Budget 2013

How Many Thousands of Jobs Will Be Destroyed in Budget 2014?

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In the run-up to the budget all the talk is of how many jobs will be destroyed as a result of Government measures.  Well, not really.  But it should be.  Ministers and Government backbenchers are fond of quoting one measurement of employment that suggests 30,000 jobs were created in the last year.  Never mind that this comes with so many caveats and represents ‘data-dredging’ (searching for one or two stats that puts you in a good light regardless of the context).  What they never, ever mention is that their austerity measures are actually destroying thousands of jobs.

No one doubts that spending cuts and tax increases lowers economic growth; this in turn lowers employment.  The only question is how many jobs are being lost.  I will summarise the estimates from the ESRI and NERI, based on an adjustment of €1 billion (e.g. a €1 billion cut in social protection payments, a €1 billion increase in property tax, etc.).


Not surprising, all measures destroy jobs.  The biggest culprit is reducing public sector numbers (this helps explain why cutting public sector numbers actually increases the debt).  The second biggest negative impact is investment.  The two adjustments that have the least impact on employment are carbon and property tax.  There are a few points to bear in mind:

First, the projection for investment is an under-estimate.  The ESRI does not include the ‘supply-side’ impact (that is, the loss in employment from not using the asset created by the investment – a road, building, telecommunication network, etc.).  According to the ESRI, this under-estimate is ‘significant’.

Second, income tax has the third most negative impact.  These estimates are an average of the impact over six years. The impact varies over time.  For instance, increasing income tax has only a negligible impact in the first year it is introduced (reduces employment by 1,860).   However, the deflationary impact accelerates over the years so that by the fifth year the impact is nearly five times that amount.  I have used the average.

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REITs for the (Property) Czars

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Recently the rating agency Fitch highlighted the massive connection between shadow banking and mortgage REITs, a property investment vehicle that has increased hugely on the back of the collapse in the US property market. While REITs have been around for a while (first legislated for in 1960 by President Eisenhower ) they didn't make much of an impact, as other forms of investment through asset speculation dominated the stock market.

With a financial crisis on the back of a bursting property bubble however, REITs finally came into its own as it seemed that the financial collapse deflated values in property sufficiently to make them a worthwhile investment given that prices in certain markets (mostly major capital cities) would likely rise again. As one of the requirements of REIT is to disperse up to 80% of its profits to shareholders, it is considered to be 'safe' from a regulatory point of view.

However, the Fitch report was written to highlight the considerable risk that mortgage REITs might pose, as they are being financed through the shadow banking system.

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EU Austerity Budget – Cuts, Cuts, Cuts

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The Irish government has made much of the fact that it now holds the EU Presidency, chairing meetings of the European Council. It has been proudly proclaiming success in negotiating a new EU budget for 2014 to 2020 (the so-called Multiannual Financial Framework – MFF). What they don't say, however, that in the position of Presidency, they are pursuing the same austerity policies that they implement in Ireland – imposing unprecedented levels of cuts to the EU budget.

Two weeks ago the European Parliament voted for a resolution that rejected, in its current form, the proposed MFF. The proposal comes from the February summit of the EU Council and was a product of horse trading and negotiations between the EU's 27 heads of state.

This Summit was presented as showdown between Hollande on the one hand and Merkel and Cameron on the other. In reality, it was a discussion on how far to stick the knife into workers and poor people, with Herman Van Rompuy, backed up by the Irish Presidency, presenting a draft proposal for a second round of cuts. This was then amended to reflect the various political pressures on the heads of states. Despite these competing pressures, all heads of states feared an open conflict over the EU budget that would rattle the markets at a time they seemed to be calming. They also no doubt feared such open division could give confidence to workers and those opposed to austerity that they face a divided enemy and give impetus to new struggles.

