Wednesday, 20 November 2013

Costing a Universal Pension for Ireland

Gerry Hughes: Social Justice Ireland has published a detailed and fully costed study by Adam Larragy which proposes to replace the current contributory and non-contributory state pensions with a universal pension as of right to every Irish citizen and resident over the eligible age. In common with the TCD Pension Policy Research Group, TASC, the National Women’s Council, and other organisations and individuals, Social Justice Ireland argues that to avoid poverty in old age the target level for a universal state pension should be set at 40 per cent of average weekly earnings.

The study estimates that a universal pension would cost €0.7 billion more than current expenditure on the state’s contributory and non-contributory pension schemes and that this cost could be met by reducing the tax expenditure on top earners private pension schemes. The additional cost of introducing a universal pension in 2014 could, therefore, be met without imposing an extra burden on middle and lower income taxpayers and without having an adverse impact on the public finances.

Using official projections of the population up to 2046, growth and earnings, it is shown that, contrary to arguments in the Green Paper on Pensions, paying for a universal pension “would be no more difficult than funding existing arrangements”. However, a universal pension would have considerable advantages in ensuring gender equality by not penalising women who take time out of the labour force to care for children and relatives, reallocating resources from private pensions for higher earners to middle and lower income earners who derive little benefit from the private pension system, providing a secure framework in which people can plan for their retirement, simplifying the administration of the state pension system and providing older people with a guaranteed income to protect them from poverty

Monday, 4 November 2013

Apparent growth of inward investment to Ireland is largely a mirage

There has been much media attention recently to the apparently very high inflows of foreign investment into Ireland.  According to a report prepared for the American Chamber of Commerce Ireland, US firms invested $129.5 billion in Ireland over the five years to 2012, fourteen times the level of US investment in China.

Meanwhile, the CSO has reported a total foreign direct investment (FDI) inflow into Ireland of almost €30 billion in 2012 alone.

Yet employment in foreign firms here (most of which is American) has been falling – by eight per cent between 2007-2011 according to Forfás data – while sales have increased only marginally (by less than five per cent).  How can this be?

The main part of the answer lies in how statistics agencies measure FDI flows.  Thus, earnings of foreign companies that are reported in an economy but are not taken out are considered to be “reinvested earnings” (even though very little of it may be directed to productive activity) and are counted as an inward investment flow.  

Last year, these earnings accounted for three quarters of the total recorded FDI “inflow” into Ireland.  Most of these earnings actually originated abroad but were declared in Ireland for tax purposes.

It is also instructive that almost 60% of this FDI inflow went into financial activities (the bulk of it in financial intermediation) which have little connection with the real world where people work in producing goods and services.

According to The Irish Times (October 4), the person who wrote the report for the American Chamber stated that the investment in question was “real stuff…It is sticks in the ground, money being used for goods and services”.

While there certainly is a significant amount of new productive investment coming into the economy every year, the great bulk of the FDI inflow does not match this description.  It is as much a mirage as the large proportion of exports by foreign firms which consists of profits generated abroad and transferred to Ireland through transfer price manipulation (rather than representing goods and services produced in Ireland) and the large proportion of service inputs of these firms which consists of arbitrarily-set royalty payments.

Monday, 14 October 2013

Ireland, the IMF and Future Credit

Nat O'Connor: Ireland is a member of the IMF for the simple reason that by being a member we can seek loans from the IMF when we need them. The Irish Times has reported questions about Ireland exiting the bailout without a precautionary credit line from the EU and IMF.

Is Enda Kenny pulling Ireland out of the IMF? If so, he didn't mention it at the Fine Gael conference.

As long as Ireland remains in the IMF, we are entitled to seek credit from it in the normal way. The usual cap on credit is eight times a country's 'quota' (which is how much money we have deposited with the IMF to fund its global operations), although some credit facilities have no cap. Ireland has deposited $1,258 million with the IMF (in SDR, dollar value), so we are generally able to borrow just over $10 billion.

The IMF offers Stand-by Arrangements, Flexible Credit Lines and Precautionary and Liquidity Lines, among other forms of credit. Ireland is currently availing of an Extended Arrangement. A look at the current list of credit facilities active at the IMF shows the normal operation of their credit system.

