Posts By Michael Taft


Championing the Self-Employed

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The Left and trade union movement should champion the self-employed.   While the Right gives promises of tax breaks, the self-employed need so much more:  a stronger welfare state and public sector intervention to empower self-employed workers in the market place.  Indeed, what the self-employed need is what PAYE employees need: social security and market strength.

 Let’s do some background numbers.  In Ireland, there are approximately 320,000 self-employed or 17 percent of total employment.  Of these, 69 percent are own-account workers – that is, they don’t have employees.   Throughout the EU-15, the self-employed make up 14 percent with the same proportion of own-account workers.  In Ireland, nearly one-in-six in the workforce are self-employed.


Unsurprisingly, self-employed in the agriculture and fishing sectors make up a quarter of all self-employed.  This is followed by construction and retail, with professional and technical self-employed making up 10 percent.  There are smaller numbers spread throughout all economic sectors.

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Begruding the Recovery

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Cliff Taylor asks why President Michael D. Higgins is not celebrating the recovery we are experiencing. 

‘The President is not comfortable saying anything positive about the Irish economic recovery.’

Apparently, the President is a bit of begrudger; indeed, all of us who opposed austerity are.

‘But if you are in the anti-austerity camp then the fact that the Irish economy is now growing strongly is an inconvenient truth.

Not only is reality inconvenient, we are guilty of being fantasists.

‘The anti-austerity brigade seems to assume there was some way for Ireland to magically escape cutbacks when a huge gap had emerged between annual spending and revenue even before the bank bailout costs.’

But then Cliff bemoans the lack of ‘measured discussion’.   Does labelling people begrudger, reality-deniers and fantasists constitute measured discussion?  At the risk of further labelling, let’s try to engage in some of that – measured discussion, that is.

A good starting point is the Central Bank’s recently published Economic Letter which summarises a major study on fiscal consolidation in the Eurozone between 2011 and 2013. The study used two models to measure the impact of austerity – the EU and the ECB model.  They further utilised three scenarios:  a baseline, one where business debt was factored in and, thirdly, credit-constrained households.  In short, the study found:

  • The impact of austerity measures were much more severe than previously estimated – so much so that for €1 billion of austerity, the economy fell by €1 billion and more
  • That spending cuts had a more severe impact than tax increases
  • That debt rose in the years after the austerity measures were introduced – only falling some five or six years (and possibly longer)
  • That the austerity measures were the primary reason behind the Eurozone’s slugging growth performance

They concluded by saying it was a mistake to pursue austerity measures while the economy was in a slump; addressing the debt should have been postponed until after the economy recovered.  If this were done, the debt would fall more quickly and the economic damage (unemployment, falling wages, business bankruptcy) would have been less.   While this was a study of the Eurozone as a whole, there is no doubt that Ireland experienced this – especially as our level of austerity was nearly double that undertaken in the Eurozone as a whole.

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This Wealth is Your Wealth, This Wealth is My Wealth

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Recently, RTE aired ‘Ireland’s Great Wealth Divide’.  Though there were some problems with the analysis (ignoring the wealth of data published by the CSO, the confusing conflation of income and wealth, the unsubstantiated assumption that Ireland was ‘good’ at wealth generation) and the prescriptions (there wasn’t any) it at least gave an airing to a subject that doesn’t get much airing: inequality. 

A major gap in the programme, however, was a failure to acknowledge one of the biggest wealth divides – that between public and private wealth. First, let’s define wealth.  It is the value of all assets, whether those assets are held by households, businesses or states.  It can comprise physical assets such as buildings, land, machinery; liquid assets such as cash; and intangible assets – assets are not physical and are hard to value (e.g. a brand’s goodwill).  It is on the basis of this wealth that we generate income.

Private wealth is owned privately – by individuals or businesses.  Wealth indexes – likethe Credit Suisse report featured in the RTE programme – measure the wealth that is held by households.  Public wealth, on the other hand, is held by a public agency:  Government Departments, public agencies, local authorities and commercial enterprises.  These, too, generate income, create economic and business activity and are used for individual and social need (e.g. a local authority house). 

The amount of public capital is vast and under-appreciated.  Let’s run through a list that is far from exhaustive:

  • Land
  • Commercial, residential and heritage buildings – in use and derelict
  • Hospitals, schools, prisons, clinics, galleries, museums, libraries
  • Waterways – rivers, lake, canals, on-shore and off-shore
  • Roads, bridges, rails, airports, docks and seaports
  • Assets of commercial public enterprises
  • Financial assets:  Strategic Investment Bank, cash balances, Central Bank, retail banks

This is a vast portfolio of assets that generate income, business activity and living standards.  Much of it difficult to value – how do you measure, in Euros and cents, Lough Ray or the off-shore seas (though this can be done if the property can be privatised; anyone want to buy the Shannon?). 

