Author Archives: Michael Taft

90431884Michael Taft

From top: Minister for Public Expenditure Pascal O Donohue with Minister for Finance Michael Noonan present Budget 2017; Michael Taft

In the immediate aftermath of Budget 2017 there were serious voices raised that we were about to descend into fiscal chaos. And, yet, Ireland has one of the better deficit records in the Eurozone.

Michael Taft explains:

These days any question of increased resources – whether for investment, public services or social protection – is met with ‘how can we afford it?’, ‘the fiscal rules won’t allow it’ and ‘you just want to return us to the bad ol’ days’.

In short, there are no more cookies left in the cookie jar. Such is what passes for debate over fiscal policy.

The fact is that in many cases we can afford it (always, of course, within limits), the fiscal rules do allow it and the only ones determined to return us to the bad ol’ days is the government itself.

In the immediate aftermath of Budget 2017 there were serious voices raised that we were about to descend into fiscal chaos and imprudence. The Irish Fiscal Advisory Council claimed that the tax and spend numbers went ‘beyond what was prudent and was set to breach key EU rules’.

The Irish Times was even more dramatic:

‘The notion of a prudent Budget appeared threadbare after Michael Noonan announced a package of measures in the Dáil stretching the so-called “fiscal space” to near-destruction.’

And, yet, Ireland has one of the better deficit records in the Eurozone.

cookie-jar

We’re well into bottom half of the table, far away from fiscally-troubled countries like Spain, France and Portugal. This is not chaos. Even our debt level is well below the Eurozone average.

In 2017, the Government estimates government debt to be 74.3 percent of GDP; Eurozone debt is 90.6 percent. Ireland is closer to the parsimonious Germans (with a 65.7 percent debt to GDP) than the Eurozone average. Irish debt is falling faster than any other country – from nearly 120 percent of GDP in 2013.

This is not to be complacent but it is a warning against scare-mongering. As for the ‘can’t afford it’, etc. arguments, let’s run through some points.

First, the Government cut the deficit more than was necessary in Budget 2017. The fiscal rules require we reduce the structural deficit by more than 0.5 percent. Instead, the Government cut the structural deficit by 0.8 percent.

This may seem fractional but had the Government stuck to the rules this would have provided an additional €550 to €800 million more for investment, public services and social protection.

Second, the Government has been actively cutting its own revenue. In the last three budgets, the Government has cut tax revenue by €2.6 billion. Some of these cuts were valid enough – removing the PRSI step-effect for minimum wage workers, for instance.

There might be other valid tax cuts such as inflation indexing thresholds and credits (that would have only been relevant for next year). But if the Government had been less reckless at cutting the tax base – say 50 percent less – then there would have been €1.3 billion extra to spend in 2017. If you keep cutting your own revenue you will have, as a matter of arithmetic, less to spend on.

Third, the Government is intent on continuing to drive revenue into the ground, thus depriving us of more resources. Tax revenue will be cut by over €2.6 billion by 2021.

This will reinforce our low-tax status. In 2014, tax revenue as a % of GDP (this could be the last year we can use the Fiscal Council’s adjusted GDP to allow for the activities of multi-nationals) was €14 billion below what it would be had we been taxed at the Eurozone average .

We are €22 billion below the average of our peer group – other small open economies; but who’s counting.

And then there are those who complain we’re still borrowing. Recently one commentator lamented that we were still borrowing to keep the lights on; over €20 million a week (that’s to scare the children with big numbers).

The fact is we don’t borrow for day-to-day expenses. Next year we will have a €2 billion surplus on the current side; that will buy a lot of light bulbs. We are borrowing for investment and in a saner world with saner rules we’d be borrowing a lot more for investment, especially with interest rates on the floor.

This is all about choices. And there’s another choice coming up. The EU Commission has done an about-turn and is now urging Governments to fiscally expand. EU austerity may not be over but it is, at least, being temporarily suspended – no doubt a response to the social disquiet that the far-right is exploiting.

