Posts By Michael Taft

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A Mini-Tax-Cutting Budget? Abolish the USC? Can It Get Any Worse?

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Christmas comes early for employers, high-income groups and right-wing ideologues.  The Sunday Times (behind a paywall) reports on demands from Government backbenchers to introduce a mini-budget in an attempt to salvage the Government’s fortunes.  And what would be the centre-piece of such an initiative?  The race is on between Fine Gael and Labour backbenchers over who can make the most outrageous tax cutting promises, including the notion that the Universal Social Charge (USC) be abolished.    Ho-ho-ho.

Let’s first deal with the idea of abolishing the USC.  Who would be the greatest beneficiary?

USC 1

As seen, someone on the minimum wage would get a boost of 2.2 percent in net take-home pay from the abolition of USC.  This rises to over 10 percent for those on €100,000 and it gets even more lucrative for those on very high incomes.  Abolishing the USC would be highly regressive – benefitting those on the highest incomes the most.

But this doesn’t tell the full story as the above refers to headline tax rates.  High income groups can hire an army of accountants to avoid paying large amounts of income tax, inheritance and gift taxes, capital gains tax – exploiting a huge array of reliefs and allowances and other legal tax reduction strategies.  However, that army is defeated when it comes to USC.  There is no getting out of paying it.  So, if anything the benefit to high income groups would be disproportionately higher than the chart above.

Let’s put this in Euros and cents.

USC 2

Someone on the minimum wage would get €7 per week; at the higher end they would get over €350 per week (that’s right, a €16,000 annual tax cut).  From my own, admittedly back-of-the-excel-sheet, calculation, over 46 percent of USC revenue comes from those earning €70,000 or above.  Less than 10 percent of USC revenue comes from those earning less than €30,000.  Guess who wins out in that tax-cut auction.

To be fair, some proponents of abolishing the USC claim that alternative means of getting revenue from high income groups can be introduced.  This is simply not realistic.  USC collects over €4 billion per year.  That’s over one-third of what income tax takes in.  How could you make it up?

  • Increase the top rate of tax from 40 percent to 57 percent.  That would do the trick (though as mentioned above, those who can afford accountants would be able to get around the high marginal tax rates).
  • Abolish tax relief on pension contributions, health insurance and mortgage interest.  However this would only bring in €1.5 billion – or 37 percent of the USC loss.
  • Abolish PAYE tax relief.  This would raise €2.8 billion – still, far short of the USC loss.  And every worker above the income tax threshold would lose €1,650, wiping out gains for all low and average income earners.
  • Increase VAT to nearly 30 percent.

There are other measures such as a wealth tax which the Nevin Economic Research Institute estimates could raise €250 and €500 million.  You could toss in increases on capital income (inheritance, capital gains) but there’s a limit.  Of course, there’s a real loss here.  Instead of using the additional revenue from wealth and capital taxes to invest in social housing, education and health, we would only be clawing back a tax break that we gave to higher earners in the first place.

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Don’t Mind What’s Going On – Feel The Spin

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You’d think there would be concern among commentators about the latest GDP numbers produced by the CSO.  After all, a quarterly growth of 0.1 percent is not that far from negative growth.  Or that consumer spending has fallen in the last two quarters (an interesting contrast to all those feel good anecdotes about increased consumer confidence).  Or that the explosion in export growth doesn’t quite tally with global trends or even other numbers produced by the CSO.

But there’s a class of commentators who are determined to cheerlead regardless. Michael Hennigan gives a flavour of these – with economists talking up the ‘fastest growing economy’ in the EU.  Sure, why not.

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Tweedledum Tax Cuts vs. Tweedledee Tax Cuts

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Apparently the Government, if not having an outright row, is at least engaging in a ‘strong debate and discussion’.  What’s it about?

  • The introduction of a Living Wage and associated reforms such as abolition of zero-hour contracts and minimum wage increase?
  • A comprehensive affordable childcare network – with savings of €400 to €500 per month for families with young children?
  • Universal access to free community health services – such as GP visits, outpatient services and heavily-subsidised prescription medicine?
  • Maybe a debt-relief programme – not only for households in arrears, but also for those caught in the terrible debt spiral of money-lenders and their interest rates which can exceed 100 percent?
  • Or a guarantee of an adequate income and home-help services for all people in retirement?  Or additional supports, such as a ‘cost-of-disability’ supplement for disabled women and men – of whom 50 percent are officially described as living in material deprivation?
  • Or a major drive to reduce rents in the private rented sector – through rent freezes combined with a new public enterprise drive to directly deliver quality, affordable rental units to private tenants?
  • Is the row about any of these or something similar (like eliminating all education-related costs such as school-books, transport, ‘voluntary fees’)?

No.

It is about which tax cuts the Government should pursue.  Good grief.

Let’s call it for what this is.  First, this is a deeply disingenuous debate – ‘my-tax-cuts-are-better-than your tax cuts’.  No Government Minister, TD, or candidate should be allowed to come to the doorstep, seeking votes by claiming ‘we can cut your taxes and still deliver European-style living standards – income supports, public services, economic and social investment’.  To make such claims is either hypocritical or completely indifferent to how the real world operates.

Living Standards 1

Second, tax cuts will undermine the next government’s ability to actually improve people’s living standards – affordable childcare, affordable rents, reduced public transport fares, free and comprehensive primary health care, real free education, etc.  Let’s not forget that Irish living standards are closer to Greece’s than it is to most other EU-15 countries.  Question:  how will a couple of extra Euros close this gap?

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Now Let Us Plot the Great Social Expansion

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Are we getting into election mode? We have Government Ministers promising every tax cut possible while warning of the pestilence that will descend upon us if anyone else gets elected to office. No doubt, parties are preparing their election manifestos, poster and leaflet designs, and candidate strategies. Good luck to some of them.

We know what the Government parties intend to do – pursue real spending austerity as identified here. They will cut primary expenditure (excluding interest) by 9 percent, public services by 8 percent and investment by an incredible 15 percent in real terms; that is, after inflation. They will do this in pursuit of an economically reckless, socially callous and fiscally irresponsible and unnecessary goal: eliminate the deficit by 2018. In fact, they intend to run a small surplus. We have an investment crisis, a poverty crisis, an enterprise crisis (in the indigenous sector), and a public service infrastructure degraded after six years of irrational austerity. Yet the Government intends to stand idly by while it pursues budget fundamentalism.

Fiscal Space 1

However, while they have outlined what they intend to do with expenditure (cut it in real terms), they have not revealed their taxation policies. They’re projections are based on ‘no change of policy’. If they reduce taxation – and maintain their deficit elimination target – they will have to cut spending even further. But they’re hiding that little scenario.

The Government hopes to trap progressive parties and independents. They will say ‘if you want to increase expenditure, you will have to raise taxes’. They will accuse progressives of wanting to increase taxes on workers. Given that workers have suffered falling real wages while at the same time seen the effective tax rate increase by nearly 25 percent since the start of the crisis (never mind the cuts in income support such as Child Benefit) any hint of increased taxes is not likely to be met with hurrahs.

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Deprivation Nation

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Ireland is a deprivation nation.

All manner of numbers and stats regarding growth and employment numbers are thrown around which feeds into the illusion of the ‘Celtic Phoenix’.  But there is a grim reality – which doesn’t feature much in the popular debate:  we are a society riddled with high levels of poverty and deprivation.  And recent EU Commission data shows we have much higher levels than most other comparable EU countries.

We are familiar with the CSO’s deprivation measurement.  This based on people experiencing at least two of eleven deprivation experiences (unable to afford food, heating, clothes, etc.).   On this basis, they estimate that over one million people – or 28 percent of the population – experience multiple deprivation experiences and, so, are categorised as living in deprivation conditions.

The EU Commission uses two measurementsmaterial deprivation’ and ‘severe material deprivation’.  These are harsher benchmarks than what the CSO uses (they both work off the same database – the EU Survey of Income and Living Conditions).  The EU Commission use nine deprivation experiences in which people cannot afford to

  • Pay their rent, mortgage or utility bills
  • Keep their home adequately warm
  • Face unexpected expenses
  • Eat meat or proteins regularly
  • Go on holiday
  • Own a television set
  • Own a washing machine
  • Own a car
  • Own a telephone

For the EU Commission, ‘material deprivation’ measures the percentage of the population that cannot afford three of the nine items.  ‘Severe material deprivation’ measures the percentage that cannot afford four of the items.

How does Ireland compare to other EU-15 countries?

Deprivation Nation 1

This is pretty staggering.  While it is not surprising to see Greece with the highest level of material deprivation, Ireland is right up there at the top – marginally behind Italy but ahead of poorer countries like Portugal and Spain.  Material deprivation in Ireland is 58 percent higher than the EU-15 average.

  • There are over 1.1 million people in Ireland living in material deprivation – a quarter of the population.

When we turn to ‘severe’ material deprivation (remember – that is experiencing four out of the nine indicators above), we see a similar pattern.

Deprivation Nation 2

Ireland remains in third place – behind Greece and Italy – and over 33 percent above the EU-15 average.

  • There are 450,000 people in Ireland living in ‘severe’ material deprivation – or one-in-ten people.

The growth in the number of people suffering deprivation has been substantial.  Between 2007 and 2012, the numbers increased from 450,000 to over 1.1 million – doubling in the space of five years.  There is a similar pattern among those suffering from ‘severe’ material deprivation – rising from 190,000 to over 450,000 – again, more than doubling.

