Posts By Michael Taft

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Unrealistic Timelines: Water Charges and the Fiscal Deficit

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During a recent debate on water charges, Minister Alan Kelly had this to say about Government policy:

‘I would go so far as to say that the timelines operating to date have been somewhat unrealistic, squeezing many years of work into too fine a condensed period of months.’

To which a reasonable policy response would be abandon the current timeline; in particular, the introduction of water charges.  If the timelines are unrealistic then, clearly, it is realistic to proceed with the charges.

However, an argument that has arisen in the last week is that if water charges were abolished, suspended, postponed, put in cryogenic freeze, whatever, it would have a negative impact on our deficit.  This arises because Irish Water is now ‘off-the-books’ for the purposes of calculating our deficit.  This means that, unlike in the past, expenditure in water services is not counted as government expenditure since more than 50 percent of its revenue comes from non-government services (i.e. household and business charges).   There is an exception to this which is discussed below.

So how much would it cost the state to get rid of the charges?  I have heard claims that it would cost an extra €600 million, €800 million, €1 billion and more.  Would it?

FF’s Micheal McGrath asked the Minister of Finance a pretty straight-forward question:

‘To ask the Minister for Finance the deficit in nominal and percentage terms which would exist in 2015 if domestic water charges were not applied, and the costs associated with water provision if brought fully back on to the State’s books.’

The Minister refused to answer the question or even offer an estimate.   So when you hear Ministers, backbench TDs and commentators going on about how much it would cost the state to get rid of water charges, just remember:  the Minister for Finance refused to tell the Dail how much.

[Also, SF’s Angus Ó Snodaigh also asked the same Minister Kelly ‘the amount it will cost to provide water and sewerage services in 2015’.  Again, no answer.  What does it take to get a direct answer to a direct question?]

Given the official silence on this issue, I went in search for the answer.  The PwC report on water services published in late 2011 stated that the cost of water services, which includes investment, was €1.1 billion in 2010.  Let’s assume some growth in spending, though during this period it could have easily been cut (Eurostat numbers show a steady reduction of expenditure since 2010 but they have a different method of categorising water expenditure so we can’t be sure if we’re comparing like-with-like).

If the cost of providing water services in 2015 is €1.2 billion, and the €533 million is ‘on-the-books’, then the Government will benefit by €667 million.  Therefore, if there were no water charges, then the deficit would rise by €667 million.

However, the Minister also stated that €233 million in revenue from non-domestic sources (does this refer to businesses?) counts as Government revenue which wouldn’t be the case with households.  I can’t say conclusively how this impacts but if given that off-the-books revenue must be at least 50 percent, and the Government has trimmed this to be as low as possible, we could be looking at a saving of only €300 million for the Government.

And the cost of the child-free water allowances will also count as government expenditure.  If the charges were abolished, so would this expenditure.

Is this clear?  No, but the Government has refused to answer straight-forward questions.  To complicate matters further the Government is intending to spend €223 million in an equity investment in Irish Water.  But if we just freeze the situation, this €223 million wouldn’t arise, so we shouldn’t allow this to be thrown into the pile.

So what have we got?  On a static basis:

  • If the savings to the Government were €667 million, then the deficit would rise by 0.3 percent.  The Government would still hit its 3 percent deficit target.
  • If the savings were €300 million, then the deficit would rise by only 0.1 percent – meaning the Government would come in comfortably below target (at 2.8 percent).

However, this is on a static basis.  One has to estimate three things:  first, with the removal of the water charges, consumer spending will rise, thus increasing GDP (for most people, every €1 not spent on water charges is likely to be spent in the domestic economy).  A higher GDP means a reduced deficit (as a percentage of GDP).

Second, tax revenue rises from the increased spending; this has a downward pressure on the deficit.

Third, social protection costs may fall if employment arises from this increased spending; again, putting downward pressure on the deficit.

Therefore, the Government would come in below their targets.  And that’s for 2015.  When you estimate the impact on the deficit for 2016 and beyond, it makes little difference to the deficit as it will be falling substantially.

If my estimates of costs hold then the Government will hit its fiscal targets next year and the following years.  I am open to correction – but the only ones who can do that are the Government and they aren’t telling.

The Government should call a halt to this mess called Irish Water.  It is a toxic brand that no amount of re-branding will save.  If the Government, as part of a panic measure to mollify the opposition, caps water charges until 2016, this could actually threaten the ability of the Government to keep expenditure off the books (never mind the whole conservation mojo). The Government would be imposing charges, but be unable to keep the spending off the books.  All economic pain, no fiscal gain.

Stop the mess.  Put the numbers out into the public domain.  Go back to the drawing board.

There are other, better ways to finance water investment, dis-incentivise wasteful consumption and fund a modern, state-of-the-art water and waste system.

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Welcome to the New Tax Avoidance Scheme, Same as the Old Tax Avoidance Scheme

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Well, not quite – but the effect may be the same.  Many international commentators welcomed the Irish Government for ending the infamous ‘double-Irish’ tax scheme.  But just as it shut this down, it announced a new scheme: a ‘knowledgedevelopment box’ designed to reduce corporate taxation to a little over six percent.

The ‘knowledge-development box’ is based on the concept of the patent box used by the UK and the Netherlands to attract multi-nationals with preferential tax rates on income flowing from patenting activity.  However, the scope for the Irish box could be wider.

After all, what exactly does ‘knowledge-development’ encompass?  In the UK and the Netherlands, companies get a tax break on income generated from inventions.  In Ireland, we may see all manner of activities thrown in – source code, copyrights, patents, branding, trademarks and that expandable concept – R&D.  And we’ll have to wait and see to what extent it facilitates more than just actual activity in Ireland (will it encompass activity ‘managed from Ireland’).

The Government was keen not only to put in a replacement for the double-Irish scheme, but to reassure key multi-nationals.  Government officials briefed ‘multinational investors’ on the rationale for the Government’s policy (question:  were any of you included in a conference call by officials prior to the establishment of the water charge?).  The message was clear: the Government may have been forced to abandon the double-Irish due to considerable international pressure – but don’t panic; a replacement is at hand.

It is argued that we need multi-national capital to create high-end employment in the global supply chain.  No one disputes this.  Ireland’s indigenous economy, even with the best policies in place, would not have created the pharmaceutical sector we have today.  However, this common-sense observation is then used to argue that the only way to achieve this is to pursue our current accommodative corporate tax regime (that’s a nice way to describe a tax haven-conduit).  Yes, we have another roll-out of TINA – there is no alternative.

But are there alternative approaches to attracting multi-national enterprises without resorting to tax tricks or ultra-low tax rates?  Does Ireland benefit more than our peer-group EU countries from multinational employment?  This argument – that we have been more successful than other countries in attracting multi-national jobs – has been restated so many times that it is taken as gospel.  But is it true?

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Austerity is Over? Now Back to the Real World

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Headlines and sound-bites abound: ‘austerity is over’, ‘the beginning of the end of austerity’, ‘we beat austerity’ and so on and whatever and sure, why not.

Let’s cut to the chase: austerity is not over. It is entering a new phase. We will now experience austerity ‘below the waterline’. Austerity by stealth, austerity beneath the radar: give it any description but have no doubts. We will continue to suffer austerity, probably up to the end of the decade.

You don’t have to believe me – just look at the Government’s own projections. They clearly show what is in store. And it is not pretty.

The following comes from the Budget 2015 Full Report (Table A.2.2, page 99). In this table the Government projects their spending plans out to 2018. You’ll see that spending pretty much flat-lines, with some slight downward pressure, up to 2018. However, this is what’s called the ‘nominal’ spend – the actual Euros and cents. To get a real world sense you have to factor in inflation.

The Government provides the inflation or deflator figures in Table 5. They estimate that inflation (for the economy, the inflation figure is the GDP deflator) will be over six percent up to 2018. Therefore, public spending – if it is to maintain its value – must rise by that amount. If it falls below that figure, we have a real cut; if it rises above that figure, we have a real increase. So what do we find?

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Primary expenditure excludes interest payments; therefore, it is the total spending on public services, social transfers and investment, with other small categories such as subsidies. We find that total real spending will fall by over six percent by 2018.

In regards to public services (estimated on the basis of figures produced in Table A.2.1 on page 97), we find that real spending will fall by five percent. That’s five percent less than we have today to fund schools, hospitals, policing, transportation, enterprise supports – all our public services. That is going to put a real squeeze on the breadth and quality of our services.

As to investment – the key to long-term growth – the Government intends to cut its spending by nearly 13 percent. This will undermine our infrastructural and business capacity. We will fall further behind our trading partners (and competitors) who are investing far more than us. Of all cuts this is the most irrational from an economic growth point of view.

But there’s another twist to this. For populations do not remain static. Our population is estimated by the IMF to grow by over three percent up to 2018 – which means more people to provide services and income supports to. So if we take the real spending cuts above and break them down on a per capita basis what do we get?

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It is worse. Now overall real primary spending falls by nearly 10 percent, with public services falling by over eight percent and investment taking an even bigger hit.

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The ‘Taxes’ on Living Standards the Government Won’t Be Addressing

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With all this talk about taxation and Budget 2015 (and one of the few doing any plain talking is Fr. Peter McVerry – calling tax cuts for high-income earners ‘outrageous’) there are ‘taxes’ that people pay that the Government will do little, if anything, to address. Indeed, the budget will be framed in a way that undermines the Government’s ability to provide relief against these ‘taxes’.  What am I talking about?

We automatically assume that ‘taxes’ are something the Government levies.  Therefore, when we discuss ‘tax relief’ or ‘tax cuts’, we refer to reductions in things like income tax, USC, PRSI or VAT, though the latter doesn’t feature much.

However, there are ‘taxes’ that people pay when the Government fails to provide the services and income supports it should – if one accepts that we are a modern European state.  We can call these ‘taxes on living standards’.

Take, for instance, childcare:  in Ireland, a household can pay up to €800 a month and more for a childcare place.  In most other continental countries, childcare can cost as little as €150 per month and even less for the low-paid.  Why the difference?  In other European countries, childcare is financed through the public sector, usually local authorities.  In Ireland, people are forced on to the private market.  This is quite ‘taxing’ for these households.

If the Government rolled out affordable childcare, households with children could expect reductions of up to €500 to €600 a month – or thousands of Euros a year.  This reduction in childcare fees (‘taxes’ for those in need of this vital service) would be greater than any income tax cut.

Or take another example – public transport.  In other countries, public transport receives a high level of public subvention, or subsidy.  This ensures expanded services and affordable fares.  In Ireland, public transport receives an extremely small subvention.

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What is Going On in the Irish Economy?

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After a deep recession, after years of stagnation, the Irish economy is growing in leaps in bounds.  The ESRI is projecting by 10 percent growth over this year and next.  These are almost boom-time growth rates.  Should we be a bit wary?

It’s hard to disagree with the ESRI’s Dr. John Fitzgerald when he wrote:

‘ . . . the standard EU harmonised national accounts are not a satisfactory framework for understanding what is happening in the Irish economy.’

This is primarily due to the impact of multi-nationals and the IFSC which can give a false reading of headline.  Let’s go through some of these categories and then come back to the question:  how satisfactory or reliable are the national accounts and growth projections based on those accounts.  This is a bit long and may be a tad technical in parts but hopefully you can stay with it:  it tells a story about how a story is being told – and it is the telling we should be wary of.

Multi-nationals and the GDP

Everyone knows that GDP is not the best measurement of the Irish economy.  But it’s not just because multi-nationals make profits here and then repatriate them (that is, take out of the country).  The reality is that the profits are not made here but are counted here.  Let’s look at two key sectors where multinationals dominate:  manufacturing and information & communication (the latter is where the Apples and Googles would be located). Note:  this is data supplied by the Irish Government to the EU.

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Profits in Irish manufacturing nearly 8 times that of other EU-15 countries; in the Information & communication sector, it is over 3 times.  Clearly, these are not profits generated by employees in Ireland; they are generated in other economies and ‘imported’ here to take advantage of our low tax rate and our position in the global tax-avoidance chain.

The point here is that our GDP is distorted by multi-national profit-shifting – and that’s before you start taking account profit-repatriation.

Well, Then, We Can Use GNP

Well, no, that isn’t a satisfactory measurement either.  GNP is just the GDP after you take account of money flowing in and out of the country (and more money leaves Ireland than comes in).  Therefore, GNP is still distorted by the multi-nationals’ profit shifting that we saw above.

We can’t be certain if the ‘fake profits’ that appear in our GDP are automatically taken out by multi-nationals.  They may be retained or swim around the IFSC pool (don’t forget that US companies avoid US tax by keeping their money abroad). And not all money flowing out of the country are repatriated profits – they can be interest payments, indigenous multi-nationals investing abroad and households sending money out of the country.

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Squeezing the Middle

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So the Government wants to give relief to the squeezed middle.

‘Taoiseach Enda Kenny has said easing the tax pressure on the “squeezed middle” will be a priority in the upcoming budget.’

The very first question is:  who exactly is the Taoiseach referring to?  The squeezed middle is an amorphous and infinitely elastic concept that can apply to just about anyone you want it to.  Let’s try and get a handle on this much-talked about but rarely defined group using the latest Revenue Commissioners statistical report.

Let’s define the squeezed middle as the middle 60 percent – between the lower and upper 20 percent group.  Remember, this doesn’t refer to everyone, just those in the workforce.  It excludes those without a job (pensioners, the sick and disabled, the unemployment, lone parents, etc.).

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We can see that, according to the Revenue distribution tables, the middle 60 percent of earners have incomes between €8,700 and €51,300.  However, there is a big caveat here.  Couples where both spouses and civil partners are working are counted as one tax unit.  This means that while in the tables, a tax unit will show an income of €60,000 – this actually means the combined income of two people.  So they may both be earning well below the average income.

We can adjust for this but we have to make assumptions.  To breakdown the one tax unit where there are two people working, I assume that one spouse / civil partner earns 60 percent of the total, while the other earns 40 percent.  When this is done, the revised income range looks something like this.

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This is just an estimate (other might come up with slightly different numbers, working with this data – but it won’t change all that much).  However, looking at the two charts there are three striking things:

  • First, there are many in the squeezed middle that earn very little.  They will be low-paid, part-time, and underemployed (or precarious workers).
  • Second, those earning over €42,400 are in the top 20 percent   (€51,300 using the unrevised chart)
  • Third, between 64 and 73 percent of those in the squeezed middle (depending on which chart you use) are taxed at the standard rate, the marginal rate or are exempt.

A substantial number of the squeezed middle do not earn enough to pay income tax or earn below the top tax rate threshold – so any income tax cuts, never mind cutting the top rate of tax, will have no impact whatsoever.  Is this the group that the Taoiseach is referring to?

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Mark Fielding Speaks to the Nation: We Don’t Owe You Squat

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In the excellent Irish Times series on the Living Wage, Mark Fielding, Director of ISME (Irish Small and Medium-Sized Enterprises) has put it bluntly to workers and the nation:

‘It’s not our responsibility to give someone a living wage.’

That’s telling them, Mark. You want a wage that can afford you a minimum adequate standard income, don’t come to us. Not our problem. Be lucky to have a job – if we decide to hire you.

This is Thatcherism Irish-style. There is no such thing as society, only Mark’s members. But to be fair to Mark, he’s got form on this issue.

‘ISME chief executive Mark Fielding called on the Government to scrap the minimum wage . . . He said the minimum wage had failed to benefit the low paid . . . ‘

So scrapping the minimum wage would ‘help’ the lower paid. Hmmm.

Mark is at pains to explain the extraordinary burden his members suffer:

‘The minimum wage is €8.65. But it’s really €9.68, when you take into account employers’ PRSI contributions.’

Oh, my – a wage floor of €9.68 per hour. That sounds really bad. Workers in our hospitality sector (hotels and restaurants) must be really costing Irish employers a bomb – especially in comparison to other EU-15 countries. But is this the case?

hos_sectOur labour costs (made up almost exclusively of wages and employers’ PRSI) are far lower than most other EU countries in the graph. Labour costs would have to rise by 27 percent just to reach the mean average; they would have to rise by over 50 percent to reach French levels.

Of course, this data (the latest from Eurostat) is from 2011. Maybe Mark is worried about recent trends in low-paid sectors. Let me put his mind at ease. Irish labour costs in hospitality rose by 1.3 percent up to 2013; in the EU they rose by 3.2 percent. We’re even further behind.

That a representative from a business organisation would give out about wages, or paying higher wages, or even paying a decent wage is nothing new or unexpected. However, this ‘whether-people-can-live-on-the-wage-I-pay-has-nothing-to-do-with-me’ position got me to thinking: do all employers think like this? Would they all agree?

It’s hard to say in this country where the debate is dominated, loudly and persistently, by so many Mark Fieldings. But it is interesting to take a look at business organisations overseas, in the US, where such groups are no slouch when it comes to promoting their economic interests.

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IBEC’s Myth Debunking is Just Bunk

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IBEC has published a paper entitled ‘Debunking Irish income tax myths’.  At its core it contains misleading, highly selective and ultimately disingenuous arguments.  In short, it is bunk.  Let’s go through one of their main arguments and see where they are misinforming the debate.

Personal Taxation – It is Lower than the EU Average

IBEC puts forward two graphs (Figures 2 and 3) to show that Irish personal taxation is much higher than in the EU-27.  This is an audacious presentation.  They use data selectively and exclude large parts of personal taxation.

(a)  Using GDP and GNP

IBEC produced the following calculations.

111According to IBEC, this proves that Irish personal taxation is higher than the average of the EU.  They further claim, that on these numbers, Irish ‘taxpayers’ are paying €3 billion more than the EU average on a proportional basis.  The problem is that they are not comparing ‘personal taxation’; they are comparing income tax.
They exclude a large portion of personal taxation; namely, social insurance or PRSI.  In almost all other European countries, PRSI plays a much greater role than income tax.  In the EU, PRSI makes up 37 percent of total personal taxation; in Ireland, it makes up only 12 percent.  In seven countries, revenue from PRSI is higher than revenue from income tax.  In the Netherlands, income tax raises €46 billion; social insurance, however, raises €63 billion.

Not only did IBEC ‘mould’ the data around the conclusions they wanted, they also mixed the measurements to suit their argument.  When comparing GDP, they used an ‘arithmetic’ average for the EU.  However, when using GNP, they used a ‘weighted’ average.  The difference is that in the former, you average the individual percentage of each country; in the latter you add up all countries together and calculate the average. It allows IBEC to claim that income tax makes up 7.8 percent of GDP (arithmetic) whereas using the weighted measurement gives a figure of 9.4 percent.

Here’s the actual data – using the weighted average.  All comparative data below is from Eurostat’s Taxation Trends in the European Union 2014.

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On all these measurements, Ireland is well below average.  On GDP we’re below, but we know that much of our GDP is multi-national froth.  Using the Fiscal Council’s hybrid-GDP (which compromises between GDP and GNP), we’re still below average.  Even when using GNI which is essentially GNP, we remain below, though less so.

If we use adjusted GDP we’d have to pay €3.6 billion more in personal taxation – income tax and PRSI combined.  However, this isn’t the best measurement.

(b)  A More Robust Measurement
There’s a problem in using GDP and GNP.  If, after years of recession and austerity, GDP and GNP are depressed, then you will probably not be comparing like-with-like with countries that didn’t have such an experience (or not in the degree we had).
There is a better measurement: the effective personal taxation rate.  This is the total amount of personal taxation revenue as a percentage of total wages and salaries.  The following is for employees (measuring the tax rate for self-employed is difficult as the data on self-employed income is limited) though it covers 83 percent of all those in work.

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Appreciating Facts

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Last night on Prime Time Brendan Burgess, from Ask About Money, stated that high-income earners in Ireland pay more tax than high earners in other countries.

‘We have a very low direct tax economy in this country for the lower and the middle paid and very high taxes for the upper paid.  And that’s something people don’t appreciate.  And they need to appreciate that.’

Let’s do some appreciation.  Are we a ‘very low’ direct tax economy?  Direct, or personal, taxes include income taxes, social insurance (PRSI) and other taxes on income such as Ireland’s Universal Social Charge or Germany’s surtax.

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We are low-tax, well below a lot of other countries.  But we are not that far behind the EU-15 weighted average, not that far behind ‘high-tax’ Sweden and ahead of another ‘high-tax’ economy, France.  So I don’t know that I would call it ‘very low’ but we certainly should be doing better.

But what about that ‘very high taxes for the upper paid’?  We don’t have ‘effective’ tax rates for different income groups to compare (that is, the tax rate when all reliefs and deductions are taken into account).  We only have ‘headline’ tax rates – which only include basic reliefs like personal tax credits.  But the following headline tax rates come from the OECD Benefit and Wages database.  The highest level of income for Ireland in the database is €119,000 (a couple, both working) so I’ll use that to compare with the same level of income in other countries.

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Headline tax rates on Irish high-earners are well below most other countries.  If they were living in Germany they’d be paying €11,000 more in income taxes and social insurance.

There is caveat in this.  In Ireland, taxpayers get relief on pension contributions, mortgage interest, health insurance and a rake of business investments.  Do taxpayers have access to the same level of reliefs and allowances?  More?  Less?  We don’t have easily accessible comparable data.  (Also, the tax rate for Italy in the above chart is for €107,000 – the highest level of income in the OECD database).

However, when looking at headline rate, Irish high-earners are not over-taxed in comparative terms.

And there are some further explanations needed (the type of explanations that rarely get a hearing on current affairs programmes).  Take the example of Sweden.  The chart above shows Swedish headline rates lower than Ireland.  In the first total direct taxation chart, Sweden is only slightly above Ireland.  Some might find this surprising since we all think of Sweden as high-taxed.

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The Loneliness of a Low-Tax, Low-Wage Economy

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The new Global Competitiveness Report is out. This is produced by the World Economic Forum (the crowd that occupies Davos once a year). It purports to rank countries by their business competitiveness. Ireland was ranked 25 in 2014. Last year we were ranked 28. Our competitiveness has improved. Yawn.

The rankings are based on a number of indicators – infrastructure, taxation, business efficiency, labour market, ease of doing business, etc. The rankings are compiled based upon a survey of 13,000 ‘business leaders’ throughout the world. So it is subjective – opinions formed by the executives of multi-nationals and large companies. You can only imagine what they might think. They’d probably give gold stars to countries that have hardly any tax, any wage, and require workers to bow every time the owner’s son drives by.

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But actually, no. These captains of industry and finance actually like (or don’t dislike) high-tax, high-spend, high-regulated economies – everything that we have been told is bad for our economic health. Here’s how our peer group – small open economies in the EU-15 – rank in competitiveness.

All the other small open economies are ranked higher than Ireland. Two of the countries are ranked in the top 10 in the world – Finland and Sweden. Let’s go through some of the economic sins as written down in the orthodox bible and see how the different countries fare (taxation data is taken from Eurostat’s Taxation Trends).

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Open Season on Workers (Again)

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The Sunday Business Post ran four stories last weekend- including a front-page banner headline – attacking not only public sector workers’ living standards, but workers in public enterprise as well.

Semi-States Enjoy Pay Increases During the Recession

Sitting Pretty in the Semi-States

Public Sector:  the Insider Story

The Special Protections of the Semi-States

The Sunday Business Post is determined to outdo the Sunday Independent in public sector worker bashing.

And the most interesting thing about these articles is that they are based on a survey and a reading of wage numbers that are not only completely wrong – but make the most basic statistical mistakes.  This is poor analysis, masquerading as informed commentary.  Let’s look at some of the claims and see where they went off the rails (unfortunately the SBP is behind a paywall).

The SBP Survey on Public Enterprise Wages

The SBP did a survey.  It purported to show the average wage in a number of public enterprises for 2009 and 2013.  From this they deduced whether the average wage rose or fell.  Here’s what their survey found.

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Dismal Job Numbers Expose Government Spin

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Question: why has employment growth collapsed in the first half of the year after recent claims by the Government that 60,000 jobs per year were being created?

The answer lies in statistical misunderstanding, Government spin and the failure of many commentators to read the numbers correctly. For the fact is that the 60,000 job-creation number was never real and the recovery in the labour market is sluggish at best. This post may get a bit involved but stay with me – for this is as much a story about how the recovery is being contrived as it is about bald numbers.

Last year, employment growth suddenly took off. In 2012 employment actually fell by 11,000 – and this was after a loss of nearly 300,000 since the start of the crisis. However, in 2013 everything changed. Employment grew on a full-year basis by 43,000 (this is consistent with claims by the Government who were using quarter-to-quarter figures).

This was quite a turnaround. The Government claimed their policies were working. For many commentators this was proof that recovery had returned. But there were a couple of problems.

  • First, this employment growth took place while the economy remained in a domestic demand recession. Given that employment is sensitive to domestic demand, this didn’t make sense.
  • Second, the usual pattern of an economy coming out of a recession is that employment growth lags. This is because if there increases in business output, the first beneficiaries are those already in employment; they get an increase in hours which had previously been cut.
  • Third, the actual job numbers were throwing up some strange happenings. Self-employment (own-account workers) grew by over 10 percent and made up over half of the total employment growth. At one stage, self-employment was growing by nearly four times the rate of growth during the boom. This didn’t make sense – not with domestic demand stagnation. Agriculture employment showed a similar pattern.

These concerns were dismissed. Government policies were working and critics were just nit-picking. However, the CSO published warnings throughout all last year – warning people against interpreting growth trends. Why? Because they were re-aligning their sample base with the recent Census (don’t forget, the Quarterly National Household Survey is not a comprehensive head-count, just a sample; like a poll). This happens after every Census.

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Perverse Economics and Water Charges

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If you’re into perverse economics, then you’re going to love the debate in the run-up to the budget. Already we have Minister Simon Harris calling for income tax cuts (didn’t the Taoiseach tell Ministers last year to shut-up during pre-budget discussions?). Of course, there is almost no discussion regarding affordable childcare, reducing education costs or introducing universal pre-primary education, providing affordable pay-related pensions to all workers, reducing health costs, reversing the high levels of deprivation and poverty, etc. Almost no discussion at all about how we can improve our living standards.

But of real interest to fans of the perverse is that while Ministers and interest groups line up to demand tax cuts, the Government will be introducing an extremely regressive ‘tax’ on almost all households – and there is no discussion about how this can be avoided. I am referring to the water charge.

While there has been considerable discussion about the costs to the average household (measuring showers, baths, brushing teeth), there has been little reference to the distributional impact of the charges; that is, the impact on different income groups. Let’s see if we can start to fill this gap.

Of course, we don’t have a history of water charges to measure so let’s look at waste collection charges. User charges, like sales taxes (VAT, excise) are generally regressive – they impact more on low/average groups. This is in the nature of the tax as lower income groups consume, whether goods or water or waste, more of their income than high income groups. The CSO Household Budget Survey provides information on waste collection charges from 2009/10.

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There are two things worth noting about the above chart.

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What is Wrong with Irish Business?

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IBEC’s pre-budget submission is a tour de force.  In the name of ending austerity it calls for  . . . more austerity; namely, reducing public expenditure in real terms.  This is done to pay for tax cuts that will primarily benefit higher income groups.  And in calling for real cuts in investment it then proposes to use fiscally inefficient public-private-partnerships which will drive up the cost of investment in order to create new channels of profits.  And in all this it manages to avoid the elephant in the room – the long-term chronic under-investment of Irish business in the economy.

Irish business has gotten all the breaks.  Historically, it has been the beneficiary of ultra-low corporate tax rates and social insurance while paying below-average employee compensation (compared to most other EU-15 countries).  And, yet, it is a chronic under-investor.  The following data is taken from the EU Ameco database.

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In 2012, Irish corporate investment is at the bottom of the table.  Even when adjusted for multi-national accounting practices (which is what the Irish Fiscal Advisory Council’s hybrid-GDP effectively does), we come in marginally ahead of battered Greece.  Our corporate sector invests 38 percent less than the EU-28 average – or nearly €6 billion less.  It invests less than half the level that pertains in other small open economics (SOE) – or nearly €9 billion less.   This is pretty bleak.

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