How did this wealth come into being?  Apart from natural resources, these came about because of investment.  Public decisions in the past to invest in infrastructure, businesses, public services and capital assets form the basis of our public wealth today.

In fact, there is so much public wealth around us that sometimes we take it for granted without understanding how absolutely important it is – and what role it can play in future wealth and income generation for all of our benefit.

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A Return to Boom-and-Bust

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Never mind the details.  If we are to believe even half of the media leaks, the Government is preparing to return us to the kind of boom and bust fiscal policy that dominated the pre-crash period.

The context is different but the character is the same.  Between 1997 and 2007 corporate tax was slashed, capital gains and inheritance taxes were halved while the effective personal tax rate fell by 25 percent.    During that period budgets rode the wave of property tax revenue but when the crash hit our hollowed-out tax base was exposed. Revenue fell by over 22 percent or €16 billion in the first three years of the crash, resulting in a massive deficit.   The economy was built on the quicksand of unsustainable tax revenue.

Fast-forward to the 2016 budget to be presented tomorrow and a whole number of tax-cut goodies are being dangled in front of us:

  • USC
  • Self-employed
  • Landlords
  • Inheritances
  • Capital gains
  • Corporate tax (knowledge-box) and other business taxes

The Taoiseach has made it clear this is the first of a series of tax-cutting budgets.   We are hurtling back to the future.

Some may argue that increased tax revenue can more than make up for this.  But budget management now determines that excess revenue will have to be used to pay down debt – paying for tax cuts and/or spending increases will require equivalent tax raising and expenditure reduction measures (beyond the fiscal space of €1.5 billion).  The EU fiscal rules put us in a whole different game.

However, this game doesn’t prevent fiscal irresponsibility any more than they wouldhave prevented the pro-cyclical polices prior to the crash.  And this is where the problems arise.

Today, tax cuts will be subsidised, not by property boom revenue but by depressing badly needed public spending increases.  The Government has set aside €750 million for spending increases.  But:

  • A minimal €200 million has already been assigned to capital investment.
  • The Government’s Spring Statement and the Irish Fiscal Advisory Council state that €300 million is needed just to keep pace with changing demographics.
  • And a further €200 million is needed just to inflation-proof non-pay expenditure on public services. 

That’s €700 million before we even get out of the starting gates.  And this doesn’t include the Lansdowne Road Agreement or increases in social protection (somewhat offset by declining unemployment payments).  More importantly, this doesn’t factor in the considerable social repair that needs to be undertaken in the wake of austerity.  And as for expanding public services to European norms – that’s not even on the agenda.

While expenditure may exceed this €750 million, it will have to come from somewhere – including cutbacks in other areas of expenditure.  This is not as ominous as it sounds; savings from reducing the prescription medicine bill can be redirected into other areas.  But there is a limit to these savings.

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Renua’s Carnival Ride Back to Boom-and-Bust

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The silly season usually refers to August.  Now we have the silliest of seasons –the run-up to a budget in the run-up to a general election.  Minister Richard Bruton has recently called for a low flat rate tax on immigrants and returning Irish, along with cutting capital gains tax to 10 percent.  Brian Lucey has called some of the ideas both bad and stupid.

But Minister Bruton runs a poor second to Renua in the race-to-the-ridiculous stakes.  Renua has called for a flat-rate tax.  It represents a massive transfer from the lowest income groups to the highest income groups.  It will require low and middle income groups to fund not only their own tax cuts but even higher tax cuts for those on much higher incomes.   As Brian says of Minister Bruton’s proposals – it is an idea whose time has not come (and hopefully never will).

Renua proposes that income tax, employees’ PRSI and USC be abolished and replaced by a flat-rate tax of 23 percent.  This will be complemented by what is called a ‘Basic Income’ that tapers out slightly above average earnings (this is not actually a basic income – it is a hybrid of a tax allowance and negative income tax).  Renua doesn’t detail how this tapering works so we can’t do an income distribution impact assessment for all income groups.  However, here are a couple of examples from their own pre-budget submission with some estimates of my own.