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Lost Opportunity


Perspective of a ULA national steering committee member

The 2011 general election gave the Irish far left its highest profile in decades. Five TDs were elected under the electoral banner of the United Left Alliance (ULA), reflecting growing anger against the austerity imposed by the previous government’s agreement with the “Troika” of the European Commission, the International Monetary Fund, and the European Central Bank.

During the campaign, I was strongly critical of the ULA’s overtly reformist election platform, which did not even mention the word “socialism”. This omission was made explicit by Ann Foley, the ULA candidate for Cork North West and a well known participant in People Before Profit (PBPA), one of the ULA’s founding organisations:

“I feel the ULA has very common sense policies. When people think of socialists, they think of communism, which is not the case. There is nothing dramatic or revolutionary about our policies. A lot of countries have functioning social democracies, especially in Scandinavia. They have great health, transport and childcare systems. This is the direction we want to take, a direction this Government failed to follow.”
(Cork Independent, 6 January 2011)

The decision to move beyond a reformist electoral lash-up by opening up membership to individuals and initiating a process supposedly aimed at the creation of a new working-class party, however, encouraged me to join. I saw this as an important opportunity to discuss the revolutionary socialist programme that the working class so desperately needs. Since then, I have participated in that discussion in ULA meetings at all levels and on my blog (revolutionaryprogramme.wordpress.com), and have twice stood for election to the national steering committee (NSC). In October 2012 I was elected onto the NSC to represent non-aligned members, ie, those not in one of the ULA’s founding organisations.

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The Case for Penal Levels of Taxation

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Budget 2013 drew few surprises. Income tax, including the top rate on high earners, was, as expected, not touched. Somewhat surprisingly for a coalition including Labour, the budget was deemed less progressive than previous budgets.1 With Sinn Féin and the ULA both proposing to increase the top rate of tax (as well as a wealth tax), the debate on how high or low taxes should be is sure to remain around for some time. I propose that not only are high top tax rates justified in general, but actual penal levels of taxation on high earners are too.

Economically, advocates of not increasing the already ‘penal’ rates on high earners any further argue that it would be a disincentive to work and would have adverse economic effects more generally. To be more precise, they argue these high earners or ‘wealth/job creators’ will stop conjuring employment and riches for the masses and pack up and leave for greener pastures. Of course, there’s plenty to say about this. Is it really believable that people would pack-up and leave for a different country – including taking their children out of school – because their tax liabilities have been increased by a few points.

Economic arguments aside, what rate of taxation is fair?

As many readers are no doubt aware, Paul Krugman pointed out in the Irish Times a few weeks ago that during 1950s, the so-called Golden Age of Capitalism, the top tax rate in America was over 90%.2 Is this fair? I suspect many people would say this is indeed penal and point out that business leaders and CEOs excel at what they do, innovate, invest, help create jobs and wealth, and so on. Progressives and leftists who support higher taxation tend to struggle when this argument is put to them because, essentially, the argument has a lot of merit.


A person earning €100,000 is likely to be more competent than one earning €30,000 in the same field – or at least better at applying his or her skills to profit-making. As well as perhaps being more competent, the former is likely to be more innovative because he or she is likely to be higher up the hierarchy and, as such, has more decision-making power. Because he or she will have been promoted to get the top, the meritocracy argument carries some weight, though with qualifications.

For one, innate ability and hard work, though important, are not the only determinants of success. A wealthy person is likely to have been born into wealth. As such, he or she will have been given more opportunities and encouragement. A poor person will likely have had fewer education opportunities, and whose way of life – how he or she dresses, speaks etc. – is denigrated by society. If born into poverty, even the very capable (whatever that means) are unlikely to have the confidence and social skills to excel.

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Protest at Cuts to Respite for Carers

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Here's the latest video of Carers Association protest calling for a reversal of the respite care cuts that were announced in Budget 2013.
This is the second protest organised by the Carers Association since the cuts were proposed. The Social Welfare Bill is being debated in the Dáil today with the vote on Thursday, the 13th of November.
Watch and share the video of carers in their own words who protested.
Like Trade Union TV on Facebook.