What is currently different is that Ireland borrowed $19,466 million from the IMF, which goes beyond our normal entitlement to borrow. That's what brings the European Union into the issue and has required the creation of EU credit institutions. The IMF is constrained in its ability to lend to rich countries (and that still includes Ireland, and indeed any country in the Euro zone). Firstly, the IMF doesn't have enough money to lend into hard currency zones like the Euro zone, and secondly, developing countries with much greater economic problems take issue with the IMF bending its rules for countries in the rich developed world.

The conclusion I draw from this is that Ireland could probably take out a credit line of up to $10 billion from the IMF using the normal rules, which would probably be a relief to the IMF as it would normalise Ireland's relationship with the fund and end one instance of the IMF bending its own rules.

What is really at issue is whether Ireland needs a credit line of more than $10 billion (or c. €7.4 billion), which represents more than half of the deficit. In other words, is Ireland in sufficiently good economic shape - with capacity to borrow from the international markets - that we don't need a special deal from the EU institutions to underpin a larger precautionary loan?

That's the more interesting question. Ireland is already holding €25 billion in cash balances (held by the NTMA), which means that even if all tax revenue ceased overnight, the State has six months or so to reorganise itself.

Minister Noonan is also quoted as saying: Ireland cannot go back to “an economy built on the quicksand of a credit and property bubble”.

The debate is finally swinging around to where it should have been five years ago at the beginning of the crisis (and as discussed at length on this blog at that time and not least as outlined in TASC's industrial policy discussion papers). Ireland needs a credible strategy for economic growth that is not based on tax breaks or unsustainable debt-fuelled recovery. If we can present such a pathway to recovery to the world, we can convince international lenders that buying Irish government bonds is a safe investment with a reasonable rate of return.

Tomorrow's budget needs to present some convincing evidence that Ireland is on a pathway to full employment based on sustainable growth, but there is insufficient evidence (to date) that Ireland's model has shifted sufficiently away from a reliance on laissez faire approaches like tax incentives for multinationals and using poverty disincentives to squeeze people who are unemployed (into non-existant jobs!), rather than facing up to real and concrete issues like investment levels. (Currently Ireland has the lowest fixed capital formation - public and private combined - in the EU).

However, as argued in TASC's industrial policy papers and elsewhere, Ireland does have a lot of potential for a very different type of economy - we can harness our education levels and inventiveness, combined with global networks, to create growth based on innovation and new products and services. And the low levels of investment currently means that new investment is likely to have lots of options to find higher rates of return from credit-starved Irish businesses. But part of any new strategy to focus on real investment has to include a careful process of giving up our worst tactics (including facilitating global tax avoidance). These tactics are ultimately unsustainable, inequitable and have led to the systematic distortion of investment decisions in the economy away from productive sectors into financing short-term bubbles in construction and property.

Wednesday, 9 October 2013

TASC is Recruiting

TASC is recruiting two posts to assist with our mission of promoting a flourishing society, based on equality, social justice, transparent democracy and sustainable economic activity.

Please click on the following links to see Job Descriptions and application instructions:

Policy Analyst (Economic and/or Social Policy)
Project Officer (Open Government/Freedom of Information)

All applications should be made using the linked Application Form and submitted by 5pm, Friday 25th October.

(Save and email, or print and post, the application form to TASC, Castleriver House, 14-15 Parliament Street, Dublin 2,

Thursday, 5 September 2013

TASC Budget 2014 Analysis and Proposals

Nat O'Connor: TASC today launched our Budget 2014 analysis and proposals, 'Choosing an Equitable Route to Recovery'. The full report is available here. A two-page summary is also available (click here).

The 14-point summary goes as follows.

1. There is a strong public interest in lowering the deficit and controlling the extent of the national debt. But a narrow focus on deficit reduction through cuts would be misguided.

2. Official policy on addressing the public finances has ignored the international evidence that a more balanced approach is required to closing the deficit and recovering the economy. The multiplier effect of cuts has probably been much higher than was anticipated. Large scale fiscal consolidation has a substantial contractionary effect on growth and employment.

3. TASC proposes that the discretionary fiscal adjustment should be accompanied by a targeted programme of investment using funds from the Strategic Investment Fund (ISIF), which will also act as a stimulus to the economy.

4. The Government’s re-engineering of the promissory note repayments allows flexibility with regard to the level of adjustment for 2014 to a much greater extent than in previous years’ budgets.