Yes, you’re reading the graph right.  A low-paid worker on €20,000 would end up paying more tax.  Someone on an average wage would benefit by €800.  However, it’s bonanza city for those on €100,000 and more.  Calculations for €36,000 and higher are my own.

There is a similar regressive impact when considering couples.   Renua states that a couple on €50,000 (both working, same salary) would gain €1,665.  A couple on €100,000 would gain €9,741 – or more than six times the nominal amount.  Couples on even higher incomes would benefit disproportionately more.

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Housing Without Profit, People with a Home


The following is based on a talk I gave to the housing conference held on Saturday: ‘Towards a Real Housing Strategy’.  There were excellent contributions from academics, activists and victims of the housing crisis.  The contributions from Dr. Lorcan Sirs (DIT), Dr. Sinead Kelly and Dr. Mick Byrne (both from Maynooth) were particularly provocative, as were many others;including Fr. Peter McVerry and Dr. Rory Hearn.

The current model of 100 percent local authority provision of social housing is no longer capable of meeting the new challenges – not only because of future fiscal restraints and competing demands from other sectors – health, education, social protection, economic infrastructure, etc.  Future social housing provision will need to accommodate low and average income households – something which the private rental sector will struggle with, especially as transnational landlords, inward foreign investment and up-market accommodation are squeezing so many out.

This requires a new public sector-led model to adequately house a larger section of society and ensure that rents do not become a burden on the productive economy. 

There are three principles that can inform this new model:

  • It is not-for-profit (cost rental)
  • It blurs the distinction between the ‘social’ and the ‘private’ so that the not-for-profit housing leads and eventually dominates the entire rental sector (unitary market)
  • It reduces the impact on public finances (off-the-books)

This will, in the first instance, require new housing providers. 

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The Wake Up Call

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One of the more frustrating aspects about the budget season is that everyone is focused on the detail, the particulars; even more so when an election is looming.  The whole thing is backwards.  One should first start with a long-term programme.  Then we can see how the details of any particular budget serves that programme (or doesn’t).  No one is doing that.

Except the Nevin Economic Research Institute.  In their recent Quarterly Economic Observer, Dr. Tom McDonnell has produced an outline of such a long-term term framework and vision – a sustainable, prosperous and increasingly productive economy capable of raising incomes and reducing poverty.  It is rigorously argued and evidence-based and probably one of the best economic frameworks to emerge from the debate for some time.

This is not sexy stuff.  But it is the stuff of economic and social prosperity. 

Most of it all, it should serve as a wake-up call – not only to the Government but to progressives and trade unionists as well.  The programme is set out in Section 4 of theQuarterly Economic Outlook.  It is still in skeletal form; I understand that Dr. McDonnell will be producing a more comprehensive paper in late October.  But let’s go through some of the the headline proposals NERI is making.


  • Increase public investment
  • A new infrastructure bank to provide stable, long-term finance
  • Expert evaluation of infrastructural needs and specific projects (cos-benefit analysis)

This is a crucial area.  Think social housing, advanced-speed broadband, renewable energy generation, water & waste.  The Government’s capital programme released this week is a complete flop.  Investment will rise by €600 million over the next three years while tax cuts will cost €750 million next year. 

The emphasis on an infrastructural bank is intended to allow access to low-cost loans over the long-term, which works with the nature of infrastructural projects which have a long return horizon.  And we desperately need independent analysis of our infrastructural needs combined with publicly available and scrutinised cost-benefit analysis to ensure that we are getting value-for-money and that projects are economically viable, not politically expedient.

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The Desert of the Irish Debate

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There is an old American saying:  if you have nothing to say, wrap yourself up in the American flag and recite the constitution.  In Ireland, today, if a politician, a political party, has nothing to say, no new ideas to advance, then call for tax cuts.  The current deluge of leaks in the media about impending tax cuts are not evidence of sources having something to say; it is evidence of how the debate over future economic and social strategy has been turned into a desert.

And what tax is being hammered?  The most efficient, transparent, potentially progressive tax we have – a tax that even an army of accountants acting on behalf of the rich can’t get around:  the Universal Social Charge.  It is called a hated tax, an unfair tax, an anti-entrepreneurial tax.  Everything that is wrong with our income tax system is blamed on the USC whereas the reality is that the USC has the potential to repair much that is wrong with our income tax system, distorted and misshapen by the myriad of reliefs, allowances and exemptions – most of which benefit high-income groups.

People have been put under pressure from the tax increases during the period of recession.  It was irrational to reduce people’s take-home pay when economic growth was falling, wages were being cut in real terms, working hours and income supports (e.g. Child Benefit) were being cut.  Between 2008 and 2012, the effective tax rate rose by 30 percent.  This was a major contributor to lengthening and deepening the recession.