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Trailing Behind Europe in Employment Growth

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Here’s a quick post:  Had an interesting and informative twitter exchange with Tom Healy, Director of the Nevin Economic Research Institute and Dan O’Brien from the Sunday Independent on foot of the CSO’s release of new job numbers.

Jobs growth in the third quarter was 10,400 seasonally adjusted.  For the same period last year it was nearly 18,000 but we know there are serious flaws in 2013 employment figures given the CSO’s warnings about the impact of their revision of their sampling base.

So, 10,000 jobs growth; for the year it is 15,400.  This is better than a loss and going in the right direction.  But is it going fast enough?  It it well balanced across all sectors?  Is the glass half-full or half-empty.

What was interesting in the twitter exchange was how we compared to EU jobs growth.   The fact is that our jobs growth this year fares poorly with the rest of the EU. The data we have goes up to the 2nd quarter of this year.

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Make the Economy Better – Abolish Zero-Hour Contracts

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Minister Ged Nash launched an investigation into the extent of zero and low-hour contracts in the labour market.  This is most welcome – we need this information which is not available in official surveys (though it should be noted that the investigation into low-hour contracts could be extremely limited as they are only examining eight hour or less contracts – whereas low-hour contracts can go as high as 20 hours).

But what would be even more welcome would be an announcement that zero-hour contracts will be abolished.

I will refer to zero and low hours contracts as precarious contracts.  These contracts require employees to be available for a certain number of hours per week, or when required, or a combination of both – but without any guarantee of work.

Under Irish law, if the employee gets no work, then the compensation should be either 25% of the possible available hours or for 15 hours – whichever is less. If the employee gets some work, they should be compensated to bring them up to 25% of the possible available hours.   Here are a couple of examples:

  • Janet is required to be available for work for 20 hours a week.   She gets no work.  She must be paid, nonetheless, for 25 percent of the available hours – five hours (this is less than 15 hours).
  • Bob is, also, required to be available for work for 20 hours a week.  He gets four hours’ work.  Since he is entitled to five hours payment (25 percent of his work availability), he get an extra hour payment.

I don’t intend to list all the negative impact of precarious hour contracts on workers.  Suffice this piece from Paul Mills writing in the Examiner:

‘The ‘employee’ is effectively reduced to a commodity like a tin of beans on a shelf waiting until someone comes to pick him or her up. It is not sustainable and is effectively immoral.

This type of contract means that the employee has no guaranteed hours or roster but must be available for work.

Whilst the system is undoubtedly beneficial to the employer, it puts the ‘employee’ at a serious disadvantage. It means there is no sick pay, only limited holiday pay, and getting a loan or a mortgage is impossible. In fact there is no guarantee of any work, so no guarantee of any pay and all that leads from that.

It takes us back to the days when fruit pickers, dock workers, farm labourers and general workers stood at a designated corner and waited for an employer to come by in the hope of being selected to work that day.’

Well put.

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The Government U-turns itself into a Home Tax

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Let’s recap.  The Government has been forced to:

  • Stop Irish Water’s access to PPS numbers
  • Provide certainty to household payments
  • Reverse the sanction of reducing water flow to a trickle for non-payers
  • Provide new statutory guarantees to keep water service under public control
  • Scrap the system of social protection subsidies and tax breaks which would still leave hundreds of thousands of people in work without financial support
  • Delay the introduction of bills
  • Increase the cap from nine months to at least four years
  • Make the roll-out of water meters redundant in the medium-term
  • Introduce new governance measures (probably when the Evira/Irish Water boards are reviewed in a few months’ time)

The Government has u-turned so much it doesn’t know which direction it is going (if there are other u-turns and cul-de-sacs please let me know).

And now the Government looks to u-turn itself back into re-introducing the household charge – that pathetic, fiscally useless, regressive tax.

It appears the Government will introduce a two-tier charge on all households connected to the public mains (approximately 80 percent of all households).  A charge for a one-person household will be capped at €176 per year; for a household with two or more adults will be capped at €276 per year.  All households can avail of a Department of Social Protection rebate of €100.

Let’s be clear about this:  this is a household charge (or a home tax if your will – since it won’t be confined to property-owners; it will apply to tenants as well).  This is no different to the household charge except that the charge is higher and differentiated by the number of adults in the household.

This has nothing to do with water, except that you just happen to use water.  The water allowances will remain in place.  But for all practical purposes the cap will be the effective charge.

