Tag Archives: taft on tuesday

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.


From top: Taoiseach Leo Varadkar and Fianna Fáil leader Michael Martin; Michael Taft

The two conservative parties – particularly, Fine Gael – are increasing their grip on Irish politics. Three polls in January – Red C, Ipsos MRBI and Behaviour & Attitudes – show a resurgent Fine Gael led by an increasingly popular Taoiseach.

While Fianna Fail is struggling to build on its 2016 result, Fine Gael is racing ahead. Combined, the two conservative parties are approaching 60 percent and this doesn’t count the Independent Alliance and the conservative (gene-pool) independents.

In Dr. Adrian Kavanagh’s vote-to-seats model, Fine Gael’s performance is even stronger. While this is only a model, Dr. Kavanagh projects that the three polls could result in Fine Gael winning up to 70 seats, or 44 percent of Dail seats.

At this level, Fine Gael is knocking on the door of single-party government, even if they have to rely on outside independent votes.

Again, in Dr. Kavanagh’s model, the two parties combined could dominate the next Dail, with a combined 117 seats, or 74 percent.

For progressives, the story is one of stagnation at best.

While Sinn Féin sees an increase (with a possible future boost by its new leader, Mary Lou McDonald), this is cancelled out by the decline of other progressive parties, leaving the combined vote slightly below the 2016 election result which, for progressives, was itself a disappointment.

Unfortunately, Dr. Kavanagh doesn’t have the full seat projections for all these parties. Sinn Fein sees, on average, an increase of three seats while the other parties will be lucky to hold on to what they have.

So why is Irish conservatism doing so well, while progressives are treading water? One reason is that Fine Gael has been able to sell a twin-message of ‘change’ and ‘stability’ with a bit of ‘radical centre’ thrown into the mix. Is this just vacuous branding?

Over the last three years there are 155,000 more people at work – an increase of 10 percent. Unemployment has fallen from nearly 12 percent to just over 6 percent – a decline of over 100,000 people on the dole.

Someone on the average wage will have received an increase in take-home pay of over €1,700 annually in pay increases and tax cuts (on average).

Deprivation rates are falling, severe arrears are falling, public sector pay is being restored: after the roller-coaster of crash, recession and austerity things are settling down for many people.

This can be seen from Eurobarometer’s poll surveying people’s trust in their national government.

Prior to the crash, a substantial proportion of the population ‘tended to trust’ the Government – 41 percent. Shortly after the crash this figure dropped to 20 percent.

Now, however, trust is returning to pre-crash levels. It is reasonable to assume this is related to people’s perception of the economy and their own financial and social circumstances.

But another reason screams out: there is no alternative. Progressives don’t currently constitute an alternative capable of governing or significantly influencing the debate.

It would be interesting to poll public perceptions of the Left’s economic policy.

I suspect that, beyond taxing the rich, redistributing income and spending more on public services, people would struggle. Not surprisingly – the broad Left lacks a common economic narrative even as it makes sensible demands.

And for many progressives, this is compounded by a vocabulary rooted in anti-austerity protest that is increasingly disconnected to growing numbers in this period of recovery.

This is all the more frustrating given the evidence of people’s re-emerging progressive instincts, whether that is evidenced by support for public services and capital investment rather than tax cuts, concerns over both economic and political inequality, frustrations over the conduct of banks (tracker-mortgages) and low-road employers. Just as the winds are starting to blow in our favour we have no sail to put up.

How do we start addressing this?

We, first, need to construct an ‘economics of recovery’ rooted in the world of work that can directly connect to people’s workplace experience.

People want a voice in the workplace –about wages and working conditions; people want social security – when they become ill, or are starting a family, retire, in need of housing or healthcare, or are between jobs; and people want income certainty and an end to precarious working hours and intermittent pay.

These are three strong starting points for an ascendant progressive politics, connecting to the Taoiseach’s ‘early risers’ or, in more old fashioned language, the working class.

Secondly, we need to develop a politics of common sense, a way of formulating and presenting issues that capture the debate. This common sense can emerge out of a sense of decency (shouldn’t wages at least guarantee that people don’t live in poverty – hence, a Living Wage); out of what’s fair (people’s health care shouldn’t be dependent on income – hence, free healthcare); or out of logic (doesn’t it make sense to rent or sell homes at cost – hence, cost-rental and cost-purchase).

Of course, we have to show how common-sense policies can be delivered. Not only are there economic constraints, and institutional and cultural inertia; there are powerful interests who can portray such policies as utopian or simplistic, in order to maintain their economic status.