Today, however, the issue is not ‘high taxation’; it is that people’s living standards are low by EU-15 standards.  The debate over cutting taxes, however, shows how incapable political parties are of addressing this issue.  Rather than admit intellectual impotence, they propose tax cuts – which will only exacerbate the very problems they are incapable of addressing. 

Tax Cuts:  Giving More to Those Who Have More

Ireland has one of the highest levels of market inequality in the OECD.  As the recovery becomes embedded we are in danger of accelerating this trend.

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Could We Have a Little Bit of that Corbynomics Over Here?

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Jeremy Corbyn is now leader of the British Labour Party.  A Sunday Times article likens Jeremy to Caligula – an insane, murderous tyrant who appointed his horse Consul.  According to the Tories, he is a threat to Britain’s national security, economic security and, well, galactic security (watch out for those Corbynite Klingons).  Well, at the risk of Roman despotism and an alien invasion force landing on the Blaskets could we please have a little bit of Corbynomics here in Ireland?

For at the heart of Corbynomics is something quite modest:  a modernising investment drive to re-tool the UK economy.  It is a testament to the perversity of a debate that investing in high-speed broadband, public transport, social housing, school and hospital construction, green technology can be labelled as extremist.  Does anyone really suppose that British businesses would be outraged if they had a world class broadband system?  Or that the economy would dive into the abyss if more energy came from renewable resources rather than fossil fuels? 

Maybe the extremism comes from other aspects of Jeremy’s proposals.  Renationalise the railways and energy companies?  Yeah, so extreme that even a majority of Tory voters support renationalisation.  Combat multinationals’ aggressive tax planning and avoidance?  Yeah, forcing companies to pay taxes like the rest of us.  Build low-cost housing in London?  I’m sure tenants would be up in arms.  Everywhere you look in Corbynomics, you see common sense. 

Even orthodox commentators would seem to agree:

‘It is hard to exaggerate the decrepitude of infrastructure in much of the rich world.’

So begins a provocative article in the Economist, not noted for alarmist language.  It points out:

  • One in three railway bridges in Germany is over 100 years old,
  • So are half of London’s water mains.
  • In America the average bridge is 42 years old while the American Society of Civil Engineers rates around 14,000 of the country’s dams as ‘high hazard’ and 151,238 of its bridges as ‘deficient.

Such a state of affairs is not only highly inefficient, but potentially very dangerous.

Public investment is well down throughout Europe, the US and Ireland.


Almost all EU countries have significantly cut their public investment budgets – especially those countries that needed it most:  the poorer Mediterranean countries, Ireland, Romania. 

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The €2 Billion Start

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Today, Unite has published its 2016 pre-budget submission.  You can read the full submission here and the summary here.  In short, it calls for a €4.8 billion budget package comprising a €1.9 billion increase in expenditure on public services and social protection, a €550 million increase in public investment and focused tax reductions on the low paid (e.g. reform of the PRSI step-effect, refundable tax credits and indexation) worth €220 million.  This is to be paid for by tax increases on wealth and capital, along with increases in the social wage (employers’ PRSI) and the fiscal space allowed under the EU fiscal rules.

However, I want to focus on one particular proposal in the submission:  the temporary, once-off investment programme of €2 billion for social housing; in particular, focusing on the homeless and households with special needs.

This has been discussed previously on this blog.  Back in April 2014 I suggested that instead of the Government spending €7.1 billion on paying down debt, it should invest half of this into a special once-off investment programme in social housing.  The actual turnout for 2014 was €5 billion used to pay down debt.  At that time I wrote:

‘Let’s start with the conclusion: if by this time next year if there are people still homeless, it’s because the Government made a policy choice.  And the policy choice was to tolerate homelessness.’

Back in May 2014 Fr. Peter McVerry warned of a ‘tsunami of homelessness’:

‘In all the years I have been working with homeless people; it has never been so bad. We are, even I would say, beyond crisis at this stage.’

16 months later the situation has become worse. 

A comprehensive housing programme, one that addresses the myriad of issues such as homelessness, local authority waiting lists, rising rents and limited supply, house prices, planning, land prices – this is a big, big subject and is not amenable to sound-bite policies.  It will require joined-up strategies, long-term thinking and the intellectual courage to go beyond the ‘housing as just another market good’ thinking that dominates policy-making.