5. Further cuts to public services are likely to deepen inequality in society and put Ireland’s economy onto a lower developmental trajectory for years to come. More reductions in public expenditure risk being false economies that will do long-term damage to education, health and other areas of public services. Vital programmes such as homeless services and mental health services need increases to cope with much higher demand – not cuts. TASC’s analysis is that the adjustment in the public finances in this year’s Budget should be lower than €3.1 billion.

6. Specifically, TASC proposes that, as part of the effort to restore sustainability in the public finances, while taking account of the cost to growth and employment, and the need to avoid deepening inequality and inequities, the discretionary adjustment in 2014 should not exceed €2.7 billion. Apart from the adjustment of €350 million in 2014 under the Haddington Road Agreement, the adjustment should be made entirely on the revenue side.

7. In addition to the €600 million in carry-over measures from previous budgets, TASC is proposing €1.75 billion in new measures on the revenue side. Alongside this adjustment €1.5 billion from the Strategic Investment Fund (ISIF) should be used for strategic investment in 2014 in order to boost growth and employment.

8. Ireland’s overall tax take is low compared to EU averages. In 2011, Ireland’s total revenue from tax and social security contributions was less than three-quarters of the average in the EU (28.9 per cent of GDP compared to the EU27 weighted average of 38.8 per cent).

9. TASC is proposing a range of costed reforms to capital taxation including reform of tax relief for landlords; the introduction of a small wealth tax, and a number of changes to Capital Acquisitions Tax (CAT)

10. TASC is also proposing reforms to pension tax reliefs. Research has shown that 80 per cent of the benefit from pension tax reliefs goes to the top 20 per cent of earners. TASC is proposing the standard rating of pension tax relief as well as a curtailment of the tax relief on pension lump sums.

11. Social insurance contributions in Ireland are extremely low by EU levels. Raising the social security contribution of employers to euro area averages (as a proportion of GDP) would be sufficient by itself to meet the next two budgets combined targets. TASC is proposing the introduction of a third band of employer’s PRSI contributions at 17 per cent charged on the portion of salaries above €100,000.

12. Finally, TASC is proposing a range of tax increases on socially ‘bad’ goods and services, e.g. gambling, tobacco, alcohol, and carbon emissions, the social benefits of which counter-balance their regressive distributional impact.

13. Steps must also be taken to address the ways that Government can reduce the cost of living for people, such as influencing rent levels, utility prices, transport costs and professional fees. This would also help small businesses.

14. The international evidence shows that excessive consolidation, or consolidation focused on the wrong areas, can have disastrous economic and social consequences in the short and long term. TASC’s budget proposals show that it is possible to lower the deficit in a way that lessens the impact on jobs and is consistent with equality and social justice.

Friday, 2 August 2013

A Sensible Alternative Budgetary Approach

Dr Micheál Collins: The recent anti-austerity comments by Ashoka Mody, the IMF’s former chief of mission to Ireland, highlight the growing signs that the policy direction being pursued by Government and the Troika is not succeeding. In late June the CSO reported very weak economic data, a return to recession and a sustained weakness in domestic demand. Around the same time the Department of Finance recorded lower than expected income and consumption tax revenues while major retailers recorded declines in turnover and profits. The evidence mounts. While Ireland succeeds in reducing its borrowing and rebuilds its international financial markets reputation, households, workers and business’ in the domestic economy continue to experience the blunt-end of austerity. Unsurprisingly, the domestic economy is struggling and the only positive economic indicator, the reduction in unemployment, is principally being driven by emigration rather than job creation.

Can we do something about this? Well, yes. Admittedly, the gap between Ireland’s tax revenues and day-to-day spending needs to be addressed, but there is an alternative way to reach the Government and Troika target of a 3% budget deficit in 2015.

In our most recent Quarterly Economic Observer (Summer 2013) the NERI has outlined the details of such an alternative policy approach. Our proposals demonstrate that there are choices open to Government and it is possible to pursue a jobs-friendly, growth-friendly and equality-friendly fiscal adjustment. At the core of our suggestions for the next Budget are three points:

  1. Government should use the €1 billion of savings from the Anglo Irish Promissory Note restructuring earlier this year to reduce the scale of the planned budget adjustment from €3.1 billion to €2.1 billion. It makes sense to do this; these are ‘cuts’ to planned government spending on debt service costs and we should count them as such.
  2. The remaining adjustment should be re-orientated towards taxation measures with the only expenditure cuts being those already agreed and announced under the two public sector wage agreements. As we have shown, there remains potential for those on the highest incomes to contribute more in taxation to the adjustment. For example, an increase of just over 2% in the effective tax rate of the top 10% of households would provide an additional €600m in revenue over two years. Similarly, there is potential for a greater contribution from corporate taxes, wealth taxes, employers PRSI and capital taxes. Overall, tax increases should represent just over 80% of the adjustment.
  3. Government should recognise that no matter how it undertakes its adjustment, the domestic economy will continue to suffer. To overcome this, the Budget should include an investment stimulus targeted at key deficits and job intensive sectors of the domestic economy. Areas such as water infrastructure, broadband connectivity, green energy, early childhood education facilities are obvious targets. These represent opportunities for investments which will deliver large returns in the medium-term alongside immediate benefits to the state in additional jobs, increases in taxation revenues and reduced welfare costs.
The NERI has demonstrated that pursuing such a strategy, over Budgets 2014 and 2015, will allow Ireland to reach its 3% budget deficit goal. We end up at the same place as the Government’s current plans, but it is a better route. Why not follow that alternative?

Dr Micheál Collins is Senior Research Officer at the NERI and is also a member of the TASC Economists Network. The latest report is available at This blog first appeared as an article in Liberty.

Friday, 19 July 2013

A new world order in corporate tax?

The long-awaited OECD Action Plan on Base Erosion and Profit-Shifting (BEPS) has been released this morning, in time for the G20 meeting in Moscow. This was promised back in February, and aims to tackled multinational corporate tax avoidance through a unified approach by the world’s most powerful economies. For background on the issue of corporate tax avoidance and why it matters, see my earlier post here, and for a summary of the OECD’s earlier missive which gives their logic for tackling it, see here

This topic was top of the agenda at the Lough Erne G20 meeting, and so this report, which sets out what the OECD plan to do and how, has been eagerly awaited. So what are the highlights? Is it, in fact, a new world order on corporate taxation? Well, before getting into the detail of the actions, here are five observations on the plan as a whole:      

     1.  Politics: As OECD’s Pascal Saint-Amans said at the launch, what we have here is not only technical, it is highly political. The plan now has the support not only of the 34 OECD countries of which Ireland is one, but also of the entire G20, including the eight countries which are outside of the OECD (South Africa, Russia, China, India, Indonesia, Argentina, Brazil, and Saudi Arabia). The combined block represents considerable power, both economic and political, all of which lends strength to the proposals

    2.  Timing: All the actions in this plan have short time-lines for implementation – one to two years, with a few of the deadlines bleeding out to December 2015. The reason for this is two-fold; the OECD want to seize the initiative to create something unified here while there is widespread political consensus on the need to tackle corporate tax avoidance, and secondly, they want to come up with an international response quickly before impatient politicians in the individual countries develop their own independent strategies, which might not be coherent. 

    3.  Absence of scapegoats: Unlike OECD actions in the 1990s, there is little emphasis on rogue regimes, tax havens or even very much on tax competition. This is a working document, aimed to provide solutions by neutralising tax avoidance schemes, rather than naming and shaming countries
    4. A top-down, multi-lateral approach: Cleverly, although the individual taskforces will come up with different recommendations under the various headings, all of these will be incorporated into a single, multilateral tax treaty by the end of the process. The (ambitious) aim is that this will then be adopted by most if not all of the countries involved, effectively replacing the current network of 3,000+ tax treaties which have been painstakingly negotiated on a bilateral basis over decades. This network is used with shocking ease by multinational firms to whisk profit in and out of various jurisdictions, exploiting minute differences to avoid billions of taxation, worldwide. If the multilateral treaty is widely adopted, and contains measures to close down some of the more egregious practices, this will mean a real change in the environment.

    5.  Limited innovation: There is a lot here that is new, but apart from the promised multi-lateral treaty, there is no radical change in the architecture of international tax. Some of what's new is essentially new to the OECD. We will have standards on information gathering, and moves to spontaneous, automatic exchange of information between taxing authorities; we will have action on residence, and on mis-match schemes including the Double Irish. There is country-by-country reporting, but not publicly. And there is no radical action on how multinational firms are taxed – no move to a single tax base, for instance; to unitary taxation; no move away from the arms-length as standard for transfer pricing. A large part of this is almost certainly political – what’s here is perhaps as much as they feel is achievable given the expanded group of countries they are now addressing with this plan. Not exactly a new world order - no central government, but a serious change nonetheless.

