Thursday, 31 March 2011

Guest post by Martin O'Dea: What can I do you for?

Martin O'Dea lectures in Management and Human Resource Management at the Dublin Business School
In our day-to-day lives we consume, enjoy, utilise etc a broad, but not inexhaustible, range of products and services. One month or year spent analysing all of your outgoings and categorising them makes for very interesting reading.
Generally speaking the greater the percentage of money we spend on productive, innovative products/services the better, as in the round the innovation and betterment of society is best–served. Fighting this, to some extent, is the urge for wealthy interests to try to retain control over certain flows of money. This gives us punitive costs (akin to crossing a palm with silver just to get permission to cross a bridge – or taking your chances on a train in the wild West against the percentages of train robberies). We should, in essence, analyse the productivity of our individual spending. How? Well, does 'the spend' provide for employment, does it promote innovation or improvements in the quality, accessibility etc of products/services?

One quick and obvious result of this type of spending review is the amount of money that is taken up by your car, and transport in general; say car parking and petrol, as particularly unproductive spends. We would also look at monies that are prohibitive in the manner by which they tax as a means to raise income from inactive economies.

In a given week, I might spend money on coffees and restaurants; on food, on petrol, on some sports activity, on use of a train, on health insurance, car insurance, pensions provision, city car parking facility, perhaps an outing to a cinema or theatre, telephone bills, utilities, more infrequent gadget purchases, perhaps a pub or a match or saving towards a holiday. Perhaps a dentist/doctor/accountant/barrister will be met, or a hairdresser/mechanic/piano instructor. I will, like many of my generation, consign a huge portion of the money I earn - by contributing to the output of my company and the spending generated by that company - to repaying a mortgage and an incredibly large amount of money on childcare.

Okay, in these instances, I can see how the cinema, theatre, sports activity, match, coffee, food, restaurant, hairdresser/mechanic/piano instructor may provide me with what I feel is value for money, provide jobs; and generate income to the government through the taxes that the people employed in providing these services/products pay, and by the V.A.T. that my spending generates.

One of a government’s key concentrations should be that my money provides jobs and opportunities for as many as possible, as well as providing the opportunity for future products that will make my life more comfortable and enjoyable, as well as freer and longer-lived in better health.

If we see all of this we must question the use of the car park (mere unchanging space acquiring vast sums), or indeed, the petrol, insurance and taxation associated with the car. Of course, a private car is a significant part of our lifestyle, and would account for a large portion of our finances in a more ‘value-for-money’ based system, but surely not this much; and perhaps it is over-priced and well beyond the point where it provides return for the citizen spend; and while we must acknowledge the open aspect of our country, certainly, the volume of money that leaves for oil-rich countries is pretty astounding, and abetted by the drain on economic throughput of going straight to the Exchequer via the majority stake of the government charge.

What about people spending the equivalent of a mortgage on having their two young children cared for while they go and try to contribute to other work environments? How much of the money involved here is justified, how much goes to the wages of those involved and is, so, run through the economy further by their spending? What of an argument to utilise the infrastructure of existing schools to provide the option for public provided child-care covered over a lifetime contribution to taxation as opposed to strangling the spending of a huge and heavily indebted portion of current economy? What of the amount of money that is taken from the general economic activity directly as taxation on items like drink and cigarettes: is this truly productive and providing jobs and innovation and societal and technological improvement, or is it an example of short-sightedness and the desire for quick money for the exchequer?

Of course, we had items in this country like the NTR and the stunning arrangements that allowed them to open the cash-point that was their M50 toll. We can include exorbitant fees charged by professionals such as barristers, accountants, medical professionals and others (accounting for the majority of the richest top percentage earners in the land and benefitting from very regressive tax systems), and how these concentrate on areas of society where people find themselves without choice but to avail of the services; and dealing with self-regulated and non-competitive traditional strongholds of Irish society.

It is a line of thinking that shows you that, by just extending the un-productivity and protection afforded to certain vital or state-supported endeavours, we end up quickly at corruption.

Ponder the results of a range of tribunals, look at taxpayers picking up the tabs in a whole range of dealings, and see how the most massive misappropriation of funds of them all (the bank guarantee) was a continuation of a cultural practice by the elite factions of a society moulded in the promoted deference of its civilians. We must also look, together, at fees for public services that are operated in the face of innovation, in many instances. Finally, a long and international look needs to be given to a form of Tobin Tax (or an equivalent) on the trillions of euro of financial transactions and market activities that are devoid of tax.

There are two obvious elements to this: firstly, it can only work if adopted internationally (and it has at least been discussed at G8 level - and Ireland might lead the fight for this), and secondly it has the potential to right an awful lot of what is wrong about an unfettered market model, as well as affording society at large to reap the benefits from the enormous progress it is actually making. Of course, to name and tackle elements of a society that are unproductive and examples of ‘protected’ money is not that easy a thing to do, and will meet with resistance from the very factions involved. The question remains, then: will politics in Ireland see itself as the servant of the people as a whole and society as a whole or, will it continue with the practice of representing separate elements of society in a supposedly ballot-box friendly, yet, eventually counter-productive, manner?

If this government want a new way of doing things, then the public sector reform government post should have its remit widened to a public/private sector forum for encouraging productivity and innovation.

Wednesday, 30 March 2011

A suggestion for the EFC boosters

Tom McDonnell: The IMF as an organisation has long been criticised for its dogmatic adherence to the Washington Consensus principles regardless of local context. But a strange thing happened recently. At a recent IMF conference attended by half a dozen Nobel laureates, "Macro and Growth Policies in the Wake of the Crisis", the IMF conceded that their standard prescriptions were at best incomplete and insufficient. In particular, the importance of Keynesian expansion during times of recession was explicitly acknowledged. The IMF’s own research makes clear the damaging impact of consolidation.

Despite this Damascene conversion the expansionary fiscal contraction (EFC) hypothesis of ‘expansionary austerity’ is alive and well, as Paul Krugman points out here.

I would gently suggest that the EFC boosters in the United States should look to the recent Irish experience to see just how successful extreme austerity can be in revitalising growth.

Friday, 25 March 2011

Innovation, rather than high-tech, is key

David Jacobson: In 1990, in a paper on MNCs in Ireland, I argued that the “completion of the single market” in 1992 would bring pressures on Ireland to increase its corporate profits tax rate and that we should begin to prepare for this. In 1993, in a paper with Sara Cantillon, I suggested that FDI into Ireland from the US was highly dependent on American IRS regulations.

Ever since, in various papers and presentations, I have taken the opportunity to express the view that Irish industrial policy was and is overly dependent on the encouragement of FDI. This is not to say that we should suddenly increase corporation tax rates nor that we should discourage inward FDI. However, the pressures from our major European partners to increase corporation tax – or to introduce a CCCTB (Common Consolidated Corporate Tax Base) – should not have come as a surprise, and the horror being expressed by policy makers and commentators alike at the prospect of having to alter this one – and apparently only – pillar of industrial policy is a reflection on the lack of understanding of the prerequisites for sustainable development.