The goal of conservation has been undermined.  A household that conserves water will be, for all practical purposes, charged the same as a household that leaves their en-suite Jacuzzi on all night. Theoretically, one could reduce their charge through conservation – but any reduction would amount to only a few cents per week, such is the impact of the cap.  The incentive is small to the point of near non-existent.  And this looks likely to remain in place until at least 2018 and maybe longer.

It is worth noting that the cap will act like a flat or fixed charge.  Prior to the local election the Labour Party made much play of the fact that they stopped the imposition of a fixed charge for water.  Now the Government has u-turned itself into just that – a fixed charge.

And the flat or fixed charge will be regressive.  We can see the trajectory of the cap as it impacts on household income.  This uses the data from the Household Budget Survey 2010.  The magnitude might be slightly different today but the distributional impact will be pretty much the same.

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The Government Should now Come Clean on Water Charges

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I admit I can’t let this issue go but such is the misrepresentation, partial information and deliberate obfuscation being put out in the debate that it goes beyond a narrow calculation.  It actually reveals a Government determined to hide the facts in pursuit of a policy which caused over 150,000 to demonstrate last weekend.

Yes, I’m talking about water charges – but specifically about the estimated impact on the deficit if water charges were removed.  And now Dr. Tom McDonnell over at the Nevin Economic Research Institute has done his own sums – and they mirror what I had previously calculated here.

The Government is claiming that removing the water charges would ‘cost’ €800 million (this was run out again on Morning Ireland today).  Is this correct?  No.  Let’s look at how the Government is obscuring the real numbers and see if we can find the right ones.  If this gets a little ‘number-dense’ please stay with it for it is about more than just abstract calculations; it is about how the Government is treating this issue and the public at large. All numbers are approximate and rounded.  I have produced a summary table below.

  • First, the total cost of water service provision is €1.3 billion (€700 million in current spending and €600 million in investment).
  • Second, the Government is committing €500 million from the Local Government Fund to Irish Water.  This is ‘on the books’; that is, this is counted as government expenditure.
  • Third, this leaves a saving to the Government of €800 million.

So far, pretty clear. The Gvvernment’s argument seems to stack up.  But, no, this is not the case.  Because the Government is losing €250 million in revenue.  This is the amount collected through commercial water charges on businesses  This used to Government coffers.  Now it belongs to Irish Water.

So the Government gains €800 million savings on the expenditure side but loses €250 million on the revenue side.  This leaves a saving of approximately €550 million. This is pretty much the same number that Dr. McDonnell arrives at:  €527 million.

Ok, so we have sorted that out.   The actual cost  of removing water charges would be €550 million – yes?  No, that’s not it either.  Because the Government is spending money as part of the move to water charging – spending that wouldn’t exist if there weren’t the charges.  Dr. McDonnell states that he doesn’t factor these in.  So let’s do that.  There are three expenditures:

  • First, Social Protection is increasing subsidies to the Household Benefit Package and recipients of the National Fuel Allowance scheme ‘to offset the cost of their water bills’.  This will cost €66 million.

Finally, the cost of providing free water allowanced for children is ‘on the books’; that is, it is counted as government expenditure.

‘Social transfers in kind include such items as free travel on public transport, fuel allowances and the child-based free allowance related to water charges.’

‘How much does this cost?  The Government doesn’t say.  But we can estimate.  There were approximately 1,170,000 recipients of Child Benefit.  Each one of these children should be receiving a free water allowance of 21,000 litres per year.  On the basis that this will cost €102 per child, this brings the total cost to €119 million.  But this is just an estimate so let’s be conservative and round it down to €100 million.

When we add up these costs – Social Protection subsidies, tax relief and free water allowances for children – it comes to €200 million.  This will ‘cost’ the Government.

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Squeezing the ‘Public’ Out of the Economy and Society

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We are experiencing a privatisation of the economy and society by stealth.  We usually associate privatisation with the sale of state assets to a private company.  But there’s a larger privatisation process at work, slowly squeezing the ‘public’ from our social life.  It is ongoing and the Government has signalled it will continue up to at least 2018 and in all likelihood beyond.

In a previous post I pointed out the ‘real’ cuts to public spending the Government intends to pursue up to 2018 – the second phase of austerity. This phase will entail public spending falling below inflation levels, which means the value will be cut.  This won’t mean Ministers standing up in the Dail announcing cuts as they have been doing the last six years.  But it will mean a squeeze up to 2018.

But this is against a backdrop of substantial reductions in government spending over the last six years.  Indeed, so severe have been the cuts that spending levels on public services and investment are hurtling back some 20 years.

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The chart above tracks expenditure on public services (government consumption) factoring out inflation.  We find that in 2018 expenditure per every man, woman and child is estimated to be only slightly above spending levels in 2000 (the red line represents the Government projections).  There is a continued downward trend that we should expect to continue until the end of the decade.

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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?

realincrease2

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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