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In Search of Labour’s Half Billion

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In defending Budget 2013 Labour has argued that it contained €500 million in a ‘wealth tax package’ or revenue from taxation on high income groups. This, goes the argument, is evidence of Labour’s influence on the budget – revenue that would be missing were Labour not in Government.  So what are the measures that add up to €500 million?  And is this sum robust?

First, we have a problem with labelling.  While some Labour TDs have called this a ‘wealth’ package, the only tax on wealth (defined as an asset) is the property tax.  However, they do not refer to this and with good reason – the property tax will attract revenue from high income groups.  So Labour is not referring to tax on wealth but rather on personal or capital income.

The list that Labour has been putting forth includes:  a mansion tax on properties worth over €1 million (this is a small tax on wealth), an increase in the USC on high-income pensions, extending PRSI to trade and unearned income, reducing tax reliefs for large pension pots, an increase in Capital Gains tax, Capital Acquisitions tax and Deposit Interest Retention Tax (DIRT), etc.  So does all this add up to €500 million?

Let’s look at the measures that will be introduced in Budget 2013.

In the above measures we find that €114 million will be raised in 2013 with a full year yield of €174 million – though this latter figure is slightly inflated by an extension of the PRSI base on to unearned income that won’t be introduced until 2014.

This seems a long ways away from the €500 million package Labour has referred to.  What else could there be, that is not captured by the table above?

Deposit Interest Retention Tax:  This has been referred to as a tax on high incomes and clearly high income groups are more likely to hold more cash than the rest of us.  However, low and modest income groups also have deposits.  And the tax rate is somewhat quirky.  If interest on deposits were included in the income tax regime, low-modest income groups would pay only 20 percent while those on the top rate would pay 41 percent.  As it is, low-average income groups pay more under DIRT and high-income groups pay less.  Nonetheless, let’s allow this a tax on high-income groups, knowing that others will be caught.

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Hopeless Forecasts

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Forecasts are never the most important part of Budget process.  Although the natural tendency to focus on projections of growth and the deficit is magnified now by a widespread hope that there might be an end to economic misery, Budget forecasts are not the place to look. Currently the Department of Finance is forecasting that in 3 year’ time GDP will almost be back to where it started 8 years previously in 2007. But GNP will still be more than 4% below its pre-recession peak, according to official forecasts.

How much credence should be given to official projections? Not much. The chart below is taken from September’s Fiscal Assessment Report (FAR) and shows the level of forecast error for GDP in official presentations two and three years hence. The official record on forecasting GNP is much worse, as the domestic economy has parted company from the MNC profits-inflated level of GDP.

Likewise with projections of a fall in the deficit. To give just one example, not the most egregious, the Addendum to SPU of January 2009 forecast that the deficit would be eliminated altogether in 2012.

It seems more likely that Budget documents serve a political rather than a forecasting purpose. Certainly, no business presenting its accounts would be allowed to routinely begin its table of data from a year that is not yet complete- in this case 2012- without reference to the actual outturn in the previous year. Yet this is the norm (although it must be sad, not solely in Ireland).

Successive governments have long abandoned any notion that policy is about fostering growth but repeatedly insist instead that it is about reducing the deficit. Yet according to the Budget documents the deficit (General Government Balance as per EU accounting rules) was 8.2% of GDP. This is almost 1% of GDP higher than the deficit in 2008, when austerity began.  According to the government’s own White Paper on estimates for 2013, without the further fiscal tightening of the Budget the deficit would rise to 8.9% of GDP. Any deficit which requires constant application of new measures can hardly be said to be on a sustainable downward trajectory.

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Labour’s Magic Numbers

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Eamon Gilmore claims that Budget 2013 is fair. He told RTE that, “This Budget… will produce over €500m in additional taxes on wealth…It’s the largest package of tax measures on wealth in this country that I have seen in my 23 years in the Dáil.”

During the Dáil debate on the Financial Resolutions on budget night Gilmore claimed that these measures “would raise €646 million in a full year”.