The monofocal Irish industrial policy sees development as something like the following:
Low corporate taxes => inward FDI => increase in high-tech => increase in exports => growth

This expresses inadequate recognition of the importance of indigenous firms and of all activities other than high-tech ones. For some reason we continue in Ireland to extol the virtues of the so-called smart economy, when we continue to appear well below OECD averages in most of the indicators of advanced technology infrastructures. Moreover, firms in low and medium technology (LMT) sectors continue to account for the vast majority – in nearly all OECD countries – of employment and contribution to GDP. Innovation, not high-tech, is the key, and there is a great deal of evidence of innovation in LMT firms. In Ireland, firms like the Howth company Oceanpath in food processing, and Cork’s BCD Engineering, are in LMT sectors but are highly innovative and successful.

Rather than focussing on our hallowed 12.5 per cent we should acknowledge the complexities of development, work on the identification of differences in the policies required to support innovation in different sub-sectors, and balance the support we provide to FDI and high-tech, with some attention to indigenous firms and LMT.

Pavlov's dogs and barking mad economics

Michael Burke: Ivan Pavlov and his work are widely misunderstood. In English he is most usually associated with the phrase ‘Pavlov’s Dogs’ , used to imply an unthinking and customary response, a conditioned reflex. In fact, the great physiologist’s work was both extensive and groundbreaking in a number of areas.

Even in the caricature of his work, what conclusions could have been drawn from research which showed the dogs still panting for food after the twelfth time when the whistle had blown and there was no food?

The question came to mind in relation to the preview of the GDP data over on Irish Economy where characteristically strong opinions were not matched by strong convictions about growth. This was just as well. In real terms, GDP fell by 1.6% in the quarter and is 14.6% below its peak level prior to the recession – 3 years ago.

For 12 quarters mainstream and official economic opinion has expected government spending cuts to produce growth. It has produced contraction. ‘Pavlov’s dogs’ were smarter.

This is a new low-point for the economy - and for mainstream economic thinking. Some may be inclined to designate this a ‘double-dip’, but in reality this is just an accounting quirk. The positive quarter of growth sandwiched either side of contraction implicit in the phrase is a mirage – entirely accounted for by a rise in unwanted inventories in Q3, as was argued at that time.

Instead, some may be inclined to see a chink of light from the GNP data. Real GNP rose for the third consecutive quarter, up 2%, and now stands 2.7% higher than a year ago – although it is still 14.1% below its peak. But this too is more an accounting function than any reflection of rising domestic activity. The key components of growth fell- personal consumption -0.4% in Q4 to a new low, 11.1% below its peak. Investment (gross fixed capital formation) also fell 2.3% in Q4 to a new low, 60.7% below its pre-recession level. The total decline in investment from peak is now €27.6bn, which is the same as the total decline in GDP (€27.7bn) and exceeds the decline in GNP (€22.8bn). The entire slump is accounted for by the investment collapse. Inventories also fell once more.

So, where does rising GNP come from? Current government spending rose by an annualised €72mn in Q4, but in a €138.4bn domestic economy that really doesn’t add up to much. Infamously, government spending in this economy is falling- a quarterly rise a blip, when the numbers forced onto welfare rise at a faster rate than the welfare entitlements are cut. Maybe they got complacent when unemployment ‘steadied’ at 13.7%. If so, the surge to 14.7% will have them looking for the axe once more.

In any event, government spending has been in a downtrend since mid-2008 and fell by 2.1% while GNP was rising. Therefore all the activity components of GNP have been falling, personal consumption, investment, inventories and government spending.

The reason GNP has risen is because Net Factor Income from the Rest of the World has been rising. More accurately, the drain on growth from this source has been falling. This outflow has declined by over €7bn this year alone (annualised), much greater than the €5.3bn rise in GNP from Q1 to Q4. The reduction in this outflow is that Irish residents (ie Irish banks) are paying less interest to overseas residents. There is simple reason for this- overseas residents have taken their money out of Irish banks. They are too risky. This will probably continue, and so boost GNP artificially. But the real indicators of activity are all still contracting.

Yet this does not correspond to the dominant mainstream view. We have been repeatedly told that spending cuts would restore confidence both at home and abroad and so lead to a recovery. We were also told that cuts were a matter of urgency, to restore that confidence. But what immediately happened was that the economy contracted further and government finances collapsed as a result.
Now, the new government is about to embark on a repeat of the experiment which has already failed- 12 times. Pavlov’s dogs were smarter.

Wednesday, 23 March 2011

Benchmarking Working Europe 2011

The European Trade Union Institute has released its annual publication 'Benchmarking Working Europe 2011' which can be downloaded here. There are lots of graphs included which allow for quick cross country comparisons on issues such as employment, education or inequality. The general theme of the publication is the EU's new strategy for 2020.

(This is perhaps a shameless plug as I wrote one of the chapters.)

Tuesday, 22 March 2011

Here we go again

Michael Taft: It’s open season on public sector workers again. The Sunday Independent has a front-page shock-horror headline – €1bn pay rise bonanza for public sector. Other commentators and employers' spokespersons have been having their go's as well. But then there's Stephen Collins. Stephen has a statistic. You've been warned:

'According to the CSO, average weekly earnings in the Irish public sector are €912.84. This contrasts with average weekly earnings of €624.99 in the private sector, an astonishing gap in income.'

An astonishing gap in income? No, astonishing nonsense. Let’s go through this assertion with that most inconvenient of entities – facts.

Read the rest of this post over at Notes on the Front.

Monday, 21 March 2011

Debt-equity swap for banks won't work

Michael Burke: The sheer size of the bank debts being assumed by the State has led to a flurry of alternative proposals which might diminish the burden to taxpayers. The latest proposal is from Karl Whelan, who has proposed a debt-for-equity swap to recapitalise the banks. This has received some mixed support.

But it fails on the first count: it doesn’t reduce taxpayers’ burden at all, it increases it. Scandalously, it does so in order to reimburse bondholders for every last cent of their failed investments.

For Irish taxpayers, the form of the bank bailout, debt or equity, is less important than the amounts involved. It was the last government’s determination to bail out the banks which led to the arrival of the EU/IMF. More precisely, it was the government’s position combined with the refusal of the ECB to countenance further liquidity support for the banks without a bailout for EU banks which brought the EU/IMF impositions.

Under the latest proposal €150bn would be required to recapitalise the banks, which would be achieved by the Irish central bank converting its €70bn in short-term loans to the 6 Irish banks guaranteed by the State into equity. There is a hope that the European Financial Stability Fund (EFSF) would also do the same for the €80bn in loans from the ECB.

