscal contraction (spending cuts, tax increases), economic growth is, on average, cut by -0.25 and -0.33 percent. If this ratio has held since the beginning of the crisis, the result is unnerving.
Since early 2009 there have been effectively four budgets: the February measures (pension levy, current spending cuts), the April Supplementary Budget and Budgets 2010 and 2011. In total these contractions totalled 16.8 billion.
Current spending: 8.4 billion
Capital spending: 3.5 billion
Tax measures: 4.9 billion
There were tax increases and spending cuts in Budget 2009 but much of this was offset by tax cuts (extending the standard rate tax band) and social welfare increases. So we’ll leave that out, though it should be noted that the contractions in this budget amounted to a minimum of 2 billion.
Taking the DoF’s recent fiscal adjustment/growth reduction ratio, we would find that these budgets cut economic growth between -4.2 percent and -5.5 percent. Given that overall economic growth has fallen by -10.4 percent, this would mean that government policy is responsible for between 40.3 and 52.9 percent of the fall in GDP.
This should be treated as indicative. When the full model of the macro-economic impact of fiscal measures on the economy is eventually done, we might find the impact to be less. For instance, capital spending has been cut 3.5 billion, but some of this was absorbed by the fall in tender prices. Not all current spending cuts have the same impact – the fall in procurement prices from multi-nationals will not have the same impact as cutting whole contracts with the indigenous private sector.
However, we should note that fiscal adjustments impact more negatively on the domestic economy. The ESRI, for instance, shows that cutting 1 billion from government spending on public services reduces the GDP in the medium term by -0.9 percent, but cuts GNP by -1.3 percent; cutting public sector wages hits GNP twice as hard as GDP.
So the DoF adjustment/growth ratio may even underestimate the deflationary impact, especially as the fall in GNP was even greater: - 12.3 percent.
The Irish recession was not driven by external demand; exports increased in this period in volume terms. It was driven by a collapse in domestic demand; in particular, investment. Austerity’s impact was mostly felt here, not in the external sector.
Even the DoF admits that austerity policies have lengthened and deepened the recession. But IBEC and many others, including the current Government, refuses to acknowledge this relationship.
It might be convenient for some to ‘forget’. But we shouldn’t. Proceeding with further austerity will undermine growth even further with little to suggest that this is the pathway to fiscal stabilisation.
No, the butler didn’t do it. What killed the economy was the irrational pursuit of deflation at a time when the economy was already deflating. When we ‘remember’ that, we will be starting on a real path to economic recovery and fiscal stabilisation.
“Austerity is not killing the economy."
Oh. We are treading into, what Michal Burke called ‘the realm of forgetting’. Forgetting the past, forgetting the link between fiscal policy and economic impact, forgetting basic lessons in Economics 101. Fortunately we have a source to help us remember – and from no less an institution that has done its fair share of forgetting: the Department of Finance.
In the previous Government’s Information Note on the Economic and Budgetary Outlook, published prior to the last budget, it stated that it’s growth projections:
‘ . . . takes account of budgetary adjustments amounting to €6 billion, which are estimated to reduce the rate of growth by somewhere in the region of -1½ - 2 percentage points.’
In other words, for every 1 billion of fiscal contraction (spending cuts, tax increases), economic growth is, on average, cut by -0.25 and -0.33 percent. If this ratio has held since the beginning of the crisis, the result is unnerving.
Since early 2009 there have been effectively four budgets: the February measures (pension levy, current spending cuts), the April Supplementary Budget and Budgets 2010 and 2011. In total these contractions totalled 16.8 billion.
Current spending: 8.4 billion
Capital spending: 3.5 billion
Tax measures: 4.9 billion
There were tax increases and spending cuts in Budget 2009 but much of this was offset by tax cuts (extending the standard rate tax band) and social welfare increases. So we’ll leave that out, though it should be noted that the contractions in this budget amounted to a minimum of 2 billion.
Taking the DoF’s recent fiscal adjustment/growth reduction ratio, we would find that these budgets cut economic growth between -4.2 percent and -5.5 percent. Given that overall economic growth has fallen by -10.4 percent, this would mean that government policy is responsible for between 40.3 and 52.9 percent of the fall in GDP.
This should be treated as indicative. When the full model of the macro-economic impact of fiscal measures on the economy is eventually done, we might find the impact to be less. For instance, capital spending has been cut 3.5 billion, but some of this was absorbed by the fall in tender prices. Not all current spending cuts have the same impact – the fall in procurement prices from multi-nationals will not have the same impact as cutting whole contracts with the indigenous private sector.
However, we should note that fiscal adjustments impact more negatively on the domestic economy. The ESRI, for instance, shows that cutting 1 billion from government spending on public services reduces the GDP in the medium term by -0.9 percent, but cuts GNP by -1.3 percent; cutting public sector wages hits GNP twice as hard as GDP.
So the DoF adjustment/growth ratio may even underestimate the deflationary impact, especially as the fall in GNP was even greater: - 12.3 percent.
The Irish recession was not driven by external demand; exports increased in this period in volume terms. It was driven by a collapse in domestic demand; in particular, investment. Austerity’s impact was mostly felt here, not in the external sector.
Even the DoF admits that austerity policies have lengthened and deepened the recession. But IBEC and many others, including the current Government, refuses to acknowledge this relationship.
It might be convenient for some to ‘forget’. But we shouldn’t. Proceeding with further austerity will undermine growth even further with little to suggest that this is the pathway to fiscal stabilisation.
No, the butler didn’t do it. What killed the economy was the irrational pursuit of deflation at a time when the economy was already deflating. When we ‘remember’ that, we will be starting on a real path to economic recovery and fiscal stabilisation.
Wednesday, 13 July 2011
Why Irish debt is cut to junk status
Michael Burke: Moody’s is the first of the credit ratings agencies to cut Irish government debt to below investment grade – the sovereign debt is now ‘junk’. It will be recalled that when the ‘austerity’ programme was introduced- in reality a project to drive down wages and the social wage in order to revive profits- a key justification was that the financial markets needed reassurance that Ireland would remain credit-worthy.
Along with junk status, Irish 10yr yields at the time of writing are 13.65% and Irish 2yr yields are at 18.64%. This ‘inversion’ of the yield curve indicates the perceived market risk of the imminence of default. When the price of shorter-maturity debt falls below that of longer maturities it reflects the perceived risk of an immediate default. Currently Greek long and short-term debt are both trading fractionally above 50 cents in the Euro. Irish 2yr debt is just above 60 cents, while 10yr debt is around 55 cents.
This can be summarised as the view in the bonds market is that both are highly likely to default, and that Greece may do so very soon; Ireland might take a little longer.
There is some anger at Moody’s decision. The complaint is that successive Irish governments have done everything asked of them, that the programme agreed with the Troika is on track and that the real failing is the insufficient capital of the European Stability Mechanism.
These are strange complaints. It is true that successive governments have done everything asked of them – and more. In Fianna Fail’s case severe cuts were imposed when no international body was calling for them. But everything is not on track. Final domestic demand (the bit that actually generates jobs and taxes) is contracting at an annual rate of 5.5%. As a result, despite higher taxes and the imposition of the USC, tax revenues are actually below target and the shortfall seems to be growing. The complaint that the ESM is now not large enough to cope with the crisis in Greece, Ireland and Portugal (let alone Italy) is actually an admission that the problems are deepening.
Of course the interconnected European crisis is also a key factor. But this is far from a one-way street. The failed loans of German, British and French banks to the Irish banking sector and to the State are an important factor in the general crisis.
Moody’s offered this reason for the downgrade. “Ireland has shown a strong commitment to fiscal consolidation and has, to date, delivered on its programme objectives, the rating agency nevertheless notes that implementation risks remain significant, particularly in light of the continued weakness in the Irish economy”.
‘Implementation risk’ is a strange term in this context. It is often used, quite spuriously, in relation to Greece- the implication being that the protestors outside the Parliament in Syntagma Square are somehow preventing the implementation of the cuts and privatisations. On the contrary, all necessary legislation has been passed.
But there are no similar protests outside Leinster House. So in this context especially ‘implementation’ is an abuse of the language. All the packages have been implemented. But they have not been successful, the domestic economy continues to contract and tax revenues to decline as a result.
The reason they have not been successful is suggested in the Moody’s statement; “in light of the continued weakness in the Irish economy”. It is the weakness of the economy that is the source of the crisis, and the downgrade to junk status.
Without policies to re-establish growth, the Troika and the government are navigating the economy towards the rocks.
PS: if there is any silver lining from this round of the crisis, it is this: all talk that the widows and orphans of Ireland (or anywhere else) would be hurt by a default can end. Most pension or insurance funds would have exited high-risk sovereign debt markets a long time ago. But they are simply not allowed to invest in sub-investment grade debt, that is the point of the rating. The private holders of Irish debt are now banks, hedge funds, vulture funds and other parasites.
Along with junk status, Irish 10yr yields at the time of writing are 13.65% and Irish 2yr yields are at 18.64%. This ‘inversion’ of the yield curve indicates the perceived market risk of the imminence of default. When the price of shorter-maturity debt falls below that of longer maturities it reflects the perceived risk of an immediate default. Currently Greek long and short-term debt are both trading fractionally above 50 cents in the Euro. Irish 2yr debt is just above 60 cents, while 10yr debt is around 55 cents.
This can be summarised as the view in the bonds market is that both are highly likely to default, and that Greece may do so very soon; Ireland might take a little longer.
There is some anger at Moody’s decision. The complaint is that successive Irish governments have done everything asked of them, that the programme agreed with the Troika is on track and that the real failing is the insufficient capital of the European Stability Mechanism.
These are strange complaints. It is true that successive governments have done everything asked of them – and more. In Fianna Fail’s case severe cuts were imposed when no international body was calling for them. But everything is not on track. Final domestic demand (the bit that actually generates jobs and taxes) is contracting at an annual rate of 5.5%. As a result, despite higher taxes and the imposition of the USC, tax revenues are actually below target and the shortfall seems to be growing. The complaint that the ESM is now not large enough to cope with the crisis in Greece, Ireland and Portugal (let alone Italy) is actually an admission that the problems are deepening.
Of course the interconnected European crisis is also a key factor. But this is far from a one-way street. The failed loans of German, British and French banks to the Irish banking sector and to the State are an important factor in the general crisis.
Moody’s offered this reason for the downgrade. “Ireland has shown a strong commitment to fiscal consolidation and has, to date, delivered on its programme objectives, the rating agency nevertheless notes that implementation risks remain significant, particularly in light of the continued weakness in the Irish economy”.
‘Implementation risk’ is a strange term in this context. It is often used, quite spuriously, in relation to Greece- the implication being that the protestors outside the Parliament in Syntagma Square are somehow preventing the implementation of the cuts and privatisations. On the contrary, all necessary legislation has been passed.
But there are no similar protests outside Leinster House. So in this context especially ‘implementation’ is an abuse of the language. All the packages have been implemented. But they have not been successful, the domestic economy continues to contract and tax revenues to decline as a result.
The reason they have not been successful is suggested in the Moody’s statement; “in light of the continued weakness in the Irish economy”. It is the weakness of the economy that is the source of the crisis, and the downgrade to junk status.
Without policies to re-establish growth, the Troika and the government are navigating the economy towards the rocks.
PS: if there is any silver lining from this round of the crisis, it is this: all talk that the widows and orphans of Ireland (or anywhere else) would be hurt by a default can end. Most pension or insurance funds would have exited high-risk sovereign debt markets a long time ago. But they are simply not allowed to invest in sub-investment grade debt, that is the point of the rating. The private holders of Irish debt are now banks, hedge funds, vulture funds and other parasites.
Monday, 11 July 2011
June tax figures
An Saoi: The half year tax figures came out during the week and there have been various comments published around them. Constantin Gurdgiev’s piece is available here and is full of nice colourful graphs and gives a multi-year view of payments. I want to focus in on just two of the tax heads, Corporation Tax & Income Tax this month. Both suggest trouble ahead.
Corporation Tax paid in June was €824M net against a monthly target or profile of €871M. This follows on the May when €310M net against the profile figure €450M. All companies have now made the first of their two Corporation Tax payments and the Revenue now have all of the information required to figures are extremely worrying.
The figure is also well below the cumulative figure at June 2010 €1,424M against €1,610M. The 2010 figure would surely have been heavily influenced by refunds arising from losses made by companies in their trading years 2008 & 2009. This makes the continued slippage in 2011 even more alarming and suggests that the final CT figure for 2011 will hardly break €3,400M or around €600M below profile. Back in April after the March tax returns, I had expected Corporation Tax figures to come in at €4,800M, well ahead of profile. This projection was based on the level of trading of many International firms with large presences in Ireland. All of these companies have now at least part paid their current liabilities and there is no way the Exchequer will get close to its target.
We know that the level of trading losses within the financial services industry was at least €34,309M arising from a Dail question. The only journalist to pick up the importance of the story was Kathleen Barrington here in the Sunday Business Post. The level of payments being made by the historically large payers outside of the financial services sector must also be falling, suggesting greater internal pressure to reduce the tax cost of doing business in Ireland. Even 12.5% is too high. This is despite increasing profitability and turnover in those companies.
Few Valued Added Tax returns fall due in June and the overall level of payments for the month was small. However the figure €208M was €42M or 16.8% short of profile. However timing of refunds may explain such a large discrepancy.
The May/June VAT returns are due this month (July) and should be reasonably good. June was the last month and as can be seen from these SIMI Stats, it was a good month in the motor trade. However the rest of year will surely be poor as over 40% of car sales were part of the scrappage scheme. Preliminary retail sales figures for May showed non motor trade spending continues to fall. This would suggest that VAT for the year is unlikely to break €10,000M for the year, probably coming in somewhere between €9,600M & €9,800M.
Income Tax incorporating the USC remains on target. While it is nominally ahead of last year, when you take the substantial tax changes in the Finance Act and the replacement of the Health Levy with the USC, it is behind perhaps €300M against the same month last year on a like for like basis. There is an expectation of increased income tax payments for the rest of the year, which seems more of a hope than expectation, but only time will tell. Employment and wage levels continue to fall but perhaps self employed payments will bail the State out later in the year?
Excise Duty remains ahead of target buoyed by the new car sales. The next six months may reflect a different story. Stamp duty remains in the doldrums.
Movements in the other taxes do not materially change the picture as their collective contribution is so small. Customs Duties are collected by the State on behalf of the European Union and while included in the figures are remitted to the EU, minus 40% to cover local costs.
The final outcome suggests that the cumulative tax changes introduced by the outgoing Government have not improved the Exchequer position. Retail activity other than in the car trade continues to fall and with the tax take following suit. The fall in Corporation Tax was not expected, least of all by me and shows just how fickle the multi national sector’s relationship with Ireland is.
June’s figures may also explain Mr. Noonan’s comments about the necessity to find even more than the €3,600M in planned cuts. It would be helpful if he let us all in on the information he has been given by his officials. The final tax yield for 2011 looks as it will fall a good deal short of the €34,900M.
There is an urgent need to expand the Tax base and the Social Insurance base by withdrawing without delay all the various tax breaks, deductibility of interest against property purchase, carry forward of losses, exemptions applied to certain income etc.
The effects of the tax changes introduced this year also make it clear that there is a need to selectively reduce the tax burden but certainly not to increase rates. Proposed changes in the standard rate (21%) VAT rate should not be introduced under any circumstances and a substantial rowing back on the effects of individualisation should also be considered to protect the position of many one income households.
The need to get property related business costs down without delay needs to be tackled with the same alacrity as Richard Bruton has pursued the low paid.
Corporation Tax paid in June was €824M net against a monthly target or profile of €871M. This follows on the May when €310M net against the profile figure €450M. All companies have now made the first of their two Corporation Tax payments and the Revenue now have all of the information required to figures are extremely worrying.
The figure is also well below the cumulative figure at June 2010 €1,424M against €1,610M. The 2010 figure would surely have been heavily influenced by refunds arising from losses made by companies in their trading years 2008 & 2009. This makes the continued slippage in 2011 even more alarming and suggests that the final CT figure for 2011 will hardly break €3,400M or around €600M below profile. Back in April after the March tax returns, I had expected Corporation Tax figures to come in at €4,800M, well ahead of profile. This projection was based on the level of trading of many International firms with large presences in Ireland. All of these companies have now at least part paid their current liabilities and there is no way the Exchequer will get close to its target.
We know that the level of trading losses within the financial services industry was at least €34,309M arising from a Dail question. The only journalist to pick up the importance of the story was Kathleen Barrington here in the Sunday Business Post. The level of payments being made by the historically large payers outside of the financial services sector must also be falling, suggesting greater internal pressure to reduce the tax cost of doing business in Ireland. Even 12.5% is too high. This is despite increasing profitability and turnover in those companies.
Few Valued Added Tax returns fall due in June and the overall level of payments for the month was small. However the figure €208M was €42M or 16.8% short of profile. However timing of refunds may explain such a large discrepancy.
The May/June VAT returns are due this month (July) and should be reasonably good. June was the last month and as can be seen from these SIMI Stats, it was a good month in the motor trade. However the rest of year will surely be poor as over 40% of car sales were part of the scrappage scheme. Preliminary retail sales figures for May showed non motor trade spending continues to fall. This would suggest that VAT for the year is unlikely to break €10,000M for the year, probably coming in somewhere between €9,600M & €9,800M.
Income Tax incorporating the USC remains on target. While it is nominally ahead of last year, when you take the substantial tax changes in the Finance Act and the replacement of the Health Levy with the USC, it is behind perhaps €300M against the same month last year on a like for like basis. There is an expectation of increased income tax payments for the rest of the year, which seems more of a hope than expectation, but only time will tell. Employment and wage levels continue to fall but perhaps self employed payments will bail the State out later in the year?
Excise Duty remains ahead of target buoyed by the new car sales. The next six months may reflect a different story. Stamp duty remains in the doldrums.
Movements in the other taxes do not materially change the picture as their collective contribution is so small. Customs Duties are collected by the State on behalf of the European Union and while included in the figures are remitted to the EU, minus 40% to cover local costs.
The final outcome suggests that the cumulative tax changes introduced by the outgoing Government have not improved the Exchequer position. Retail activity other than in the car trade continues to fall and with the tax take following suit. The fall in Corporation Tax was not expected, least of all by me and shows just how fickle the multi national sector’s relationship with Ireland is.
June’s figures may also explain Mr. Noonan’s comments about the necessity to find even more than the €3,600M in planned cuts. It would be helpful if he let us all in on the information he has been given by his officials. The final tax yield for 2011 looks as it will fall a good deal short of the €34,900M.
There is an urgent need to expand the Tax base and the Social Insurance base by withdrawing without delay all the various tax breaks, deductibility of interest against property purchase, carry forward of losses, exemptions applied to certain income etc.
The effects of the tax changes introduced this year also make it clear that there is a need to selectively reduce the tax burden but certainly not to increase rates. Proposed changes in the standard rate (21%) VAT rate should not be introduced under any circumstances and a substantial rowing back on the effects of individualisation should also be considered to protect the position of many one income households.
The need to get property related business costs down without delay needs to be tackled with the same alacrity as Richard Bruton has pursued the low paid.
Thursday, 7 July 2011
Guest post by Colm O'Gorman: Linking human rights and economics
Colm O'Gorman: We do not know where money allocated in the Irish budget goes. We do not know how effective it is, whether it gets to where it is needed, or how its impact is monitored.
A survey carried out for Amnesty International late last year by Lansdowne found that 81 per cent of people felt they did not understand how Government ministers make decisions about how our money is spent. The same number did not believe there were effective systems in place to ensure the money goes where it is supposed to.
A September 2009 report carried out by Indecon Consulants showed the Health Service Executive could not explain how its mental health budget is spent because of flaws in its accounting systems.
At a recent symposium on economics and human rights organised by Amnesty International Ireland, Dr Mícheál Collins of Trinity College explained that, of 131 identified government tax breaks, figures only exist for the cost of 89 of them. And in some cases where there are figures, all we have are the rough estimates that were provided when the tax break was introduced by the Oireachtas.
In bringing together economists and experts in the field of human rights, we were trying to investigate how we can make Ireland’s budget more accountable. It is the first time we have held an event like this; indeed, it’s a first as well for our global organisation.
But why is this a human rights issue at all? Why is an organisation best known for working to free prisoners of conscience or to end the death penalty taking an interest in the labyrinth of the Irish budgeting process?
It is because decisions made around how we spend our money affect our human rights in Ireland. You have a right to health, a right to education, a right to social security. These are not figures of speech or slogans: they are rights laid down in legally binding international human rights treaties signed and ratified by Irish governments.
Under international law, governments are obliged to deliver on these human rights. But the resources available to a country to deliver them must be taken into account.
It is not up to human rights organisations, nor the courts for that matter, to decide how taxpayers’ money is spent. That’s the job of our elected representatives. But in making those decisions, they must fulfil their responsibility to ensure resources are allocated in a transparent way that protects our human rights and grows our economy.
It might seem that talking about these issues at a time of economic recession, when the IMF is effectively in charge, is a luxury we cannot afford. But the current economic climate is also an opportunity to change the old rules. We need better quality standards, more information about how public services are delivered and paid for. Those people using services, and those providing them whether in the public or private sector, need more information from our budget process.
One of the reasons that we, as a nation, have found ourselves in this place is the lack of accountability in our financial and budgetary system. In the middle of such a grave economic crisis, it has never been more important to examine how we allocate scarce resources.
How do we ensure the decisions around our budget are made in a way that protects human rights and is effective, efficient and accountable? How do we decide where we spend our money and ensure we’re getting good value? And how do we do this in a way that ordinary people can understand? Unless we work to restore faith in our budgetary system, we will have failed to learn from this crisis.
And in the discussions about bondholders, banks, interest rates and bailouts, we must focus not only on the numbers, but on the bigger question of the kind of society we want to build. Our vision for Ireland must be of something more than simply a balanced set of accounts.
It must include a society where our government ensures our fundamental human rights. Later this year the United Nations will review the progress made on fulfilling those rights for people living in Ireland. While there have been improvements there is no doubt they will find a lot left undone, so much that could have been accomplished during the boom years had human rights been a priority.
Included in the Programme for Government is the line “we will require all public bodies to take due note of equality and human rights in carrying out their functions”. This must include all government departments, including finance and public expenditure in particular. And yet, how will that happen and how will it work in practice?
There is an extraordinary level of distrust in our budgetary system, but given recent events that’s hardly surprising. Only once we begin to appreciate how the system works can we start to properly investigate how our money is spent and, most importantly, ensure accountability in the allocation of our resources. Political and economic reforms being contemplated by our new government must take this into account.
Human rights activists need to understand more about economics, about how wealth is generated and growth sustained. Economists need to appreciate that human rights is not necessarily about spending more. It is about transparency, about ensuring accountability in how we spend our money and in how we make those decisions. It is from that common ground that we can work together.
Colm O’Gorman is executive director of Amnesty International Ireland. He was previously founder and director of One in Four.
A survey carried out for Amnesty International late last year by Lansdowne found that 81 per cent of people felt they did not understand how Government ministers make decisions about how our money is spent. The same number did not believe there were effective systems in place to ensure the money goes where it is supposed to.
A September 2009 report carried out by Indecon Consulants showed the Health Service Executive could not explain how its mental health budget is spent because of flaws in its accounting systems.
At a recent symposium on economics and human rights organised by Amnesty International Ireland, Dr Mícheál Collins of Trinity College explained that, of 131 identified government tax breaks, figures only exist for the cost of 89 of them. And in some cases where there are figures, all we have are the rough estimates that were provided when the tax break was introduced by the Oireachtas.
In bringing together economists and experts in the field of human rights, we were trying to investigate how we can make Ireland’s budget more accountable. It is the first time we have held an event like this; indeed, it’s a first as well for our global organisation.
But why is this a human rights issue at all? Why is an organisation best known for working to free prisoners of conscience or to end the death penalty taking an interest in the labyrinth of the Irish budgeting process?
It is because decisions made around how we spend our money affect our human rights in Ireland. You have a right to health, a right to education, a right to social security. These are not figures of speech or slogans: they are rights laid down in legally binding international human rights treaties signed and ratified by Irish governments.
Under international law, governments are obliged to deliver on these human rights. But the resources available to a country to deliver them must be taken into account.
It is not up to human rights organisations, nor the courts for that matter, to decide how taxpayers’ money is spent. That’s the job of our elected representatives. But in making those decisions, they must fulfil their responsibility to ensure resources are allocated in a transparent way that protects our human rights and grows our economy.
It might seem that talking about these issues at a time of economic recession, when the IMF is effectively in charge, is a luxury we cannot afford. But the current economic climate is also an opportunity to change the old rules. We need better quality standards, more information about how public services are delivered and paid for. Those people using services, and those providing them whether in the public or private sector, need more information from our budget process.
One of the reasons that we, as a nation, have found ourselves in this place is the lack of accountability in our financial and budgetary system. In the middle of such a grave economic crisis, it has never been more important to examine how we allocate scarce resources.
How do we ensure the decisions around our budget are made in a way that protects human rights and is effective, efficient and accountable? How do we decide where we spend our money and ensure we’re getting good value? And how do we do this in a way that ordinary people can understand? Unless we work to restore faith in our budgetary system, we will have failed to learn from this crisis.
And in the discussions about bondholders, banks, interest rates and bailouts, we must focus not only on the numbers, but on the bigger question of the kind of society we want to build. Our vision for Ireland must be of something more than simply a balanced set of accounts.
It must include a society where our government ensures our fundamental human rights. Later this year the United Nations will review the progress made on fulfilling those rights for people living in Ireland. While there have been improvements there is no doubt they will find a lot left undone, so much that could have been accomplished during the boom years had human rights been a priority.
Included in the Programme for Government is the line “we will require all public bodies to take due note of equality and human rights in carrying out their functions”. This must include all government departments, including finance and public expenditure in particular. And yet, how will that happen and how will it work in practice?
There is an extraordinary level of distrust in our budgetary system, but given recent events that’s hardly surprising. Only once we begin to appreciate how the system works can we start to properly investigate how our money is spent and, most importantly, ensure accountability in the allocation of our resources. Political and economic reforms being contemplated by our new government must take this into account.
Human rights activists need to understand more about economics, about how wealth is generated and growth sustained. Economists need to appreciate that human rights is not necessarily about spending more. It is about transparency, about ensuring accountability in how we spend our money and in how we make those decisions. It is from that common ground that we can work together.
Colm O’Gorman is executive director of Amnesty International Ireland. He was previously founder and director of One in Four.
Trapped in an analytical prison
Michael Taft: Seamus Coffey has written a provocative post over at Irish Economy on the recent Exchequer statement, showing that Government borrowing is not falling even after the €20 billion fiscal contraction over the last few budgets. Some of the commentators on the post find this surprising but it shouldn’t be. The TASC open letter signed by a number economists and analysts predicted this would happen. Contributors on this blog have gone through the numbers to show why this would happen. Nonetheless, the failure to reduce Government borrowing will no doubt spark renewed demands for more contraction; this may explain the Finance Minister’s warning that cuts will be even deeper than anticipated in the Programme for Government.
The problem, however, goes much deeper than argument over numbers. It goes to the heart of how we debate the economy – a debate that currently inhibits a proper understanding of fiscal contraction, public finances and economic growth. In short, we are trapped in an analytical prison.
The current debate over fiscal policy is based on a fundamental confusion – that the finances of a government are analogous to household finances. When spending in the household, exceeds income, goes the argument, the household must reduce its expenditure. People go out less, buy less, take less holidays, postpone major purchases, etc. The key point here is that if I cut my spending, this doesn’t reduce my wage or income. My wage is unaffected by me buying less books. Therefore, spending reductions are a net gain. It is a rational act at household level.
However, governments are not households. When a government cuts its spending, it cuts its revenue as well – because it cuts the economy’s revenue. This is fairly straight-forward and the ESRI has published two studies on this subject. For example, it found that cutting public sector employment equivalent to reducing spending by 0.6 percent of GDP, actually drives down the domestic economy (GNP – where our tax base lies) by over twice that amount in the short-term: -1.1 percent. Therefore, after the fall in demand and business output, and the rise in unemployment (which they measure) the actual ‘savings’ to the Government in the form of deficit reduction is minimal: 0.2 percent. We get little bang for our contraction buck, but we have weakened the economy’s ability to generate revenue in the future by the resulting deflation.
That is why, when using the ESRI measurements, we find that the Government policy of cutting over 20,000 jobs from the public sector will make almost no contribution to fiscal reduction. But it will drive more businesses out of business and more people on to the dole queues or the emigration planes.
Again, this shouldn’t be surprising. If you cut social welfare, people will spend less thus cutting domestic demand which impacts negatively on businesses reliant on that demand. Tax revenue falls, unemployment costs rise; the ‘savings’ turns out to be no such thing.
If you cut contracts to the private sector (which account for one-third of spending on public services), domestic business activity contracts. So don’t be surprised when tax revenue falls and, again, unemployment costs increase.
This is what happens in normal times (and the ESRI simulations were based on a growth base-line). But to do this at the same time as private sector output is contracting is a recipe for accelerating the recession (which is what happened) and embed low-growth into the economy going forward (which is what is happening).
All this because the current debate is based on a false analogy.
A related problem is that the debate confuses means and ends. The goal is to reduce the deficit. However, the debate obsesses over spending cuts and tax increases and measures success in the amount of (downward) fiscal adjustments we can come up with. This is known at the ‘arithmetic’ approach and we see this popping up everywhere. If we cut x, then we save x – but as we know, cuts do not equal savings. We do not debate fiscal effectiveness; we debate different numbers on the revenue and spending balance sheet and delude ourselves that we are discussing fiscal stability. As Seamus has shown, however, this is not happening.