Unfortunately the Labour leader has produced no figures to support his claim.

Will individuals or households earning over €100,000 per year pay €500 million to €646 million in extra taxes as Gilmore claims? The answer for 2013 is a straight no. The answer for 2014 is far from clear.

Of course taxing wealth and taxing the wealthy are not the same thing. To know how fair the tax proposals in the budget really are we need to know how much will be paid by the wealthy.

Very few of the tax proposals in Budget 2013 specifically target high earners or those with significant levels of wealth

The 3% USC increase on pension incomes and the ending of top splicing relief will clearly impact on those whose wealth is above average, including some very wealthy people.

The changes to capital gains, capital acquisitions and deposit retention taxes again would impact a range of income groups, though one can reasonably assume the bulk of additional revenue under these headings will come from those whose wealth is above average, again including some very wealthy people.

But let’s give Eamon Gilmore the benefit of the doubt and say that all of the projected income under these measures will come from the wealthy. For good measure let’s also throw in the €1 million to be raised from the benefits in kind on preferential loans.

In 2013 these measures are projected to bring in an additional €156 million and in 2014 a total of €179 million (see Table 1).

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Dublin Council of Trade Unions – Budget Day Demonstration

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Dublin Council of Trade Unions

‘Budget Day Demonstration'

As a first follow up to the marvellous show of unity and determination on Saturday 24th November the Dublin Council of Trade Unions is asking all those who came out to reconvene on Budget Day, Wednesday 5th December, at the Dáil at 4 pm.


Come along with your banners.

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Why Some People Will Get Hit Very Hard

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Whatever about the leaks, the underlying thinking in much commentary and policy analysis shows why some people will get hit very hard.  Yes, those on social protection should look out –especially around secondary benefits and eligibility.  And pensioners – many of their programmes will be sliced if not totally jettisoned.  If you’re unemployed, don’t expect much help from the budget (it will end up destroying jobs – especially through investment cuts).

What struck me most is the proposition that Child Benefit should be taxed.  This featured on RTE’s This Week (the weblink to the programme is unfortunately not available).  The Minister for Social Protection claimed her preferred position was to tax Child Benefit since this would protect the most vulnerable.  The ESRI’s Professor John Fitzgerald made a similar statement – that those on high incomes would be taxed while the vulnerable would be spared.   This view shows a lack of appreciation of what can happen to hundreds of thousands of households struggling on modest incomes.

Of course, Child Benefit will not be taxed in this budget; apparently, the computers in Revenue and the Department of Social Protection still can’t ‘talk’ to each other.  And here’s another thing:  taxing universal benefits does not undermine the principle of universality.  Taxation can introduce a progressive feature in payments that are granted to all, regardless of income or employment.

But the emphasis on ‘protecting the vulnerable’ ignores the fact that people at work are also vulnerable.  Yet it is this crucial group that would be hit in the ‘preferred option’.   It underlines a view that social protection is for the poor, rather than for protecting the social.

What would happen if Child Benefit were taxed?  How would some income groups be hit?  Those on social protection would be protected – but low and average paid should watch out.

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U-Turning Our Way to Somewhere Else

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The Independent has published leaked budget proposals (but, as always, check against delivery).  There are three issues covered:  cuts in Child Benefit and medical card prescription charges, and the imminent property tax.  Here is what the parties and the Government said about these issues in the recent past.

Property Tax

There are so many U-turns on this issue, I’m surprised Government Ministers haven’t fallen down from dizziness.  The fact is that both Government parties actually campaigned against the  property tax they are now going to introduce.

Fine Gael actually opposed the introduction of an annual household property tax.  This is from their election manifesto:

Fianna Fail’s proposal, now endorsed by the Labour Party, to introduce by 2014 an annual, recurring residential property tax on the family home is unfair. But as we tackle the fiscal crisis, we will have to cut central exchequer funding for local authorities, and we recognise that local authorities will have to find more sustainable sources of revenue appropriate to local circumstances. What will be viewed as fair in South Dublin might be viewed as unworkable in rural Clare.