If, as Karl Whelan suggests, the true picture is that the 6 banks’ underlying value is approximately -€30bn, yes, that’s a minus number, then the immediate loss incurred by both would be 20% with the CBoI losing €14bn and the EFSF’s loss would be €16bn. Quite why the European authorities would agree to this is not explained, even if others have suggested that Irish referendum voters won’t play ball when there are the (inevitable) further Treaty changes. In context, the European authorities have dug their heels over a 1% cut in the punitive interest rate levied on Irish taxpayers, which would only yield a saving of €450mn per annum.

By contrast a unilateral repudiation of the bank portion of the debt requires no agreement, just a determination to carry out what’s fair and reasonable. That determination alone might even be enough to force a more reasonable stance from the EU itself.

The unwillingness of the EU authorities seems a fundamental practical objection to the plan. But there is an obvious objection in principle. Why would taxpayers in either Ireland or the rest of the EU provide massive amounts of new capital for worthless institutions and their bondholders, or shareholders? It is unfortunate that Whelan, an effective scourge of the previous government’s support for the banks, now seems to accept that the bondholders are to be made whole, while taxpayers, and State finances take the enormous strain.

Whatever the unacceptability and immorality of the plan- it simply won’t work. The ECB has no intention of ‘printing money’ to bailout one of lesser members- the EFSF is borrowed capital ultimately financed by taxpayers. Neither is the ECB is unlikely to allow the CboI to do the same. All of the capital to be handed over for failed investments in Irish banks must come from taxpayers.

In the dizzying collapse of the Irish financial sector - and the authorities’ determination both in European and in Ireland that the private sector be protected from the consequences of their own investment decisions - it is easy to forget that November ‘s €35bn bank bailout provided the tipping point- into the tender embrace of the EU & IMF . Suggesting that the crisis can be resolved by a €70bn bailout has no logic. Irish taxpayers potentially picking up the bill of €150bn (and at an annual interest bill of over €4bn) for the most over-capitalised banks in the world would be simply bizarre.

Although the bank bailout sums are getting greater, and may become greater still if the stress tests are at all serious, the same principles hold. Irish taxpayers can’t pay for a bank bailout. Nor should they.

Tuesday, 15 March 2011

Unemployment highest since 1989

Slí Eile: Involuntary unemployment is long recognised as both the enemy of human dignity and a huge waste of human potential capital. The latest data on unemployment from the Central Statistics Office here indicates a worrying growth in unemployment. There has been a significant increase in the rate of unemployment in the last quarter of 2010 over the previous quarter of 2010.
Seasonally adjusted the rate went up to 14.7% (from 13.7%). At a rate of 15%, the rate is now almost three times what it was three years ago before the crash of 2008. To put this context unemployment is now approaching the level last seen in April 1989 (when the rate was 15%). The rate was at its highest in 1985 and 1986 (at 16.8 annual average % rate).
However, the CSO offer yet another very telling statistic. It is referred to as ‘S3’. It refers to: “Unemployed plus marginally attached plus others not in education who want work plus underemployed part-time workers as a percentage of the Labour Force plus marginally attached plus others not in education who want work.”
In plain language it is the number of those out of work together with those who would work but have given up looking. This figure comes to 23% of the total potentially available to work. Add to this a large figure by way of net outward migration. In the 24 month period up to April 2010 an estimated 130,000 persons emigrated from Ireland. However, this was balanced by an inflow of 88,000 according to the latest CSO estimates here.

The estimated net outflow over those two years was therefore in the order of 42,000. It should be possible to firm up these estimates once the results of the 2011 Census of Population are known later this year.
A major problem is the growth in long-term unemployment to over 50% of the total at 7.3% in the fourth quarter of 2010. In other words there was an estimated 154,000 persons unemployed for more than 12 months and still living in Ireland.

The position of young people – especially those who have left school early is perilous. Take the data here which show that one in two young men between the ages of 18 and 24 who have left school early (without a Leaving Cert or equivalent) and are still living in Ireland is seeking work. A further one in four is in a job while the remainder is not ‘economically active’. For young women aged between 18 and 24 one in two is not ‘economically active’ while one in four is seeking employment.

As part of the drive to shrink the public sector Governments are committed to reducing numbers in the public sector. So far, the reduction is significant. Based on data in Table 1.1 of the latest CSO release, the numbers are down by 24,000 since the end of 2008 (from 427,000 to 403,000 in December 2010). Most of this fall occurred in 2009 (20,000) and 4,000 occurred in 2010. Government is committed to a further reduction of 25,000 (although the size of the public sector here is less than elsewhere according to the latest OECD data on public sector employment).

In Quarter 3, unemployment, here, was 6th highest in the EU. The broad public sector was, traditionally, a major employer of school leavers, apprentices and graduates. Not any more. The theory of crowding in of private investment, export led growth and rising market share as taxes, wages and other costs are reduced constitutes the long-term FF-IMF-EU plan to get the economy moving and jobs coming on line again. The new Government has promised fast action and the creation of a ‘Jobs fund’ within 100 days of coming to office. Time will tell. The signs from the grocery, banking, pub and manufacturing sectors are not good as further shake-outs are in prospect. In the meantime, economist Morgan Kelly’s apocalyptic forecasts made in January 2009 of unemployment soaring to 15%, 20% wage cuts and tumbling house prices are not so fanciful after all. That was before we knew something of the scale of zombie banks. And we are far from turning the corner.

A life of luxury on the dole

Michael Taft: Every now and then we get an outbreak of misinformed commentary and calculations on the income relationship between work and social welfare; stories about how life is better on the dole than in a job. The latest outbreak comes courtesy of Jobordole.com. It purports to present an objective calculation of how much you would get on the dole as opposed to work. Go on – have a go. Just remember, it is a deeply flawed, highly misleading set of calculations. You won’t get the actual facts – but then what’s new?

On the website, it highlights the Irish Independent story about how an employer purported to offer a ‘good’ wage (€28,000) but couldn’t get anyone to accept it because people could get more on the dole. When you click on this link you get shock-horror calculation for a one-income couple with one child earning €28,000:

‘You could get €342.60 per week on the dole with €190.62 in rent allowance for a total of €533.22. You get €497.41 net per week working.’

Notice the subtle word-play here. You ‘could get’ x on the dole. But you ‘get’ x working. In short, this calculation claims ‘you could get’ €1,862 more per year on the dole.

But this is highly misleading. Let’s go through the above calculation.

1. The income from work is €497 per week. But this site (and many other calculations I’ve come across) conveniently omits income from Family Income Supplement for a family with a child. For this household this would be worth an extra €1,020 a year. Okay, it’s only a €20 a week difference – but if you’re in a low-paid job, that €20 is extremely helpful. And, yes, there is a low take-up rate (estimates from 35 to 55 percent). Therefore, we will use the website’s subjunctive ‘could’ in a consistent manner.

