Author Archives: Michael Taft

 

From top: Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe; Michael Taft

We are getting a lot of frighten-the-horses commentary about our debt: ‘mountain of debt’, €42,000 of debt per every man, woman and child; one commentator referred to our debt as ‘scarifying’.

Should we be concerned about our debt? Yes. But we need to put it in context to avoid over-reactions and missed opportunities.

It has been a wild ride, debt-speaking.

Irish debt levels fell from 86 percent of GNI* in 1995 to 28 percent in 2006. Then it jumped to a massive 166 percent in 2012 only to fall again to 102 percent in 2019.

The trajectory of Eurozone debt, however, was more boring. This year Irish debt will be 16 percentage points above the Eurozone average.

There’s one interesting caveat: Irish debt levels only exceed Eurozone levels because of our bank debt.

The Irish bailout of financial institutions (which stands at €47.4 billion in total in 2018) increased the debt by 30 percent, measured as a percentage of GNI*.

Actually, this understates the impact as we suffered higher interest payments as a result of the bail-out. Were it not for bailing out senior creditors, Irish debt would be below the Eurozone average – even after a savage crash and recession.

This is cold comfort, however. Regardless of the source, regardless of the justice (and with the bank debt on government books, there is little justice), debt is debt and we are liable for it.

We will be carrying this burden for a long time. However, what it does point to is that the economy itself is capable of quick recovery in debt levels.

For instance, in the last seven years Irish debt has fallen by 64 percentage points. No other Eurozone country can match that reduction. And while some have complained that we have not significantly reduced deficit levels since 2015, the same cannot be said for debt levels – which have fallen by 23 percentage points.

Let’s get one thing out of the way. Much commentary focuses on the actual amount of debt – the ‘scarifying’ €200 billion debt. There are complaints that this has not come down since 2014. This is not the key metric, however. Increasing growth reduces the burden of the debt.

For instance, between 1995 and 2007, debt fell dramatically – from 86 percent to 28 percent of GNI*. However, during this same period the actual amount of debt increased by 14 percent – from €41 billion to €47 billion.

A similar trend occurred at Eurozone level – falling debt ratio while the actual debt increased.

Looking forward, the Government is projecting debt will fall from over 100 percent of GNI* to less than 85 percent by 2023. However, there are two caveats: the Fiscal Council’s warning that Government projections are unreliable; and Brexit.

While it is difficult to correct for unreliable projections, we have some projections for Brexit. The ESRI and the Central Bank have both modelled the potential impact of a ‘hard’ or ‘disorderly’ Brexit on growth and debt levels, with the Central Bank projections being the more pessimistic.

This graph – taken from the Fiscal Council’s recent fiscal assessment report – shows that the economy will avoid a recession, though the more pessimistic Central Bank projection shows growth crashing towards zero. Further, both projections show the economy bouncing back in a relatively short period, even higher than the baseline growth.

However, debt levels will take a hit compared to current projections – the baseline.

Under the ESRI projections, debt will top out in the first year of a hard Brexit and then start to decline. The Central Bank projections, however, are bleaker with debt still rising in 2023.

However, based on the trajectory of the deficit, even under the Central Bank projections, debt will start to fall after 2023.

What should be the response? First, it shouldn’t be what the Fiscal Council is tentatively suggesting:

‘A question worth considering is what level of adjustment to the structural primary balance would be required to stabilise the debt ratio. . . . Based on the [Fiscal Feedback] model, this could be achieved with a front-loaded adjustment of almost €4 billion in 2020 or with a cumulative adjustment of €5 billion phased evenly over the three years 2020–2022.’

This puts us back into pro-cyclical policy territory – taking money out of an economy that is already losing money.

The Government seems set to let the deficit rise without any fiscal response. This would be done in the expectation that the Brexit hit is temporary and that the economy will resume its upward trajectory. This is a more responsible approach.

But we can go further.

First, strengthen the economy’s ability to respond to the crisis by introducing pay-related unemployment benefit in the next budget. If jobs are lost (and this is highly likely) then, at least, ensure that affected households can retain most of their purchasing power. This would help maintain consumer demand and, so, keep businesses in business.

Second, introduce a net assets tax. This would have little impact on demand but would raise revenue to protect the deficit/debt line.

Third, establish sectoral committees across those sectors likely to be hit (e.g. food manufacturing and other UK-facing sectors) with employer and employee representatives.

Special measures for badly hit enterprises should be conditional on support from both groups – but especially employees. This, in effect, would establish sectoral collective bargaining and would ensure that everyone who is affected has a role in developing and overseeing the  response.

Fourth, proceed with the carbon tax but return the revenue to households. A per capita payment would benefit average-to-low households and redistribute from the higher income groups. Not only would this be a tool for reducing inequality, it would boost demand during the downturn.

Fifth, take €2 to €4 billion from the Government’s substantial cash balances and invest it on a once-off basis into public housing construction – especially cost rental.

This would be all the more necessary if the Central Bank’s more pessimistic projections come to pass.

As well as addressing the housing emergency, this will create employment, raise revenue and reduce unemployment costs, and support the productive economy with lower rents.

And it wouldn’t impact on the debt (cash balances have already been borrowed).

And, finally, ditch the €3 billion tax-cut promise. Even in the best of times this would be folly; when the economy is suffering from a slow-down, this would be reckless.

Yes, we should be concerned about the debt. Therefore, we should be concerned to avoid pro-cyclical responses which will only embed high debt levels in the future. We need to avoid reactive and self-defeating policies.