So what is the detail?
The plan contains fifteen separate but interlocking actions, each of which is assigned a taskforce. Two address the over-arching themes of the digital economy and the development of the multi-lateral instrument, while the central thirteen can be loosely arranged under the headings of gaps, frictions and transparency, OECD-speak for double non-taxation, double-taxation and secrecy. 

Gaps: four taskforces operate under the theme or pillar of gaps, addressing hybrid mismatches, of which more here, Controlled Foreign Company (CFC) rules, interest deductibility and harmful tax practices with a dishonourable mention here for patent box legislation. These taskforces are looking at coherence, tackling any instruments or rules which are interpreted in one way by one country, and another by a different one, leaving a little gap which can be exploited by a multinational firm. A simple example is the use of convertible shares to finance a subsidiary. In some circumstances, the profit returned to the parent company can be treated as (tax-deductible) interest when paid by the subsidiary, but as (tax-free) dividends when received by the parent – an obvious opportunity to gain a tax advantage while moving profits. However, at the launch of the report Pascal Saint-Amans specifically referred under this section to Ireland, the Netherlands, and the US check-the-box rules, so we can expect this taskforce to also address the now-infamous Double Irish (of which more here). 

Under frictions the OECD is on more familiar ground – they are aiming to restore the effectiveness of existing standards, and so taskforces here will look at countering tax treaty abuse (of which more here), and tightening up the rules on permanent establishments, possibly with an eye on making it impossible for companies to be entirely stateless. Three taskforces will look at transfer pricing, specifically examining ways to make the arms-length standard effective for intangibles, for the transfer of risk and capital and to address the greyer-than-grey area of management fees and other such payments. What’s interesting in this cluster is that these actions look to reinforce and tidy up existing ways of doing business rather than taking a radical approach, such as unitary taxation or even the type of apportionment of taxing rights envisaged by the European Commission with the Common Consolidated Corporate Tax Base (CCCTB). 

Finally, under transparency, four taskforces will look at the mechanics of gathering data which can be exchanged between taxing authorities. This is no easy task, and involves issues of data protection, IT compatibility, a common template for reporting, etc. Companies will be obliged to report more on their aggressive tax plans, but not publicly, not yet. There will be more mutual assistance among taxing authorities, and common approaches to dispute resolution, etc. 

When will we see change? 
Some of the taskforces will report in a year, and the new standard is slated for the end of 2015. As every finance student knows, however, the market anticipates change, and so as soon as this has been absorbed by the tax planners, we can expect to see a change in tax plans, and a knock-on impact on how investments are structured and how and where groups of companies are arranged. Climate change doesn’t happen overnight, but still it happens, and has real and present impact. 

How solid is the support for this?
Pascal Saint-Amans insists there is extremely solid and widespread support for these measures, even beyond the OECD and G20. He acknowledges that some large firms should end up paying more tax if his plan works, and so some in the business community may be less than thrilled. Interestingly, while they are invited to submit observations, they are not a formal part of any of the taskforces. Nevertheless, he explains that while some countries or companies will protest publicly, they accede privately, and will support the measures once they are developed. Or as he put it: “the conversation in the room and the conversation in the corridor are not the same.” It should not take long to see which conversation carries the most weight. 

Sheila Killian

Tuesday, 16 July 2013

Jail the Anglo Bankers?

Nat O'Connor: In the wake of the Anglo Tapes, it was not surprising to see a poster on a lamp post today stating "Jail the Anglo Bankers". As well as refering to a PBP/SWP protest planned for tomorrow, it echoes a wider question of why - after so many years - are more people involved in the banking collapse not facing justice for what has happened to this country?

It is debateable whether Ireland has enough laws on the statute books to cover the kinds of subtle (and not so subtle) white collar crime that the Anglo bankers stand accused of. Moreover, I am not sure that our concept of 'fraud' is sufficiently comprehensive to deal with something like the damage that Anglo has done to Ireland.

The reports Minister Joan Burton's reaction to the tapes: "With regards to the events being examined by a Dáil committee, Burton said she feels that it should be resourced with, for example, an experienced lawyer, with experience of civil proceedings and banks, and also by somebody like a forensic accountant with an understanding of banking."

Prof. Bill Black of UMKC is fairly experienced as a former financial regulator, who led the investigation into the Savings & Loans scandal in the US in the 1980s and 90s. He's also a white collar criminologist and author of The Best Way to Rob a Bank is to Own One. (You can listen to David McWilliams interviewing Prof. Black in 2011).