So income from work ‘could be’ €517 per week (and this doesn’t count income from Child Benefit and Back-to-School Allowance, which this household would qualify for – but as a household on social welfare income would get this too, it doesn’t change the differential).

2. The income from social income is way off target. The basic rate for a couple with one child is correct: €342.60. However, a real sleight-of-hand is used to increase this amount to €533.22. How is this done? The website uses ‘hand waving assumptions’. What a great phrase. It assumes in the calculation that the person earning €28,000 and losing their job will obtain a Rent Supplement of €190.62. In reality, this assumption waves away the substantial majority of unemployed.

How many people on Jobseekers Allowance and Benefit get Rent Supplement? Not many. The latest Statistical Information on Social Welfare Services 2009 shows that:

• 6.7 percent of those on Jobseekers Benefit get Rent Supplement
• 13.5 percent of those on Jobseekers Allowance get Rent Supplement

The overwhelming majority of unemployed do not get rent support, but the artful ‘hand waving assumption’ gives the impression they do. To be fair, the website does link to the Department of Social Protection’s explanation of Rent Supplement. If you read it, you will see why so few unemployed get this support, it being so means-tested and conditional.

And here’s the kicker. The website uses a rent figure of €930 a month for this family of three. This is the maximum level of rent paid allowable under the Rent Supplement scheme in Dublin (households paying rent above this level may be denied any Supplement at all by the Department). However, according to the latest Daft Rental report, average rents for a two-bedroom let is €993. So renting an average two-bedroom in Dublin could mean no Rent Supplement at all. Outside of Dublin, a household paying this rent would be well above the thresholds: in Cork the maximum threshold is €705 per month; in Limerick €605 per month.

But there’s more. Let’s say you happen to be in the small minority of unemployed who do qualify for rent supplement. How much would you get? Of course, this all depends on where you live, how much rent you pay and the application of a complex means-test; no website could cover all these contingencies. So let’s just assume the average. We can get this again by referring to the Statistical Information report.

The average Rent Supplement payment is €106 per week, not the €191 per week assumed by Jobordole.com. And this was in 2009. Average Rent Supplement has been falling over the years. In 2006 it was €125 per week, falling each year since. So we can reasonably assume that Rent Supplement will be less in 2011 – especially as the Government announced a cut of €60 million in Rent Supplement.

So what have we got?

For the vast majority (90 percent) a household of three on €28,000 income from work ‘could’ be over €9,000 better off than on the dole.

For the 10 percent on Rent Supplement, on average a household in work ‘could’ be over €3,500 better off than on the dole.

Of course, this is a just a narrow accountancy view of how people act in the real world. The fact is that almost all people want to work. Even though Ireland suffered from one of the highest levels of low-pay during the Celtic Tiger boom (over 20 percent were officially categorised as low-paid), people took up jobs. Our four percent unemployment rate is a testament to that – even though social welfare rates were increasing above the rate of inflation. When the jobs were there people took them, even if the pay rates weren’t great and working conditions were poor. So why aren’t a large number of people working now? Guess.

But there is something more insidious. This type of exercise feeds into a politics that calls for reducing social welfare payments because low-pay is so low, because our in-work benefits are so poor, because the social wage (healthcare, pension supports, other in-kind supports) is so limited. Instead of addressing the real problems in our labour market and social protection infrastructure – we go after the poor. Again.

But, assuming the best in people, I’m not suggesting that the operators of this website are being intentionally misleading in pursuit of an ideological goal. However, they should now either redo their calculations to reflect something approximating reality (though it’s not as tabloid-sexy to show that income from work is higher than social welfare income). Or they should take down the site. As it is constituted now, it only degrades an already degraded debate.

The people have spoken - but what did they say?

Michael Burke: The first clear message of the 2011 election was a rejection of Fianna Fáil, receiving just 17.4% of the first preference vote – also of over 24% of the entire electorate. Given that the unlamented PDs had also been effectively absorbed by FF, and the Greens (who stayed just long enough to help through a draconian budget, but not a weak climate change bill) were also obliterated, there was effectively 30% of the electorate in motion.

Fine Gael was not the main, or even the primary, beneficiary of that dramatic break with FF, receiving just 8.8% of that 30% compared to the 2007 election. The primary beneficiary was Labour, up 9.3%. But the main beneficiary was a generic Left, comprising Labour, Sinn Féin, a majority of the ‘Independents’ and the smaller socialist parties. The combined FF/FG/Green/PD vote in 2007 was 76.3%. That fell to 55.3% in 2011. The combined Labour/Sinn Féin/socialist vote rose from 17.6% to approximately 43% (depending on how many you assign to the Left from among the Independents’ vote).

So, there was a sharp turn towards the Left, but not an outright victory for it. 43% is not 50%.

The key issue was clearly the economy, and the election was held against the backdrop of the recent arrival of the EU/IMF representatives in Ireland, to dictate terms of the bailout of the EU banks. Given that FF was the main architect of the response to the economic crisis and presided over the arrival of the raiding party, then voters were clearly rejecting more of the same. A key aspect of the campaign, and probable determinant of the outcome, was the parties’ attitude towards the terms of that bailout and the further imposition of cuts in public spending to underwrite it. (In another post, the issue of the viability of that programme will be addressed).

In that regard, every single party that stood in the campaign, bar the outgoing coalition partners, argued that that they would at least ‘renegotiate’ the bailout deal. Both FG and Labour spokespeople argued that point repeatedly in the course of the campaign, with Enda Kenny in particular promoting his party’s ties with EU counterparts as the best way to achieve a renegotiation.

Now, it appears from the weekend reports of the EU summit that no such renegotiation is currently possible. Under attack over the 12.5% corporate tax rate, the new Taoiseach and his team seem on the defensive. In any event, the suggested quid-pro-quo of a 1% reduction on the EU portion of the bailout funds would yield a saving of only €450mn per annum. While this is not nothing, it is overwhelmed by the public spending cuts and the bank bailout, the latest installment of €10bn likely to be paid before the month is out.

This payout highlights a clear anomaly in the outcome of the election and the intransigence of the EU leaders, some of whom seem more concerned with their own future tied to the outcome of regional elections or with bombing Libya. Yet, at the election, more than 75% of the population voted for parties or individuals who stood on a platform of renegotiating the deal. The voters of have spoken – but the EU refuses to listen.

Therefore the only reasonable response is to make the same case in a more forceful way. There should be a referendum on the bailout of EU banks by Irish taxpayers, with a rejection obliging a full renegotiation. Then perhaps the EU will listen.

Monday, 14 March 2011

Munchau’s purgatory between bailout and default

Tom McDonnell: Weak measures to report from Part 1 of the big European double header last weekend: see here and here. The unfortunate unwillingness to accept the true scale of the crisis and take the decisive action required is troubling.

The Guardian is taking the line that Ireland is facing a default if a renegotiation of the IMF/EU bailout isn't available.