Most crucially, we don’t even acknowledge that the nation’s balance sheet is made up of three elements – revenue, spending and investment. The latter is rarely referred to even though it has been the driving force in the Irish recession. Investment is a tool of fiscal consolidation – a down-payment on future income; an activity that drives up demand in the short-term and continues to contribute to economic growth and revenue raising in the long-term through its supply input.
We are left with a wholly inadequate framework with which to understand, never mind debate, the continuing economic and fiscal crisis. All we get, with every fresh round of bad economic and fiscal news, is call to ‘tighten’ our belt even more, take ‘tough’ decisions, and make ‘sacrifices’. It is depressing that those calls are part of the problem, not part of the solution.
What we need is a new analytical framework – a new fiscal framework if you will. One that can explain why we are still mired in this mess. One that can help explain how an economy – households and businesses – interact with fiscal and investment measures. On that can provide a platform for sustainable pathways back to economic recovery and fiscal stability.
Otherwise, we will continue to sink. And all we will get is ‘solutions’ that will sink us even further.
The problem, however, goes much deeper than argument over numbers. It goes to the heart of how we debate the economy – a debate that currently inhibits a proper understanding of fiscal contraction, public finances and economic growth. In short, we are trapped in an analytical prison.
The current debate over fiscal policy is based on a fundamental confusion – that the finances of a government are analogous to household finances. When spending in the household, exceeds income, goes the argument, the household must reduce its expenditure. People go out less, buy less, take less holidays, postpone major purchases, etc. The key point here is that if I cut my spending, this doesn’t reduce my wage or income. My wage is unaffected by me buying less books. Therefore, spending reductions are a net gain. It is a rational act at household level.
However, governments are not households. When a government cuts its spending, it cuts its revenue as well – because it cuts the economy’s revenue. This is fairly straight-forward and the ESRI has published two studies on this subject. For example, it found that cutting public sector employment equivalent to reducing spending by 0.6 percent of GDP, actually drives down the domestic economy (GNP – where our tax base lies) by over twice that amount in the short-term: -1.1 percent. Therefore, after the fall in demand and business output, and the rise in unemployment (which they measure) the actual ‘savings’ to the Government in the form of deficit reduction is minimal: 0.2 percent. We get little bang for our contraction buck, but we have weakened the economy’s ability to generate revenue in the future by the resulting deflation.
That is why, when using the ESRI measurements, we find that the Government policy of cutting over 20,000 jobs from the public sector will make almost no contribution to fiscal reduction. But it will drive more businesses out of business and more people on to the dole queues or the emigration planes.
Again, this shouldn’t be surprising. If you cut social welfare, people will spend less thus cutting domestic demand which impacts negatively on businesses reliant on that demand. Tax revenue falls, unemployment costs rise; the ‘savings’ turns out to be no such thing.
If you cut contracts to the private sector (which account for one-third of spending on public services), domestic business activity contracts. So don’t be surprised when tax revenue falls and, again, unemployment costs increase.
This is what happens in normal times (and the ESRI simulations were based on a growth base-line). But to do this at the same time as private sector output is contracting is a recipe for accelerating the recession (which is what happened) and embed low-growth into the economy going forward (which is what is happening).
All this because the current debate is based on a false analogy.
A related problem is that the debate confuses means and ends. The goal is to reduce the deficit. However, the debate obsesses over spending cuts and tax increases and measures success in the amount of (downward) fiscal adjustments we can come up with. This is known at the ‘arithmetic’ approach and we see this popping up everywhere. If we cut x, then we save x – but as we know, cuts do not equal savings. We do not debate fiscal effectiveness; we debate different numbers on the revenue and spending balance sheet and delude ourselves that we are discussing fiscal stability. As Seamus has shown, however, this is not happening.
Most crucially, we don’t even acknowledge that the nation’s balance sheet is made up of three elements – revenue, spending and investment. The latter is rarely referred to even though it has been the driving force in the Irish recession. Investment is a tool of fiscal consolidation – a down-payment on future income; an activity that drives up demand in the short-term and continues to contribute to economic growth and revenue raising in the long-term through its supply input.
We are left with a wholly inadequate framework with which to understand, never mind debate, the continuing economic and fiscal crisis. All we get, with every fresh round of bad economic and fiscal news, is call to ‘tighten’ our belt even more, take ‘tough’ decisions, and make ‘sacrifices’. It is depressing that those calls are part of the problem, not part of the solution.
What we need is a new analytical framework – a new fiscal framework if you will. One that can explain why we are still mired in this mess. One that can help explain how an economy – households and businesses – interact with fiscal and investment measures. On that can provide a platform for sustainable pathways back to economic recovery and fiscal stability.
Otherwise, we will continue to sink. And all we will get is ‘solutions’ that will sink us even further.
Monday, 4 July 2011
Chemical solutions to economic problems?
Rory O'Farrell: I feel it rare that I have reason to be thankful to the FF/PD government of 2002-2007. However, they had one policy that was so dramatic, that we can smell the change.
Last Saturday evening, while enjoying the Tall Ships festival in Waterford, a friend and I decided to go for a beer in a popular city centre pub. The lack of indoor seating pushed us outdoors into the 'smoking area'. At one point a stranger interrupted our conversation and asked for a light. I told him I don't smoke, and we looked around the 'smoking area' to find someone who did. We noticed only a minority of people smoking, and in the relaxed atmosphere and dimming sunlight of the summer evening the stranger laughed at how even in the smoking area people don't smoke. Since Charlie Haughey was Minister for Health Ireland has been at the vanguard of restricting the advertising of tobacco, a tradition which continued when Micheál Martin banned smoking in the workplace. The success of these policies are measured by reduced lung cancer, lower levels of tobacco use, and the fact that our policies have been imitated throughout Europe, rather than vice-versa. Let’s hope Micheál Martin is selective in how he emulates his predecessor as both Minister for Health and leader of Fianna Fáil.