He will be presenting an update on his specialist subject, 'control fraud', at the LSU 2013 Fraud and Forensic Conference on 29 July 2013.

My understanding of 'control fraud' is that it refers to the ability of those at the top of major financial organisations to pull enough different levers that they can enrich themselves (and others) by essentially taking unacceptably high levels of risk and reducing the institution's safeguards against that risk. This is insane/suicidal behaviour for the organisation, but it is rational behaviour for individuals who believe that they can get away with the personal benefits (remember all those big bonuses?) and leave others to pick up the pieces (i.e. the Irish taxpayer in the case of Anglo).

It is not clear to me that we have the necessary law on the books to deal with 'control fraud', although we might be able to address aspects of it. It is a form of fraudulent behaviour that straddles corporate governance, regulation and business ethics, as well as crime. But we still need to ensure we have sufficient legislation to cover criminal aspects of how senior executives use and abuse their positions of power and responsibility.

The Anglo Tapes feature in Prof. Black's substantial 181-slide presentation, which can viewed here. (It is well worth taking time to go over this material to consider what 'regulation' of the power of banks should or could mean). It is likely that the Irish banking collapse will not only enter the history books as one of the world's most expensive bank bailouts, but also will enter the curriculum of 'how not to do it' in terms of financial (non)regulation, banking crisis (non)resolution and (potentially) fraud.

Black's response to the Nyberg Report on the investigation into Ireland's banks is on slide 8. Nyberg (perhaps diplomatically) suggests that banks operating models restricted their ability to provision for likely future loan losses. Black suggests that the Anglo Tapes undermine any belief that the Anglo Irish bankers actually wanted to do this. On slide 9, Prof. Black reminds us that the Irish banks were woefully badly provisioned to deal with likely losses.

And that subtle correction of Nyberg is at the heart of the 'control fraud' argument. If the banks willingly took risks that they knew they could not cover, the potential is that this represented control fraud; i.e. using the institution to take risks and willfully failing to provision for those risks on the basis that someone else will pay.

The S&L crisis cost the US taxpayer $341 billion in 1996 (that's $510 billion in 2013's terms, or €388 billion). Anglo and Irish Nationwide have cost the Irish taxpayer around €35 billion, and AIB and BOI add further billion to that. Plus interest. The Department of Finance estimated a €65 billion cost from the bank bailouts.

Pause for thought.

The USA (pop. 265 million in 1996) had a €388 billion bailout. That's €1,464 per person.

Ireland (pop. 4.6 million) had a €65 billion bailout. That's €14,130 per person, or over nine times more expensive.

In the S&L crisis, Prof. Black's investigation involved 1,000 FBI agents and had a 90% conviction rate.

Of course, before any bankers go to jail, we need due process and for the DPP to bring charges, based on forensic evidence. But are we really serious about tracking down any wrong-doing if we haven't had hundreds of investigators tracking down the evidence over the last five years?

We know that, in 2010, the then new Financial Regulator Matthew Elderfield sought to recruit an extra 360 staff to bring his office up to international standards. I very much hope that most of those people have been focused on building up evidence for the DPP since then.

Monday, 15 July 2013

Prostituting Irish Citizenship

Nat O'Connor: Up until 1996, under the so-called "Passports for Investment" scheme, a wealthy investor could gain Irish citizenship as part of a deal involving an investment in Ireland of over £1 million. Some details of the scheme can be read in the Oireachtas record here.

A new proposal, raised in today's Irish Times, suggests that tax exiles could buy extra time in Ireland, while still remaining non-resident for tax purposes, would represent another bizaare and offensive example of Ireland pandering to wealthy individuals and allow them to live under a different set of laws from everyone else.

The suggestion apparently comes from the Forum on Philanthropy. While they are looking at innovative ways to encourage planned charitable giving, there is a substantial difference between providing tax breaks for charitable donations, and providing other inducements (including different laws about residence) to get people to give to charity.

For transparency: TASC is a not-for-profit charitable body (CHY 14778) that benefits from the current tax break. If anyone donates more than €250 per year, a further 31% can be claimed from Revenue, paid out of income tax paid by that donor. But whoever that donor might be, he or she must pay income tax in Ireland in the normal way.