In this context, we will empower local authorities to put in place, following the 2014 local elections, fairer alternatives to Fianna Fail’s and Labour’s recurring annual tax on the family home. The options would include:

  • No extra local taxes, forcing local authorities to close non-priority services and / or to deliver increased efficiencies;
  • Increased local user charges for waste etc.; or
  • The option of a local “site sale profits tax”. Such a tax would be levied on the profit made from the site value on the sale of a residence (sales proceeds, less cost indexed by inflation, less stamp duty paid and less home improvements)

The final measure might be considered as both fairer and more economically sensible than an annual recurring property tax.

There is no question – Fine Gael campaigned against a property tax.  It called for alternatives (the site sale profits tax could be a positive measure) but committed that those alternatives would not be introduced until after the 2014 local election.

Yet now they are introducing a property tax.  This is similar to their opposition to a Household Charge and their u-turn on the issue when they introduced . . the Household Charge.

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Means-Test Central

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The Troika is at it again – putting pressure on the Government to do something.  This time the ‘something‘ is to introduce more means-testing.

 ‘The Irish Times understands that the Government is under pressure from the EU-IMF-ECB troika to reduce the duration for which the means-tested jobseeker’s benefit is paid.  At present the payment – worth up to €188 a week – is paid for up to 12 months to people who are out of work and covered by social insurance. However, this would be reduced to nine months under proposals to be considered by the Cabinet.  As a result, those on the benefit would face moving on to means-tested jobseeker’s payments much earlier. This would see thousands of people receiving lower rates. The move is aimed at encouraging people to seek work, or what policymakers call a “labour activation measure”'

The report above is somewhat confused – Jobseekers’ Benefit is not means-tested (this could be a typo).  But you get the point:  increase means-testing.

This is being presented as a ‘work incentive’ measure but in truth it is cost-cutting measure – for many households, once their Benefit runs out they will either be excluded from Assistance (e.g. if their partner is working) or have the payment cut because they have savings, etc.

Or it is an attempt to drive people back into the labour market at lower wages; more people competing for fewer jobs has that effect.  Whichever, It will represent one more step in degrading an already enfeebled social insurance system.

But let’s take a step back and look at the wider picture.  To what extent does Ireland means-test its social protection payments compared to other EU countries?  There is a powerful lobby calling for more means-testing in order to ‘direct money to those who most need it’.  How do we compare now?

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The Unemployment Crisis: A Modest 0.7% Response

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Even the Government admits their policies are having little effect on job creation.  They expect unemployment to remain at 13 percent by 2015, a fall of only one percentage point since they took office.  The number of people at work will only grow by 12,000 over the lifetime of this Government. Truly, we are into a period of medium-term stagnation.

A number of analysts have rightly called for a sustained and substantial programme of investment.  This would boost growth in the medium-term while putting people back to work in the short-term.  But it cannot, alone, fill the jobs gap – especially for those seeking to participate in the service sectors of the economy.  There needs to be complementary strategies.

David Begg, General Secretary of ICTU, recently provided one of them. Speaking at the TEEU annual conference he said:

‘I would say that ultimately the State must be willing to contemplate being an employer of last resort through local authorities or social employment. The lessons of the Great Depression may have been lost but they are as valid in social terms now as they were in the 1930s. No country, no society can afford to regard so many of its unemployed citizens as expendable.’

The state as Employer of Last Resort (ELR) – that’s a considerable intervention.  The concept is simple:  during periods of enforced unemployment, where the private markets cannot employ people who want to work, the state should employ people until sufficient job creation commences.

An ELR programme would employ people through the mainstream public sector, local authorities, or community, voluntary and non-profit organisations on socially beneficial projects.  There are a number of questions over how this would work.  I will focus on two and, in so doing, start the work of outlining an ELR programme.

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