Author Archives: Michael Taft

From top: Minister for Finance and Public Expenditure & Reform, Paschal Donohoe and Taoiseach Leo Varadkar TD outlining to the media the update on Ireland’s Debt Service Costs outside Government Buildings last September; Michael Taft

There are a number of reasons being put forward to justify limiting the amount of budgetary resources available for repairing the social and economic damage of the recession years: an over-heating economy, limited fiscal space, future uncertainties.

One more reason is the level of government debt, as in ‘we have crippling levels of debt’ and we have to do ‘something’ about it (i.e. suppress government spending).

On first glance, our debt levels appear relatively modest. In 2017, our debt was 68 percent of GDP compared to a Eurozone average of 87 percent.

By 2021, the Government projects our debt to be 59 percent. This falls below the Fiscal Rules threshold (60 percent) which means our fiscal space expands; i.e. we’re allowed to borrow even more.

So far, so good. However, measures using GDP are not so good for familiar reasons. Therefore, analysists have been using GNI*, the CSO’s measurement which attempts to filter out distortions in our national accounts.

When we do this, a different picture emerges.

It’s been quite a toboggan ride. Irish debt was well below Eurozone levels in 2000. It fell even further up to 2007 though this was a period of speculative-based growth.

Between 2007 and 2013 debt went out of control – rising from just under €50 billion to over €200 billion thanks to a lethal mixture of collapsing tax revenue, falling output, bank debt (especially Anglo-Irish) and austerity measures.

However, since then the debt ratio has been falling.

By 2019 Irish debt will still be above Eurozone levels but not by much. Out of the 19 Eurozone countries, Ireland ranks mid-table in 8th place.

However, there are other measurements. For instance, Ireland fares poorly when we measure debt on a per capita basis. In the Eurozone, debt is €28,700 per capita while in Ireland it is over €43,000 – though one must take note that Eurozone per capita income is low compared to Irish standards. When incomes and prices are factored in, the difference could be reduced by half.

Another take on this ‘fiscally frightening the children’ scenario is the claim that we are still borrowing, still running a deficit. This, however, overlooks a key metric.

Looking at our current, or ‘day-to-day’ spending (this excludes capital spending) we are running a considerable surplus. In 2018, the Government project our current budget to be €4 billion in surplus, or 1.9 percent of GNI*. This will rise to over €8.1 billion by 2021 or 3.3 percent of GNI*.

In effect, we are running a considerable surplus on our day-to-day spending, the remainder being invested in our future infrastructure and growth prospects.

All that being said, there should be some concerns, not only because of the future uncertainties.

The classic approach to fiscal management during economic cycles is to reduce debt levels during periods of upswings while at the same time taking measures to ensure the upswings don’t get out of control.

However, such was the damage during the last bout of recession-cum-austerity; we need the extra expenditure for repairs. The big question is whether there will be enough time to finish these repairs before the economy enters into cyclical decline.

This question has gained some urgency with the recent and mysterious slowdown in Eurozone growth. From a big pick-up in 2017, Euro countries have started 2018 poorly.

The following graph comes from Fulcrum Asset Management showing not only a fall-off since the New Year but a continuing anaemic long-term trend. With UK activity hitting the doldrums it would be unwise to think Ireland will somehow escape.

This is not suggest that a recession is around the corner (but who knows given the near universal failure to predict the last one), but it does mean we have to do two things in preparation.

First, prioritise expenditure to strengthen the productive economy. The Government has started taking positive steps in this regard, increasing investment but it is crucial that we obtain value-for-money and that cost-benefit analyses are openly and thoroughly scrutinised.

We need to take further steps by increasing R&D expenditure (an area Ireland fares poorly in), introducing affordable childcare which can reduce barriers to labour force participation, and taking a more directive role with banks under state control to counter their intrinsic pro-cyclical character (that is, banks reduce their lending when it is needed most – during a downturn).

Secondly, we need to start recession-proofing the economy. Introducing pay-related unemployment benefit will help stabilise demand during a downturn while designing an employment subsidy scheme to keep employees in work by subsidising reduced hours rather than seeing people being laid off. These and other measures won’t prevent a downturn but will help limit the damage.

Finally, we should replace the desultory tax cuts vs. spending increase debate with another choice: tax cuts or debt reduction. Indeed, we need to strengthen our tax base (after the reckless erosion over the last few years under Fine Gael governments) with incremental but persistent increases in taxation starting with the remaining tax breaks that disproportionately favour higher income groups, taxation on property (including unproductive financial property) and passive income (e.g. inheritance and gifts tax).

The last thing we need is scare-mongering about the levels of our debt. Progressives should lead this debate as I outlined in this post. We need a clear analysis and an honest conversation.

We didn’t have that prior to the crash. We didn’t have that during the recession. If we don’t  have that now, why should we expect the future to be any different than the past?

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday

From top: Minister for Finance and Public Expenditure & Reform Paschal Donohoe giving a media briefing of the Draft Stability Programme Update 2018 in the Department of Finance last week; Michael Taft

The Government produced their Draft Stability Programme Update containing projections for the economy and the budget up to 2021. They will firm up on these numbers – along with the projected fiscal space – in the Summer Economic Statement. But it is not likely to differ in any substantial way.

There’s been lots of commentary: the validity of GDP, rising employment, available budgetary resources, etc. Let’s take a step back and look at the long-term, using the CSO’s GNI* which attempts to factor out distortions in our GDP.

What we find is an ever slowly shrinking social state.

There’s been a long-term stagnation at best. Since 1995 there has only been one year that public spending was lower than it what it is projected to be in 2020/21.

(Note: during the crisis years, spending as a percentage of GNI* shot up. This was not due to increased public expenditure which actually fell (though bank debts were included). It was GNI* falling by 22 percent between 2007 and 2011. So a fall from that peak was inevitable).

There is a projected slow reduction in public spending (as a proportion of output) between 2017 and 2021.

We find primary public spending falling, with current spending (public services and social protection) falling faster. Fortunately, investment is on the rise.

The above doesn’t mean that public spending is being cut in nominal terms. It is actually increasing, from €71.4 billion to €83 billion – an increase of 16.3 percent between 2017 and 2021. This may seem like a substantial amount.

But when you factor in prices and population rise, the increase comes to 7.4 percent. This increase, however, reflects greater emphasis on investment. Current spending will rise by only 3.2 percent up to 2021, or less than 1 percent annually. That is going to be a tight squeeze.

How does this compare with our peer –group in the EU; other Northern and Central European economies?

We can compare the Government’s and EU Commission’s projections for 2019.

Ireland would have to spend an additional €23.5 billion just to reach the average of our peer group. However, this doesn’t take account of the different factors that drive spending in particular countries. For instance, because of the older age demographic other EU countries have to spend more on pensions than Ireland.

So if we exclude expenditure on pensions (taking the proportion of pension expenditure in 2016 and applying it to 2019 levels), we find that Irish primary public spending comes in at 29.6 percent of GNI* compared to our peer group average 35.1 percent. While reduced, this still leaves a gap of €12.3 billion.

However, we also have to factor in our higher young demographic, which should drive education and family support expenditure higher than our EU peer group. There are other factors: prices, defence spending (which, however, is a discretionary category), dispersed population, and categories which constitute expenditure but are counted as household and not government spending (e.g. our old friend – water and waste spending).

Therefore, we should be careful about using comparative headline rates. However, there is strong evidence that Ireland is an under-spender compared to our peer group.Becoming a more European-type spending economy is not an easy task. One could argue for higher taxation but there is no gold at the end of the fiscal rainbow.

Clearly, we have a low ‘social wage’ (employers’ social insurance). In other countries this finances enhanced in-work benefits and health services. But increasing the social wage would require systemic multi-employer collective bargaining structures to ensure equity – and we don’t have these structures.

We could be entering into a difficult fiscal and economic cycles. Even before the EU starts bringing multi-national tax avoidance under control (and, so, reducing our revenue), companies are taking unilateral steps to reform their tax strategies which could put downward pressure on Irish corporate tax revenue.

Then there’s Brexit. Then there’s the still the high level of general government debt, though estimates vary depending on the measurement.

We seem to be stuck in a structural trap – a trap that is becoming tighter. How do we break out of it?

Here are three responses:

First, abandon net tax cuts. If there are to be tax cuts then these should be funded by tax rises in other areas. And within this, push out the boat a little. A good start would be to let the 2019 property valuations come on stream without amendment.

Second, constitute a collective bargaining structure which would integrate an increase in the social wage with overall wage increases. This would have the benefit of strengthening our automatic stabilisers (e.g. pay-related unemployment benefit) which would keep domestic demand up if there are job losses with a Brexit gone wrong.

Third, engage in real ‘public sector reform’ (not the crash n’ burn of the austerity years). This would focus on increasing productivity through the introduction of employee-driven innovation (discussed here).

However, this process requires trust between all partners. The Government could help to build such an environment by committing itself to full pay-restoration and an end to the two-tier pay structure and negotiating in good faith the time-scale.

In other words, we don’t have to immediately reach for the tax hike cudgel. But we do need a long-term vision of where we want to be in the future.

And being in in a low-spend, low-tax society where people continue to purchase public goods in private markets and doing without benefits that other European workers enjoy – well, that’s not much of a future.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday


From top: Grafton Street, Dublin 2; Michael Taft

Measuring wages in an economy is pretty straight-forward – take the total amount of wages and find the proportion it makes up of GDP. That is called the ‘labour share’. Measuring profits should also be pretty-straight forward. But Irish economic data is anything but.

Why measure profits? Because they are vital to a market economy (but see below for important caveats). Investment comes out of capital compensation which is a proxy for profits. Investment in a market economy – whether private or public – is key to productivity, growth, employment and wages.

But measuring Irish profits is more than problematic. In our EU peer-group, profits make up 38 percent of GDP; in Ireland, it exceeds 63 percent.

We know this is not real – no more real than our GDP, largely due to the interaction of multi-national accounting practices and Eurostat’s new way of measuring GDP.

Given that normal data can’t provide us a clear picture, we have to use the CSO’s GNI (a measure of gross national income unique to Ireland). This excludes outflows from the economy (e.g. repatriated profits) along with a range of distorting features such as re-domiciled profits, aircraft leasing and intellectual property. We find profits by subtracting wages, and taxes on products and taxes from GNI. This is not an ideal measurement but it’s the best we have.

So how do we measure up?

Even with all the distortions removed, Ireland is still a highly-profit economy. Of course, this doesn’t tell us how those profits are distributed. Revenue Commissioners tell us that as much as 40 percent of corporate tax revenue comes from just 10 companies, which is highly concentrated (and fiscally reckless).

However, much of this tax revenue does not come from profits generated here whereas the GNI strives to give a picture of domestic economic activity.

Nor does it tell us how these profits are used. If high profits lead to high investment then there is a social benefit.

However, such investment can be directed to unproductive activities. This happened prior to the crash when a number of domestic companies used profits to speculate in the property market.

Profits can also just be thrown on a big cash pile, or used to over-compensate senior executives, or distribute excessive dividends. When this is done at the expense of investment, wages or employee benefits, then real economic harm is perpetrated.

If Ireland’s share of wages and profits equalled the average of our peer group, this would mean an additional €14 billion for wages, equivalent to a 17 percent rise in employee compensation.

Such a rise would assist in reducing low-pay, reducing government subsidies (e.g. Family Income Supplement) and increasing tax revenue which could be re-invested into social and public services.

Does an economy need high profits to be ‘competitive’? It does not appear so. All the countries in the chart above – all below Irish profit levels – rank higher in the Global Competitiveness Index.

To re-balance the economy, there is a need to strengthen labour rights in the workplace so that employees can more effectively bargain with their employer (discussed here).

But how do we ensure that profits are directed into productive investment?

This is a more difficult proposition.

First, we would need hard data on the profitability of domestic firms, in order to calibrate efficient incentives. In particular, instead of grant-aiding and lending we could invest in new and existing domestic firms and take equity.

Second, we need to promote investment-rich foreign direct investment – something that will become an imperative as the rules regarding multi-national taxation change. This will require greater emphasis on education, skills and infrastructure such as housing to attract FDI.

Third, we need to create and expand companies that are essentially investment-driven; namely, public enterprises. Public enterprises do not create profits for shareholder value (though during the recession the Government milked these enterprises for dividend payments); they pursue profits to boost investment which is paid out of retained earnings.

And between all three we need new hybrid models – public, domestic private and foreign multi-national – so that we can make these companies work together for the productive economy.

We need a profitable economy – to invest productively, to compensate labour, to raise productivity, and spread prosperity throughout society.

We have the profits. It is debatable whether they are being put to best use.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday


From top: John Fitzgerald; Michael Taft

Ah, the fiscal rules. They brought us fiscal space, the expenditure benchmark and the structural deficit. They were supposed to bring us sustainable and balanced fiscal policy to see us through the good times and the bad.

However, Dr. John Fitzgerald, of the Economic and Social Research Institute [ESRI], is not impressed.

In an Irish Times opinion piece, He writes:

‘ . . . the inadequacy of the rules-based approach may actually provide cover for dangerous pro-cyclical fiscal policy . . .

‘…In the period 2004 to 2007, Irish fiscal policy fully complied with the rules, but it was pro-cyclical, making a major contribution to the growing bubble that subsequently wreaked so much havoc.’

Dr. Fitzgerald continues:

‘ . . . in the Irish case the continuing exceptional growth suggests that the economy will hit full employment next year, and that action will be needed in the 2019 budget to slow the economy.’

In effect, Dr. Fitzgerald is arguing that while we would be compliant with the fiscal rules if we were to increase public expenditure by the full amount allowable under the rules, it would be folly to do so as we are knocking on the door of full capacity – another bubble, inflationary pressures or a deterioration of our current accounts.

Indeed, we may have to increase taxation or cut public spending to keep things on track, something the fiscal rules don’t call for.

There are two ways of approaching this argument.

The first is – yes, yes, yes. The fiscal rules have as much relevance to proper fiscal policy as alchemy (OK, a bit exaggerated but not by much).

Champions of these rules claim that had the coercive element of these rules been in force during our boom years, we would have avoided the excesses of that period.

The fact is Ireland was not only compliant with the rules in the boom period – as Dr. Fitzgerald points out – we had the best public finances of any Eurozone country bar Finland.

The fiscal rules were never empirically-based; they are a political instrument dressed up in complicated formulae.

In the immediate sense, they were the price that German Christian Democracy extracted for participating in bail-out mechanisms. In a larger sense, they are about the de-politicisation of the economy so that regardless of what government people elect, the rules will rule regardless.

So, yes, Ireland and Europe would be far better off without them.

The second way of approaching Dr. Fitzgerald’s argument is to let out a long exasperated sigh: we were told we must become compliant with the fiscal rules; hence, fiscal constraints. Now that we are compliant – in fact, overly-compliant – we are told we must practice . . . fiscal constraints regardless of what the rules allow us.

Heads, fiscal constrictions; tails, fiscal constrictions: it’s a loaded coin.

It’s not just that the fiscal rules are inappropriate to a highly-globalised small open economy. Or that key concepts (e.g. structural deficit) cannot be directly measured. They constitute an inherent irrationality.

Under the rules investment must be paid out of current revenue; that is, the state is largely prevented from borrowing for productive investment. Imagine the impact were this applied to the household sector – people would be forced to pay for a house out of savings, rather than borrowing.

Or applied to the business sector – again, firms would have to pay for investment out of retained earnings, not borrowing. In the former, only the richest could afford a house; in the latter, firms couldn’t expand, modernise or even set up in the first place.

Some people say we should just tell the EU where to get off and ignore ‘their’ rules. However, these are our rules, constitutionally mandated through the Fiscal Treaty referendum. Further, to ignore the rules would be to invite retribution by the international markets, driving up the cost of investment.

In any event, the issue under the rules isn’t that we are prevented from spending. We are allowed a structural deficit of 0.5 percent. By 2021, the Government is targeting an actual surplus of 1 percent. Seems like a small difference but it amounts to an additional €4.8 billion potential fiscal space on a static basis.

The issue is we don’t have a reliable fiscal framework to plan out future priorities and ensure that our annual budgets work with the economy’s grain rather than against.

Without this risk volatile swings  – jumping from pump-priming to austerity, from boom to slumps. And accompanying those swings will be a debate where the loudest voices and most privileged interests will dominate.

So how do we proceed?

Dr. Fitzgerald has a suggestion:

‘Ireland might be better off without these particular rules, relying instead on the wisdom of ministers for finance, overseen by a critical media.’

Hmm. That seems a tad optimistic. We can’t measure our national output, or reliably count how many houses we are building, or calculate how much value-added our export sector actually produces. Wisdom needs evidence.

Let’s admit it – we’re in a fog. And when you’re in a fog, you turn on the high-beams and proceed slowly. We need a new fiscal framework, we need new measurements.

But until such time (and it will take some time) we need to measure best-case and worst-case scenarios. And in that space between the two we should assign resources to urgent investment priorities to support a productive economy.

Housing would be high up the list. So would urban public transport and renewable technologies as we face into an environmentally-problematic future to put mildly.

There are other priorities – hospital beds and childcare facilities. We don’t have much time until the next downswing or to take advantage of ultra-low interest rates.

Because, for example, if we enter into another slump – induced by Brexit or whatever – with high levels of homelessness and housing need, it will only get worse and even more expensive to repair on the other side of the cycle. And the roller-coaster ride will start all over again.

If you have a coin whereby heads you lose, tails you lose, you don’t keep flipping it. You get rid of it. And get another coin.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday

From top: Minister for Finance and Public Expenditure and Reform Paschal Donohoe launches Budget 2018 last November.; Michael Taft

Following an exchange of graphs on Twitter with Seamus Coffey (@seamuscoffey), chair of the Irish Advisory Fiscal Council, I did some looking around Eurostat’s Structural Earnings Survey database. This dataset focuses on employee earnings.

We can not only compare Irish wages to other EU countries, we can look into the ratio of high wages to low wages. The news isn’t particularly good. The following focuses on the business economy which can be used as a proxy for the private sector.

The SES comes out every four years so the data lags a bit but is still relevant.

Unlike the average wage, the median wage measures the mid-way point at which 50 percent earn above and 50 percent earn below (if we were to measure average the pattern would be pretty much the same).

We find that Ireland is well down table, above France and the UK. To reach the mean average of the other countries, the Irish median wage would have to increase by 8.6 percent, or nearly €3,200.

But not all employees rank towards the bottom.

The median wage in the first decile (the lowest 10 percent income earners) falls even further behind the mean average: the median wage would need a 22 percent increase to reach the average. However, in the 9th decile (the second highest income group), the Irish median wage is actually above the average (3 percent).

So not only is the Irish private sector median wage low, it is skewered against the lower-paid.
This results in a highly unequal situation, though not the most unequal among our EU peer group.

In terms of the ratio between the 9th and 1st decile, Ireland ranks 3rd from the bottom– ahead of the UK and Germany which comes in at the bottom (this should caution us about the alleged strong economic performance of Germany – it is built on precarious mini-jobs which now employs one-in-five employees).

Another concern is the rise in inequality.

In Ireland inequality jumped during the property boom period and has remained high since, significantly above the mean average of our peer group. The other EU countries remained on the whole relatively stable but this includes considerable increases in inequality in Germany and Netherlands.

The one downside to this data is that it doesn’t include employees’ full wage; in particular, the social wage.

This is the portion of a workers’ wage that the employer pays into the Social Insurance or similar fund.

From this fund, people can access free healthcare and enhanced pay-related in-work benefits (maternity benefit, illness benefit, etc.); that is, except in Ireland where the social wage is weak which results in low in-work benefits while forcing Irish workers to pay for goods and services on the private market which, in other countries, would be provided free or at below-market rates (e.g. GP care, prescription medicine, etc.).

Before we turn to tax and redistribution to reduce inequality let’s first consider policies at the workplace level since that is where inequality starts in the market economy.

A big instrument in fighting inequality is workers’ ability to bargain collectively with their employers. I have discussed this in some detail so I won’t go into details here.

But here’s this from the International Monetary Fund: which found that union membership and collective bargaining reduce economy-wide inequalities:

‘We find evidence that the erosion of labor market institutions is associated with the rise of income inequality . . . notably at the top of the income distribution . . . the decline in unionization is related to the rise of top income shares and less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall inequality.’

A quick look at the CSO’s analysis of the distributional impact of public sector wages (which are collectively bargained) and private sector wages (which are largely not) shows the former has a more egalitarian wage structure with much smaller gap between the top and bottom income scales.

And the great thing about a collective bargaining strategy to tackle market inequality is that it doesn’t have a financial cost, unlike social protection programmes such as Family Income Supplement which effectively subsidises low wages.

We should be concerned about wage inequality, the inefficiencies it brings to the market economy and the corrosive effect it has on social cohesion.

And we should translate that concern into giving men and women more power in the workplace. In this way, every workplace can start making a contribution to reducing inequality.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday

From top: Minister for Housing Eoghan Murphy and Taoiseach and Fine Gael leader Leo Varadkar at the launch of social housing units last November; Michael Taft

The National Homeless and Housing Coalition is holding a demonstration on Saturday, April 7 over the housing crisis. It has the support of dozens of organisations spanning civil society groups, trade unions and political parties.

To highlight the urgency of this issue and the importance of the march, I have expanded on some ‘quick facts’ published in Home Truths – a special newspaper being distributed nationally in advance of the march by supporters of the coalition.

1. Homelessness Rising

Homelessness has seen a steady rise since 2015, more than doubling. The last year saw an increase of over 1,900; this compares to an annual average increase of about 1,650 in the previous two years. Of the 9,100 homeless, nearly 3,300 are children.

These numbers only refer to people in emergency accommodation. The Housing Agency’s Summary of Social Housing Assessments 2017 shows nearly 20,500 households living with family or friends. And this doesn’t include people in the same circumstance but not on the housing list.

2. People on the Social Housing Waiting List

There are over 85,800 households on the social housing waiting list – nearly 200,000 adults and children. That’s a bad enough. But a look at some of the sub-categories illustrates the dismal realities of this fact:

Nearly 40 percent have been waiting for five years or more

Over 7,000 have a household member with a disability or exceptional medical condition

Nearly 18,800 are actually in employment

And there are 6,600 aged 60 years and over

3. Upward Pressure on Homelessness

Over 72,000 households are in residential mortgage arrears. Over two-thirds have been in arrears for 90 days or more. In addition, over 20 percent of employees are officially categorised as ‘low-paid’, while 13 percent at work live in deprived conditions. Evictions and inability to afford rent are now driving forces behind homelessness.

4. The Rise and Rise of Rents

According to, rents have increased by over 60 percent in the last five years. During this same period inflation rose by less than 1 percent. Rents are increasing by over 10 percent a year. Wages are only increasing by 2.5 percent. Every year, rents are moving further out of reach of low and average income groups.

Given that these are figures, they are asking rents. But this shows that new apartments coming on to the market are not going to make a contribution to reducing the level of rents or increasing the stock of affordable rental accommodation. And market analysts are projecting a 20 percent rise over the next two years. Excessive rent increases will be with us for a while.

5. Dublin Rents far Exceed Other EU Capitals

When compared to other EU capitals, Dublin is at the top of the rent league (only London is more expensive than Dublin). If you were renting in the city centres of Berlin, Amsterdam, Vienna or Brussels, you’d be paying €8,400 less per year to your landlord.

This shows the difference between managing market rents and, in the case of Ireland, not managing them.

(Note: the above data is taken from Numbeo, a user-generated site. This is not as accurate as a properly produced statistical survey. However, the National Competitiveness Council has started using this site, stating that ‘the scope and depth of the data gives this approach some merit’.)

6. Subsidies to the Private Rental Sector

In the last 12 years, the state has handed over €6.4 billion to private landlords and the private rental sector. Under current targets, the Government will be spending nearly a €1 billion a year by 2022. Question: is it more financially and socially efficient for the state to build and rent housing through a public agency (local authorities, public company, etc.), or to rent housing from the private sector?

7. Rising House Prices

The average new house price nationally is €330,000. In Dublin it is nearly €420,000.

House prices have yet to return to the stratospheric pre-crash levels. However, since house prices troughed in late 2012 / early 2013 (the above graph includes both new and second-hand), national prices have risen 69 percent in five years while Dublin prices rose by 76 percent. In the last year, prices have risen by 12 percent.

There are several contributors to prices: availability and price of land (and impact of land hoarding); availability and cost of credit; wages and incomes; desirability and viability of alternative housing tenures – in particular, rental accommodation.Supply of housing is only one factor in price and, at times, not the main or relevant factor as Mel Reynolds and Dr. Lorcan Sirr have pointed out.

8. Home Ownership Increasingly Out of Reach

In Dublin, a couple buying their first home will have to pay, on average, a deposit of over €40,000 and have a combined income of over €100,000. Currently, the average wage for workers is €38,000. For average-income employees, it is difficult to see how they can afford to buy a house in Dublin.

9. High Cost of Credit

It has been well-established that Irish mortgage interest rates are higher than in other EU countries. So, in addition to increasingly high house prices, were average income earners able to get to the purchase stage, they would find themselves paying high monthly mortgage costs.
Let’s do a stylised comparison with other EU countries – a €275,000 mortgage for 20 years at fixed rates.

Like rents, Irish monthly mortgage payments are higher than in other countries. There will be differences depending on length of mortgage and the mix of variable and fixed rates, but this stylised comparison is likely to hold across the range of option – especially as Irish interest rates are 3.7 percent while in many of the other countries they are below 2 percent.

We are still paying for the banking crisis.

10. Land Costs and Developers’ Margins Driving High Property Costs

There’s a housing cooperative in Ballymun – the Ó Cualann Cohousing Alliance – which is building houses for sale at prices that can come in well below (30 percent or more) market rates. How can they do this? First, the land is provided at heavily subsidised prices from the Dublin City Council – so land costs are reduced.

Secondly, they don’t have a developers’ margin (though the private companies that build the houses do so at profit). That’s the difference.

The’s Fact Check came up with a similar finding when asking whether it would be cheaper for the state to build houses.

What is driving high property prices?

The cost of land (which is being inflated given land-hoarding and the lack of market management) and developers’ profits.

The cost of land and developers’ margins can account for a third of the price of a home in Dublin.

Those are just a few reasons to march on April 7. But actually, there are hundreds of thousands of reasons to march – the vast number of people in housing need. These are the stake-holders in this march. Indeed, they are the only stakeholders.

I will be marching with them on April 7. Hopefully, you will too.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday

The ‘Housing is a Human Right’ march will be held on Saturday, April 7th at 1pm assembling at 1pm at the Garden of Remembrance, Parnell Square, Dublin 1.

From top: Housing Minister Eoghan Murphy; Michael Taft

The Department of Public Expenditure and Reform has produced a useful analysis of spending on housing; in particular, the rent subsidy schemes.

When we put this next to the targets in Rebuilding Housing – the Government’s housing strategy – we can see how endemic subsidies to the private rental sector are. This poses challenges to policy-makers and activists in overcoming the housing crisis.

The Department report charts expenditure on private rental subsidies and capital spending on housing which actually creates additional accommodation.

The chart shows a substantial fall in capital spending – from €1.5 billion in 2008 to €295 million in 2013, rising again to €695 million last year.

Subsidies to the private sector have also seen a rise since 2006, though slightly depressed following the crash.

In the years 2011 to 2016, private sector subsidies outstripped capital spending, though this situation was reversed last year. Between 2006 and 2017:

Capital spending totalled €9.1 billion

Private sector subsidies totalled €6.4 billion

This €6.4 billion is comprised of spending on four schemes: Housing Assistance Payment (HAP), Rent Supplement (RS), Rental Accommodation Scheme (RAS), and the Social Housing Current Expenditure Programme (SHCEP).

HAP has only been recently introduced and is intended to both replace long-term rent supplement programmes and allow recipients to work full-time. But it is already becoming a major spending item – rising from nil in 2012 to €158 million last year.

If we use a crude calculation – of dividing annual expenditure in 2016 by the number of households in receipt of subsidies – we find that the average spend per household is €5,600 with variations within the schemes.

The Department refers to the Housing Agency’s Value for Money analysis conducted in 2011. The Agency concluded that traditional social housing (local authority) fared poorly compared to the SHCEP and the RAS schemes.

In other words, the state received better value for money by effectively leasing from the private sector than by building and possessing its own housing stock.

However, this report is heavily caveated. The Housing Agency admits that the data is limited and the year that they used – 2008 – may not reflect more current trends. It called for a new study to be conducted. The Department echoed this request, claiming that times (and costs) had moved on.

Really moved on; the Housing Agency’s study used 2008 as their base year. The problem is that rents have risen dramatically, and so have state subsidies to the private sector. A couple of examples from the Department’s paper:

HAP expenditure (the Housing Agency didn’t assess HAP since it was introduced after their study) rose from €2,675 per recipient in 2015 to €3,500 the following year, a rise of nearly a third.

Rent Supplement rates increased by 16 percent in the two-year period from 2014 to 2016 in Dublin; in Cork and Kilkenny the rise was 11 and 13 percent respectively.

Any new study would have to factor this in but, further, it should also take into account not only quality but the macro-economic effect of expenditure on market-led rents (opportunity costs) and future capacity.

And capacity is a key question. Rebuilding Ireland puts a lot of store in the private rented sector’s ability to absorb an increasing number of state-subsidised tenancies.

The reliance on private sector subsidies will continue, although it will tail off somewhat as the building and acquisition programme increases.

But in this four-year period the Government expects to create 67,000 new tenancies in the private sector.

A real question is whether this is feasible – is there capacity in the private sector to provide this number?

A related – and important – question is to what extent this will squeeze supply for tenants who are not eligible for state schemes?

This reliance on the private sector is not confined to rental and leasing. State acquisitions for the social housing supply merely transfer tenure from the private to the public sector. They do not actually create additional housing. In this four-year period the state is targeting only 28,000 new builds.

Let’s face it – we have dug ourselves into a deep hole and even with the best will and policies, it will take a long time to get out. All the more reason that we should have the latest data and the most comprehensive analysis to ensure that policy achieves the optimal outcomes.

Subsidies to the private sector will be with us for a long time. Already, 15 percent of households are in state-supported housing. Therefore, it is necessary that we have the right policies to ensure quality and security for tenants, affordability for the state and no downsides for others looking for rental accommodation.

The question that needs urgent debating, buttressed by quality evidence, is whether the reliance on the currently designed subsidies to the private rented sector passes those tests.

A better route might be to escape the idea of social housing as ‘for the poor’ as distinct to a private rental sector for everyone else; especially as the private rental sector is already heavily subsidised.

We should seriously look at the Nevin Economic Research Institute’s cost-rental model which breaks down this distinction and offers up rental accommodation for all tenants regardless of income or employment status.

Ultimately, there would be no ‘public’ vs ‘private’. There would be a single rental market – providing quality accommodation at affordable rents.

That would be the best value-for-money outcome.

Michael Taft is an economic analyst and author of the political economy blog, Notes on the Front.

From top; cycle courier in Dublin; Michael Taft

Precarious working is rising, pervading a number sectors: hospitality, retail, construction, financial, education (including childcare) and health. A major difficulty, though, is that there is no official or agreed definition.

There is no one set of measurements that captures precariousness.

We sometimes use short-hand data such as under-employment –people working part-time but looking for more hours or a full-time job. Or those on uncertain working hour contracts. These are aspects of precarious working but do not tell the full story.

To overcome this, the EU Commission’s Precarious Employment in Europe uses the concept of ‘at-risk of precariousness’. They first identify the risks:

Low-pay and in-work poverty

Lack of certainty over hours worked

Lack of access to social security / insurance benefits such as unemployment or illness benefit

Lack of employment rights such as holiday pay

Lack of right to collective bargaining

Lack of career progression, career development, in-work training

Stress and negative health impacts

This list covers a number of precarious situations based on income, workplace rights, social security, career and health-related issues. The EU Commission then ranks various employment contracts by their potential risk.


Standard open-ended contracts – whether full-time or part-time – are not without risk of precariousness but they are at the lower end. The highest at-risk contracts are, unsurprisingly, temporary agency work, posted work, zero-hour contracts and black market work.

All work that is ‘atypical’ (that is, not full-time standard contracts) is subject to levels of unacceptable risk. And atypical work is growing.

Four in every 10 workers are in medium to high risk categories. Of course, this doesn’t mean that all ‘atypical’ workers are at risk. High-income, professional self-employed and many fixed-term contract workers would not be subject to risk. Nonetheless, if we are to find precariousness, we’ll find it in atypical work.

Obviously no single measurement can encompass all this and provide a bottom line number. We can, though, measure some aspects of precariousness.

Part-Time Involuntary employment: Those who are involuntarily employed part-time (when they would rather be employed full-time or with more hours) stood at 23.7 percent of all part-time workers in 2009. This rose to over 40 percent by 2012 as would be expected during a recession. Since then it has fallen back 31.5 percent but still remains above pre-crash levels.

Temporary Agency Workers: A small category, it has increased during the recession and afterwards. In 2009 only 0.7 percent of workers were employed in this category. By 2016 this has nearly doubled to 1.3 percent with a continuous upward trend.

Temporary or Fixed-Term Contracts: In 2009, 8.8 percent of employees were on fixed-term contracts. This rose to over 10 percent during the recession but has fallen back to 8.2 percent.
These measurements show a mixed-bag. And some high-risk categories are not measurable such as bogus self-employment.

ESRI’s Elish Kelly and Alan Barrett, writing in the Economic and Social Review, studied the trend in atypical contracts and expressed concern at the:

‘ . . . apparent persistence of the increased likelihood of atypical work in the recovery, albeit to a weakening degree. Before drawing any strong conclusions, we should note that the timeframe we are using is short and so we certainly cannot conclude that Ireland is in a new phase where atypical work is more likely. Nevertheless, the results raise the possibility that economic recovery will not, of itself, lead to more full-time and permanent jobs.’

Whether we will fall back to pre-crash norms or enter into a new phase of increasing atypical contracts is still not settled.

If measuring precariousness is difficult, resolving it is even more so and not amenable to a magic bullet.

The problems faced by low-hour contract workers are different from temporary agency workers are different from bogus self-employed.

Each situation requires specific tools and, as the Irish Human Rights and Equality Commission shows, the resolution can be quite complex with potential for perverse consequences (in this case, the Government’s legislation on ‘if-and-when’ contracts and banded hours).

A Floor of Social Rights

So how can we establish a framework that can tackle precariousness while acknowledging the complexity of the different solutions?

A EU Commission study came up with a provocative proposal: a Social Rights Floor. This would take all the social rights currently enjoyed by those on open-ended contracts and assess the degree to which those rights are applicable to those on atypical contracts.

This would include many of the risks outlined above by the EU Commission (social security, workplace rights, etc.).The fight against precariousness shouldn’t be reduced to legislation over employment contracts.

There are two other key ingredients:

Sectoral collective bargaining: each sector has particular issues which could be addressed by employers and employees collectively to ensure the remedy is robust and universally applicable. This not intended to replace a legislative floor but the fact is that banded hours negotiated collectively in the retail sector are more secure than what the Government is proposing. And if one were to look at the legislative protection for atypical workers in Denmark, you might think it quite weak. However, precariousness is tackled through sectoral collective bargaining and the result is much stronger protection.

Fiscal policy: I have written in the past about the idea of transforming personal tax credits into a partial Basic Income or Participation Income. This would only benefit workers whose income is below the income tax threshold. It wouldn’t be a handsome amount at first (approximately €300 per month) but it would establish an income floor that could be raised in the future.

Floors for Social Rights and income will become ever more a necessity in the future. The oncoming automation, AI and robot revolution could generate even more workers on atypical contracts.

The challenge will be to ensure that, regardless of your employment contract, you will enjoy the full range of Social Rights, that you will have an income floor, that you will have access to training and re-skilling (through enhanced labour market interventions) and, so, greater career progression.

In other words, you will be protected from precariousness.

Michael Taft is an economic analyst and author of the political economy blog, Notes on the Front.

From top:Taoiseach Leo Varadkar with Minister for Children and Youth Affairs Dr Katherine Zappone; Last Sunday’s Sunday Independent; Michael Taft

The Sunday Independent devoted three pages to the escalating cost of childcare. This was based on a Departmental document made available to the paper, along with a new Eurostat study and an analysis of childcare affordability from Ciaran Nugent of the Nevin Economic Research Institute. It tells the same story that I canvassed late last year – that rising childcare fees are cancelling out a substantial portion of the new €20 per week subsidy.

I don’t intend to go over the arguments first made in this post written when the new scheme was announced. However, I will restate the main point: as long as childcare services are run on a stand-alone basis – whereby each provider must raise enough money (primarily from parents) to meet their costs – affordability will be elusive.

Any attempts to subsidise the service will lead to fees inflation as services seek to increase investment with the additional payment – as is happening now.

Here I’d like to outline an alternative programme of affordable and quality childcare, working from where we are now. Ideally, childcare services should be a public sector activity as it is in other countries where municipal services play a lead role. However, public sector intervention is not likely in the short-term. We need to work with the 3,700 services currently providing early years’ service.

Each service would be invited to participate in a national network operated by a dedicated public agency. This agency would oversee the quality of each service and provide general operational guidelines, allowing for flexibility so that services can match local needs.

The key incentive to participate in this network is that the agency – funded through the Department of Children and Youth Services – would directly pay employees’ wages and social insurance costs. This could dramatically reduce fees.

According to the detailed 2007 Deloitte study of childcare costs (a bit out of date but the proportion of costs should remain the same), employee compensation makes up 67 percent of childcare expenditure. This shouldn’t be surprising – caring for children is very labour-intensive. If the public agency takes over this cost, this would reduce childcare fees by two thirds.

On average, childcare fees would fall from an average of €179 per week to €58 per week, saving parents €525 per month.

That savings would be a real benefit to families’ living standards, increase women’s participation in the workforce and boost consumer spending in other non-childcare businesses: win, win, win.

Taking over employee compensation would remove the main upward pressure on childcare fees. Services need to pay higher wages to reduce staff turnover (which is approximately 30 percent resulting in high recruitment and training costs) and attract higher-skilled people.

Workers in the sector would be able to negotiate collectively with the agency – covering not only their wages, but their working conditions (full-time contracts, up-skilling, pensions, etc.).

In other words, we could start to professionalise the sector.

The cost would not be as much as might be imagined. Using the recent Pobal survey of the Early Child Services sector we find there are 23,000 employees in the sector, half of which are full-time. If we assume 20,000 full-time equivalents (this is probably on the high side but let’s try to find the highest possible cost) at the average hourly pay of €11.93 the cost to the new public agency would be €484 million. If we immediately increased pay by 20 percent across the board, the cost would rise to €580 million.

Though this is just a back-of-an-excel-sheet estimate, the gross cost would replace a significant amount of current expenditure which, in 2016, amounted to approximately €225 million for the full Early Childhood Care and Education programme. The net cost, therefore, would be less. This would still leave Ireland well down the table in public spending compared to other EU countries.

Is childcare affordability affordable?

Even if we were to take €580 million as the final cost, we could easily fund this out of the current fiscal space.

The Government projects it will have €10 billion available over the next three years, of which €3.3 billion is earmarked for tax reductions.

The proposed cost would make up less than 18 percent of the proposed tax cuts. Wouldn’t this be a better use of limited resources?

There are a number of issues that would still need to be teased out:

1) Would for-profit services be admitted to this network (granting as a subsidy to private profits)

2) Would there be provision for capita payments – similar to primary schools

3) Would the public agency or local authorities be enabled to provide childcare services directly in areas of low supply

These and other issues would need to be addressed but locating these within a public sector-led national network makes it easier to deal with affordability, quality, supply and access.
We have the need, we have the resources. But the first – and main – decision we need to make is political.

Michael Taft is an economic analyst and author of the political economy blog, Notes on the Front.


From top: AIB and Permanent tsb remain in state hands;; Michael Taft

It is curious how little debate there has been regarding Ireland’s banking system (apart from being scandalised by continuous scandals).

The bank guarantee was brought in practically overnight while the Dáil debate over the nationalisation of Anglo-Irish took only six hours.

On the other side of the crisis there has been little debate over the privatisation of AIB and Permanent TSB. It seems that, when it comes to banking, we proceed by reflex.

Well, it’s not too late to start that debate. And it’s not too late to champion the cause of public banking. What are the advantages of public banking?

First, while operating in a competitive commercially environment, it is not bound by short-term shareholder value. This frees the bank to engage in longer-term lending with patient capital.

Second, it can be rooted more locally with a mandate to lend into the productive economy – businesses and households; steering away from property and financial products.

Third, through decentralisation it can engage in relationship-based lending based on knowledge of local markets and individual borrowers (advantaging SMEs), compared to transactional-based lending with its centralised and near-algorithmic approach.

Fourth, public banks can be more amenable to political scrutiny and public accountability. A case in point is the current debate over the sale of mortgages to vulture funds.

Fifth and most importantly, would be its governance. The New Economics Foundation has proposed a trustee-based model to transform RBS into a local public bank. It would look like this…

The Board of Trustees – made up of employee, public appointees, and business and consumer representatives -would be responsible for overall policy while the Management Board would be charged with day-to-day implementation of that policy.

There are other potential positives:

A public bank could be regionally based focussing on activities in the province they serve (e.g. Munster, Connaught). However, even within the province the banks could be branded in a way to show their commitment to the local areas (e.g. Bank of Kerry, Bank of Offaly, etc.).

The Central Bank has acknowledged continuing problems with ‘banking culture’ and if this 18th century pamphlet – Observations on, and a Short History of Irish Banks and Bankers – highlighted by Diarmaid Ferriter is anything to go by this is a long-term, probably endemic issue.

‘ . . . the abuse of the public confidence by bankers . . . the fatal calamities which have befallen this kingdom by the abuses of private banking . . . is there an evil, which can arise from the monopoly of money, which they have not produced? And how partial the little good which the community has reaped from them . . . the public can never rely upon the fidelity of bankers under the present regulations’.

Regulation can go far, but only so far. A public bank can provide competition with private banks on many grounds; in particular, ‘culture’, emphasising customer relations and service.

A re-investment in regions and communities could be undertaken by opening up branches – but doing so in imaginative ways. These branches could be one-stop shops housing post-offices, credit unions, MABS advisory centres, etc. This could be combined with community out-reach programmes such as local financial-education initiatives.

To provide for democratic input, customers could elect their consumer representatives on the Board of Trustees through postal ballots. With public banking there is any number of initiatives and practices that could be considered to democratise this space.

Some would point out that we have had two banks under public ownership for years and nothing on this scale has emerged. That is true but the state, while ‘owning’ the banks, never acted like an owner.

The state acted more like a concierge, opening the door and tipping their cap to any investor who happened to wander in. T

he day after these banks were brought into public ownership, the state plotted to get rid of them. We had public ownership but not public banking.

As to whether AIB or Permanent tsb should be the public bank of choice needs to be discussed. AIB might be a better fit given its size and reach throughout the country.

Or it may be decided that a smaller option – with the ability to grow – would be preferable; thus Permanent tsb. There are pluses and minuses with both; for instance, both banks have high levels of non-performing loans, but Permanent tsb’s profile is higher.

In both cases, consideration would have to be given to buying back the shares sold to private investors. This would be an upfront cost but one that could be paid for by removing the banks’ ability to carry forward losses and write them off their tax bills. This is another dubious cash subsidy to banks which are directly responsible for their own losses.

There is one more objection: if either bank remains in public hands, how would we recoup the bank bail-out subsidies which, in the case of AIB, is considerable (approximately €10 billion is still outstanding)? There are two responses:

First, one may recoup the full-cost of the bail-out but there may be a bigger long-term price; namely, that selling the bank back to the same class of investors imbued with a short-termist perspective, the wider economic benefits would be lower than a public bank. That we cannot immediately monetise that difference doesn’t mean it wouldn’t have a real, negative impact.

Second, the public bank would still be required to pay back the bail-out subsidies but over a longer-term, with the repayment constituting a type of ‘bail-out dividend’.

None of this is straight-forward nor open to easy answers. That is why we need a full and detailed debate. Let’s have the Oireachtas hearings, let’s examine models that work in Europe and the US. If there is an argument that privatising the two banks can still meet the goals of a public bank, let’s give it consideration.

The Left should not be silent on this or let the issue pass by default. If we’re talking about an economics of recovery, public banking could be a crucial element in that.

But most of all, let’s have the debate. For once the two public-owned banks are privatised, it will be even more difficult to argue the case for, never mind introduce, public banking.

Michael Taft is an economic analyst and author of the political economy blog, Notes on the Front.