It is noteworthy (in the above Oireachtas transcript) that the original "Passports for Investment" scheme was similar to schemes in various tax privacy and offshore finance regimes, including: The Bahamas; Belize; Panama; St. Christopher and Nevis; and Uruguay.

As the global debate continues about how to tackle tax avoidance and tax evasion by wealthy individuals and global corporations, the idea of selling time in Ireland for €36,500 a day should be treated with great suspicion if not outright disgust. It would mean that if a super-wealthy person wants to pop over for a game of golf or to do business, they would no longer have to worry about triggering the automatic requirement to pay their full share of tax in Ireland that year. Instead, the price for not having to follow the same tax residency laws as everyone else is suggested at €36,500 a day.

Thursday, 11 July 2013

Emerging characteristics of an Enabling State

Nat O'Connor: Carnegie UK Trust have been organising a series of discussions around the UK, and one in Dublin, about their idea of the 'Enabling State'. The lead author, Sir John Elvidge, was the chief architect of a radically new model of the civil service operating under the devolved Scottish Government.

Carnegie are still continuing the conversation, but so far "six common characteristics that define an enabling approach to public services" have emerged.

• Services built around empowered citizens and communities;
• Co-produced public services;
• Nurturing community solutions where the state has failed;
• Services that seek to reduce not exacerbate inequalities;
• A holistic approach to public service delivery;
• Shared responsibilities in improving collective and individual wellbeing.

The report of their Dublin meeting can be accessed here. It is refreshing to see Ireland's problems looked at by a sympathetic NGO that is nonetheless more used to the UK context. For example, "There was no Beveridge Report in Ireland and as such Ireland’s health, welfare and social services provision developed in a piecemeal fashion". It is useful to remember the influence of visionary ideas, like Beveridge's post-war plans for National Insurance and the NHS.

See also Carnegie UK Trust's Enabling State webpage.

There is a risk that in Ireland we will fail to grasp the opportunity to imagine a very different state and a radically reformed politics. The Enabling State is one useful contribution to help us to promote public discussion of real reform.

Thursday, 4 July 2013

A New Industrial Strategy for Ireland?

Nat O'Connor: From the global clamp-down on corporate tax avoidance, the failure of the EU to co-ordinate a jobs-rich recovery strategy and the continued recession and high unemployment in Ireland, there is a need for a serious re-think on the economic policies and industrial strategy underpinning Ireland’s future economic development and recovery.

TASC has just published a series of Industrial Policy discussion papers as a contribution to discussion of central themes in Ireland’s industrial strategy.

Professor Seán Ó Riain provides an overview of the challenges facing Ireland in relation to industrial policy; from the short-term need for job creation, to the longer-term goal of sustainable prosperity. He proposes a balance between private and public activity, with a role for the State in ‘making winners’ through the production of new industry capabilities; the creation of networking spaces and the promotion of ‘conceptions of control’ that are favourable to industrial development.

Professor David Jacobson examines the difference between innovation and the narrower concept of R&D. He points to evidence that the national innovation system in Ireland is inefficient and ineffective.

Dr Eoin O’Malley’s paper questions the received wisdom about Ireland’s competitiveness and the undue focus on labour costs. Instead, he argues that Ireland’s rising and falling shares in export markets is more nuanced indicator of real competitive performance.

Professor Jim Stewart examines the vexed issue of Ireland’s 12.5% Corporate Tax rate and overturns the myth that it provides a ‘cornerstone’ of industrial policy. On the contrary, he argues that a tax based industrial policy will not result in an innovative, research led economy.

Chair of TASC’s Economists’ Network, Paul Sweeney, has provided a compelling calculation of the amount of public money used, directly or indirectly, to support the enterprise sector in Ireland. He estimates this at between €4.7 and €6.2 billion per annum, which is far more than is generally imagined. This raises the question of whether we are getting value for money, or whether these supports should be reallocated.

Each of these papers provides a thematic analysis of a core aspect of Ireland’s industrial strategy. They are intended as a contribution to debate, to encourage a much wider and more critical scrutiny of the future pathway to Ireland’s recovery.

The Scale of Youth Unemployment

Nat O'Connor: Ireland's economy is contracting again, unemployment is at 13.6 per cent and over 60,000 people emigrated over the last two years (net of immigration, CSO population report). Unemployment across the EU is at record high levels (12.2%) and Enda Kenny was not wrong when he recently called the high levels of youth unemployment "an abomination" (RTÉ)

Eurofound reports that 14 million young people (aged 15-29) are NEET: Not in Employment, Education or Training.

So what's the strategy for medium-term economic recovery, development and prosperity? And how are we going to generate good jobs, especially for younger people?

The recently announched EU Youth Guarantee will make up to €8 billion available, as part of the next seven-year budget of the EU. "The funds will form the basis of a 'Youth Guarantee' that aims to provide a job, training or apprenticeship to young people within four months of their leaving school, full-time education or becoming unemployed." (Reuters)

However, "Economists have derided the scheme as a public relations exercise, and even the leaders conceded the plan would have little impact unless member states took action themselves."

€8 billion is c.€571 for every young person currently in the NEETs category (to say nothing of those currently aged under 15 whose futures are equally uncertain). That's just over €80 per year, although logically the expenditure should be front-loaded.

While this might pay for an 'intervention' of some description, like advice or a small amount of training, it is not anything like the right scale to provide paid apprenticeships or jobs. In Ireland, you could employ someone for less than two weeks at the minimum wage for €571.

So, the Youth Guarantee is not a strategy. At best, it will provide a trickle of useful money that will facilitate national governments setting up training schemes and assistance to find employment.

But what would a strategy look like? Today, TASC launched a series of papers looking at themes in industrial policy, including innovation, competitiveness, State supports to enterprise and our 12.5% Corporate Tax rate.

Each paper makes a specific contribution to the discussion, and they are meant to provoke thought. For example, Paul Sweeney estimates that between €4.7 and €6.2 billion is spent by Ireland annually to support enterprise here. That's very roughly 10 to 15 per cent of all public spending. And in contrast, Ireland's proportionate share of the Youth Guarantee is likely to be around €11 million per year (assuming 1% of €8 billion divided by 7 years).

This contrast shows that we have a lot more internal capacity that we might imagine to focus resources towards employment, education and training, but it requires a reevaluation of existing policies and activities, guided by a coherent medium-term vision or 'strategy' for how we can make better use of these resources to achieve the sustainable growth of good jobs.

Tuesday, 25 June 2013

Social Justice Ireland pre-Budget proposals

Social Justice Ireland's pre-Budget proposals centre on tax reform and an end to expenditure cuts. They argue for a minimum effective corporate tax rate of 6 per cent, among other measures. More detail can be read here.

Tuesday, 18 June 2013

Tax transparency: a step change or climate change?

The OECD has another new report out today on tax transparency, this time to tie in to the G8 meeting in Enniskillen. Formally, this report was commissioned by the G8, though any impression given that the G8 are driving OECD activity in this area may be misplaced.

So what’s in this one? Well, an ambitious title for a start – “A Step Change in Tax Transparency” which is calculated to raise expectations and signal a serious commitment to change. The content focuses on reassuringly practical aspects of automatic exchange of tax information between jurisdictions. Anyone who has ever worked in a large organisation knows how difficult it can be to persuade computer systems or databases on one side of the building to talk to those on the other, so you can imagine the difficulties inherent in exchanging taxpayer information automatically between, say, the UK and Mozambique. This report seems to have been written by someone who has thought about the issues and is genuinely trying to work them out. The recommendations are practical, and focus on establishing relationships, getting the legal basis clear, defining the scope of information to be exchanged and lining up IT systems to receive the information.

Notably, the use of a common multilateral convention on information exchange is proposed as a practical solution. This has echoes of the idea floated by the OECD in April of a single multi-lateral tax treaty to replace all or part of the 3,000+ bilateral tax treaties currently in force around the world.  The latter is of course a far bigger proposition, and one which has serious potential to close off aggressive “treaty shopping” activities – the kind of artificial channelling of funds around the tax treaty network designed to avoid withholding taxes. It would be interesting if information exchange opened up the real possibility of this kind of close coordination.

There are obvious issues to be overcome, not least building the capacity of taxing authorities in less developed countries not only to gather and provide the information but to securely store and process it, and in setting the scope of information to be reported and defining what entities provide that information. Calling this one report a step-change may be gilding the lily, but taken with the OECD’s work on BEPS, recent UN guidance on transfer pricing for developing countries and more widespread developments on capacity development for taxing authorities in the Global South, this is certainly part of a shift in the climate around international tax avoidance.

Maybe not a step change just yet, but definite signs of climate change.

Sheila Killian