They are proposing that governments spend an additional 0.5 percent of GDP on expansionary programmes. It’s only once-off and far too little to get the EU out of its rut, but you take what you can get.

In Ireland it would be worth approximately €1.2 billion. The Government seems hesitant but a rational response would be to take this money and kick-start housing builds in Dublin. This could build an additional 6,000 to 7,000 units. Again, a relatively small amount but forensically targeted could help key disadvantaged groups such as the homeless.

Don’t reduce the deficit so fast, increase spending (even if it’s allowable under the fiscal rules), increase taxes, take a fiscal holiday – isn’t all this a return to the bad ol’ days? Hardly. It’s the Government that is returning us to pre-crash fiscal policy:

  • Eroding the tax base which leaves us exposed to external shocks – think Trump protectionism, think Brexit
  • Pumping the property market through mortgage and rent subsidies
  • Over-reliance on an emerging tax revenue bubble – this time, corporate tax revenue
  • Basing projections on dubious assumptions – the Government’s budgetary numbers don’t factor in the potential structural change in the UK sterling exchange rate.
  • And don’t, no don’t, mention the A word, the potential impact of the Apple ruling and the acceleration of European tax coordination – just like not mentioning astronomical house prices prior to the crash

Now that’s a return to the bad ol’ days.

We have choices. Yes, there are limitations. How could there not be after years of recession and austerity? We cannot solve every problem today or tomorrow and, therefore, are forced to prioritise resources. That puts an even bigger premium on smart allocation and prioritisation.

But the next time you ask the Government for a cookie and they just shrug their shoulder and point to any empty jar – just remember: it was the Government who stole the cookies.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

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Michael Taft

From top: Apartments to let in Dublin; Michael Taft

The Irish rental sector is a minefield.

But expanding subsidies in a sector with a supply crisis doesn’t help us out of the field – it just plants more mines.

Michael Taft writes:

Fresh from making a mess of home-ownership policy – in particular, the mortgage subsidy scheme which will increase house prices and end up in the pockets of developers – the Government seems intent on doing the same thing in the private rental sector.

As even the dogs in the street know, we have a bit of a rent crisis. The Savills report suggested that rents could rise by over 20 percent over the next two years.

And if you thought that couldn’t possibly happen, Daft.ie showed that rents have risen by nearly 12 percent in the last year – the highest annual rise since they started collecting this data in 2002.

The Government intends to publish a policy document on rents in the next few weeks but already some details are starting to leak out.

First, the Government is not expected to bring in rent regulation which could tie annual rent increases to some inflation benchmark. It is not known whether they intend to temporarily roll-over the current freeze on rent increases for sitting tenants.

But I can’t say that any of this is too surprising. When you have been raised all your life on the unfettered operation of markets, it’s hard to convert to fettering, even in a crisis.

But the real chestnut is the suggestion to expand rent subsidies.

‘A new system of payments to middle-income families to subsidise the cost of high rents is being considered by the Government. The payments would be aimed at households with a combined income of up to €55,000 as a temporary measure to prevent more families entering social housing programmes. The aim of the proposed payment is to help those whose income places them above the threshold to avail of Housing Assistance Payment (HAP), in which councils make payments to landlords.’

Here’s a pop quiz: if there is a high demand for a good or service that is in short supply, what happens when you give the ‘purchasers’ more money? You’d be right to say that this will only drive up prices even further.

With rental inflation running in double-digits, this is a proposal that can only accelerate this trend and end up being a significant drain on the Exchequer.

To call it ‘temporary’ is only to create a potential income trap.

Let’s say that a household is given €2,000 a year in rental subsidy. In time rents hit an equilibrium (elevated because of the subsidy). Is it being suggested that the subsidy would be withdrawn? What would that do to living standards?

Readers would be right to point out that we already have a rent subsidy programme – Rent Supplement and its eventual successor, the Housing Assistance Payment which is being rolled out.

Wouldn’t increasing these payments, as many housing campaigners have argued, drive up rents? Yes, but these payments are limited to low income groups and currently rent can’t be increased for sitting tenants until 2019.