They point to a Sunday Independent article claiming the stress tests will identify an additional €15 to €25 billion to cover the bank losses.

As Wolfgang Munchau at the Financial Times reports, “muddling through will not work this time – the EU has created a purgatory between bailout and default”. Munchau’s preference is for a bailout not through cross-country transfers, but through a single European bond.

Sunday, 13 March 2011

The impact of cost competitiveness in Ireland

Slí Eile: Some assertions abound in the media and among 'informed' economist commentary. These are frequently based on ideology more than fact. Take two popular assertions:
- that public expenditure was 'out of control' in the years immediately prior to the crisis of 2008-2011
- that Ireland was losing export market share in the years immediately prior to the crisis because prices and wages were growing faster than elsewhere
In an article by Daniel Gros ('The Flawed Economics of the Competitiveness Pact' here) the latter assertion is put to the test and found wanting. Gros claims that 'competitiveness indicators by themselves are thus of very limited value in predicting export performance'. Ireland's share of EU27 exports, like that of Greece, Spain and Portugal, was remarkably constant over the period 2000-2010.
Regarding trends in public expenditure - there is no evidence to support the claim that levels were 'out of control' or excessive. Spending tended to track increases in GDP (or GNI) over the period to 2008 - leaving Ireland lagging below EU average levels. Eurostat data on General Government Expenditure shows a dip around in the % of GDP accounted for by public spending with a level of 41% in 1995 and 42% in 2008. After 2008 a number of factors kicked in including the escalating cost of social welfare bill due rising unemployment as well as the banking bailout in 2009/10.

Friday, 11 March 2011

Reviewing the Universal Social Charge

Tom McDonnell: The new Programme for Government is, perhaps understandably, light on detail in many areas. The document is highly aspirational in nature and it remains to be seen whether the numbers stack up in the short or medium term. Making the numbers ‘fit’ will undoubtedly determine the fate of the numerous policy goals stated in the Programme and will also condition the decision-making process around the existing policies up for review in the next few months.

One policy decision which captured much public interest in the last few months was the decision to replace the health levy and the income levy with the new Universal Social Charge.

The combined impact on gross earned income from the introduction of the new Universal Social Charge and the abolition of the Health Levy and the Income Levy are shown in Figure 1. The earner worst affected by the changes in terms of percent of gross income is the individual on €15,027 (the old income levy kicked in at €15,028). He or she will lose 2.66% of income from the combined changes.

On the other hand the biggest winners from the combined changes (other than those on very high incomes such as Government Ministers and Secretary Generals) are those on just over €26,000. This is because the old health levy kicked in at 4% on the entire amount at €26,000.

Figure 1
Combined impact as percentage of gross income (single employee aged 16-65) - winners in pink and losers in green (click to enlarge)



The overall regressive nature of the changes shown in Figure 1 is stark. Page 2 of the Programme for Government makes the laudable statement that

“Both our parties are committed to protecting the vulnerable and to burden sharing on an equitable basis”.

In page 16 of the same document the Government commits to reviewing the USC. Page 16 also promises to maintain the current rates of income tax together with bands and credits. Consequently, and in the context of the severe budgetary constraints, we can assume that any changes to the USC will either be implemented on a revenue neutral basis or (more likely) implemented in a way that increases net revenue.
Let us hope the new Government’s commitment to “protect the vulnerable and ensure burden sharing on an equitable basis” guides their thinking when they make their changes.

We watch with interest.

Thursday, 10 March 2011

The Survival of the Eurozone

Paul Sweeney: Economics editor, Martin Wolf, writes in the Financial Times: “I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly and that the rest of the European Union has supported this decision. For a sovereign to destroy its own credit, to save creditors of its banks, is plainly wrong. It does not make it better, but worse, that it is doing so largely to protect financial systems in other countries.”

He is so right. The question remains, will the new Government seriously address this problem with our EU member state partners. It will test the mettle of the Union and of the meaning of partnership. Wolf points out the in the context of the Eurozone, Ireland’s problems are almost small. The full article is here.

Wednesday, 9 March 2011

How not to read taxation statistics

Michael Taft: Michael Hennigan over at Finfacts is worried that Irish taxation will reach high Danish levels by 2014. He shouldn’t be (though if that’s what it takes to reach Danish levels of unemployment estimated to be 3.5 percent in 2014, some people might think it worth the price). Ireland is a low-tax economy and will stay that way under current policy. Unfortunately.

Michael highlights the latest Eurostat figures on taxation which shows that in 2008 Danish taxation (Government revenue) stood at 48.2 percent of GDP; Ireland stood at 29.3 percent. So fears would seem premature.

But like so many, Michael claims that Ireland has to use GNP, not GDP:

‘In calculating the Irish tax burden here, we use GNP as a denominator because the main differential with GDP, the profits of the dominant multinational sector, are excluded.’

This debate over GDP and GNP can become almost scholastic (to get really obsessive on this point we could claim that GNI is the better denominator – GNP plus EU transfers). First, the ‘differential’ results from a number of outflows – profits, outward investment from indigenous companies, interest payments, remittances, etc. If we are to compare like-with-like we would have to disaggregate all that for both Ireland and Denmark and then compare the more narrow ‘profits’ category.

Second, GDP is a measure of economic activity in a particular country. If workers and managers generate profits here, why should this be excluded because of their final destination? Would we exclude such profits if they were sent out of the country for philanthropic reasons (to build schools in sub-Saharan Africa)? Or if the owners, a la Keynes, buried the profits in a big hole outside Athlone to be dug up some time in the future – or maybe never?

There is one reason to modify GDP and all measurements dependent on that – the phenomenon of importing profits generated in other jurisdictions for the purposes of taking advantage of our low-tax rate. This is money created somewhere else, not here; it ends up in our GDP through complicated channels; and like Father Ted’s ‘it’s-resting-in-our-accounts’, it is exported after tax. However, does anyone really imagine that any Government will give carte blanche to our data agencies to measure that and adjust the GDP accordingly? Or provide a mirror ‘real-life GDP’ measurement?

We don’t have to answer all these questions or engage in contestable extrapolations. There is another simple measurement that cuts across all these: namely; the amount of tax (Government) revenue per capita. When we use this (the IMF database in US dollars) we find a not-unexpected result for 2008:

Denmark: $34,398
Ireland: $20,562

Well, we were a long ways off from Denmark in 2008. And, if the IMF projections hold, we’ll be a long ways off in 2014:

Denmark: $32,268
Ireland: $17,477

Indeed, we’ll be falling further behind Denmark.

Of course, this particular factoid – like so many others – has to be treated carefully. Irish tax levels, at least at the household level, is rising, so why should the above show it’s actually falling by 2014? Because the economy will be weaker in 2014 (over 11 percent below current GDP levels in 2008). Weak economies generate weak tax revenue. For instance, tax rates, etc. could remain the same but tax revenue would rise if we had the same level of employment as Denmark. So when comparing tax levels, one has to take account of a range of factors – not just tax rates.