Prudence knows no fear.

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

Leah Farrell/ Rollingnews

 

From top: Minister for Employment Affairs and Social Protection, Regina Doherty (right), with Minister for Finance and Public Expenditure and Reform, Paschal Donohoe, is seeking to provide a minimum income for all: Michael Taft

The Minister for Social Protection, Regina Doherty, wants to guarantee everyone an adequate minimum income. Good.

This would entail substantial redistribution to those on the lowest incomes. Fine.

Hopefully she can convince her Cabinet colleagues. If she can, great.

According to The Irish Times:

‘Signalling an intention to end traditional across-the-board welfare increases on budget day, the Minister said she wanted a far more targeted approach to guarantee a minimum basic income for everyone . . . Ms Doherty argued that the welfare system should guarantee a minimum essential standard of living (MESL) for everyone.’

Obviously the Minister has been poring over the Vincentian Partnership for Social Justice’s new release of their Minimum Essential Standard of Living (MESL), a detailed survey of what constitutes an income floor.

The MESL is the minimum needed to live and partake in society, meeting the physical, psychological and social needs of individuals and households. It calculates the actual weekly cost of over 2,000 items (goods and services) needed to enable a socially acceptable minimum standard of living.

Much attention has been devoted to the Minister’s discussion of the gap between the living standards of pensioners in different parts of the country, but this misses the main point (I’ll return to the pensioners below).

The Minister’s ambition would greatly expand the social protection budget.

Let’s look at how much additional expenditure might be needed. The VPSJ lists 7 household types (of which two are pensioners), sub-divided into urban and rural.

They then estimate the MESL required (the minimum level of expenditure), calculate the social protection income and show the ‘adequacy gap’.

If the gap is negative, then that is the increase needed to reach the MESL.

Out of the 10 household types, only two have a minimum essential standard of living – none in the rural areas.

For instance, a couple with two children (in primary and secondary school) in an urban area would need a €61 weekly increase to reach the minimum essential income (or €3,200 annually); in a rural area they would need an additional €112 per week (or €5,700 annually).

A lone parent with two children, similarly in primary and secondary school, in a rural area would need an additional €142 per week (or €7,400 annually).

These are massive sums. The Minister said she wants to move away from the €5 weekly across-the-board increase to one that targets household types in order to bring them up the MESL.

This would entail significant increases for most categories.

An across-the-board increase of €5 would mean a 2.5 percent increase. Compare that to the percentages needed to bring households up to a minimum living standard.

The Minister referred to ‘targeting’ households. If that is her approach, then the Government would be targeting just about everyone.

Even the two household types with an adequate income – they’re not overly adequate. For an urban couple or single parent with two children in pre-primary and primary school – they are only 2 and 1 percent above the minimum living standard level respectively.

Another aspect that comes through in these household types is the difference between costs in the urban and rural areas. This was especially highlighted by the Minister in her references to state pensions.

Again, the Irish Times reports:

‘It is not “fair” that some older people receive State pensions that are more than they need while others on the same amount live in poverty, Minister for Social Protection Regina Doherty has said.’

Let’s look at this ‘unfairness’.

Pensioners in the urban areas have incomes above the minimum essential though for a single pensioner, but not much above.

For those living in rural areas, single pensioners are below the minimum essential living standard while couples lag considerably behind their urban counterparts. The Minister homed in on this disparity.

‘The same payments for similar households in different parts of Ireland may not be appropriate,’ she said, adding that political and public “buy in” would be needed to explain to the “lady in Donegal” why she was going to get “more, or less” than “the lady somewhere else” in the State.’

Clearly, all rural households are disadvantaged. Is that because ‘costs’ are higher in the rural areas? Not really, not in the plural.

There is only one significant cost difference.

The overall cost difference is €73 weekly of which transport makes up 72 percent. VPSJ assigns no transport cost in urban areas since there are easily accessible public transport systems (with the Free Travel scheme).

These systems do not exist in the rural areas. If we exclude transport, the difference falls to less than €20; or 6 percent higher costs in the rural areas – a gap but not a significant one.

The Minister appears to be seeking to equalise treatment among pensioners. The simplest way is to provide a €50 supplement for those with a car in the rural areas. This would significantly close the gap.

Distinguishing between urban and rural areas would not be new. As late as 1988, rural recipients of basic social protection payments received 4 percent less than their urban counterparts – probably based on an old logic that people in rural areas could provide food from their own plots.

What would be the cost of bringing all households up to a minimum essential living standard?

Let’s assume a 20 percent increase. Excluding pensioners, this would cost €1.4 billion (using Social Justice Ireland’s calculation for a 4.4 percent increase in 2020). That is significant but feasible.

This doesn’t include costs for all household types. For instance, it is reasonable to assume that people with a disability or long-term illness would have additional expenditures above average households.

There are still the cuts to young people’s social protection benefits that are waiting to be restored. When all the myriad household types are accounted for, the social protection budget may need to expand even further.

One can’t help speculate whether the Minister is seeking to challenge the Taoiseach’s proposed tax cut, which would cost €3 billion over the next five. If only half of this were assigned to social protection benefits, the Minister’s ambition could be fulfilled.

However it is to be paid for, the goal of raising everyone up to the Minimum Expenditure Standard of Living would be a great stride towards eliminating poverty and redistributing income in society. If that is the Minister’s intention, she should be fully supported.

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

Leah Farrell/ Rollingnews

From top: Ajai Chopra (right), then Deputy Director of the International Monetary Fund (IMF) European Department, and an associate on their way to a meeting at the Department of Finance to discuss an EU/IMF emergency loan, November 2010; Michael Taft

Economic historians will write of the period we are just emerging from as the ‘lost decade’. When the crash hit, jobs were lost, incomes fell, and government spending was slashed.

It is only now – 10 years or so after the event – we have made up that last ground. Now we have low levels of unemployment, rising income and warnings that the government is increasing spending too fast.

But as we emerge from out of the shadow of the crash, what does the world around us look like?

Well, if Eurostat is anything to go by, we still lag other high-income EU countries in key living standard categories.

Living standards is notoriously difficult to measure. However, Eurostat makes a stab at it with their ‘actual individual consumption’ indicator.This combines personal consumption (consumer spending) and government spending on behalf of households.

This latter is important. If one just took consumer spending as the measure of living standards, a number of anomalies could arise.

For instance, if an Irish household spends €150 per week on childcare while a German household spends only €50, a consumer spending-only measurement would suggest the Irish household had a higher ‘living standard’.

However, under the actual individual consumption (AIC) measurement, the amount of state subsidy on childcare which the household ‘consumes’ is also factored in.

That makes it a superior measurement, especially as it factors in prices for international comparison purposes.

Under these living standard measurements – AIC and consumer spending – how do we fare in 2018?

Factoring in inflation we find:

Per capita consumer spending is still 2.1 percent below the peak in 2008

Per capita AIC is still 3.1 percent below the peak in 2009

Hopefully, this year will see us surpassing pre-crash peaks.

Except just as we are emerging from a lost decade we have warnings of over-heating in the economy.

Question: how could we get to a situation where, after a decade, all we do is return to the point at which we started and, yet, we’re in danger of over-heating?

Some might say that our previous peak was unsustainable. Without getting into that historical argument, this is hardly the explanation today.

Even if we concede the argument that consumer spending and AIC (which includes government spending on behalf of households) was unsustainable in 2008, that argument shouldn’t apply today.

Both consumer spending and AIC are significantly below 2008 levels as a percentage of GNI*; yet now we are being warned that we are at capacity (just like a decade ago).

So at this point of full capacity, how does Ireland fare compared to other high-income EU countries, our peer group?

We are far below our peer group average in this living standard measurement. We would have to increase consumer and government spending on households by over 20 percent to reach the average.

When we disentangle consumer spending and government spending on households we find the gap remains somewhat the same.

Both consumer spending and government spending on households are well below our peer-group average, with Ireland coming in at the bottom of the table in both.

Consumer spending would have to increase by 16 percent and government spending on households would have to increase by 40 percent just to reach the average.

So after a lost decade, when we have only returned to pre-crash levels, when our living standards are still well below other high-income EU countries, we have hit a capacity wall suggests the problem is deeper than just fiscal policy (though that is a contributor). It suggests that there is a structural problem.

Now consider the impact of even a ‘managed Brexit’ (?) never mind a no-deal Brexit. We would not only stall, we could start falling backwards.

After a lost decade, we may still be lost.

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

Sam Boal/ Rollingnews

At top. from left: Minister for Finance,Paschal O Donohue , Taoiseach Leo Varadkar and Minister for Communications, Climate Action and the Environment Richard Bruton; Michael Taft

We are now getting crash courses in pro-cyclical and counter-cyclical fiscal strategies. This has the potential to be more mind-numbing than discussion of fiscal space. But at the risk of numbed minds let’s jump into this by first defining these terms.

Pro-cyclical means a fiscal policy that accelerates either the upward or downward trajectory of the economy.

We have two recent examples:

Prior to the crash, Fianna Fail-led governments accelerated the economy and the property market through tax cuts and spending increases that resulted in unsustainable growth. They were feeding an economy to the point of gluttony.

Following the crash, Fianna Fail and Fine Gael-led governments accelerated the decline of the economy through tax increases and spending cuts, taking money out of a cash-starved economy.

Successive governments pursued the same fiscal policy both before and after the crash – a pro-cyclical policy. At their extremes such policies lead to booms and busts which is exactly what Ireland suffered.

The alternative is to pursue a counter-cyclical fiscal strategy. This is intended to smooth out the inevitable ups and downs of a capitalist market economy.

Therefore, when the economy is accelerating, a prudent government would try to slow it down to something approximating normal. This would entail raising taxes and slowing down spending increases.

For instance, had the government removed property tax breaks and introduced a property-tax in 2003/04, this would have taken some of the heat out of a runaway property market.

And if the government had stimulated the economy through investment increases in 2009/10, the economy would not have collapsed to the extent it did.

Now we are getting lectures about the current pro-cyclical policies, how we should have been cutting back when the economy started growing; and how we should be running substantial surpluses (the budget won’t go into surplus until next year and, even then, only marginally).

That, however, is the wrong way to read our current situation.

We are stuck in upside-down fiscal strategies. Yes, the right-side up approach would be to start cutting back (reduce the pace of spending increases, reduce the level of tax cuts) as the economy recovers.

But you only do that if fiscal strategy expanded during the preceding downturn. That didn’t happen here. We cut back during the recession.

So when the economy started growing, the government had to raise spending to make up for the cuts during the austerity years, while at the same time trying to turn the deficit into a surplus.

Public spending only started increasing in 2015, but the deficit was still nearly 2 percent of GDP. It wasn’t possible to do both.

Indeed, the Government struggled to return spending to pre-crash levels.

Factoring in inflation (GDP deflator), public spending per capita – in particular, investment – has not returned to 2008 level. Not only did spending increases struggle, deficit reduction started to lose steam.

Upside-down fiscal strategies cannot be corrected by simply flicking a policy switch. We may be stuck in a pro-cyclical trap that is structurally embedded in our public finances. And, like a finger trap, if we start reducing spending just before an economic slow-down we could end up reinforcing the trap by accelerating the slow-down.

This gives a different perspective to the oft-repeated phrase ‘well, austerity worked’. It didn’t. Austerity was many things, but in this context it was like cramming clothes into a suitcase and then sitting on the cover to close it shut.

It seemed to work for a while but it wasn’t sustainable. Eventually, the cover blows open and the clothes spill out on the floor. This is the pro-cyclical trap we are in.

So how should we proceed? Carefully, eschewing quick-fix solutions. Let’s look at two things that could help inform a more viable and sustainable fiscal policy.

First, strengthen our automatic stabilisers. This usually refers to unemployment benefit. Unemployment benefit replaces the reduced purchasing power of those who have lost jobs.

In other EU countries, unemployment benefit is pay-related which means most of the purchasing power is replaced. This helps maintain consumer spending and domestic demand.

In Ireland, the benefit is low which means only a small amount of purchasing power is replaced.
In the upcoming budget it is imperative to introduce a pay-related component to unemployment benefit (Fine Gael actually advanced this proposal recently).

This should be paid for by a small, incremental increase in employers’ social insurance which is ultra-low by EU standards.

Second: never mind the deficit, focus on the debt. We have considerable savings to help prevent the debt from rising out of control.

We have more than €20 billion in Exchequer savings. Judicious use of these funds (it is unclear if this includes the NAMA surplus of €4 billion or the liquid assets in the Strategic Investment Fund) could help moderate any increases in the debt arising from a hard Brexit.

This will depend on how bad the hit is. The ESRI projects a small hit, with the budget immediately going into deficit but returning to surplus by 2023 with debt falling again.

The Central Bank’s projection is more pessimistic, with the county’s finances still mired in a significant deficit in 2023 with debt still rising.

There are other measures we can take to mitigate the downward impact on public finances (a small example would be the net assets tax outlined here) and using the NAMA surplus for public housing in order to maintain revenue-generating activity (and to house people).

The very last thing we need to do is take fright and start cutting and taxing without regard to economic and fiscal harm – like we did in the last crisis.

If we do go down that route we’ll just be reinforcing the pro-cyclical trap. And picking clothes off the floor for a very long time.

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

Sam Boal/ Rollingnews

From top: Minister for Finance Paschal Donohoe; Michael Taft

The Minister for Finance believes in the property tax and the ‘latent potential for the tax to play a more significant and positive role in our overall taxation system’.

Any increase in the tax should be ‘affordable’ says the Minister, while the ‘progressivity’ of the tax should be upheld. Potential, affordable and progressive: yes, the Minister is a believer.

But a true believer would promote a full property tax – one that attaches itself to all assets, in particular those assets (such as financial property) that are held mostly by higher income groups.

The residential property tax is levied only on some property. It is confined to houses and apartments which are the main capital asset for low-average earners.

It is not applied to financial property (shares, bonds, pension funds, cash) or land beyond the one acre associated with the residential dwelling. This is a major omission.

If we put together real (land and buildings) and financial property, and exclude liabilities (e.g. mortgages), we find that total net assets come to approximately €750 billion following the red line in the following graph comes from the Central Bank.

This equals €156,600 average net wealth per capita or roughly €440,000 per household. This would be concentrated among higher income groups.

So what would happen if we started to refocus our tax system away from income and the productive economy and on to wealth, assets and property?

As the Nevin Economic Research Institute states:

‘The weight of evidence suggests that taxes on property, wealth and passive income have minimal negative consequences for economic growth compared to other taxes and are highly redistributive. Recurrent taxes on land and immovable property appear to be particularly pro-growth, and very likely pro-equality, and we can design these taxes in such a way as to make them progressive.’

We could start by extending the tax to all property with appropriate reliefs where necessary.

This is traditionally called a wealth tax but, in truth, it is merely ensuring a property tax is applied to all property; in particular financial assets.

The CSO’s Household Finance and Consumption Survey can help.

When we look at the ratio of asset values between the top and bottom 20 percent income groups, we find that for the main residence (home), the ratio is rather narrow due to widespread home ownership.

However, when we include all real assets (land, other real estate property, self-employment business wealth, vehicles and valuables), the inequality gap starts to widen with the top 20 percent owning three times the median value of the bottom 20 percent.

When it comes to financial assets, the top 20 percent own 10 times the value of the bottom 20 percent. Financial property is highly concentrated at the top.

Martina Lawless and Donal Lynch of the ESRI have produced a useful paper outlining the impact of an asset or wealth tax. They looked at nine different tax models applying a 1 percent tax on wealth.

We can see the range of models from those with high thresholds (income) and high exemptions (particular assets) to those with much lower thresholds and exemptions.

These models have the capacity to raise between €53 million and €3.8 billion. The variations are due to exemptions and thresholds. We should start a national conversation over the optimal model.

From NERI, Dr. Tom McDonnell’s seminal work on a net assets tax shows similar yields – ranging from €250 and €750 million in revenue (and this was published in 2013).

Of course, there will be the usual criticisms of a comprehensive net assets tax; namely, that it would disrupt our collective entrepreneurial chi. However, as Martin Sandbu from The Financial Times points out:

‘Compared with taxes on profits, dividends and capital gains, the wealth tax favours those who deploy their assets more productively. That is because it is a levy on the same slice of a fortune regardless of the returns the assets produce. Owners of a high-return asset . . . keep a larger share of the income generated by their wealth than owners of low-return assets . . . a net wealth tax effectively redistributes from those who invest their capital badly to those who find high-return uses for it. That should reward talented entrepreneurs and boost productivity growth in the economy overall — a combination that could just begin to look politically attractive.’

Extending the property tax to all property – making it a comprehensive tax on all assets – has the potential to make a positive impact on public finances, reduce inequality and extend the tax base.

This would vindicate the Minister’s belief in a property tax with potential, affordability and progressivity.

Indeed, it would make him a true believer.

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

Sam Boal/ Rollingnews

Taken together, progressives did not have the best of elections. There will be more detailed analysis in the days and weeks ahead, so this should be considered a small, opening contribution.

First, which parties are ‘progressive’?

This question alone can ensure arguments and splits. For the purposes here there are four broad groupings in the progressive spectrum:

These four groups – Social Democratic, Sinn Fein, Radical and Greens – constitute the broad range of progressive parties.

That is not to say that relationships – external or internal – are free of contradictions, tendencies, disagreements; nor do they collectively constitute coherence.

But the 2016 RTE exit poll found the voters of these parties to be on the left side of the fence when asked them to self-identify on a Left/Right scale with Left = 1, Right = 10, and Centre = 5).

So how did this grouping do in the recent elections?

Let’s focus on the locals.

Overall progressives fell back from 27 percent in 2014 to 25 percent.

Sinn Féin’s popular vote fell by 37 percent with the loss of nearly half their seats. Labour’s first preference vote declined as well (by nearly 20 percent) but they managed to gain 5 seats.

The Social Democrats’ first time out locally saw them receive 2.3 percent and 18 seats.

Solidarity/PBP experienced a similar loss in votes to Sinn Fein, falling from 28 seats to 11.

The Greens saw their popular vote more than treble (to 5.6 percent) while increasing their seat total from 12 to 49.

The Independents4Change experienced an increase of 0.3 percent (over the United Left result in 2014) but elected only two councillors.

Why the collectively poor performance?

First, many progressives have not moved on from the austerity period while people and the economy have.  There are more people at work, growing incomes and falling poverty. This is not to dismiss issues such as housing. But without a discourse that places current issues in today’s context, the leaflets are left unread.

In the eyes of many Labour is similarly stuck in the austerity period, unable to break free from their role in Government and chart out a new direction.

The Social Democrats will need to translate local gains into national seats but this will be a considerable challenge. All the more so because they share some of the same ideological and social class space as Labour and the Greens.

Only the Greens seemed in step with the times but we should be cautious. Nationally, they received less than six percent of the vote and in Dublin less than five percent of the seats (though had they run more candidates in key wards, they would have gained more).

The Greens will need to work hard to consolidate their ‘surge’. Labour in 1992 and 2011, Sinn Fein in 2014, the PDs in 1987 – all saw their ‘surges’ quickly dissipate.

Compounding these individual party challenges is the lack of a common economic narrative.

If you were to ask people what progressives stand for they would be hard-pressed to give an answer beyond build more houses, tax the rich, or in the case of the Greens, halt climate breakdown.

Even were progressives able to achieve a consensus, there is no agreement over how that consensus should be implemented.

Already, the coalition abacuses are being pulled out: will Fianna Fail woo Labour, will Fine Gael entice the Greens, which way will the Social Democrats go, and will anyone take up Sinn Fein’s offer to join a coalition?

Currently, progressives sit on the same of the House. After the next election they may scatter to different aisles.

At root, there is no agreement over long-term goals.

Is the aim a progressive-led government? Is it to implement policies within conservative parameters? Is it to grow votes and seats and then figure out what to do?

Again, if people were asked ‘What do progressive parties want?’ there would probably be more shrugs than replies.

The 2019 RTE exit poll shows both the opportunities and dangers in achieving a consensus in a complicated public debate:

64 percent believe that ‘economic market forces will mean those who work hard will be rewarded’, yet 89 percent believe ‘there should be more policies to resolve the gap between the rich and the poor’.

59 percent believe the country is ‘going in the right direction’ (only 29 percent believe we are on the wrong path), yet the majority don’t ‘trust this government to manage the economy and public spending well’.

88 percent ‘feel the government needs to prioritise climate change more’ but in an Ireland Thinks poll 60 percent are opposed to a carbon tax (though this poll was taken in January and the climate breakdown debate is quickly evolving).

And in this complication we may be faced with a General Election soon.

When Ciarán Cuffe was asked by an RTÉ journalist what advice he would give the current generation of Green members on the issue of coalition he replied the Greens should not enter government on the eve of a recession.

And with a disorderly Brexit, changes in international taxation (which the Government reluctantly accepts), the housing crisis and other external and domestic dangers, a downturn could exacerbate the current downward slope of our economic cycle.

Lower tax revenues, more joblessness, rising unemployment costs, pressures on spending, slower growth, rising debt – does the Green Party have a fiscal and economic response? They didn’t the last time and they paid.

But this is not a problem exclusive to the Greens. None of the progressive parties seem to have a response to this, so far opting out of the fiscal policy debate.

Yes, progressives are fragmented. And, yes, we need cooperation. But merely demanding ‘unity’ from the social media side-lines is not an adequate response. We need concrete cooperation strategies.

Campaigns: The participation of progressive parties and organisations in campaigns such as the National Homeless and Housing Coalition and Raise the Roof are positive examples of cooperation. There are any number of issues – national and local – where this can be replicated.

Dialogue: this can happen among activists or elected representatives. The key here is that it takes place in safe spaces operating under Chatham House rules and organised by trusted neutrals facilitators. And if all that can be achieved is agreement on the weather – well, that’s a start
.
Open Space: An open online media space (e.g. a website) where progressive parties’ policies, analysis and proposals can be uploaded – if only to show up the similarities. Again, this could be hosted by neutrals.

Honest Broker: or such brokers (individuals, non-party civil society organisations) could assist in dialogue between the different parties without prejudice, even if it takes the form of proximity talks.

And patience. It would be nice to think progressive forces might coalesce around a set of minimum demands to campaign on with a view to acting with cohesion after the next general election but there might not be enough time or interest, too much suspicion this side of a vote. We might have to wait a while.

We need a new popular front, a broad coalition of progressive parties, individuals and groupings.

We need to ditch sectarianism and pre-conditions. Progressive cooperation is about persuading, not hectoring; leaving the door open to all, not closing it to some.

It is not about abandoning principles. We do not lose our ideological convictions or strategic preferences because we seek a cooperative relationship with those who don’t share them all right down the line. But I know this.

We undermine our convictions and preferences if we don’t cooperate, seek out allies, come to new understandings. That’s a dismal road where we are all losers.

And we have travelled that road long enough.

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: Local Election posters in Phisborough, Dublin; Michael Taft

It is hard to know what the main issues in the local government election are but they seem to revolve around two themes: commitments to spend more money and commitments to lessen/reduce/depress local property tax (has the property tax replaced the USC as the most ‘hated tax’?). Spend more, tax less and the let devil take the fiscal hindmost.

All this is being discussed without reference to a very serious context; namely, that the budgetary heart of local government has been ripped out during the austerity years.

In the decade leading up to 2017, local government spending fell by 50 percent. The biggest casualty is investment: local authority investment (primarily housing and economic infrastructure such as transport) fell from €6.2 billion in 2007 to €1.2 billion in 2017.

This collapse in local authority spending can also be seen in the fall in local authority employment.

Proportionately, local authority employment carried the burden of public sector employment cuts during the recession/austerity years and is still nearly 20 percent below 2008 levels.

Irish local government was never very strong to begin with. Today, it is even weaker.

Ireland has the weakest local government, as measured by spending levels, in the EU bar Malta, Greece and Cyprus. It is even weaker than Luxembourg which is essentially a one-city state.

So whatever about the party manifestos and candidate slogans, there is a lot less money to spend than 10 years ago and a lot less people to produce the services.

It is unfortunate the campaign ‘More Power to You’ – sponsored by Connect, Forsa and SIPTU – didn’t feature more prominently in the local election debate.

Do we really want a local government that actually governs? Do we want a strong local government system with revenue-raising powers or guaranteed funding from central government; employment levels capable of providing a wide range of services; elected councillors with real democratic powers as opposed to the managerialist regime that currently dominates.

This paper by Dr. Mary Murphy (commissioned by the campaign) details the issues regarding an enhanced local government.

Admittedly, a debate over a radical decentralisation of powers to local levels is hard to kick-start during an election campaign; especially one that is more focused on which party will get more votes and what it might mean for a general election.

Hopefully, this debate can be continued past polling day.

For progressives it provides an opportunity to promote more resources for public services which would be, through a strong local government system, closer and more accountable to people. This would be key to vindicating a strong public service state.

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

Earlier: Derek Mooney: Mayor Culpa

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From top:  for Finance and Public Exependiture Paschal O Donohue  and  Taoiseach Leo Varadkar TD  at the Fine Gael Party Conference in Wexford last weekend; Michael Taft

The Finance Minister needs to buy the Taoiseach an abacus. It would also be helpful if he would brief him on certain economic realities. For the Taoiseach has been both promising and mispricing the irresponsible.

At the Fine Gael Ard Fheis last weekend the Taoiseach trotted out his tax cut proposal – raising the standard rate tax threshold:

‘Over the next five years, we will increase the point at which people pay the higher rate of tax to €50,000 for a single person and €100,000 for a couple.’

This would be a substantial rise on the current €35,300 (€70,600 for a couple) tax threshold. This proposal is not new. The Taoiseach came out with this last November.

What is new is the Taoiseach’s claim that this tax cut would be relatively cheap.

Back in November it was generally conceded that this proposal would cost €3 billion. And for good reason. That’s the price tag the Revenue Commissioners put on the proposal. Each increase of €1,000 in the standard rate tax band costs €206 million.

However, the Taoiseach went on to say:

‘Let me tell you how we’ll pay for it. Because there are more people working every year, and people are earning more, we’ll take in about €1.8 billion extra in income tax. I want to give about half of that back to you, taxpayers and pensioners.’

So now this €3 billion tax cut will only cost €900 million (and is he including pension increases in that?). How did this happen? I have no idea. I wonder if the Taoiseach does.

Apart from mispricing, the Taoiseach’s proposal couldn’t be more irresponsible. This is all the more the case given the ESRI’s modelling of the potential impact of Brexit.

This Cabinet was briefed on this paper before it was published, so the Taoiseach was aware of its findings before his speech at the Ard Fheis.

The ESRI found the impact of Brexit could be substantial. In the worst case scenario – a chaotic, no-deal Brexit – the ESRI estimates that over the next five years

20 percent could be knocked off of real GDP

Employment could be about 50,000 lower

Real wages and personal disposable income will fall while consumer prices rise

All this will, of course, throw public finances off course with the deficit rising by approximately €2 billion.

Even in a ‘deal-done’ Brexit – where the UK makes an orderly agreed exit from the EU involving a transition period up to 2020, and a free trade agreement with the EU thereafter – the economy will still be hit: up to €10 billion could be knocked off GDP while employment could be 20,000 – 25,000 lower.

Wages and incomes would still go south while prices would still head north.

While the impact of a done-deal Brexit would be less than a disorderly affair, it only looks good by comparison. On its own, it still represents a significant negative impact on the economy.

If this wasn’t bad enough, our major trading partners are in serious trouble. The Eurozone is flirting with yet another recession while in the US, the Trump tax cuts are wearing off with growth slowing down.

In this highly uncertain, potentially volatile environment – not even taking into account the substantial fines for missing our EU climate change targets (have these even been factored into medium-term government projections?), the downside impact of any change in international taxation and the eventual rise in interest rates – why would the Taoiseach make such a proposal?

Here are some explanations.

Escalation of commitment:
the Taoiseach made a promise before a Fine Gael audience last November. Rather than step-back in the face of growing uncertainties, he is irrationally doubling down because to do otherwise might suggest he was wrong to make the proposal in the first place.

Cynical: the Taoiseach knows he cannot fulfil this promise but maintains it as a ‘flagship’ policy. If external events intervene to prevent it, he can always blame the Brits.

It’s What We Do:
just like Fianna Fail, who cut every tax possible prior to the crash (egged on by Fine Gael), cutting taxes is in the genes regardless of what economic reality tells us. The scorpion can’t help being a scorpion.

Even without the negative impact, the proposed tax cuts are highly inequitable. In a previous post we saw that the Government intends to cut public services and social protection in real terms over the medium-term.

In effect, the Taoiseach’s tax cuts proposals will not be financed by ‘more people working and earning more’ as he put it. It will be financed by real spending cuts.

Now add in Brexit – even a done-deal one – and see what will happen.

In truth, none of this is sustainable. The Taoiseach must surely have some sense of this. But his determination to hoover up votes with the promise of tax cuts (which didn’t get Fine Gael very far in the last election) trumps reality.

Progressives will no doubt highlight the inequity of his proposed tax cuts and they would be correct. But there is another prize – painting the Government as being fiscally irresponsible, a mirror-image of the Fianna Fail’s reckless pre-crash policies.

Even the Irish Fiscal Advisory Council doesn’t believe the Government:

‘ . . . the medium-term budgetary plans are not credible,’

Ultimately, the Taoiseach’s proposed tax cuts are fiscally irresponsible. Fianna Fail has no alternative. It is time the Left step forward with a credible path forward. And if that means challenging some of their own proposals and analysis, all the better.

Do it publicly, invite people into the debate over the process of building a productive economy that can withstand the shocks of uncertain events.

That is proper leadership. And, boy, do we need some that now.

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

Top pic: Rollingnews

Meanwhile…

From top: Early morning commuters on a Dublin Bus last January; Michael Taft

There is a growing interest in reducing the working week – usually expressed as a four-day week. Numerous ad hoc examples of private and public sector companies and agencies appear in the media while, here in Ireland, Forsa recently held a conference dedicated to reducing the working week.

The arguments for a shorter working week range from greater work/life balance, productivity, stress reduction, preparing for the impact of automation, etc. As part of that debate below is some information on how many hours per year people work in Ireland in comparison with our EU peer group (other high-income economies).

This data focuses on full-time employees but it should be noted that full-time is defined as approximately 30 hours by the CSO with possible different definitions in other countries. Further, this looks at the private sector as this is where the introduction of a shorter working week on the same rate of pay will be the most challenging.

The Private Sector Economy

Irish employees work more hours than most other peer group countries. The UK and the Netherlands report higher annual working hours. The Netherlands is an interesting case. It has the highest level of part-time workers with 50 percent of all employees working part-time compared to an average of less than 25 percent in other countries.

Annual working hours can be reduced in many ways – not just a though a shorter working week. For instance, public holidays, statutory annual holidays and additional holiday hours resulting from collective agreements in the workplace can reduce annual hours worked.

In total, Irish employees work the equivalent of 2.7 weeks more than our peer-group average, assuming a basic 39-hour working week (the UK is not included in our EU peer group for obvious reasons; Eurostat is already removing the UK from EU averages). We don’t work the most, but we work more than most in our peer group.

Working Hours by Sector

The following looks at sectoral breakdowns. Let’s start with the high working-hour sectors.

Irish construction employees work more hours than any other sector, and 15 percent more than our peer group average – 248 hours annually, or the equivalent of 6.4 weeks more per year. A possible contributor to this high level of working could be the emerging labour shortage in the sector.

Irish manufacturing employees work 11 percent more than our peer group – 175 hours annually, or the equivalent of 4.5 weeks more per year.

Turning to medium-high working-hour sectors we find the following.

Irish transport employees work 8 percent more than our peer group – 132 hours annually, or the equivalent of 3.4 weeks more per year.

Irish wholesale/retail employees work 6 percent more than our peer group – 106 hours annually, or the equivalent of 2.7 weeks more per year.

Irish communication and information employees work 2 percent more than our peer group – 37 hours annually, or the equivalent of nearly one week per year.

Irish financial services employees work 5 percent more than our peer group – 76 hours annually, or the equivalent of nearly two weeks per year.

Finally, let’s look at relatively low working-hour sectors.

Irish professional and technical employees work 1 percent more than our peer group – 11 hours annually, or the equivalent of less than two days per year.

Irish administrative service employees work marginally less than our peer group – less than half-a-day per year.

Irish hospitality employees work 3 percent less than our peer group – 53 hours less, or the equivalent of 1.4 weeks per year.

It should be noted that the hospitality sector is likely to have high levels of precariousness. The problem here may be that full-time employees don’t get enough work.

It’s bad enough that we are over-worked compared to our peer group. But we also get fewer paid days off.

Annually, Irish workers get 88 fewer hours paid without working than our peer group average. That’s the equivalent of 2.3 weeks fewer paid public holidays, annual holiday leave, etc.

Some might say this is the price we must pay to have a strong economy. However, other economies with far fewer working days and more paid days off have just as strong economies.

Belgium, which has the lowest annual hours worked and the highest number of paid days off, has the highest GDP per person employed (factoring in living costs). On the other hand, the UK has the highest working hours and the fewest paid days off.

Yet they are at the bottom. Ireland, while ranking third, is clumped together with a number of other countries which have fewer working hours and more paid days off.

In short, working more doesn’t guarantee higher output.

Hopefully the debate over the future of the working week will gather pace.

But one thing is for sure. Irish workers are already over-worked. What we need is fewer working hours and more paid time off.

Now.

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

Top pic: Rollingnews

From top: Tanaiste and Minister for Foreign Affairs Simon Coveney (left) and Minister for Finance Paschal Donohoe give an update on Brexit earlier this week at government buildings: Michael Taft

It was only a matter of time. Finance Minister Paschal Donohoe brought a new report to Cabinet last week containing estimates of the damage a no-deal Brexit could do to the Irish economy.

These new estimates paint an even more pessimistic picture than previous reports. The upshot, according to last week’s Sunday Business Post (paywall):

‘The results of the report will feed into Donohoe’s growth forecasts for the annual stability programme update next month, which could reduce the spending available for the next budget.’

‘Could’ is one of those softening-up words. The Government will have the advantage that any reduction in public spending that appears in the Stability Programme Update will be buried in rows of numbers in the annex. By the time analysts unearth the trends, the 24/7 news cycle will have moved on.

Even if a no-deal Brexit is avoided, anything that leads Britain out of the customs union and the single market will have a negative impact on the Irish economy.

The concern is that any reduction in public spending will be on top of current Government projections that already show depressed public expenditure growth. For instance, the projections from the last budget show the following increases up to 2023:

Social Protection: 3.8 percent

Public Services: 0.9 percent

Investment: 20.1 percent

Total Primary Spending (excluding interest payments): 4.0 percent

These categories – which make up approximately 90 percent of total spending – are all in the positive zone though still tight, especially the marginal increase in public services.

However, by 2023 there will be more people and higher prices. When we factor these in, the situation changes dramatically. And not for the better.

When inflation and population growth are factored in, we see that the major categories in public spending are all being cut, with the exception of public investment. Total primary spending will fall by nearly 7 percent in real terms per capita.

Social protection is being cut. Pensions make up nearly 40 percent of all social protection expenditure and this proportion will rise over the years. Ireland has the fastest growing elderly demographic in the EU.

This will have to be catered for, so what about the rest of the programmes? Falling unemployment won’t help because according to Government projections, it has nearly bottomed out.

Public services will really be hit. With costs rising (again, the additional costs owing to a rising elderly demographic), what services will be squeezed? Implementing Slaintecare will require upfront investment. And we lag behind our EU peer group in education spending.

One can argue for greater efficiencies – but what efficiencies can drive quality while recouping nearly one-in-ten Euros in productivity gains? We’re just as likely to be doing less with less.

There are a couple of important caveats. First, the Government has allowed itself an unallocated sum of €3.6 billion in 2023. This will give some manoeuvrability. However, the inclusion of this still means total primary spending will fall in real per capita terms (approximately three percent).

Second, the Government might have some leeway over the surplus it intends to run by 2023: 1.4 percent. This surplus exceeds what the Fiscal Rules require. However, will the fiscal hawks relent, even in a downturn?

We are experiencing the legacy of austerity – the embedding of austerity into our fiscal foundations. This doesn’t mean actual cuts; it means ‘below-the-radar’ cuts – in real terms lagging population growth.

The failure to estimate the amount of pent-up demand on spending stored up during the recession, combined with increasing demand from a growing population, could help explain the Irish Fiscal Advisory Council’s observation that

‘ . . . the [Government’s] medium-term budgetary plans are not credible . . . ‘

Progressives will have to work hard to gain traction in this debate, to come up with a credible alternative to creeping deflation. We can’t rely on some pot of Euros at the end of the tax rainbow (though additional taxation on unproductive capital and passive income wouldn’t go amiss).

Instead, we need to think outside the fiscal box to help put our fiscal house in order.
A good starting point would be to promote the wages of low and average income earners through a radical extension of collective bargaining.

This would generate greater tax revenue for the state and more activity for domestic businesses (more sales), while reducing subsidies to low-wage employers.

And if we combined that with greater worker involvement in workplace decisions which boosts productivity at the firm and economy-wide level (higher output for relatively lower input), we could further increase the gains from collective bargaining.

Taxation and expenditure are not the only ways to address fiscal problems, though of course they play a vital role. The issue is ultimately an economic one. And the productive economy starts with the producers of goods and services; that is, the workers.

This won’t fully protect us from a no-deal or poor-deal Brexit but it will certainly help.

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

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