Economy

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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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We Won’t Back Down: Statement from Communities Against Water Charges

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Statement from Communities Against Water Charges

We Won’t Back Down

On Monday the 24 November 2014 we expect four of our friends and neighbors to be committed to prison for exercising their right to peaceful protest. They are to be punished for failing to abide by a High Court injunction granted to GMC Sierra which requires them (and any other protester) to, among other things, remain at least 20 meters away from workers installing unwanted water meters.

This injunction, in spite of the High Court Judges claims to the contrary, obliterates any meaningful right to protest against the installation of water meters. For that reason protesters throughout Dublin, and the rest of the country, have rejected this illegitimate interference with their right to protest, and have continued their dignified resistance to the installation of water meters, and the water charges regime.

This injunction, and the expected imprisonment of our friends and neighbors on Monday, represents another attack on the people of this country, and on the right to peacefully resist and oppose the unjust policies of an unrepresentative government. In the coming weeks and months, we expect the establishment to engage in many more attacks on our movement, using the law as one of its main instruments.

For this reason, we have been working with groups around the country on building legal defence funds: this is a collective struggle for our basic rights and a better future. For that reason, any person that ends up in court for resisting this illegitimate tax and attempt to commodify the most basic of necessities, needs to know that they will not be alone, and we will stand with them. We therefore call on the Right2Water Campaign, it’s affiliated unions and the political parties that have stated their opposition to the water charges, to contribute what they can to the Peoples Defence Funds.

If, as feared, our friends are imprisoned on Monday we are calling for a mass, silent candlelight vigil outside of the prison they are committed to (most likely Mountjoy Prison in Dublin).

As the struggle against this unjust double-tax enters a new phase, and a beleaguered government begins to lash out with all of the means at its disposal, we will make it abundantly clear that fear will not carry the day in this contest, and that nobody who stands against this injustice will stand alone.

Communities Against Water Charges

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Guaranteeing Recidivism

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This article originally appeared in Irish Left Review, Issue 2, Vol 1., published in November 2013. 

Recidivism (from recidive and ism, from Latin recidivus “recurring”, from re- “back” and cado “I fall”) is the act of a person repeating an undesirable behaviour after he/she has either experienced negative consequences of that behavior, or has been treated or trained to extinguish that behavior.

In June 2013, the ongoing rumblings of discontent at the blanket guarantee decision exploded on to the front pages with the publishing of the ‘Anglo Tapes’ recordings by the Irish Independent. After three bank inquires of a sort, through the Nyberg Report, the Honohan Report and the Public Accounts Committee Inquiry, the remaining fog around the events leading up to the guarantee and what happened on the night and early morning of 29th and 30th of September 2008 was such that it only took the selective leaking of a fraction of the tapes held by the ongoing criminal investigation to stoke up public rage and renew calls for a proper inquiry or tribunal[i].

This continuing fog and the far reaching consequence of the decision have led many to reach all sorts of conclusions about who ultimately was responsible. In 2013 commentators like Fintan O’Toole[ii] and Stephen Donnelly TD appear to think that the protection of Irish banks provided by the 2008 guarantee was so devastating for the Irish economy that it must have been insisted upon by the ECB.

More often than not, however, this regularly repeated belief is a conflation of the 2008 guarantee with what Brian Lenihan, and later Michael Noonan, suggested was the insistence of the ECB that unguaranteed senior debt must be paid back after the 2010 bailout.

There is no indication of ECB involvement in the 2008 decision despite Brian Lenihan’s retrospective claim in 2010 that it was impelled by Jean Claude Trichet’s voicemail directive in 2008 to ‘save our banks at all cost’[iii]. On the contrary there is plenty of evidence that there was widespread surprise and anger in Europe at the ‘unilateral’ move and the problems it created, as well as pressure to change it.

It is important to understand that the original guarantee was an Irish decision alone, without any outside involvement, because it helps us dissect the nature of power and class in Ireland. The facts need to be separated from the myths in order to appreciate how decisions like it continue to determine the shape of the economy and the nature of Irish society.

The action in September 2008 is an illustration too of how a type of ‘rentier’ class in Ireland are able to exploit Ireland’s resources without consideration of the consequences for wider society. These rentier capitalists benefit from the managing of assets, whether through financial services, the movement of corporate profits tax-free or investment property. Their interests are boosted by the state leading to the side-lining of productive capital and the continually undermining of labour’s position[iv].