All this to say that using one particular metric can tell us all sorts of things – but can’t provide the whole picture. To this end, I’m not making privileged claims for the Government revenue per capita measurement I used. One should factor in purchasing power parities, the working population, the number of enterprises, etc.

But let’s get a grip.

According to the OECD Tax and Benefits database, the average Danish income earner paid 39.7 percent of his/her gross income in tax; the average Irish income earner paid 22.4 percent.

The corporate tax rate in Denmark is 25 percent; in Ireland, 12.5 percent.

The main VAT rate in Denmark is 25 percent; in Ireland, 21 percent (though the new Government will raise this to 23 percent). But Denmark has few reductions or exemptions from this main rate; in particular, food is subject to 25 percent, in Ireland, it is zero-rated.

So Michael shouldn’t worry. We are way, way off from Danish levels of taxation. The low-tax model is safe.

Tuesday, 8 March 2011

ESRI on financial exclusion

Click here to download the ESRI's study of Financial Exclusion and Over-indebtedness in Irish Households, published today.

Programme for Government

Over at Notes on the Front, Michael Taft has started a series of posts looking at the new Programme for Government.

Sunday, 6 March 2011

A new programme for a new society?

Slí Eile: In the coming days there will be considerable debate and analysis of the content of the Programme for Government agreed by Fine Gael and Labour. Consideration of the major issues involved and the posing of some difficult questions are needed. In particular:
Give or take a billion here and there and give or take a year or two in timing - will it be possible to operate within the broad parameters of the EU/IMF deflationary plan as already agreed and carried forward in the new Programme?
If social welfare rates are maintained as indicated in the Programme AND pay rates in the public sector are kept intact under the Croke Park Agreement AND'frontline' services in education and health are maintained - what is left to cut within the aim of cutting spending by 6 billion over the next five years or so?
Will the cuts to spending and increases in taxes be 'gross' or 'net'? For every cut of €1bn in public spending at least €0.3bn is directly lost in taxes and other social receipts and, in addition, an unknown amount is lost indirectly through falling incomes and domestic demand. So, to achieve a net fiscal adjustment of say €9bn over 5 years would require a much larger 'gross' adjustment - two thirds of which is agreed will come from spending?
but what spending? All the big areas have been cut to the bone and in some cases health services on are on the point of collapse. It is true that there are areas - even still - of public spending waste. However, rather than continuing to cut these Government should be increasing spending and restoring social welfare cuts already made in order to arrest the decline in income and demand.
What if the slump continues, oil prices rocket, exports stall and the Eurozone goes into a new crisis? What is plan B?
More to the point - does the Programme represent the best that can be achieved at this time in ameliorating the impact of the slump on the poor and the exclude and does it provide the best possible way forward in realising a society based on equality and democracy?
Honestly can we say yes to this question while operating within the broad parameters of the markets, the EU and the IMF?
Next week will be the same as last week - for at least five key issues confront most individuals, families and communities in Ireland today:
* Paid work in the labour market
* Unpaid caring work
* Debts - personal, corporate and societal
* Homes - places where people live and are nurtured
* Health and well-being
These issues boil down to two core issues - human dignity and human solidarity.
In the current political and economic crisis which afflicts Ireland since 2008 and whose roots go back over many years the following three sets of policies are being pursued with deadly impact on jobs, homes, debt:
* Further reductions in the share of national income going to labour (dressed up as improving competitiveness).
* A smaller State (we have all heard the talk about 'big government', 'quangos', 'bloated public service' and 'welfare dependency')
* A bailout by the many small lenders for the big creditors solemnised at the faustian marriage of sovereign and private (now socialised) banking debt.
Is the new programme a continuation of this? is it the only possible game in town?
A response to this unprecedented assault on the public services and living standards of most citizens requires a robust, timely and realistic consensus among the 'broad left' centered on a new Five Point Plan
1. Privitise the debt and no socialism please for large corporate interests! - with a massive reduction in the share of public expenditure and liabilities going towards corporate private debt (if that means part default, part re-schedule, part debt-equity swap then so be it).
2. Hold the level of other government consumption spending and increase the level of capital funding in a targeted way to generate economic recovery and employment growth using greener technology and patterns of consumption
3. Address the fiscal deficit in an orderly, timely and proportionate way by:
a. Growing the economy over a period of time
b. Cutting public expenditure on bank bailouts and redirecting spending into jobs, green technology and revenue-raising activities
c. Raising taxes on high-income and high-wealth individuals
d. Generating additional tax revenue by getting more people back to work
4. Reform the management and organisation of public services together with political institutions allied to stronger stakeholder governance in the private sector
5. Abolish poverty - especially child poverty - by means of a combination of tax/welfare changes to ensure that everyone can live and work (whether paid or not) on at least a basic minimum wage consistent with human dignity and solidarity.

More comments over the coming days. In the meantime as people work their way through the document comments, observations are welcome.

Friday, 4 March 2011

Progressive London conference

Sinéad Pentony: Progressive London is a broad alliance for progressive policies, and they hosted their annual conference on 19th February, bringing together leading figures from the British Labour party, local government, the trade union movement, civil society organisations, academics and many others to discuss building the widest possible alliance against the British Government’s policy of cuts to public spending and services in London and beyond, and to show that there is an alternative. Sound familiar? They were keen to know what lies in store for them should their government continue on its current path and one of the parallel sessions focussed on ‘lessons of the Irish economy’; other speakers included PE bloggers Michael Burke and Michael Taft.

I was particularly interested in the analysis being put forward by those opposing the cuts in the UK, and the active campaign that has emerged in response to government policy that has put itself on the path of reducing the deficit at all costs – jobs, growth and equality...

While there are certainly differences between Ireland and the UK – such as the scale of the fiscal and economic crisis; a banking crisis and monetary policy - there are interesting comparisons that can be drawn between the responses of progressives on both sides.

Progressives in the UK have put forward a clear analysis of why they reject the assumptions underpinning the government’s policy (the main assumption being that cutting spending is the best way of cutting the deficit), and of how the cuts will make Britain more unequal. Intellectual support for this position is being provided by a long list of experts ranging from Nobel Prize Winners in Economics (Stiglitz, Krugman and Pissarides) to Financial Times columnists. This analysis is the driving force behind a growing campaign that is resisting the cuts and highlighting the tangible impacts of cuts to public spending and services across the UK.

Political leadership is being provided by various actors, and the trade union movement is mobilising its constituency. Presentations at the Progressive London conference put forward the view that the current government’s fiscal policy is a ‘choice’ which is ideologically motivated, and that the real agenda is a dismantling of the welfare state, privatisation and deregulation.

The economic analysis of the current situation in the UK is underpinned by a strong class analysis, which is being borne out when the impact of the cuts is being felt most by low paid workers, women and migrant communities. This analysis has not emerged to any great degree during our own home grown crisis, but may yet do so depending on the policies pursued by the next Government.

Guest post by Andy Storey: Call for debt audit

Dr Andy Storey is a lecturer in the School of Politics & International Relations at UCD. A number of prominent Irish academics, writers and activists have backed a campaign to audit Greece’s public debt, amid suggestions that such an audit might also be required in Ireland. Greek campaigners are calling for an independent and international Audit Commission to find out why the debt was incurred and the uses to which borrowed funds were put. As Costas Lapavitsas, one of the organisers of the petition, puts it:

“Can we be certain that the bulk of Greek public debt is legal, given especially that it has been contracted in direct contravention of EU treaties which state that public debt must not exceed 60% of GDP? The creditors – mostly core European banks – were fully aware of flouting this legal requirement when they lent to the Greek state. Is Irish public debt legitimate, given than much of it is speculative bank lending with a public tag placed on it? Is debt in both countries ethically and morally sustainable if servicing it implies the destruction of normal social life?”

Debt audits have been used across the world to allow civil society to hold to account those responsible for the damage caused by their countries’ indebtedness. An audit in Ecuador in 2008 encouraged President Correa to default on some of Ecuador’s most unjust debt, leading to a write-down by borrowers. Two former Ecuadorian ministers are amongst those who have signed the call to support an audit in Greece.

One of the most alarming aspects of the Irish debt crisis is the lack of transparency or clarity on the numbers involved. For example, the Irish Central Bank says that total Irish bank bonds outstanding amount to €63.4 billion, but Goodbody stockbrokers put the figure at €59.4 billion, while NCB stockbrokers come up with an estimate of €74.8 billion. When we get down to the detail of who this money is owed to, it gets worse. For example, a repayment of €750 million was made by state-owned Anglo Irish Bank in January this year to a creditor who was not covered by the bank guarantee but we do not know who that creditor was and why an unguaranteed debt had to be honoured. An Irish debt audit would allow us answer such questions.

The full list of Irish signatories to the Greek debt audit campaign is:
Professor Sean O’Riain, Head of Department of Sociology, National University of Ireland, Maynooth;
Cathleen O’Neill, Community Activist, Kilbarrack Community Development Programme, Dublin;
Frank Keoghan, General President, Technical, Engineering and Electrical Union (TEEU);
Des Derwin, executive member, Dublin Council of Trade Unions;
Professor Peadar Kirby, Director, Institute for the Study of Knowledge in Society (ISKS); Professor of International Politics and Public Policy, Department of Politics and Public Administration; Member, Governing Authority, University of Limerick;
Professor Cormac O’Grada, School of Economics, University College Dublin;
Dr Iain Atack, International Peace Studies, Irish School of Ecumenics, Trinity College Dublin;
John Baker, Associate Professor of Equality Studies and Head of School of Social Justice, University College Dublin;
Fintan O’Toole, author and journalist;
Kathleen Lynch, Professor of Equality Studies, University College Dublin;
Denis J. Halliday, former United Nations Assistant Secretary-General;
Kevin O'Rourke, Professor of Economics, Trinity College Dublin;
John Maguire, Professor Emeritus of Sociology, National University of Ireland, Cork;
Jimmy Kelly, Irish Regional Secretary, UNITE Trade Union.

Thursday, 3 March 2011

Verhofstadt, Delors & Prodi in FT

Paul Sweeney: Jacques Delors, the sorely missed former President of the EU Commission along with Romano Prodi, also a former President of the EU Commission and the former PM of Belgium have a very thoughtful article on European reform in the FT today. If this approach were to be adopted, it would have immediate implications for troubled Ireland. It will of course take time, but it is a lot better and more democratic than some of the myopic ideas from the Merkel Sarkozy dominance.

The murky world of Exchequer statistics

Michael Taft: I don’t want to pre-empt An Saoi’s more informed analysis of Exchequer returns, but there are some real issues emerging even at this early stage of the year.

The Government is hoping to increase the overall Exchequer tax take by €3.1 billion, or 9.9 percent over last year. This is a key determinant to whether the deficit will fall to below -10 percent of GDP (other determinants are public expenditure and the overall level of GDP). This projected increase is made up of increases in the following sub-categories:

• Income tax (including USC): 25.3%
• VAT: 1.3%
• Corporation: 2.4%
• Customs & Excise: 0.1%
• Capital Taxes: 4.5%

The real driver in the projected increase is income tax revenue which includes receipts from the Universal Social Charge. This category is expected to make up over 90 percent of the entire projected tax increase. Of the projected increase of €3.1 billion, income tax/USC is expected to increase by over €2.8 billion.

Why the increase of 25 percent? It’s not because the economy is growing – more employment, more businesses, more tax revenue. The primary reasons are the income tax changes introduced in the budget (cuts in personal tax credits, standard rate tax band, certain tax reliefs, etc.); and the introduction of the USC.

And here is where it starts to get murky. The USC amalgamates the Income Levy and the Health Levy into new thresholds. While the income levy was included in income tax receipts last year, the health levy wasn’t; it was paid directly into the Department of Health and showed up as a Departmental Balance in the Estimates.

What this means is that comparisons between last year’s tax revenue (for both income tax and overall tax) are somewhat skewered since they are not comparing like with like. So when we get headlines like ‘Tax receipts up over 2 percent’ – we have to treat this carefully since last year’s tax receipts didn’t count the health levy which is now part of this year’s USC.

Of course, the Department of Finance could have made this all easier by putting in a like for like comparison. This would have meant taking last year’s figures and adding last year’s monthly receipts of the health levy. This has not been done and I can’t find these monthly figures for last year.

Last year the health levy was estimated to raise €2,431 million. This relates to full year increase. The comparator for this year would be less as January receipts relate to December payments. Therefore, February is the first month that we have to readjust to see how this year’s income tax receipts relate to last year.

• February 2011 income tax receipts: €980
• February 2010 income tax receipts: €784

This might suggest a substantial rise over last year (25 percent) but we have to include the February health levy receipts for 2010 – a figure not readily available. So here is an extrapolation: €186 million. When we add that to the overall February 2010 figure we find the following:

• February 2011 income tax receipts: €980
• February 2010 income tax receipts: €970 (including extrapolated health levy receipts)

The increase for February, therefore, is not 25 percent as the Finance numbers suggest but, rather, 1 percent – and this is with the additional revenue arising from other Budget 2011 changes.

Therefore, the overall tax receipts do not show a 2.2 percent increase over last year. Rather, it shows a -1.7 percent decline.

We should pause here. It is, as they say, early days and we shouldn’t rush to conclusions. But the early returns are not good. The second biggest category – VAT – is showing sluggish receipts so far. They are -2.4 percent down on last year’s outturn and -5.9 percent on the Government’s targets this year.

Throughout the year the important categories to watch are income tax and VAT (it would help if the Department of Finance produced comparable data). Together, they are projected to make up 70 percent of all tax receipts. These best reflect domestic economic activity; corporate tax receipts can reflect the accounting activities of the multi-national sector; namely, transfer pricing and profit imports.

On present trends, the Government will come in about €1 billion under target. But these are early trends which could improve or worsen as the year goes on. Will the deflationary policies of the last two years –now deeply embedded in the economic base – undo the deficit reduction targets? Watch this space but don’t be surprised if the answer is yes.

Political Reform Starts with Disclosure about Our Economy

Nat O'Connor: The Irish Examiner reports the not unexpected news that "Negotiators trying to hammer out a Fine Gael/Labour programme for government have been given a sharp reality check by the state’s top financial experts." This is not surprising, but if the commitment to significant political reform by both parties is met, it does not need to happen again.

Cynics have been saying throughout the election that promises made in manifestos will dissolve once Fine Gael and Labour spokespersons get full access to the facts and figures from the Department of Finance, NTMA, Central Bank, etc.

My less cynical interpretation is that, yes, we know that Ireland is one of the most secretive democracies (which I argue here for example, pages 12-13). So yes, we knew that manifestos were written on the basis of imperfect information. The question for the future is whether Fine Gael and Labour are committed to changing this dynamic.

In the next few days, they are naturally going to be fully focused on absorbing whatever new (awful) information they have received to see how this affects their economic plans and what kind of agreement they can still make with one another.

However, the commitment to political reform starts on Day One. Never mind the Constitution, the ultimate fate of the Senate, Dáil standing orders or the plans to restore freedom of information legislation. As important as all of these things are, what matters most is for our political leaders to think differently, and to act differently, from the outset.

In terms of openness and transparency, this means that whatever information they have received from the state's "top financial experts" should be further disclosed.

Fine Gael and Labour need to ask themselves the question: should they have known all of this new information before the election? If so, they need to disclose this information to all TDs immediately. If not, democracy is fundamentally weaker in this country than others - because if party manifestos in future are to continue to be based on incomplete or misleading data, then voters will be kept in the dark and asked to choose blindly between policy promises that are inevitably going to be compromised by economic reality. Disclosure, on the other hand, would mean that voters would have a genuine choice between different policy responses to that economic reality.

Fine Gael and Labour should also ask themselves: how many different sources of independent economic analysis have had access to complete information about our economic situation? Is it healthy or useful that academics and researchers are working with incomplete information? If it is not useful - and it is hard to see how it could be - then there should be disclosure, now.

But let's pause and consider the forces acting against Fine Gael and Labour as they attempt to introduce real and lasting political reform in the area of open government and transparent decision-making.

'Culture' can be defined as doing the same kind of thing in the same kind of way over time. Families, counties and nations have different cultures, precisely because they have consistent patterns of behaviour that distinguish them from one another. Our political and administrative culture is no different: there are plenty of patterns of behaviour that have not changed in decades, and one of the strongest reflexes in Irish politics is secrecy.

Our culture of secrecy is reinforced by the simple, but effective, argument of 'why do things differently?' Secrecy is power. If the new Government starts giving more - and better quality - information to Opposition TDs, researchers and journalists, inevitably this information will be used to challenge, probe and scrutinise the detail of Government decisions and the reasons for those decisions. And who'd want that in a democracy? Particularly, in a democracy that is financially ruined in no small part because a small cabal of people who thought they knew best believed they could bluff their way through economic disaster by hiding as many unpleasent facts as possible.

There are other forces promoting secrecy. Fine Gael and Labour will need to build a reasonably robust working relationship, if they are to form a coalition. Any commitment to working together in coalition means that they will need to develop some level of trust with one another. Otherwise they won't share information with each other, and there will be confusion and contradictory statements and policy coming out of Government all the time. Yet, trusting one another may mean not revealing 'secrets' in public. Coalitions are naturally motivated to be more secretive than single party Government, as 'leaks' are seized upon as evidence of treachery by one side or the other, if the leak happens to reveal information that favours one party's position over another's.

Another barrier to openness is fear. As well as the fairly well known effects of releasing information (in terms of what Opposition TDs and other will do with it), there is also a fear of the unknown. What if 'the markets' had access to all this information? What would it do for Ireland's international business reputation?

The evidence from other countries suggests that it would be welcome. People working in finance and business like to have access to information they can rely on, even if it is unpleasent. A major part of the problem with our banks has been the policy of dredging the lake rather than draining it. Stakeholders need to see the bottom, before they can plan any further business with our banks.

Ireland's old-fashioned adherence to secrecy would be comical - like Yes, Minister - if it were not so painfully out of step with how modern, advanced industrial economies go about the business of generating economic policy, through open, rational debate about the facts and how different economic models would react to those facts.

Disclosure does not have to be 'all or nothing'. I am willing to bet that most of the information currently being received by Fine Gael and Labour's teams could be fully, publicly disclosed. However, if there are details that are genuinely sensitive, there are many potential mechanisms to deal with this.

Disclosure to all TDs would be a start. If these men and women are going to be voting in the Dáil on the likely coalition's economic policies and future budgets, then they should be fully informed, so that they can scrutinise these policies. I am willing to bet that many Fianna Fáil TDs in the last Government were not given anything like full access to economic data.

Full disclosure of all sensitive details, on condition of secrecy, to economic-related parliamentary committees occurs in other countries. That way, the Oireachtas could regain some relevance to the Irish people because debate could be informed by complete factual information. Other countries ensure more quality debate by organising 'lock ins' for spokepersons, researchers and journalists hours before publicly releasing information, like budgets. This ensures realistic analysis , not 'off the cuff' comment.

In addition, disclosure to academics and independent reseachers would ensure that the Government and Dáil would have access to a range of analysis from different perspectives on the economic challenges facing us. Ironically, the Government may have the data, but it requires experts to provide the analysis. There is no guarantee that the future Government would pay attention to this advice any more than internal advice, but they would at least be unable to claim ignorance; unlike the outragous claim to RTÉ by ex-Taoiseach Ahern that "I would have loved if somebody somewhere had told me what was going on in the banks in this country but nobody ever did."

Of course, the counter-argument from the masters of secrecy would be that once you start disclosing information outside of the inner circle, it will leak further and further. Before you know it, everyone will know the real story about the Irish economic situation! And who'd want that?

Wednesday, 2 March 2011

Research indicates reducing JLC rates will cost Exchequer and depress consumer demand

Research published last week by TASC indicates that any moves to reduce Joint Labour Committee rates will involve significant direct and indirect costs to the Exchequer. The research is contained in TASC’s Submission to the Independent Review of ERO and REA Wage Setting Mechanisms. Comments welcome.