Third, we need a practice of cooperation to make all this work. This requires maximum progressive cooperation; not only between broad left parties, but with civil society organisations and the trade union movement (what Conor McCabe has described as a ‘commonwealth of civil society and trade unions working in tandem with a progressive political sphere’).

If the broad Left is to provide leadership in the debate, it must start in its own backyard. And, quite simply, leaders bring people together, unite, and give everyone a stake in the endeavour.

Apart from the Coalition to Repeal the 8th Amendment – the lead example of cooperative work – there is the National Homeless and Housing Coalition; a body composed of all the broad Left parties, a number of trade unions and – most critically – civil society groups who work in the areas of housing need.

They have developed a common sense programme to address the housing crisis and are planning a major demonstration on April 7th in Dublin.

This is a crucial development – not just because it aims to keep the housing crisis high up the agenda – but because, through it, progressives can establish themselves as the principle alternative to current Government policies. In effect, Fianna Fail has opted out of the housing debate since it still clings to the old, and discredited, policies of developer-led tax breaks.

This process of cooperation and a common programme, becoming the principle alternative to the Government – this is why the march on April 7th is so important. If it is a success then this kind of cooperation of the commonwealth can start to become a habit – the first step to becoming a major political and social force.

There are no short-cuts; there is no recipe to take down from the shelf. An economics of recovery, a common-sense politics, the practice of cooperation – this doesn’t guarantee success. But one thing is clear – if we continue the way we are, we shouldn’t expect history to bail us out.

Change is certain, yes; but progress is not.

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

From top: 3d rendering of humanoid robots working with headsets and monitors; Michael Taft

Will the age of automation, AI (artificial intelligence), and robots produce a utopian or dystopian future; or, which is more likely, a bit of both.

This discussion will continue for a long time. However, we must start debating how we will deal with these inevitable changes even if we can’t accurately predict their future impact. And do so without falling into the twin-traps of over optimism and apocalyptic pessimism.

An example of the latter was this study that produced a mini-panic – suggesting that nearly 50 percent of all US employment was at risk of automation (that was the headline panic; the report’s details are more nuanced). Nonetheless:

…Our model predicts that most workers in transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are at risk.

More surprisingly, we find that a substantial share of employment in service occupations, where most US job growth has occurred over the past decades, are highly susceptible to computerisation.

This was quickly countered by a McKinsey Report which stated that only 5 percent of employment would be lost. The difference lay in how they measured the impact – will it fully replace a workers’ job, or most of it, or part of it?

The difference between fully or partially replacing a particular job is crucial to understanding the impact.

The McKinsey Report produced a useful projection based on assessing the automation potential in particular sectors.

The sectors with the highest automation potential, according to McKinsey, are hospitality, manufacturing, transportation, agriculture and retail. Those with the lowest are education, health, information and management.

According to this summary:

‘Almost every occupation that McKinsey looked at had some aspect that could be automated. Even 25% of tasks inside of a CEO job, the analysis found, could be automated. But very few jobs could be entirely automated. McKinsey’s conclusion was not that machines will take all of these jobs, but rather, “more occupations will change than will be automated away.”

So our jobs may not be fully eliminated, but they may be significantly changed.

Some proposals have been put forward to deal with the oncoming Robot invasion. A Robot tax has been mooted, with revenue going to a fund to be distributed to households. Yanis Varoufakis suggests that such a tax wouldn’t be workable. In any event, is it a good idea to tax an investment that can result in greater efficiency and higher productivity?

Others have proposed a Basic Income. There may be a number of good arguments for Basic Income (and there are) but dealing with technological change is not one of them. This could result in fewer people at work having to fund more people not in formal work, with less demand contributing to economic growth.

Still others put great store by education and re-skilling. This is something we should be doing in any event. But this assumes that there will be a growth in employment arising from automation. If there isn’t, what are we training people for – except to increase competition for employment which could drive down wages?

These observations aren’t the last word, merely the first. There are many who would argue that radical technological change is nothing new, that we have lived through these periods before.

They further argue that the reduction in costs will lead to a higher volume of demand for other goods and services, and that the increased productivity will increase net wages. There is much that is potentially true here. The problem is we can’t predict a future that is coming so fast at us.

Here are three proposals that could also help inform the debate.

First, reduce working hours. I have discussed this here. We should be considering this regardless of automation. This is a work/life balance issue which can be negotiated along with wages. If there are fewer hours needed to work due to robots increasing productivity, why not share that benefit out – especially in those sectors most exposed to automation.

Second, future public policy should raise the proportion of employment in health and education – areas where governments have considerable influence through the public sector. There is a long-time rise in such employment.

Prior to the crash, nearly one-in-five in the EU-15 were employed in the health and education sectors. In Ireland it was less but in both instances, there have been substantial increases since 1970.

We know that health employment will rise given the aging demographic. And if we want to invest in education and re-skilling, there will be a need for education employment. These two sectors are the least susceptible to automation.

Third, with the potential of jobs being lost, or downsized and down-skilled, or being transformed into precarious work practices, we should ask: where is the worker’s voice in all this?

If we let ‘market forces’ do their business, with governments trying to play catch-up and plug social holes, we could be in for a debilitating time. That is why the law should vindicate workers’ rights to collective bargaining in order to negotiate the introduction of these changes – whether reduced working hours, higher wages and/or social benefits, or re-training programmes.

Since people will be most affected, they should have equal say in how this is all done.

There are any number of strategies to be canvassed, discussed and argued over. And they all beg more questions. For instance, a policy of increasing education and health employment through the public sector would require that a greater amount of the value uplift of robots be captured by the state. Is this best done through higher corporation tax or equity in those high-tech companies receiving the inevitable public subsidies?

But at least let’s start that discussion now. The last thing we need is to leave the resolution of the problem until after the problem has collapsed the economy – just like what happened in the years leading up to the property boom crash.

Because next time the robots may not be able to put the pieces back together.

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

Top pic: Getty

From top: the 11th floor of the Google HQ in Dublin; Michael Taft

As part of a drive to bring a little bit of democratic accountability over multi-nationals, the EU Commission is proposing that multi-national country-by-country reporting be made public.

This refers to the process by which large multi-nationals are required to report in what countries they derive their profits from and pay their taxes in.

In the future, large companies will be required to provide this information to the national tax authorities in the EU. The question the EU Commission is posing is whether this information should be made public.

Unsurprisingly, a number of interest groups are opposed to public disclosure, according to Ian Guider writing in the Sunday Business Post (paywall). In its submission to the Department of Finance, Ibec warned:

‘It is difficult to envisage how public trust could be engendered through this system (making country-by-country reporting public) or how debate could be better informed by publication of confidential information.’

This is curious reasoning. Experience suggests that public trust is ‘engendered’ through transparency; it is secrecy that undermines confidence. Second, debate is better informed with full information; it is degraded and open to manipulation in the absence of information.

Deloitte employs a more interesting reason not to make this information public. According to Guider, Deloitte claimed that:

‘ . . . revealing it (country-by-country profit and tax information) could lead to [companies] becoming targets of audits’.’

Well, this information will already be provided to tax authorities so if there is something amiss, an audit would (or should) result, even without making the information public. In any event, companies shouldn’t worry – if they are tax-compliant.

Returning to Ibec’s concerns, there is one argument that is really strange. Referring to the prospect of companies having to reveal where they are operating:

‘Companies in sectors such as pharma and medical devices where site information is highly guarded, even within company groups, would be put at a disadvantage.’

I can understand occupying military empires preferring not to reveal the location of their bases (the natives might start taking pot shots at them), but to equate company location information to state secrets is somewhat extreme. In any event, competitors and tax authorities can easily access this site information through industrial detectives.

Of course, when all arguments fail, fall back on the ‘it-will-deter-foreign-investment’. Make country-by-reporting public and Ireland will lose out on foreign investment (the corollary is that secrecy is a sustainable investment policy).

But is this unsubstantiated assertion true? Let’s look at one public country-by-country reporting process that is already in place and see what lessons can be drawn.

Since 2015 all EU banks have been required to publish country-by-country data –and this information is public. Oxfam undertook an examination of the top 20 EU banks using this public data: ‘Opening the Vaults’. They found:

The 20 biggest European banks register around one in every four euros of their profits in tax havens, an estimated total of €25 billion in 2015.

These European banks made profits of €4.9 billion in Luxembourg – more than they did in the UK, Sweden and Germany combined.

Barclays, the fifth biggest European bank, registered €557 million of its profits in Luxembourg and paid €1 million in taxes in 2015 – an effective tax rate of less than 0.2 percent.

European banks did not pay a single euro of tax on €383 million of profit made in smaller tax havens.

A number of banks are registering losses in countries where they operate. Deutsche Bank, for example, registered a loss in Germany while booking profits of €1.9 billion in tax havens.

Low levels of profit in countries that are not tax havens translate into low tax revenues for those countries. For instance, Indonesia and Monaco have a similar level of economic activity by European banks, but the banks make 10 times more profit in Monaco than they do in Indonesia. Such gaps can hardly be explained on the basis of ‘real’ economic activity.

In the Oxfam report, Ireland features prominently as a destination for potential profit-shifting (that is, profits generated in other countries but booked in Ireland to take advantage of the accommodative tax regime). This is why Oxfam refers to Ireland as a potential tax haven or, at least, a tax haven facilitator.

The questions here are: has this country-by-country information helped inform the debate? Has this publicly available information led to a withdrawal of foreign direct investment? Has this public data led to tax audits? The answers are yes, no, and hopefully.

None of these tax avoidance activities – and their interaction with Ireland – appear to be illegal. But that is the problem. If it was illegal it could be closed down. The purpose of open information is to stimulate a debate over what should be legal and what shouldn’t be. The EU Commission proposal is the first step towards starting this conversation

. The purpose of Ibec’s and Deloitte’s submission – as reported in the Sunday Business Post – is to close down that conversation.

And there is no better way to lose trust and confidence in the system than to keep vital information secret. So let’s open the books. Let’s have that debate – in Ireland, Europe and throughout the world; wherever multi-nationals operate.

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


‘Austerity dug us into a deep hole which the recovery has yet to lift us out,’ says Michael Taft (above)

There’s been a lot of commentary so far on the 10th anniversary of the Great Recession: jobs, income, consumer spending, growth. One aspect that has been over-looked, however, is public expenditure.

Following the crash public spending – investment, public services, social protection – were all cut with bank-bailouts being the very big exception. Starting in 2014, public spending started to rise but it has not returned to pre-crash levels. We are still in a public spending recession.

The following measures primary public spending per capita (i.e. excluding interest payments) factoring in inflation. Of course, nothing is simple with Ireland’s national accounts.

While public spending – excluding the once-off bank bailouts – and population data are relatively straight-forward, inflation is not. 2015 was the year of the Leprechaun, so named by economist Paul Krugman when Ireland logged a massive 26 percent increase in GDP due to methodological changes.

In 2015, economy-wide inflation was recorded as increasing by 7 percent which is not a reflection of the true situation.

So, I have done a ‘Leprechaun-adjustment’, inserting consumer inflation in 2015 which was less than 1 percent.

In 2008, public spending per capita slightly exceeded €15,500. Within five years, this was cut to €13,700, or 12 percent. Since the trough in 2013, public spending has been on the rise.

However, in 2018 it will only reach €14,000. And according to the Government’s own projections, it will still be below pre-crash levels by 2021.

On current trends, we won’t exceed pre-crash levels until 2023 – 15 years after the start of the Great Recession.

Some will argue that 2008 levels of spending were unsustainable and there is some truth in this. Back then we had gone through a decade of cutting taxes and increasing public spending, relying on revenue from a credit-fuelled property-speculation bubble. It was always going to end in tears.

However, we are still living with austerity’s hangover – repairing the social damage caused by irrational austerity measures while privileging financial creditors over the productive economy: think housing crisis, hospital waiting lists, high levels of deprivation.

Austerity dug us into a deep hole which the recovery has yet to lift us out of. And on the Government’s own projections the pace of public spending could start to ease.

Under current projections 2018 will see the biggest increase since public spending started rising, tailing off by 2021. However, these are just projections contained in Budget 2018. The Taoiseach hints that tax cuts may not proceed to the same extent as they previously hoped (in the three years 2019 to 2021 the government intends to cut taxes by €1.8 billion).

This could be a recognition that under current projections, public spending may not be able to keep up with the combination of rising inflation, the elderly cohort and expectations. If more of the fiscal space is assigned to public spending, then we could exit the public spending recession earlier.

But as of now, our public spending is below the level when we entered into the recession. And there are a number of road hazards ahead.

We may be basing even our current depressed levels of spending on a corporate tax-revenue bubble. What happens to future budgets when that balloon is untied?

Then there’s Brexit and the danger of decreased revenue and increased unemployment payments if the economy is hit.

And don’t forget the prospect of future interest rate increases (at the end of this year? in the middle of next?) and the depressing effect this will have on consumer spending as people pay more for property and less on goods and services in the productive economy.

A slow-down will no doubt elicit calls to ‘control’ spending as part of that ol’ fiscal consolidation dance that exhausted us only a few years ago.

Let’s admit it – Ireland doesn’t do macro-economic stability very well. After years of pro-cyclical fiscal policy prior to the crash (fuelling a property-bubble), followed by more pro-cyclical years following the crash (fuelling the recession), we may be looking into another roller-coaster ride – though probably, hopefully, not to the same extremes.

What party or alliance of parties will rid of us this turbulent binge-and-purge cycle while promoting economic efficiency and social prosperity?

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


From top: Fine Gael Minister for Housing, Planning and Local Government Eoghan Murphy during a press conference on the publication of the 2017 housing delivery figures in the Government Press Centre yesterday; Michael Taft

Is the Government going to introduce an affordable housing scheme? There are reports they will do so. One of the problems is how do we define affordability?

Deputy Eoin Ó Broin’s criticism of the Taoiseach’s reference to €310,000 as being affordable was correct. But with new accommodation units in Dublin exceeding €400,000, how can we afford ‘affordable’ homes without massive producer or consumer subsidies which rarely have the desired effect and can lead to ever spiraling prices?

There’s a legitimate desire to own a home (the security, the autonomy), even as the prospect is further away for a growing segments of the population. Is there a progressive way to promote home ownership alongside affordable rental and social models? Yes, if we do it in a non-speculative way.

Limited equity housing allows more people to ‘own’ their home without turning the house into a speculative asset. It is similar to the Nevin Economic Research Institute’s cost-rental model, except that equity is purchased.

Here’s how it works:

Sarah buys a limited equity house. She pays 50 percent of the price of the house through a mortgage (or cash). She also makes a second payment – which covers the capital costs of the other 50 percent which is held by a public housing association or other public body.

In all respects, Sarah is the owner. She is responsible for the payments, property tax, repairs, maintenance, etc. She can undertake any improvements she wants (within planning rules), just like a home-owner.

The first difference is this: she cannot rent it out it out to a third party. She cannot use the house as a revenue-generating asset.

The second difference: if she wants to sell it she can only sell it back to the housing association. She will get her equity back plus any costs that improve the value of the house (an attic conversion, etc.). In other words, she cannot ‘play the market’ when selling her house.

However, there are provisions, as Michelle Norris (Head of the school of Social Policy, Social Work and Social Justice at UCD) points out, where Sarah could sell on to a third party – but under the same restrictions.

In effect, a house becomes an item of consumption (that is, it is used as a home); it is not allowed to be an asset to be speculated on.

Another important point is that the house be procured by the public housing association or other public body. This keeps prices low as the Minister recently told the Dáil.

The all-in costs include normal site works and site development, land cost, professional fees, utility connections, site investigations/surveys, archaeology where appropriate, VAT and contribution to public art. It is probably the case – though it’s not stated in the Parliamentary reply – that Dublin prices will be higher, with the rest of the country lower.

Therefore, if the state makes a capital grant of 25 percent towards the building cost, Sarah may find that her mortgage (after a 10 percent deposit) is less than €65,000.

Once Sarah pays off her mortgage, she continues with her second payment. If she sells, she gets back her equity payments (inflation-indexed) and the cost of any improvements.

This is a simplistic summary and, no doubt, there are other considerations (e.g. a small insurance payment for payment defaults). But this makes home-ownership feasible, reducing the amount of savings needed to take out a mortgage, and the monthly payments.

In effect, this complements NERI’s cost-rental with a cost-purchase home ownership model.
This is not intended to replace traditional home-purchases. However, it is intended to provide another model for housing, another choice – as part of a drive to create a systemic pluralist housing system. It is also intended to provide more social or non-profit, non-speculative models.

This plurality can help make the entire system more efficient and affordable. For instance, under NERI’s cost-rental model, it would not be necessary to replace private rental. However, a few thousand units in Dublin would help drive up the vacancy rate.

When this happens, the upward pressures in the private rental sector would ease, rents would stabilise and hopefully fall in real terms in the years ahead. This same process would happen with more social housing– transferring tenants from the private sector to the social sector, thus driving up the vacancy rate. A similar process could develop with the home purchase market if a limited equity was rolled out.

If one insists on seeing this in market terms, then what we need is greater competition with the state stepping in to provide that competition. If cost-rental and cost-purchase took off, private providers would have to up their game – in terms of quality, tenant security and affordability.

