Economy

crisis

Over Crisis-ed and Under-Paid

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We have a housing crisis, a homeless crisis, a health crisis, an investment crisis; our education system is under-resourced, our indigenous enterprise sector is out to lunch and the Dail can’t seem to put together a government.

And if all that wasn’t bad enough, we are under-paid.

Some new data regarding employee compensation and wage levels in Europe has come on stream. Here we will review the headline figures. Over the next few weeks we’ll get into the detail.

First up is a comparison of employee compensation. Employee compensation combines both the direct wage the employer pays you and the social wage which the employer pays to a social insurance fund that allows you access to income supports and public services (e.g. health). This is the standard measurement of workers’ wages, used by the CSO, Eurostat, OECD, etc. So at a total-economy level, how do we compare with other EU-15 countries?

Underpaid 1

There’s Ireland – below the EU-15 average and in 10th place, only ahead of low-pay UK and the poorer Mediterranean countries (the data can be found here and here.   To get to the EU-15 average we’d need an increase of 6 percent – but we’d still be in a lowly 10th place.

However, when we look at other central and northern European countries (removing the four peripheral Mediterranean countries), we fall well behind. We’d need an increase of 18 percent.

Employee compensation is not equal to ‘labour costs’ (I really hate that value-laden term). In some other countries, employers pay higher payroll taxes than just employee compensation. For instance, in Sweden, employers pay a social wage (social insurance) of 17 percent of the workers’ wage. However, they also pay an additional 12 percent in other payroll taxes – money that can go into public services and income supports not related to social insurance. In Austria, employers pay 17 percent in social wage and another 7 percent in payroll taxes. In Ireland, employers pay 8 percent social wage and another 0.5 percent in payroll taxes.

 

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Un-Squeezing the Middle

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Seamus Coffey has been digging up some numbers which he self- deprecatingly refers to as one more ‘silly addition’ to what can be done with income distribution statistic. But silly they are not. They give insight into another aspect of Ireland’s income structure.

When we debate income distribution we usually do so through the prism of the relationship between the ‘top’ and ‘bottom’ income groups or the Gini co-efficient. What Seamus looks at are the fortunes of the middle income group and specifically compares Ireland with Sweden in the middle deciles (a decile represents 10 percent of the population). I reproduce Seamus’s table below but if it is difficult to read you can access it here.

Squeezed Middle 3

The numbers measure the percentage of ‘equivalised income’ each decile receives (equivalised factors in household size). In the table we see that in green Ireland, the lowest 10 percent income group receives 3.2 percent of all income; the top 10 percent receives 24.4 percent – or nearly a quarter of all income. Regardless of the magnitude, there is nothing surprising in this. Top income groups take more than low-income groups.

However, Seamus points us to the middle of the decile group – what has been described in the debate as the ‘squeezed middle’ and compares us to blue Sweden. There is a huge gap between the two countries in these middle deciles – 4th to 7th. Indeed, if Irish squeezed middle households took as much of a percentage of total income as Swedish middle decile households, each Irish household would be, on average, €5,000 better off according to Seamus. That’s a tidy sum.

Using the Eurostat data here is my own take. Rather than compare Ireland to Sweden (Sweden is pretty egalitarian but they’ve been at it for decades), I compare Ireland with the average of our peer group – other small open economies: Austria, Belgium, Denmark, Finland and Sweden. And since I’ve used the middle 60 percent in the past I’ll keep to that and calculate the income for households in the 3rd to 8th decile. That’s a bigger middle.

Squeezed Middle 1

Ireland’s low and middle income groups are below the share of those same groups in the other small open economies. However the Irish top 20 percent group take considerably more than their counterparts in the other five countries. What does this mean in Euros? If Ireland had the same share of disposable income:

  • Households in the lower income group would receive, on average, an extra €2,200.
  • Households in the middle income group would receive, on average, an extra €2,300.
  • Households in the high income groups would, however, lose on average €9,100.

In small open economies, low and average income groups make more at the expense of their high income groups.

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The Economy is What Happens When You’re Busy Making Election Plans

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An interesting piece of information came out from the CSO last week, three days before polling day. It showed increases in employment falling to a trickle. Are we seeing a new pattern emerging or just a short-term blip on the long road to full employment? Let’s look at the trend.

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There are a couple of points to make here.

First, a significant part of the big increase during 2013 is likely to have been statistical (I discussed this here). During this period the CSO was making adjustments to its sampling base and specifically warned against interpreting trends. Employment increased phenomenally during this period even though we were still in a domestic demand recession which is be a big strange. Once the CSO ended their adjustments employment increases fell to almost nil – one more suggestion that the 2013 surge has to be treated cautiously. This is more than just a historical point; it may go some way in explaining why people weren’t feeling the recovery – because tens of thousands of jobs were only created on paper.

After 2013, employment statistics are more robust. It started off slow and rose to 16,000 jobs created in the second quarter of last year. But now we come to the second point.

In in the second half of last year employment increases slowed substantially. In the last quarter in 2015, employment rose by less than 5,000 – nearly two-thirds down on what was happening only six months previously. In the first half of 2015 employment rose by 30,000; in the second, 12,000. That’s a considerable deceleration.

How do we explain this? As mentioned, it could be a blip – one has to look at the long-term trend. Or we could be seeing pent-up demand coming through in 2014 as the economy burst out of a lengthy period of recession and stagnation. As the economy settles down – the Government expects GDP growth to slow considerably in a couple of years – so will employment. Are we seeing the beginning of those trends?

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After the Votes

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So what’s it going to be? Coalition? Minority Government? Extended stalemate?  What we do know is that support for the Government collapsed – by over half. Labour’s decline was anticipated, Fine Gael’s wasn’t – at least not in the pre-election polls.

We also witnessed Fianna Fail’s significant advance with a 40 percent increase in their first preference vote, winning an additional 25 seats.

In the new Dail Fine Gael and Fianna Fail look set to take 94 seats (at the time of this writing). In 2011 they won 95 seats. However, this is a smaller Dail. In percentage terms, the two conservative parties won 57.2 percent of seats in the 2011 Dail; now they won 59.5 percent. The conservative vote didn’t fall; it just swapped between the two parties. And this doesn’t count the increase in conservative and gene-pool TDs who look to increase from six to eleven seats.

Progressive parties and independents put in a credible performance. However, the breakthrough that many were hoping for (including me) didn’t come. Sinn Fein increased their popular vote by 3.9 percentage points with the AAA-PbP increasing by 1.5 percentage points. Combined, these two parties look set to gain 13 seats at the time of this writing – positive but about half the Fianna Fail increase. The Social Democrats took three percent but couldn’t increase on their outgoing total while the Greens are back in parliament with two seats. However, the number of progressive independent TDs doesn’t appear to be increasing of this writing.

So where next for progressives? Much will depend on the formation of government and potentially an election in the short-term. But for the medium-term here are a few suggestions.

1.    Start an Honest Conversation

In policy terms, wipe the slate clean. One of the messages coming out of the election was that people didn’t believe the promises to cut taxes, increase public spending and establish fiscal stability. Rightly so. There is little fiscal space – far less than parties claimed. The future is extremely uncertain: low Eurozone growth, interest rates, oil prices, currency movements, the stability or otherwise of the European banking system. Then there’s the question of the character of the recovery (how much real, how much statistical). And what about Ireland’s continuing and unsustainable reliance on a corporate tax regime which works at the expense of other countries. Start an honest conversation about the challenges we face over the next decade – and don’t be surprise how many people will thank us for it.

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“The Recovery Has Nothing to Do With the Government”

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“The recovery has nothing to do with the government”. So says Ashok Mody, former head of mission to Ireland for the IMF, according to a report in the Sunday Business Post. He goes on to argue that the current composition of the recovery is unsustainable and that it is unfair. He warns that an export-led recovery cannot be relied on in a slowing world economy and that regressive taxes should be changed. A full interview with him is promised later.

The judgement is valid. In terms of growth the current government’s track record is unexceptional. Taking the 4 ½ years of economic data under the FG/Labour coalition, real GDP grew by 15%. This is an average annual rate of just under 3.2%. This is slightly slower that the growth rate in the last 4 quarters of the previous government of 3.6%. No-one, not even in Fianna Fáil pretends that the previous government had sound economic policies.  

The reason for the moderate average growth rate, very modest following an extremely sharp recession, is that the economy actually contracted in the first part of the FG/Labour term (as shown in Fig.1 below). In the first quarter of 2013 real GDP was 0.7% lower than FG/Labour had inherited almost 2 years earlier. The trend line in the graph shows where GDP would now be if it had continued at the same pace over the last 4 ½ years.

ireland_realGDP

But the former IMF chief is mistaken in one important respect. The recovery is not export-led.

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At the Bottom of the Table

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The election enters the last few days. So many issues that were barely mentioned. How much time was given over to the fact that over one million suffer multiple deprivation experiences? How much debate was devoted to the 100,000 households in arrears and the many more in negative equity? Remember that bank debt that we absorbed? But no mention of a Financial Transaction Tax to start clawing back a little of that socialised private debt.

And there was absolutely no time devoted to benefits for people in work (apart from tax cuts which workers will end up subsidising through reduced public services and income supports). There was no mention even after a report published last week from Glassdoor, an international recruitment, company. The Journal ran the headline:

Ireland is bottom of the EU pile for social benefits’

This accurately described the report. Still no debate.

Glassdoor compared a range of social benefits for people in work and Ireland did not fare well. Take for instance what happens if you become sick at work. In Ireland you have to wait six working days before you can draw down the benefit and you get a flat rate of €188 from the Department of Social Protection. That’s about 27 percent of your wage. What do workers get in other countries?

  • In the Netherlands, employers are required to pay 70 percent of pay for up to two years
  • In Germany, employers are required to 100 percent of the wage for the first six weeks. After that, the state pays 70 percent of the salary for up to 78 weeks.
  • In Austria, workers receive up to 50 percent of wage for up to a year.

The main benefit other European workers get (apart from the UK and ourselves) is sick-pay that is income linked (though in most there is an income ceiling; these ceilings are above the average wage). This cushions the fall in living standards for those who fall ill and maintains consumer spending in the economy.

What about family benefits for those in work? Ireland has a very high level of maternity leave at 42 works, considerably than most other countries. However, only 26 of those weeks are paid at a maximum flat-rate of €230 per week. This is 33 percent of the average wage.   What about other countries?

In Austria, Denmark, France, Germany, the Netherlands, and Spain new mothers get 100 percent of previous earnings for the whole period of leave. Italy pays 80 percent of earnings while Belgium starts out at 82 percent, falling to 75 percent over time. Again, there are income ceilings above the average wage which, therefore, progressively benefits those on low-average pay.

In addition, many countries have paid paternity leave; not Ireland (though this has been promised in the general election campaign).

Another category where Ireland features at the bottom is unemployment benefit. It should be remembered that benefit is time limited in EU countries and is intended to bridge the gap between employment (what’s called frictional unemployment). In Ireland, you get €188 per week (27 percent of average wage) for 26 to 39 weeks. Other countries are much more generous:

Austria provides 55 percent of wage for up to 52 weeks. In Germany you get 60 percent of wage for up to two years. In Denmark, if you pay into an unemployment insurance fund (most do) you get 90 percent for up two years. The rules in many of these countries can be quite complicated but Ireland has the weakest set of benefits for people between jobs, apart from the UK.

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A Different Starting Point: Work, Enterprise and Homes

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In a previous post I suggested that the debate was getting out of hand. In actual fact, we have almost no fiscal space (not after inflation, demographic pressures and the sleight-of-hand regarding Irish Water investment). Then there are those external events: low-growth, volatility in the equity markets, asset bubbles which rarely end up other than a bust (and still no one talking about Brexit).

Yet we have a promise-land political debate: tax cuts, more public spending, more investment – honey and manna and wine flowing;  detached from domestic and global reality. Eerily enough, the debate is even detached from the economy (as if throwing about small bits of money at this or that will change the fundamentals).

But one should be slow to criticise unless there is some alternative at hand. So here’s my go. However, mine has a different starting point than tax cuts or divvying up a tiny fiscal space. I will address three issues– and none of them cost money (that is, impacts on our new friend, the fiscal space). But if pursued, they would make life a lot better for a lot of people.

1.    Quality Workplaces

In a recent report the OECD claimed that earnings quality, labour market security and a quality work environment go hand-in-hand with higher employment. Of course; you can’t build a modern sustainable economy on low-pay, job insecurity and poor working conditions.

Therefore, let’s have a Decent Work Act which can help build quality jobs, based on ICTU’s Charter for Fair Conditions at Work:

  • Start the process to a Living Wage
  • End precariousness – through certainty of hours at work
  • Give part-time workers the right to extra hours in the workplace when they become available (this is actually a EU Directive that has yet to be transposed into Irish law)
  • A progressive public procurement programme – so that we don’t get images like these from Government Ministers, parading the vests and names of race-to-the-bottom employers
  • Statutory Sunday premium and over-time pay
  • The right to collective bargaining and a significant extension of Joint Labour Committees to all low-paid sectors and occupations.

This will start to give certainty in the workplace, promote quality jobs, increase domestic demand and investment – and the great thing is that it would actually be a revenue raiser for the government, not a cost.

Lesson: change the power relationship between labour and capital to start favouring the former.

2.    Develop New Enterprise models

The debate assumes that we can build a modern market economy through tax cuts and eliminating red tape. If that was the key to success, we should have the largest indigenous enterprise sector in Europe. Instead, we have one of the smallest. So let’s get real.

I previously highlighted Davy Stockbrokers’ assessment of investment in productive activity prior to the crash – that the overwhelming majority of it came from public investment and public enterprise companies. So let’s learn and apply this lesson.

First, create new – and expand current – public enterprises; in such areas as advanced broadband, green technologies and alternative energy (e.g. ocean, etc.), public transport, etc. This can be through stand-alone activity, partnerships with private companies, whatever works.

From this we should enable local government (or create new regional institutions) to establish municipal enterprises – a standard feature in continental Europe and North America. These are essentially local public enterprises but they can be formed in partnership with local and private capital. This would facilitate areas where there are low-levels of enterprise activity (whether urban ghettoes, cities/towns outside Dublin, or depressed rural areas).

But we can go further, supporting alternative business models: community and neighbourhood enterprises, labour managed enterprises, new company models based on commercial non-profit activities (some may find this exposition of alternative business models – from the Democracy Collaborative).  And this could be funded – through equity – by the Ireland Strategic Investment Fund, with little impact on the Exchequer.

Lesson: once we get over the idea that jobs can only be created through private capital (and private capital alone) a number of alternatives can arise.

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fiscal_space

The Collapse of Ireland’s Finances (again): A Reinterpretation

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As the election season reaches full swing, the inevitable claims of who did what and when, and what this means in the future intensifies. One oft-repeated tale beginning to reemerge is that an expansion in public spending during the 2000s is a, or perhaps the leading cause of the subsequent financial and debt crisis. After all, as seen below, the crisis manifested itself in an explosion of the public deficit and overall debt, which eventually culminated in an inability of the government to borrow from financial markets in 2010. While the topic has been much-discussed, it’s worth going over this again as there are several misunderstandings, and some questions which I think elements of the left have had difficulty answering too.

irelands_fiscal_stance

Notes: The Fiscal Balance and Adjusted Balance are shown on the left-hand side, Expenditure and Debt are shown on the right-hand side. Adjusted Balance taken from IMF’s World Economic Outlook. All others are taken from Eurostat.

The most obvious counter to the argument that bloated public spending was at the centre of the crisis is to point out the actual trajectory of fiscal policy in the 2000s. As shown above, Ireland actually ran a surplus (blue line) in all but one year of the 2000s pre-crisis, and also had one of the lowest debt-to-GDP ratios in the developed world. As a proportion of national income, spending increased, but quite modestly considering the low base. Thus, if anything, it was a model of fiscal prudency.

The counter to this is that, yes, the headline deficit was actually a surplus, but this masks underlying structural weaknesses. As we all know by now, the surpluses arose because of transient taxes such as stamp duty and other bubble-related windfalls. There was an expansion in public spending and the headline surplus was in reality a deficit (or as economists would say there was a structural public deficit). This was hidden by a basket-case economy, which delayed the inevitable collapse. In reality, the state was spending money it didn’t have – government profligacy in the form of excess spending has been a root cause of our woes. This can be seen clearly by the evolution of the cyclically-adjusted government balance, which clearly shows a large deficit from 2001 on.

A not inconsiderable portion of the left have difficulty answering this, and as a result it weakens the case for greater public investment in services, infrastructure, and so on. One response is to point to the costs of the bank bailout. Another is to repeat the point that the public finances were in surpluses. Another criticism is that it is in practice impossible to measure a structural deficit: that is, one cannot disentangle structural versus cyclical components of the deficit. I think all of these answers are somewhat weak, and leave open the charge of denial.

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Time for an Honest Conversation

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Before this election gets out of control it’s time to have an honest conversation.

You know all that stuff about the ‘fiscal space’? Is it €8 billion or €10 billion or €3 billion? Here’s the bottom line. There is effectively no fiscal space. We’re having a surreal debate over what is the equivalent to pennies (or 20 cent pieces) behind the sofa – though it was amusing seeing Fine Gael caught out on double-counting part of their estimate.

We’re going to be spending €350 billion over the next five years. There will be nearly €400 billion revenue. The fiscal space of €8.6 billion (that’s the base-line number) represents less than 2.5 percent of total expenditure and even less of total revenue. We’re having a 2 percent debate.

But it’s even less than that. There’s this little thing called inflation.   You may have heard of it though apparently some political parties haven’t. The Government estimates general economic inflation (GDP deflator) to be over six percent over the next five years. For current spending just to keep pace with inflation would mean an increase of nearly €4 billion. So that’s about half of the fiscal space gone.

But it’s even less than that again. The Government has assumed demographic pressures costing the state €2 billion (this means it’s not part of the fiscal space). These are demand pressures that occur without any policy change – rising number of pensioners, more demand on hospital services, rising number pupils numbers, etc. However, that €2 billion represents only ‘certain’ demographic pressures, not all. How much more? The Government’s not saying. But subtract more.

Taking all this into account, the Irish Fiscal Advisory Council estimated the fiscal space to be €3 billion and change. Even if it turns out be a little more, it’s not much.

But here’s something else to contemplate. The Government’s public investment programme is already factored into the base-line projections. So the increase in capital expenditure from the current €4.2 billion to €5.8 billion in 2021 is not part of the fiscal space (but this level of investment will still keep us at the bottom of the EU tables and well below our historical average).

However, the Government pulled a fast one in the capital programme. They claimed that over the next five years, there would be €3.2 billion in water investment – investment that would not be on the Government books since it will be carried out by a public enterprise company: our old friend Irish Water. However, the Government is in denial. Irish Water is on the books, thanks to the Eurostat ruling. Unless the government introduces charges based on use (fat chance), Irish Water will remain on the books. If there is to be any investment water and waste it will have to be on the books – about €3.2 billion between 2017 and 2021. That will come out of the fiscal space.

Let’s summarise: we have €8.6 billion in fiscal space

  • Subtract about half due to inflation
  • Subtract more (don’t know how much) for the full cost of demographic pressures
  • Subtract water/waste investment if we’re to have any

How much is left? Have a look behind the sofa cushions. (Note:  there is a little matter of an additional €1.5 billion from future recalculations of the fiscal space; good, we’ll need it).

Now let’s throw into this mix all manner of proposed tax cuts: USC, property, income, corporate, capital, whatever you’re having yourself (interesting that no one mentions cutting the most regressive tax – VAT).   And then there’s the other side of the fiscal coin expanding capacity in the health service, increasing resources for education, building tens of thousands of social housing, increasing investment, bringing people out of poverty.

Let’s be clear: the politics doesn’t work, the math doesn’t work.

And none of this counts the external environment.   The irony is that as Europe moves back to normalcy – higher interest rates, higher oil prices, higher exchange rate – Ireland will suffer. We’re benefiting from a situation that is risking another round of asset bubbles and busts.

Take one example: the Department of Finance projects the budgetary impact of higher interest rates. A one percent increase in interest rates will, over a five year period, lead to a fall of GDP of over two percent, a fall in tax revenue of nearly 2 percent, higher public spending due to increased unemployment benefits and an increase in the debt/GDP ratio of over seven percentage points. Now add on oil prices and a strengthening Euro; never mind the profound implications of Brexit.

Anyone talking about this? No.

Rory Hearne suggests that progressive parties and independents come together to present an alternative:

‘Imagine a press conference with Mary Lou McDonald, Gerry Adams, Stephen Donnelly, Catherine Murphy, Paul Murphy, Richard Boyd Barrett, Finian McGrath and Clare Daly – where they state that they have put aside their differences and have come together to offer the people of Ireland a real alternative government.’

It certainly is worth imagining. And the first thing they should do (and it would make an excellent photo-op) is to gather together all the party manifestos and policy documents and stick them in a bin. This would be the first step in having an honest conversation.  We could then talk about the real world and the difficult reality we are facing into.

Would that gather much support? I suspect it would. Poll after poll shows the majority of people don’t want tax cuts but, rather, investment and public services. There is a strong under-current of suspicion and even cynicism towards those who promise tax cuts and quality public services and fiscal stability, all to be delivered through numbers that don’t add up.

Is there an alternative? Yes. Is there a progressive fiscal space, combined with a spending policy, that forensically targets need and social repair? Yes. Are there policies that go beyond the fiscal space that can impact on people’s lives that do not require redistribution through Exchequer resources? Yes. My next blog will outline this.

But it all starts with an honest conversation.

I would imagine that people would welcome this – straight-talking from honest political forces. It certainly would mark a qualitative change from the usual election rhetoric. So let’s start that chat.

We have two weeks left.

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The Investment Deficit

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Continuing the recovery? Starting the recovery (for those who haven’t started feeling it yet)?   Protecting the recovery from outside events? What should we be doing? Voices from the fiscal orthodoxy insist we should use the additional resources to pay down debt – as if a few percentage points are going to protect us from external events. There are others that call for tax cuts but that’s a poor economic response whatever about its political appeal (which, if the Millward Brown poll is anything to go by, looks to have little popular appeal).

So how do we start, continue and protect recovery? One word: investment. Investment is the driving force behind enterprise success, economic growth and social prosperity. Investment drives growth, increases productivity, enhances skills, reduces costs and puts business and the economy in a stronger competitive position. You want to be competitive? Invest.

The problem is that Ireland has a poor investment record. And no one is talking about this in the election campaign; therefore, no one is talking about how to address it (if you’re not aware there is a problem, it is more difficult to solve it). The fundamental driving force behind economic growth and its nowhere on the agenda.

Historically, Irish investment has been below the EU average – even during the boom times. The following looks at Irish investment excluding dwellings and intellectual property/R&D. The latter – a new category under Eurostat’s recently introduced ESA 2010 – is excluded simply because it inflates investment numbers without necessarily contributing to growth. For instance, multi-nationals are re-locating IP activity into Ireland from tax haven locations. But to what extent this is making any real contribution to growth-generating activity is open to question. In 2013 70 percent of industrial R&D investment came from just three companies.

investment1

As seen, Ireland has been a consistent under-performer.

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A Costly Health Service?

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There are assertions that Ireland has a very costly health service; that we spend a lot but get little to show for it. This post will look at claims that we are high spenders when it comes to health. The fact is that we are not extremely high spenders but that shouldn’t be interpreted as meaning that our problems are automatically due to lack of resources.

The CSO has adopted a new methodology for categorising health expenditure: the System of Health Accounts. Since it was published in December of last year, a number of commentators have used the data to claim that we are one of the highest spenders in the OECD. In yesterday’s Sunday Business Post it was claimed:

‘We are spending considerably more than the vast majority of OECD countries and the wealthy European countries.’

Depending on the number used this is either true or not so true. That’s the problem with such statistics – it can tell you a whole number of different things at the same time.

We spend considerably more if we take the total level of spend – both public and private expenditure. The latter includes out-of-pocket expenses (GP visits, prescription medicine) and health insurance payments.

health1

The above measures spending on a per capita basis using PPPs (to better compare for living standards and currency movements). It does appear, using total public and private expenditure, that we spend a lot – the fourth highest in the EU-15, well above the average; nearly 20 percent higher.

However, when we isolate public spending, the situation looks a bit different.

health2

Ireland falls to mid-table, still above the EU-15 average. However, we are now 8.7 percent above average. Of course, if you squeeze public spending – especially in the context of an increasing population and a rising elderly demographic – you will get a rise in private spending. This is all the more the case with the rising costs of health insurance.

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So How’s the ol’ 1 Percent Getting On?

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The 1-percenters are back in the news with the Oxfam study showing that the world’s richest 1 percent owns more wealth than all the rest of the planet put together. So what about our own 1 percent? How are they doing? Let’s have a look at how that 1 percent and other top earners have been getting along in the crisis.

What follows is based on the EU’s Survey of Income and Living Conditions measurement of income (there may be trouble with the link – go to Eurostat Database/Population and Social Conditions/Living Conditions and welfare/Income and living conditions/income distribution and monetary poverty/distribution of income/the first table). It is a different concept from what Oxfam used: wealth. Wealth ownership refers to assets – real estate (buildings, land) and financial property (shares, bonds, cash, equities, pension pots, etc.). Income refers to the annual flow, whether it is employee or self-employed earnings, investment income, pensions, etc.

Income is only one measure of economic power and influence in the economy. Profits levels, the relative strength of labour and capital, degree of financialisation, place in the production process, social status, ownership of assets – it could be argued that income is the result, not the cause, of unequal power relationships in the economy. But it’s an informative measurement and can reveal something of what is happening around us or, in this case, above us.

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Prior to the crash the top 1 percent held nearly six percent of the share of national income, above the EU-15 average. This fell to 2011 – primarily due to losses in capital and self-employment income arising from property and speculative losses in the crash. However, since 2011 (and the current government), things are on the mend with the 1 percent trending upwards. Still a ways to go to pre-crash levels but with a little time and a few tax cuts, normal business should be be resumed.

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Lower Your Expectations – the Recovery is Settling In

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Remember at the beginning of the recession when we had all those letters to represent the likely course of the economy. There was the V-shape to represent severe decline followed by an immediate bounce-back; a U-shape to represent severe decline, a bit of lingering at the bottom and then a bounce-back; and the L-shape with severe decline followed by flat-lining as the economy stagnated. Between 2008 and 2013 this best fit the economy.

Now the economy is back in recovery mode but under the Government projections we are not going to bounce back to pre-recession levels of living standards. Lower your expectations, sisters and brothers, the recovery is setting in.

Let’s take a historical look at two indicators of living standards. First, consumer spending:

  • Between 1970 and 1995, a period covering two slump periods punctuated with growth, real consumer spending averaged 2.7 percent annually per capita.
  • Between 1995 and 2000 (the good phase of the Celtic Tiger, based on investment, manufacturing and exports), real consumer spending averaged 8.5 percent annually per capita. That was a strong performance, with employment rising, increasing wages and the ongoing shift to a modern enterprise base.
  • Between 2000 and 2007 (the bad speculative phase) real consumer spending averaged 3.4 percent per capita.. A little better than the pre-Celtic Tiger period but as we know, unsustainable.

Then the recession hit and consumer spending fell by over 10 percent. However, as always happens, the economy recovered. In the textbook alphabet, there would be a burst coming out of the recession, representing pent-up demand, and then things would settle back down to past trends. If the Government projections come true, this will not be the case.

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“Wants” A US-style Taxation System?

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The Taoiseach says he wants a US-style tax system. What does he think we have already? Here’s what the EU Ameco database tells us. Ireland data from 2015 comes from the Government’s own budgetary projections.

US Taxation

Ireland already has a US-style taxation system – if we use general government revenue as the benchmark. Before the crash Ireland was awash with revenue from the speculative boom; revenue that quickly evaporated. Since then, Irish government revenue has been steadily falling. By 2017:

  • The Government projects revenue will be below 32 percent of GDP. When we factor in multi-national accountancy practices, this figure rises to 34.5 percent
  • Ameco projects that US revenue will be 34 percent
  • Ameco also projects that Eurozone revenue will be over 46 percent.

A few things stand out in this. First, we are already at low US low-levels of taxation. Second, we are certainly not at European norms. We’d have to raise taxation by a mind-boggling €26 billion to reach the Eurozone average. Even with the demographic benefit of having fewer elderly (which is substantially negated by a higher level of young people) we’d have to increase taxation massively.

Third, the Government projections foresee revenue falling even further out to 2021 when it will be below 34 percent.

And here’s the kicker: this doesn’t factor in tax cuts that a future government may introduce. For instance, Fine Gael wants to abolish USC. That will drive tax revenue down further, potentially falling behind US levels.

When measured as a percentage of GDP, Ireland is at the bottom of EU tables – fighting it out with Romania and Latvia for the rock bottom prize. Nods towards quality health and education services, childcare and eldercare, public transport, pensions and incomes supports are made, but these are little more than nods; perfunctory gestures in a debate that effectively excludes the social.

What the Taoiseach really wants is for Ireland to be a basement-without-a-bargain economy where public resources are squeezed, investment is starved, and the energy bulb frequently cuts out without any window to let in the light.

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