Campaigners who have made this demand are aware of this danger and have also called for increased supply. But there is no doubting that even socially essential measures can have, hopefully minor, impacts in a sector that is so imbalanced.

But the mantra ‘increase supply’ simplistically assumes a linear relationship between supply and demand in a market where credit, availability of land, planning permission and hoarding also feed into prices.

If the Savills model is correct, supply may well increase but this won’t take the heat out of the rental sector unless it (a) increases supply by substantially more than rising demand and (b) can lower the vacancy rate. Otherwise, we have a situation whereby units come on stream, rents rise, tenants pay higher rents in a circle without seeming end (sound familiar).

And if you want to increase supply you have to maintain a high investment yield or even increase it which only drives up rents even further.

In fact, when you hear ‘encourage supply’ watch out – this is about maintaining or even increasing high yields, usually through tax cuts for the providers (sound familiar).

And if the market signals are not working on all cylinders supply could overshoot demand and you end up with losses, bankruptcies and a slump (sound familiar).

In other words, it is a minefield. But expanding subsidies in a sector with a supply crisis doesn’t help us out of the field – it just plants more mines.

There is another starting point: create the institutions and agencies – public, non-profit, even commercial (particularly, long-term investors such as pension funds) – that can produce and rent out units at cost (for commercial investors, a guaranteed yield) and then link rent increases to inflation, interest rates, etc.

Then you can introduce widespread rent subsidies without fear of it being consumed in higher prices. That’s a better staring point.

Note: You can sign a petition to Minister Simon Coveney calling for rent regulation here at the Uplift/Secure Rents campaign site.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

7881538-3x2-700x467Michael Taft

From top: Hillary Clinton and Donald Trump: Michael Taft

There is a difference between someone who is Trump and someone who is not Trump. The mature response is: support Clinton, oppose Trump.

America-born Michael Taft writes:

I suppose it would be expected of a progressive discussing the US Presidential election to describe Donald Trump negatively: a bigot, a liar, a tax avoider, a sexual predator, a charlatan who connives at arm’s length with the most profoundly anti-American groups (such as the Ku Klux Klan). But what’s the point?

We know all that and more – and we have Donald Trump to thank for that; he’s the one who’s provided the conclusive evidence.

What’s far more interesting is why so many people are voting for him. No doubt, this will become an industry in the future with books, articles, PhDs, earnest documentaries and pop-analysis.

I won’t pretend to have the answer (in any event, there are many answers which provoke even more questions). But I do know many of the people who are voting for him.

I grew up with them, went to school with them, played baseball with them, drank many beers with them. They are good people, caring people. I’m sure if you met them you would enjoy their company; just ordinary folk trying to meet their monthly bills.

But something has snapped. The ties that traditionally bound Americans in a social contact have been cut. These people grew up in the American dream and now they have woken in a place that they weren’t prepared for and weren’t supposed to be in.

The most dismal statistic is that the life-expectancy of whole swathes of the white working class is now falling. Poor health, poor wages, poor life-expectancy. The inclusive ties of community have been replaced by bleak networks despondency and anger.

Of all that was depressing about Trump’s rallies, to me the most depressing were the chants ‘Build the wall! Build the wall!’ Never mind that America became great because it tore down walls, creating a land of many cultures, languages, religions and national origins – a land for, and of, all people. Woody Guthrie said it best:

“This land is your land, this land is my land”

OK, there was always a bit of myth about this; the reality was more fraught, more tense with many injustices. But the mythic parts are important, too – it says something to us about us. And walls are not about us.

People build walls when they are afraid, lack confidence, live in fear, when the social order of cooperation that is so natural to us breaks down. Walls are the ultimate sign of weakness, yet this is the foundation for ‘Making America Great Again’.

Do Trump supporters recognise this weakness? No, not now anyway. That is the tragedy which they don’t deserve.

I know Europeans flinch at Trump’s language but I know the cadences, the syntax, the rhythms; it is a direct language. So much of the oppressive apparatus in America today comes with a ‘corporation-speak’, a ‘bureaucratic-speak’. People know this language and are sick of it.