All it takes is for policy-makers to break from their ‘residual sector’ mind-set – whereby social housing is for the poor while it is the private sector (with a little/lot of help from state subsidies), and only the private sector, that must cater for everyone else.

Once we do that, we can have a plurality of innovative housing models to cater for people’s needs in their different life-cycles.

But until that break is made, we will be swimming in targets and reports and self-congratulating Ministerial statements; but not affordable housing.

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



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.


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


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

maseratiMichael Taft

From top: Aston Martin in South William Street, Dublin 2 last month; Michael Taft

Inequality is growing again and the income of the Irish 1 percent is growing faster than anywhere else in the EU-15.

Michael Taft writes:

The 1 percent serves as an excellent symbol of actually existing capitalism. Examining the inequalities between households gives an insight into the level of solidarity within a country.

Wealth and power is manifested in other systemic ways – namely, the level of financialisation and bargaining power between capital and labour.

Still, a system that produces a 1 percent will be reinforced by that same 1 percent. So let’s take a look at how the 1 percent is doing these days.

A standard measurement is by ratio.


Here we see the ratio of the income of the top 1 percent (see below for a statistical description) to the to the top cut-off point of the first decile.

Though Ireland is not the worst – that is reserved for the poorer Mediterranean countries and France (this might help explain the rise of the National Front) – we’re still in the top half of the table.

We’re slightly ahead of the mean-average of the EU-15, but much higher than our peer groups: Northern and Central European economies (NCEE excluding the Mediterranean countries) and other small open economies (Other SOE).


Ireland had very high levels of inequality towards the end of the boom period. The 1 percent took a hit with the crash given their greater reliance on property and speculative activity and this resulted in falling inequality: not because low income groups saw their income rise. It was just that their income fell slower than the 1 percent.

However, we will see below that not all higher income groups suffered.

But let’s first look at another measurement, the ratio between the 1 percent and the 5th decile – or that proverbial squeezed middle:

We see a similar pattern as with the ratio to the bottom 10 percent – except that since 2012, the gap with the top 1 percent has widened faster. And we see that in this measurement, Ireland has a high level of inequality. In fact, the gap between the top 1 percent and the middle 5th decile in Ireland is higher than any EU-15 country bar France.

It’s been quite a roller-coaster for the ol’ 1 percent in Ireland. In 2006, they had the highest level of income in the EU-15 bar Luxembourg. But by 2012, they had experienced a fall of 22 percent.

However, though they haven’t climbed back to their dizzying pre-crash levels, in the last two years their income has grown faster than any other EU-15 country with a growth rate of 13 percent compared to an EU-15 average of 3 percent.


Even after the big recession hit, the Irish 1 percent still rank high in the EU-15 tables.
But not everyone in the high-income category are the same.

Unfortunately, we don’t have a compositional breakdown of the top 1 percent so we will have to make do with the CSO’s data which provides the top 10 percent.


Let’s walk through this table. Between 2006 and 2012 we see that the weekly net income of the top 10 percent fell from €1,043 to €958.

However, employee income continued to increase (and remember, employees in this top 10 percent would include CEOs, senior executives and managers, higher professionals, etc.)

The hit was to those relying on self-employed income which fell by 65 percent. We can assume that a large proportion of this was property-related income. Reduced social transfers and higher tax would have also reduced overall net income.

However, since 2012 net income is rising. Employee income continues to rise and the fall in self-employed income has been reversed; indeed, it doubled in the two years up to 2014. Net income for the top income earners rose by 7.9 percent; for everyone else it rose by less than 4 percent. The gap is widening.

Of course, we can’t automatically assume that the 1 percent had the same rise in income as the overall top 10 percent. It might be higher, lower or the same. But I’m pretty confident – and I’ll give good odds.

Prior to the crash Ireland was highly unequal with the top 1 percent doing better than almost any other 1 percent in Europe. In the recession they took a hit but if the CSO data can be used as a proxy, then this was due mostly to the loss in self-employed income.

This decline has been reversed, inequality is growing again and the income of the Irish 1 percent is growing faster than anywhere else in the EU-15.

Yes, the 1 percent are doing alright.

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

NOTE: the tables present household income in ‘equivalised’ terms. This accounts for the size of the household (adults, children). In the Eurostat tables, the income level is based on the top cut-off point. For instance, for the bottom 10 percent, the top cut-off point is that income point in which people rise to the next decile. For the top 1 percent, this is the income at which they enter that top decile.