However, with winter coming on and more people becoming homeless, sleeping rough and / or living in wholly inadequate accommodation, we need short-term stop-gap remedies.  That’s the thinking behind Unite’s proposal for a €2 billion once-off investment programme – to address this immediate crisis. 

There are any number of options open to the Government in using this €2 billion:  fast-tracking refurbishment, acquisitions of short-term tenancies, conversion of idle buildings, extensions of current emergency accommodation, etc.  The key is that accommodation can be brought on stream quickly and efficiently.  One hopes that it is not too late.

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Cameron’s Swarm is Europe’s Solution

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David Cameron labelled them a ‘swarm’. Thousands of them have died in the Mediterranean.  Border fences are being built to keep them out:  Hungary, Spain, Bulgaria, Calais.  The Slovakian Government will take a handful of them but only if they are ‘Christian’ (apparently they don’t do Muslims or Mosques).  And all the while millions are being spent  on aperverse mini-stimulus – as ‘defence contractors, outsourcing companies and security forces find willing buyers for their security-based “solutions”, bringing new surveillance systems, patrol vessels, co-ordination centres and detention facilities to the market with little scrutiny or due diligence.‘  A rational political and economic response gives way to militarisation.

This is what has been labelled the ‘migration crisis’ – as hundreds of thousands are seeking refuge, asylum, work and a better life while risking oppression and even their lives to come to Europe. 

Much has been written on this subject – including this insightful analysis by Dr. Vincent Durac.  I don’t intend to survey all the issues or appropriate responses as this crisis has many origins and dynamics and will require substantial doses of enlightened national policy combined with international cooperation.  But here are a couple of thoughts.

First, the men, women and children that make up Cameron’s swarm – they are not a problem, they are a solution.  They are a solution to Europe’s ageing demographic, skill base and employment crisis.

A key part of this is the fact that Europe is growing old.  Using the EU’s main scenario demographic projection, we see that the EU’s total population will rise by 17 million while the number of over 65s will rise by 54 million.  Working age population will fall by 34 million.  12 of the 28 EU countries are actually projected to experience an overall fall in their populations.  With a higher proportion of elderly and a falling number of working age men and women, Europe is set to suffer a slow age crash.

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Eurostat Has Done Us a Favour

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We should not under-estimate the impact of the Eurostat ruling. It completely removes the rationale for Irish Water and the water charges.  After Eurostat, there is no policy, no direction, no strategy.  Ministers will downplay the ruling with a ‘move-on-nothing-to-see-here’ rhetoric, punctuated by a ‘there-is-no-alternative’ but all this does is expose the inability to grasp how fundamentally the landscape has changed.

Eurostat was never going to rule in any other way than it did.  The Government admitted this last April in the Spring Statement when it put all water expenditure back on the books in its projections up to 2020.  The fundamental issue is not whether enough people paid the charges.  It was the ‘market corporation’ rule:  did Irish Water look like and act like a commercial company in a market economy?  Eurostat said no – and this is all down to the Government’s headless-chicken response after the mass Right2Water protests last October and November.

The Government capped charges, froze them until 2018, and introduced an indirect subsidy through social transfers (the water conservation grant).  The lack of ‘economically significant prices’ (i.e. charges that reflect the cost of producing water) and government control led Eurostat to rightly label the whole exercise as a mere reorganisation of non-market activities.  Given all this, what company in the world could be considered a market entity?

The main rationale for the Government’s water policy was not charges; this could have been introduced as a stand-alone revenue-raising measure.  Nor was it the creation of a single water authority; that could have been done as a public agency rather than a corporation. The over-riding issue was to take the estimated €5.5 billion of desperately needed investment over the next seven years ‘off-the-books’.  Everything flows from this:  to take investment off the books you need to create a corporation, you need to charge a ‘market-like’ rate for the service.

Remember those lectures from Government Ministers and commentators with that ‘common-people-just-don’t-understand’ attitude?  Without the investment there would be water shortages while we would all be walking through sewage.  And the only way to get this investment was through Irish Water and charges.

Eurostat has killed that narrative.  Investment will be on –the-books.  With that foundation removed, the edifice – and the rationale for that edifice (the corporation, the charges) – crumbles.

What now?  Whatever they say in public Ministers must know its game over.  The only way to pass the Eurostat test is introduce ‘economically significant prices’.  This would mean reverting to prices based on usage with no cap determined by an independent regulator.  Is that likely?  No, not with the potential to bring another 100,000 to 200,000 on the streets.  The people didn’t win many victories during the austerity days; they won the battle over uncertain charges, PPs numbers and cut-offs.  No political party is going to challenge that.

How do progressives react to this?  The safe ground would be to call for the scrapping of the charges and the reform of Irish Water.  Fianna Fail is already calling for that.  Progressives can and must go further.  We can’t effectively challenge the current ‘steady-as-it-goes’ Government approach with a ‘steady-as-it-went’ that dominated past policy.  We need creative and innovative thinking that can not only address the issues but present an exciting, inclusive alternative to water supply and all public provision.


We need to increase investment to €600 million annually to modernise our infrastructure.

Water investment has been a bit of a roller-coaster ride.  We are now slightly ahead of 1995 levels after peaking in 2008.  We need to do better.

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No Country for Young People

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So you’re young, ready to take up work, make a bit of money and, most of all, make the social contribution that is expected of all members of the homo economicus species.  There’s only one problem.  You live in Ireland.

Following on from my previous blog on the weakness of our market economy to produce jobs – except in the construction sector – let’s look at employment growth by age.  Overall employment is rising, even if it is patchy.  But not for young people.   For young people, the jobs recession continues apace.


Employment grew by 2.2 percent overall.  But for young people – between 20 and 34 years – it fell by 1.5 percent.  Among older groups – over 50s – employment grew by 5 percent.

When we drill down further, we find that those aged between 30 and 34 years saw employment fell by 3.1 percent.

This is part of a longer trend.employment_growth2jpg

Since the crisis began, employment has fallen by 10 percent.  However, for those aged 20-34, employment fell by a third.  For other age groups, employment has recovered and increased – with employment among 50s and over increasing by 14 percent.

There has been some discussion about bringing Irish people back from abroad.  It has been suggested that a main obstacle is our ‘high’ tax regime (sigh).  As we see above, the problem remains what it has been some time ago – lack of jobs (though there will be some sectors that are undergoing growth).

Young people face more problems than just falling employment.  Since 2008, nearly 475,000 people have emigrated.  Unsurprisingly, the majority who left were young people.  Over 300,000 men and women aged between 20 and 34 years have left the country – or 65 percent of all those emigrating.


For those who stayed behind it’s still tough out there in the labour market.  The unemployment rate for those aged between 20 and 24 years the unemployment rate is 19.6 percent – twice the national average.  No wonder Eurostat estimates that 40 percent of young people are at risk of poverty or social exclusion (for the age group 18 – 24 years).

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Growing the Economy the Robin Hood Way

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Who said the following?

‘ . . . if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth.’


‘The poor and the middle class (middle income) matter the most for growth.’


‘ . . enhanced power by the elite could result in a more limited provision of public goods that boost productivity and growth, and which disproportionately benefit the poor.

The Socialist Party of the World?  The European Zapatista League?  The People’s Front of Judea (or the Judean People’s Front or the Judean Popular People’s Front)? 

No, it was the International Monetary Fund, that crazy gang that gave us poverty, deprivation and economic deterioration to just about wherever they went (now playing in Greece).

The IMF has recently published Causes and Consequences of Income Inequality: A Global Perspective – a strongly argued study that concludes that increasing equality is one of the best things a country can do to promote sustainable growth (that, and investment).  They propose a number of channels – fiscal redistributive policies, investment in education and health, and financial inclusion policies (e.g. basic bank accounts, etc.).

A particularly noteworthy finding is an estimate of the impact of redistribution on growth. 


If the income share of the poorest 20 percent increases by one percentage point, GDP grows by 0.4 percentage points.  However, if the income share of the highest income group, the top 20 percent, increases, GDP growth actually falls.

In other words, redistribution that leads to greater equality is good for the economy; redistribution that favours the highest income groups is bad (Britain after the Tory budget, take note).  You want to grow the economy?  Do a Robin Hood on it – take from the rich and give to the poor.

So what can we make of the Minister for Finance’s latest comments

noonan1‘I use the Budget for economic management purposes and I’m going to cut personal taxes in this Budget . . . I’m going to cut the Universal Social Charge (USC) by at least 1 per cent and maybe a bit more.’

The ESRI estimated the impact of cutting the USC’s standard rate of 7 percent on income groups.  This is what they found.


A cut equivalent to €500 million (cutting the USC standard rate from 7 to 5.35 percent) has almost no impact on the poorest 20 percent.  There’s not much of an increase in the second quintile group (the 3rd and 4th deciles).  However, the greatest gains go to the highest income groups – the 9th and 10th deciles.

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