The guarantee was not put in place simply to maintain liquidity to Irish banks. Officials and politicians knew enough to be aware that the problems at Anglo Irish Bank and Irish Nationwide were far greater than one of a temporary lack of liquidity due to a crisis elsewhere. Funds from the Central Bank of Ireland had been provided to Irish banks through unprecedented quantities of Emergency Liquidity Assistance. Banks in other countries were experiencing similar problems and received extraordinary quantities of emergency funding from their central bank during the crisis in September. Yet, significantly, no other EU country provided an unlimited guarantee.

In Ireland’s case the problem was twofold. One, to keep cheap interbank lending available to Irish banks, they needed a guarantee that would remove the sense that Irish banks were increasingly high risk because of their over-exposure to collapsing property markets.

Two, in order to keep the level of emergency liquidity available to ensure that Anglo Irish Bank and Irish Nationwide remained open they needed a guarantee that would make an insolvent bank ‘solvent’. The dangers of this approach were clearly outlined before the decision was taken, yet we are still asking ‘why did they do it?’

To try and answer that question we have to go back to the last time the Irish government provided an unlimited guarantee to the banks to enable them extract themselves from a speculative fiasco even though there was incredible risks to the wider economy by doing so.

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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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Water Charges and TTIP!

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The water charges can and must be defeated by resistance and non-payment but water, as a human right, must also be secured as a publicly owned and controlled resource universally available. Remember, we had to fight water charges in the 1980’s and again in the 1990’s so let’s make this win a permanent one.

The origin of the present water charges lies in the EUs Water Framework Directive (2000) which provided for full cost recovery for water use and whose Article 9 states:

Member States shall take account of the principle of recovery of the costs of water services …’

It also required Member States to have in place water-pricing policies by 2010. The Directive was transposed into Irish Law in 2003.

So, the origins of these punitive charges, this time around, are the Water Framework Directive which seeks to commodify water provision through the establishment of the principle of recovery of the costs of water services. The EU took advantage of the ‘bailout’ to make it a condition of the ‘loans’.  This will open the way for the sale of Irish Water either in whole or in part, ostensibly to complete the single market or to promote competition ‘in the interests of the consumer’. This is just one reason why there is such resistance to a constitutional referendum to permanently retain Irish Water in public  ownership – the other is TTIP.

The Transatlantic Trade and Investment Partnership (TTIP), is currently being concluded in secret by the EU and US. Both sides have made clear their intention to use TTIP to get access to what is described as “public monopolies;” that is, public utilities including water. These services would then be vulnerable to greater outsourcing and private tendering for service delivery and eventually, to privatisation.

TTIP would open up public procurement contracts to the private sector, meaning that social, environmental or “public good” goals in public procurement would be removed. A private monopoly can fix its price at an unaffordable level, as Bechtel did in Bolivia, leading to a popular uprising; the termination of the contract and replacement of the government.

It would also make the nationalisation (or renationalisation) of services or resources virtually impossible, as incredibly, corporations would be able to sue for loss of future and expected profits. This is facilitated by the inclusion of an (ISDS) Investor – State Dispute Settlement clause in TTIP.

 

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Resisting the Water Charges and Defending Our Right to Protest

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Statement from Communities Against Water Charges
Resisting the Water Charges and Defending Our Right to Protest

We are residents of a number of communities in Dublin North East. Over the last number of months we have come together to resist the installation of water meters in our areas, and to oppose this unfair double taxation that the government calls water charges.

For most of us, this is the first time in our lives that we have engaged in any sort of protest and have only done so because we simply cannot take any more of this government’s austerity agenda. At all times we have sought to resist the installation of these meters in a peaceful, dignified and resolute manner.

We are therefore appalled at the recent developments in how An Garda Síochána have policed our protests, and with the blatant campaign to vilify and demonise us that the government and Gardai, supported by segments of the media, launched in recent days.

They have claimed that Gardai are routinely assaulted at protests, and that our movement has been infiltrated by a “sinister fringe” or by “dissident republicans”. We categorically reject these claims. In recent weeks we have been subjected to heavy handed and abusive policing by the Gardai. Men and women, protesting peacefully, have been pushed, pulled and punched by Gardai. To our knowledge not one of our fellow protesters has been convicted of assaulting a member of An Garda Síochána, and violent protest is not something we would endorse or tolerate.

With respect to the claim that our movement has been infiltrated by sinister elements, we reject this also. We are the people on the streets, day in, day out, peacefully resisting these meters; we are mothers, fathers, parents, pensioners, workers and unemployed – we are not sinister, dissident republicans.

In light of these developments, we are genuinely fearful that the Gardai, at the behest of the government, are preparing to become even more aggressive towards our protests and to eviscerate our right to protest.

We therefore call on all of the people of Ireland to come out and support us this coming Monday, 10 November 2014, in Dublin North East. We fear that GMC Sierra will attempt, with heavy Garda support, to enter our areas and install meters that we do not want. It is our intention to continue to resist this unjust tax in a peaceful and dignified manner, but we fear that the decision has been made to strip us of a meaningful right to protest.

Each and every one of us has resolved to resist this tax and these meters, we will continue to do so in a peaceful way, but if we are to succeed we need the support of other communities. If we all stand together, we can resist these charges, retain water as a public good and human right, and vindicate our right to protest.

Communities Against Water Charges
communitiesagainstwatercharges@gmail.com
09 November 2014

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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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Low Corporation Tax Rates Do Not Boost Growth

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This article by Michael Burke originally appeared as a guest post on Notes on the Front. Michael blogs regularly on Socialist Economic Bulletin and tweets @menburke.

There are a number of reports that Ministers have travelled to the US in order to reassure investors following the closure of the ‘Double Irish’ tax loophole. It is not just highly-paid US executives who are concerned about the possible impact of changes to the corporate tax regime.

There is a widespread belief that low taxes for companies are the key to prosperity, in Ireland and in the Western economies generally. Taxes on companies have been falling in the OECD economies over a prolonged period. The corporate tax regime in Ireland is just one of the most extreme examples of this trend.

The off-setting factor has been a sharp increase in the proportion of taxes by ordinary citizens, either through income tax and social charges, or by indirect taxes on consumption (VAT, alcohol, fuel, tobacco duties and so on).

The argument is that lower corporate taxes increase the incentive and capacity of business to invest. Since investment increases productivity this would mean that lower taxes boost economic growth, create jobs and increase the quality of those jobs, including pay. The only trouble with this is that there is no evidence to support it. The evidence paints a very different picture.

According to the OECD, a weighted average of the main corporation taxes applied in its member states has fallen progressively over the last 32 years. In 1981 the average rate was 49.1%. In 2012 it was 32.4%. This was a period of the most severe economic crisis since the OECD was formed. Clearly low taxes were not proof against economic crisis. Even if we disregard the crisis itself, it is clear that GDP growth has been declining over a prolonged, which has coincided with cuts to corporation tax.

MB - Corporate Tax 1

The same is true in Ireland. The corporation tax rate was cut drastically and a 12.5% rate was phased in up to 2003. The 10-year period of GDP growth since has been the worst in the history of the state. Yet it is still widely claimed that a low rate of corporation tax determines Irish prosperity. This claim is evidently false.

The strongest ever year of Irish growth was in 1997.  This was not a part of what has become known as the ‘Celtic Tiger’ period and was six years before the 12.5% tax rate was fully phased in.

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Even when this evidence is presented, the persistence of the myth on taxation is formidable. It is argued somehow that the inclusion of the crisis years distorts the comparisons, as if the purported reason for cutting taxes was not to increase growth and prosperity. But it is also the case that average GDP growth was 4.9% in the 5 years between the cut to 12.5% rates and the crisis (2003 to 2007). This is less than half the growth rate in the in the 5 years before the rate was cut, which averaged 10.3%.

The mechanism through which lower corporate taxes is supposed to lead to increased prosperity is higher corporate investment. The argument that lower tax rates leads to higher investment has been disproved throughout the entire OECD area, which has a experienced a secular decline in both the rate of GDP growth and the rate of investment for the last 30 years.