In an article from the Sunday Independent that contained errors in as diverse a range of topics as etymology, and statistics, Marc Coleman says "high taxes on drink and cigarettes are not designed to curtail drinking or smoking" and "unless we want another civil war, we have to put an end to highly paid servants of the State using spurious morality to defend indefensible restrictions on our right to live the way we want to live." I am not sure which highly paid public servants he is referring to (certainly not I as I’m not a public servant).
To back up his claim he states "Those in the lowest income decile spend one-tenth of their income on drink and tobacco, compared with 4 per cent for those in the highest income decile." In fact, Table 2 of the 2004-2005 Household Budget Survey gives very interesting details of spending by income group. Marc Coleman does make a silly error when he calculates "the lowest income decile spend one-tenth of their income on drink and tobacco, compared with 4 per cent for those in the highest income decile". He appears to confuse the average gross income for the bottom (top) ten percent with the upper (lower) bound for that group. Accurate data can be seen in the below Figures, 1 and 2. The first shows average weekly expenditure on a selection of items, and the second give the expenditure as a share of gross income (one could argue that disposable income is more appropriate, but as the CSO only gives percentiles by gross income, this was used). Nevertheless, the core point that the poor spend a larger proportion of their income on cigarettes and alcohol than the rich remains.
However is this information shocking to the average follower of the TASC blog? Does it alter the general policy prescriptions for recovery? Not at all. It is common knowledge, that across the world, that the poor spend all their income, while the rich are more likely to save. In fact, the poorest 10% spend more than their income, possibly incurring debts or getting some help from others. The poorest spend less on drink and tobacco, but their income is also lower. It is said that “as with stamp duty and other taxes, the penal levels of indirect taxation are bringing our social contract into disrepute and killing the economy.” As Marc Coleman correctly states, indirect taxation (such as VAT, or excise duty) is usually regressive. This is commonly accepted. A more egalitarian tax policy will boost the economy, by increasing demand in the economy. Other policies, such as maintaining the minimum wage, and proper enforcement of JLCs, can also help boost the economy.
However, Marc Coleman also says “high taxes on drink and cigarettes are not designed to curtail drinking or smoking. It is precisely because the Government knows that the consumption of these products is inelastic that they are easy targets for a selfish state-driven tax trap”. Past governments are open to accusations of economic illiteracy, but if past governments were cynically trying to wring cash from smokers, would they really have banned tobacco advertising and smoking in pubs? It’s not a government conspiracy. Smoking is bad for you.
Of course economics is the study of choices over scarce resources. Irish alcohol and tobacco cost 70% more than the EU average. This is not a problem of structural competitiveness, it is purely due to taxation. As a country we made a choice to put high taxes on these items, and this choice could be reversed tomorrow if we wanted to. If we slash prices on tobacco it is unlikely to be a major boost to competitiveness. Tourists are unlikely to flock to Ireland because 20 John Player Blue no longer cost €8.65 (which coincidentally is the minimum wage). A choice has been made that it is better to tax tobacco highly, and questions of equality are not best dealt with through excise duty.
There is no chemical solution to an economic problem.
Wednesday, 29 June 2011
Car Scrappage Scheme: A Nice Little Stimulus...for Germany and Japan
Tom McDonnell: The much maligned car scrappage scheme comes to an end tomorrow. Unsurprisingly the car 'industry' proclaims it a success.
The scheme was a nice little stimulus for...Germany and Japan.
Another example of hairbrained policy making and wasted money. Ireland does not make cars and most of the money from these sales goes to overseas manufacturers in countries like Germany and Japan. It is hard to imagine a stimulus with a higher rate of leakage. Spending money on imports simply boosts jobs in other countries while channeling spending away from the domestic economy.
If the Government insists on handing out the gift of tax breaks (meaning money lost somewhere else in the economy) to specific types of retail businesses in the future it would be prudent to at least target those goods and services that are made in Ireland.
Paddy Logue over at the Irish Times has a good take on it:
"It used Government money to discount new cars for people who already have access to money or credit while getting them to junk a perfectly good car and then buy a new one whose production no doubt caused another small rise global warming."
And Friends of the Earth point out:
"each new car represents two to three years of pollution before it even hits the road"
The scheme was a nice little stimulus for...Germany and Japan.
Another example of hairbrained policy making and wasted money. Ireland does not make cars and most of the money from these sales goes to overseas manufacturers in countries like Germany and Japan. It is hard to imagine a stimulus with a higher rate of leakage. Spending money on imports simply boosts jobs in other countries while channeling spending away from the domestic economy.
If the Government insists on handing out the gift of tax breaks (meaning money lost somewhere else in the economy) to specific types of retail businesses in the future it would be prudent to at least target those goods and services that are made in Ireland.
Paddy Logue over at the Irish Times has a good take on it:
"It used Government money to discount new cars for people who already have access to money or credit while getting them to junk a perfectly good car and then buy a new one whose production no doubt caused another small rise global warming."
And Friends of the Earth point out:
"each new car represents two to three years of pollution before it even hits the road"
Tuesday, 28 June 2011
Comparative prices for the EU
Rory O'Farrell: Eurostat has brought out an interesting publication today on comparative prices.
This index is based on consumer expenditure, so one should look at the detail. Ireland is still relatively expensive, the 5th most expensive in Europe for consumers.
There are some puzzling figures that often occur in these comparisons. Ireland imports clothing and electronics, but these are relatively cheaper in Ireland. We export food and non-alcoholic beverages, which are relatively more expensive. Its unclear quality is adjusted for, though they do their best. For example, I certainly consider Irish butter (and dairy products in general) to be of a higher quality to that available in Belgium. However, electronic goods can probably be easily compared across countries.
What I find most interesting is that restaurants and hotels are 29% above average (Italy is 7% above the average). This is interesting as in 2008 labour costs for Italy and Ireland were identical for this sector, and in Italy they have relatively increased. So the cause of higher prices must lie elsewhere (such as food prices, excise duty on alcohol, or rent).
Ireland is the most expensive for cigarettes and alcohol. But this needn't worry us to much from a structural competitiveness standpoint, as the high excise duty is part of our social policy which aims to curtail the consumption of such items.
Its also interesting to make a comparison to 'comparative price levels' which is an index based on the whole economy (including government and business expenditure). Here, in 2010 the Irish level is only 12.1% above the EU average, and 6.3% above the EU15 (the lowest for about 10 years). This shows that consumer prices are more out of line than prices faced by business and government.
This index is based on consumer expenditure, so one should look at the detail. Ireland is still relatively expensive, the 5th most expensive in Europe for consumers.
There are some puzzling figures that often occur in these comparisons. Ireland imports clothing and electronics, but these are relatively cheaper in Ireland. We export food and non-alcoholic beverages, which are relatively more expensive. Its unclear quality is adjusted for, though they do their best. For example, I certainly consider Irish butter (and dairy products in general) to be of a higher quality to that available in Belgium. However, electronic goods can probably be easily compared across countries.
What I find most interesting is that restaurants and hotels are 29% above average (Italy is 7% above the average). This is interesting as in 2008 labour costs for Italy and Ireland were identical for this sector, and in Italy they have relatively increased. So the cause of higher prices must lie elsewhere (such as food prices, excise duty on alcohol, or rent).
Ireland is the most expensive for cigarettes and alcohol. But this needn't worry us to much from a structural competitiveness standpoint, as the high excise duty is part of our social policy which aims to curtail the consumption of such items.
Its also interesting to make a comparison to 'comparative price levels' which is an index based on the whole economy (including government and business expenditure). Here, in 2010 the Irish level is only 12.1% above the EU average, and 6.3% above the EU15 (the lowest for about 10 years). This shows that consumer prices are more out of line than prices faced by business and government.
Google and the case for broadband investment
Tom McDonnell: It is too easy in these days of high drama on the European stage to forget the fundamentals that will drive our eventual economic recovery. And we will recover provided we make the right strategic decisions.
It was welcome therefore to see this intervention by Google's executive chairman Eric Schmidt. He stated yesterday:
“The thing the Government can actually do that’s hard is [to] work with the telecommunications providers to get more broadband. It’s very difficult for small businesses to do,”
“There are very few things that are better use of your money than long-term infrastructure in information technology that serves the interests of the citizens of the country.”
My own doctoral research has focussed on the development of telecommunications infrastructure in Ireland and there is a wide body of theoretical literature and empirical evidence that backs up Schmidt's claim that 'broadband' matters for a country's growth prospects.
The rate of knowledge acquisition in an economy plays an important role in the long term growth rate of that economy. Broadband internet reduces the costs associated with learning and is a facilitator of knowledge acquisition and diffusion par excellence.
It is what is known as a General Purpose Technology. That is a transformative technology like the steam engine and electricity which affects the entire economy.
And Ireland is a broadband laggard.We are at the bottom of the class with Portugal and Greece.
Fixed (wired) broadband subscriptions per 100 inhabitants in the EU15 and Norway, Iceland and Switzerland (June 2010)
Rank Country Total
1 Netherlands 37.8
2 Denmark 37.3
3 Switzerland 37.1
4 Norway 34.2
5 Luxembourg 34.1
6 Iceland 33.3
7 Sweden 31.8
8 France 31.4
9 Germany 31.3
10 United Kingdom 30.5
11 Belgium 30.0
12 Finland 26.4
13 Austria 23.0
14 Spain 22.2
15 Italy 21.3
16 Ireland 20.3
17 Portugal 18.9
18 Greece 18.7
Source: OECD
A number of factors have hampered broadband development in Ireland, for example, low population density and a geographically dispersed population.
A lack of infrastructural investment by Eircom has also contributed negatively to broadband development in this country. One reason for the lack of investment is that the company was loaded with debt in the years after privatisation. Eircom now has debt levels approaching €4 billion. This was a legacy of Leveraged Buy Outs which the state had made itself powerless to stop.
Eircom's troubled finances will prevent it from investing sufficiently in the future. Although the Government's finances are perilous, the case for state investment in broadband is strong.
It was welcome therefore to see this intervention by Google's executive chairman Eric Schmidt. He stated yesterday:
“The thing the Government can actually do that’s hard is [to] work with the telecommunications providers to get more broadband. It’s very difficult for small businesses to do,”
“There are very few things that are better use of your money than long-term infrastructure in information technology that serves the interests of the citizens of the country.”
My own doctoral research has focussed on the development of telecommunications infrastructure in Ireland and there is a wide body of theoretical literature and empirical evidence that backs up Schmidt's claim that 'broadband' matters for a country's growth prospects.
The rate of knowledge acquisition in an economy plays an important role in the long term growth rate of that economy. Broadband internet reduces the costs associated with learning and is a facilitator of knowledge acquisition and diffusion par excellence.
It is what is known as a General Purpose Technology. That is a transformative technology like the steam engine and electricity which affects the entire economy.
And Ireland is a broadband laggard.We are at the bottom of the class with Portugal and Greece.
Fixed (wired) broadband subscriptions per 100 inhabitants in the EU15 and Norway, Iceland and Switzerland (June 2010)
Rank Country Total
1 Netherlands 37.8
2 Denmark 37.3
3 Switzerland 37.1
4 Norway 34.2
5 Luxembourg 34.1
6 Iceland 33.3
7 Sweden 31.8
8 France 31.4
9 Germany 31.3
10 United Kingdom 30.5
11 Belgium 30.0
12 Finland 26.4
13 Austria 23.0
14 Spain 22.2
15 Italy 21.3
16 Ireland 20.3
17 Portugal 18.9
18 Greece 18.7
Source: OECD
A number of factors have hampered broadband development in Ireland, for example, low population density and a geographically dispersed population.
A lack of infrastructural investment by Eircom has also contributed negatively to broadband development in this country. One reason for the lack of investment is that the company was loaded with debt in the years after privatisation. Eircom now has debt levels approaching €4 billion. This was a legacy of Leveraged Buy Outs which the state had made itself powerless to stop.
Eircom's troubled finances will prevent it from investing sufficiently in the future. Although the Government's finances are perilous, the case for state investment in broadband is strong.
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