July 25th Afternoon: The Recession Diaries

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horsesmouth.JPGI have a friend with a strange sense of humour. His email says only ‘Enjoy the weekend’. But attached is a news statement from the Irish Small and Medium Enterprises Association (ISME). Some friend. ISME and the Small Firms Association are in competition with each other over who can best represent small/medium enterprises.

This usually ends up with each organsation trying to outdo each other in the most-outrageous-and-ridiculous-demands that can be made, ostensibly on behalf of their membership. We know that the SFA called for minimum wages to be slashed n’ burned. Now, ISME has to come up with something different because they wouldn’t want to be seen to be led by the SFA crowd.

So ISME has come up with proposals to ‘stem the flow of jobs‘. They call these proposals ‘innovative’. They boil down to slash, slash, slashing tax revenue. It’s best to laugh.

  • First on the chopping board is Employers’ PRSI. For the majority of their payroll they want to cut this from 10.7% to 5% – more than halving it. They call this proposal ‘targeted’.
  • Second, they want massive increases in tax credits so as to allow workers to earn an income of up to €25,000 tax-free, up from the current €18,300 for a single worker.

These proposals are, in a word, barmy. Of course, ISME haven’t costed then – because the price tag alone would laugh them right out of the market-place of ideas. But we can make some educated guesses. The PRSI proposal, alone, would cost between €1.5 and €2 billion. The income tax proposals would cost, at a minimum, €1.8 billion. So taken together, ISME’s proposals comes with a price tag of €3.3 to €3.8 billion.

This is laughable. At a time when the Exchequer’s finances are in meltdown, ISME wants to hasten the collapse. This would suck out so much money the Government would have to make severe cuts in the capital programme – putting in jeopardy our future growth, never mind the jobs that would come with those projects. There would have to be massive cuts in day-to-day expenditure – education and health in particular (so much for the knowledge society or even a healthy one). ISME’s proposals constitute one of the most irresponsible contributions to the recession debate, to date.

And would their proposals do any good? Not much, except line the pockets of ISME’s members. ISME’s starting point is the absolutely wrong point:

‘According to ISME Chief Executive Mark Fielding, “It is absolutely critical that businesses are not hampered by unrealistic wage demands and that the talks on a new national wage agreement will recognise that actual Irish labour costs are out of sync with our competitors and represent a real threat to Irish businesses.’

Mr. Field is right in one respect – Irish labour costs are out of sync with out competitors. They are far, far lower. Let’s go over this ground again:

  • Irish wages are one of the lowest in the EU-15
  • Employers’ PRSI is the absolutely lowest in the EU-15. Employers’ PRSI would have to double just to reach the EU-15 average.
  • We have one of the lowest corporate tax regimes in the industrialised world, along with one of the least regulated economies.

So what have we got? The most pampered, spoiled enterprise sector which are expert at whining but not much good at identifying the real problems in our enterprise base.

The only silver lining in all this is the notion that ISME’s latest proposals will spark a counter-response from the SFA which will in turn cause an even more outrageous set of demands from ISME – a race-to-the-bottom of thinking.

SFA demands that employers be allowed to beat unproductive workers!

ISME proposes the abolition of rain because cloudy skies undermine our competitiveness.

Enjoy the weekend.

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