The same is true in Ireland. Lower taxes did not lead to higher investment. The chart below shows the level of corporate taxes versus the annual growth in the rate of investment (GFCF, Gross Fixed Capital Formation). The peak period for the growth rate of investment was in the mid-to-late 1990s. This coincides with the period of strongest GDP growth, which is not coincidental as investment plays a decisive role in growth. Both of these were before the corporate tax rate was cut drastically.

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Not only did the rate of investment growth slow when corporate taxes were cut, but the composition of that investment was changed in a negative way. The chart below shows the rate of Irish corporation tax and the proportion of total investment devoted to housing. The increasing proportion of investment directed towards housing led fairly quickly to the unsustainable housing boom. The evidence is that as the tax rate fell the proportion of housing investment increased until the bubble burst. In 2004 to 2006 more than half of all investment was in housing, which was immediately after the tax rate fell to 12.5%.

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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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The Changing Pattern of Foreign Investment in China

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This article was originally posted on John’s blog Key Trends in Globalisation on the 21st of October

Inbound investment into China continues to be the highest for any developing economy – US$101 billion in 2013 on UN data. But the pattern of investment in China is changing significantly as the country develops, and this trend will inevitably become more pronounced. China refusing to acknowledge and internalise that only 30% of the world’s population now lives in countries with a higher per capita GDP than China leads to confusion on the key issues in foreign investment.

In the first decades after the start of China’s economic reforms in 1978, inward foreign direct investment (FDI) was primarily undertaken by overseas companies to create a base for exports. Although this was helpful in China’s early stage of “reform and opening up,” the investment was frequently very low value added. For example, a 2009 study found China received only 2 percent of worldwide wages paid for iPod production despite the fact that every iPod, at that time the world’s most successful consumer product, was manufactured in China.

As recently as 2010, the majority of China’s exports came from foreign-owned companies. Among large exporters, the role of foreign investment was even greater – of the top 200 exporting companies in 2009, 153 were foreign-funded. Only among small and medium size exporters were Chinese companies dominant and Alibaba’s original success was creating the Internet systems that connect these Chinese companies to their foreign markets.

But as China’s economy has developed, the reason for its attractiveness to foreign companies has radically changed. In comparative international terms, China is no longer a low-wage economy. On World Bank data, only 30 percent of the world’s population now lives in countries with a higher per capita GDP than China, and wages will be approximately proportional to this. In Southeast Asia and South Asia, every developing country except Malaysia now has a lower per capita GDP than China.

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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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A New Kind of Trade Unionism Emerging

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This article was originally posted on the Trade Union Left Forum on the 14th of October.

A new kind of trade unionism is emerging and consolidating itself within the right2water campaign, led by Mandate and Unite and supported by OPATSI, the CPSU, and the CWU. These unions are bringing the broader social and economic interests of their members to the fore and committing resources, time and effort to support mobilisation not only of members, but also the working class and communities more generally.

By viewing their members as workers (as opposed to people paying a subscription for work-place representation services) these unions are placing the workers’ immediate social demands alongside, and equal to, their immediate work-place concerns. This is crucial if the trade union movement is to really represent its members and to recover its power and leverage in society. Wage increases alone will not improve the lot of workers while the political economy of the country is being restructured from one made up of citizens to one of customers in a toll-booth economic and political structure.

The TULF on many occasions has suggested that the trade union movement has a unique position in Ireland in having the resources and channels of communication to support the mobilisation of working people in a way that no left party can. And now it seems that some unions are realising this potential, which is both necessary and welcome.

The right2water alliance is a genuine alliance of union, political and community groups, making a clear demand and statement, “calling for the Government to recognise and legislate for access to water as a human right. We are demanding the Government abolish the planned introduction of water charges.”

As well as the five unions mentioned, community groups and parties have signed up to the campaign. Some 40,000 people have signed a petition calling for the scrapping of the water charges, close to 100,000 marched at the demonstration on 11 October, and more local actions are planned for 1 November.

The right2water campaign is not dictating tactics to communities or individuals but is building and growing a broad campaign of groups and people based on the principle of water as a human right and as a publicly owned utility and resource. Some on the left have attacked the campaign for not demanding non-payment; but at this moment building the biggest, broadest alliance against water charges and privatisation is the priority. A turn towards direct non-payment may be necessary in the future, but right now the campaign’s strength is in growing and building the alliance rather than splintering over tactical matters.

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