Trump’s speeches are not written by committee where each sentence is parsed for its impact on this or that focus group. His speech is the speech of ordinary people. Ever read a written transcript of an ordinary conversation – it’s almost unreadable; so much is left to the unspoken word, the unfinished sentence, the wave of the hand, the angle of the head? That’s how Trump speaks. People understand.

But this is the allure and the danger of the demagogue. He or she cannot be neatly categorised on classical ideological graphs. They can act left-wing or right-wing. They can speak a progressive or reactionary language.

The most effective are able to weave these seemingly opposed perspectives into a unitary anti-establishment movement. They identify the elite, mobilise people against that elite and if they are successful, they end up becoming the elite. This is almost the inevitability of a desperate populism led by a persuasive demagogue.

There’s a lot of superficial commentary on the potential voting patterns of the rust-belt or the white working class or the ‘ordinary middle class’ (which means something different in the US than in Europe).

The polling data suggests something much more nuanced and differentiated: by region, by gender, by age, by educational achievement. Three-minute news pieces require neat summations; in many cases they miss the point.

But there’s one point that cannot be missed. Many of the people voting for Trump come from social constituencies that were once part of the greatest and most progressive coalition in the 20th century: the New Deal.

This was the new social contract that emerged out of the wreckage of the Great Depression and lasted for decades.

In the New Deal – which spread over a generation – equality spread as surely as electrification and water supplies, the welfare state was born, pro-labour legislation was implemented, financial interests were subordinated and the productive economy was privileged. Houses and motorways were built, art was created for the public, music classes were funded for schools and civil rights legislation was passed despite fierce opposition.

But the Democratic Party today has moved far from that heritage. Like social democracy and the Left throughout Europe, it proved incapable of fending off neo-liberalism, accommodated itself to capital (how so much different to President Franklin Roosevelt’s Second Bill of Rights), so intellectually debased itself it had no response to the financial crash.

Today, we are living with the results of the collapse of that great coalition and the Democratic Party’s inability to form a new one suited to modern times (though Senator Bernie Sanders gave us an insight into what that new coalition could look like).

How should progressive Americans respond today? Elect Hilary Clinton. Why? Because Hilary Clinton can forge a progressive America? I wish that were the case but I doubt it.

However, this is a defensive battle. Imagine if Trump won the Presidency? It’s not the successes that should worry us. It’s what happens if he fails his supporters. They have built the wall but they are still poor; they have kept out the ‘outsider’ but they still feel afraid. What happens when disillusionment with Trump sets in, when they see through the rhetoric to find another, more fundamental betrayal?

Don’t think they will automatically turn to a progressive and democratic alternative. They might retreat into a long-term apathy. Or worse, they might turn to even more reactionary forces which promise an even truer and more uncompromised politics. If Trump were elected America might spiral into an even more vicious cycle.

That’s why Clinton must win. I’ve come across the trope that, at root, there is no difference between Trump and Clinton. This betrays a profound ignorance of the fundamental issues at stake.

There is a difference between someone who is Trump and someone who is not Trump. The mature response is Senator Bernie Sanders’ response: support Clinton, oppose Trump.

And the mature strategy is Senator Bernie Sander’s strategy: support Clinton, win the White House and immediately start transforming the Democratic Party from the bottom up.

This is a lesson we should learn in Europe. How so much easier to set oneself apart to remain untainted. The real work of democratic mobilisation is so much harder and much more long-term. It is not the instant gratification that can be found in the supermarket aisle or the heated denunciations on social media.

And in America, this democratic mobilisation will need to include Trump supporters – those who are searching for a new social contract. Because they vote Trump today doesn’t mean they have stopped searching.

But it will need to speak directly, honestly. It will need to project a more authentic and liberating Americanism, rooted in a profoundly progressive history.

We must rebuild that coalition, fit for the 21st century. We must start that work now. And the first step is to elect Hilary Clinton today. The next step starts tomorrow.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront