Author Archives: Michael Taft

From top: Irish Fiscal Advisory Council Chairperson Seamus Coffey (left), Chief Economist and Head of Secretariat Mr Eddie Casey (centre) and Mr Michael G Tutty speaking to the media at the launch of the The Fiscal Assessment Report last week; Michael Taft

The Irish Fiscal Advisory Council has provided the Left an open goal. If we shoot, we score. But first we have to get on the pitch. And right now the Left has not even put on their jerseys.

In their latest Fiscal Assessment Report, the Fiscal Council got more than a bit tetchy with the Government’s handling of the public finances.

They used some undiplomatic language:

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

Ouch. The Fiscal Council’s critique of the Government’s fiscal policy boils down to (a) failing to drive a budgetary surplus in the good times; (b) leaving the debt at an elevated level; (c) stimulating an economy to the point of over-heating; and (d) failing to factor in the downsides in future projections.

All of this is leaving us badly exposed of the inevitable slowing down of the economy, never mind the damage Brexit, changes international taxation and trade wars could do.

In short, Fine Gael is squandering the recovery. Put this together with Fianna Fáil’s reckless pre-crash policies (never mind the equally reckless austerity measures both parties pursued) and the Left has a good starting narrative: you can’t trust the Right to manage our public finances.

This doesn’t mean people will automatically trust the Left, which to date has had little to say about the issues of debt, over-heating, deficits, etc.

This allows the Taoiseach to get away with deflecting the debate away from the Fiscal Council’s criticism:

‘[The Taoiseach] insisted the Government’s spending was modest compared to the constant demands of the left-wing Opposition for increased spending . . . if people listened to that kind of left-wing rhetoric the economy would plummet very quickly.’

The Left’s silence allows our opponents to monopolise the issue and distort its position. So let’s start engaging the debate.

Here are some ideas. These are not comprehensive or necessarily authoritative. But hopefully it will get things started.

1. Stick with the Fiscal Rules.

Never thought I’d write that but for now the Fiscal Rules are a practical defence against more orthodox policies. Sticking with the Rules’ deficit target will allow us more space than Government spending projections. We can still critique the Rules’ faults, though: the treatment of investment, the inapplicability of the Rules’ methodology to a small, open economy; their deflationary bias, etc.

2. Strengthen Automatic Stabilisers

There are two key stabilisers: Unemployment Benefit: In the event of a slowdown higher unemployment benefits will help maintain domestic demand. In our EU peer group, unemployment benefit is far stronger – over €300 and €400 a week; in Ireland, it is only €193. Increase unemployment benefit with a small increase in Employers’ social insurance.

Employment Subsidy: It is important to maintain employment in downturns. Therefore, rather than job losses, employers would reduce workers’ hours with the state subsidising workers’ income to prevent loss in take-home pay. This programme was pursued by Germany during the last downturn with considerable success. This would be less costly than growing the dole queues.

3. Underpin the Productive Economy

There are three main areas: Introduce cost-rental housing to substantially reduce rent levels. This would increase spending on goods and services and reduce unnecessary upward pressure on wages.

A new financial model for childcare: current policies are not working (last year, the Government handed over €1,000 in cash subsidies to childcare providers– and fees still increased). Reducing fees would, again, allow for higher expenditure on goods and services, and reduce entry costs into the labour market.

Human capital, education, and innovation capacity: to see us through the medium and long-term, increase resources into education, innovation, and basic and applied research (Ireland compares poorly to other EU countries), switch away from tax credits to grants for SMEs, increase links between state, universities and progressive enterprises, etc.

4. Collective Bargaining Rights for Workers

Optimising our response to any downturn requires employees to be part of the solution, part of the decision-making process at firm-level. Further, sectoral committees should be set up in those sectors most at risk of Brexit or other-related slowdowns with full employee participation.

Collective bargaining has two significant benefits:It tends to favour those on low and average incomes – the groups that have a higher propensity to spend during a downturn

It tends to reduce precarious contracts which currently exclude people from fully participating in the consumer economy (that is, they are forced to save during those weeks they have less work or no work at all).

5. Keep Public Banks Public

Notably, AIB. Banks are notoriously counter-cyclical; when the economy goes into downturn banks withhold lending. A public bank can act differently since it is not beholden to short-term shareholder interests. It can continue to support viable companies, which might not otherwise be able to access credit.

6. Engage in Real Public Services Reform

We need to ensure efficiency and productivity in our public services. So why not bring in the actual producers of public services; namely, the employees. Employee-driven innovation is a feature in many other EU countries. It is employees who are best placed to know why something isn’t working and how it can be put right.

7. Unleash Public Enterprise

Public enterprises are essentially investment-driven businesses. This will be all the more needed in the rough periods ahead. During the last recession, public enterprises maintained investment. Currently, the top six public enterprises invest the equivalent of 40 percent of the state’s capital budget.

* * *

It might seem curious this hasn’t focused on tax issues. Budgets, however, merely reflect the state of the economy so we must first look to economic policies.

You will increase revenue if you raise the wage floor, end precarious contracts, drive investment, strengthen stabilisers, reduce rents and childcare fees, and support innovation.

Measures that put the economy on a more sustainable footing can then be complemented by tax measures – in particular, taxation on property, assets and passive income.

Two short-term measures would be to introduce a net assets (wealth) tax and substantially increase inheritance tax. And, of course, stop Fine Gael from introducing its €3 billion tax cut bonanza.

However, the debate involves, whatever other and better measures are proposed, the key thing is to resolve in the New Year to enter the fiscal debate. Let’s put on our jerseys and get on the pitch.

An open goal awaits us.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.


From top: Wages have barely exceeded inflation over the last 10 years; Michael Taft

Tom Healy, Director of the Nevin Economic and Research Institute, put up the graph (below) on Twitter with the comment:

‘Average Weekly earnings flat in real terms since 2009. Yet, non-labour incomes rising significantly.’

Seamus Coffey, Chair of the Irish Fiscal Advisory Council, responded with a graph of his own (below) commenting:

‘Current trends are surely more informative? Ireland has had the fastest real wage growth in the EU15 for nearly 18 months.’

I threw in my two cents. I tweeted a graph (below) of the CSO’s average weekly earnings for three employee types: managers & professionals; clerical, sales and service workers; and manual workers (production, transport, craft and other manual). My comment:

‘But we have to look at who’s benefiting. Weekly earnings increases are taken up by the higher income groups with white and blue-collar workers trailing.’

Managers and professionals have experienced a 22 percent increase in weekly earnings over the last eight years; white and blue-collar workers received a 14 and 8 percent increase respectively.

With inflation running at nearly 6 percent over this eight-year period, most of the gains for manual workers have been wiped out with white-collar workers seeing nearly half of their gains eaten away. Managers and professionals are still well ahead of the game.

And ahead of everyone else.

Unsurprisingly, the group that received the highest increases is the highest income group. Managers and professionals earn more than twice as much as other employees.

What does all this tell us? First, it’s good that people swap graphs on social media rather than insults. Second, data tells you what it tells you. It is the framing and interpretation that fuels the debates.

For instance, Tom Healy is right to point out that wages have barely exceeded inflation over the last 10 years. Seamus Coffey is right to show that in the recent past (18 months) wages are starting to rise, faster than other EU-15 countries (though if you go back a few years the story changes).

I hope that I have shown that the gains over the last eight years (that’s as far back as that CSO dataset goes) have gone to the highest income groups.

Of course, all the data in these graphs beg questions. And the answers can slightly alter the conclusion. For instance, when looking at the data for types of employee, we should remember that the numbers could change – not because of actual pay increases or working hours increase – but because the composition of the group has changed.

However, the main point I would draw from all three graphs – growth in real wages, relationship to other countries and the distribution of those earnings – is that we’re heading into greater inequality if we rely on ‘market forces’.

We need a wage market that is negotiated between employers and employees. Such negotiation has a tendency to favour low and average income earners whereas market forces tend to favour higher income groups who have stronger bargaining leverage.

In short, we need a negotiated economy.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Construction work last month on the Elsmore housing estate in Naas, County Kildare; Michael Taft

Since the crash bottomed out in 2012, employment growth has been substantial – 377,000 according to the CSO. This is a strong performance by any standard.

But there is some confusion as to where the growth is coming from and what it says about the economy.

Let’s run through some numbers focusing on employees or wage-employment (excluding self-employed) and the market economy, which excludes the mostly public sectors such as public administration, health and education.

In the period of 2012 to 2018 (2nd quarter), the number of employees in the market economy grew by 268,000, or 28 percent (in the non-market sectors employment growth was lower reflecting the Government’s hiring freeze – 72,000 or 14 percent).

Construction employment nearly doubled in the last five years; not surprising given the collapse of building work during the crash.

The next biggest increase came from Administrative and Support Services (a category that includes high-paid aircraft leasing employees and low-paid cleaners and security guards).

Coming third was the hospitality sector. Notably, while tech companies are usually associated with high employment growth, the increase in the Information and Communication sector was below the market economy average (though being high-income their consumer spending will help create jobs in other areas).

From what sectors did these 268,000 jobs come from?

Nearly one-in-four jobs came from the hospitality sector – a low value-added, low-wage sector. Employment increased by over 60,000. The next largest sector was construction, bouncing back from the crash. This sector grew by 53,000.

Combined, hospitality and construction made up over 42 percent of all employee growth in the market economy. Growth rates appear to be concentrated in these two sectors.

Let’s look further under the hood.

Administrative and Support services had the second highest growth rate. Eurostat tells us that 75 percent of this growth came from ‘employment agencies’ – primarily, agency workers.

While we can’t necessarily apply this calculation to the CSO data (different methodologies may be at work), it is indicative and is confirmed by Eurostat’s finding that the number of temporary agency workers has more than doubled between 2012 and 2017.

Another potentially worrying trend is the rise of temporary employment or fixed-term contracts in the latter part of the last five years. Temporary employment is considered at high risk of precariousness.

The trends over the last five years show that the total number of employees increased by 23 percent while temporary employment increased by 13 percent. However, the data shows a sharp rise in temporary employment in the last 15 months – 66 percent of the increase in wage-employment was temporary contracts.

We should be cautious about this, as the data has a couple of breaks in the time series which means that there was a change in methodology (e.g. different questions which could alter survey responses on precariousness). Nonetheless, it is consistent with the increases we saw above with temporary agency workers.

While the above refers to the market economy, there is one interesting insight from the non-market sector. Health wage-employment increased by 19,000 between 2012 and 2018. However, only 30 percent of that growth came from the public sector.

Public sector wage employment makes up only 56 percent of total health wage employment – and it is falling. Is this particular stat trying to tell us a story about the slow privatisation of our health sector?

The Irish Times’ Cantillon observed:

‘The rapid return to near full employment here is undeniably a good thing, but it highlights a remarkable volatility at the heart of the Irish economy that allows us go from boom to bust to boom again in barely 10 years. Stability is not what we do here.’

Too true; one has only to look at the boom-bust-emerging-boom in construction employment. This chart includes the self-employed.

At the very end of the boom in 2007 nearly one-in-six people employed in the market economy were in the construction sector, and this doesn’t count other property-related jobs.

While we are still a way from that peak, we should expect construction employment to climb as residential and commercial building increases. Are we on another incline on the roller-coaster that is our construction sector?

The headline story for employment growth is good. However, when we look under the hood we find some worrying trends – growth in low-wage and precarious job creation along with the strong growth in the volatile construction sector.

It’s a good story but not without downsides.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Free public transport is central to a Universal Basic Service; Michael Taft

We have all heard of Universal Basic Income – the proposal that everyone receive an income sufficient to meet basic needs, regardless of income or employment status.

Now, there is another proposal from the University College London’s Institute for Global Prosperity. They are proposing Universal Basic Services (UBS).

They describe it as:

‘The provision of sufficient free public services, as can be afforded from a reasonable tax on incomes, to enable every citizen’s safety, opportunity, and participation.’

Free public services: they claim this will meet needs more directly, increase economic efficiency and reduce costs, and buttress the social fabric by focusing on public needs.

Based in the UK, the ICP’s starting point is the National Health Service – a free service based on need. They take this principle and apply it to:

Education

Shelter

Food

Transport

Information

Democracy & Legal Services

Some of these are fairly self-explanatory. Education should be free – from early years to third level. Households shouldn’t have to sacrifice to educate their children (education, in any event, is a public good) while students shouldn’t have to start out their working life in debt. And in Ireland we would have to include free health.

Other candidate services for a UBI are a bit more debateable. For instance, it is proposed that social housing be doubled (1.5 million in the UK) and be provided for free on a needs basis.

In this proposal, shelter is not a universal service but a free means-tested service. Similarly with food – UGL proposes to provide one-third of meals free to those experiencing food poverty (8 percent of UK population). Again, this is not a universal service but a free means-tested approach.

The proposal for free public transport is on more solid ground. A number of cities throughout Europe provide free public transport – including ferries and bike rental schemes.

In Ireland, nearly a million people have free travel passes, or more than one-in-four adults. There are further free travel schemes for island residents (e.g. Tory Island residents receive 8 free journeys on the seasonal helicopter to the mainland). So the principle of free travel is established for a significant number of people.

The UGL also propose free information which would include a household package of free basic phone, Internet and the BBC TV licence fee. Certainly, if digital participation is a necessity in the 21st century, then there is a logic for free internet.

While free universal public services are appealing, the perfect is the enemy of the good. Ireland struggles to reach the level of public service spending in our EU peer-group, never mind providing public services for free.

Ireland is a bottom dweller. Just to reach the second lowest spender – Austria – we’d need to increase spending on public services by €5.6 billion; to reach Danish levels we’d have to increase spending by over half, or nearly €19 billion (gulp).

However, UBS can help reframe the debate over public services. For instance, cost-rental or income-linked housing can deliver affordable housing to a huge swathe of the population.

Regarding public transport, it’s not just fare levels – it is also about urban planning (costs fall in higher density areas), frequency, ease of access and comfort.

However, a flat-rate fare of €1 for all Dublin public transport could provide an incentive to move from car-reliance and reduce costs for passengers.

We can also innovate the way we pay for certain services. I have written about turning the TV license from a flat-rate payment into a fractional charge on income. This would turn a regressive charging structure into a progressive one; as well as eliminating administration and enforcement costs, and license-evasion.

And if you think that providing basic internet to all households would be costly, it would come to only 0.6 percent of gross personal income (but the immediate issue is coverage, particularly in the rural areas).

There are other services we could look at. For instance, why shouldn’t childcare be free, like early childhood and primary education?

Recently, TASC proposed that childcare workers be paid directly by the state with childcare providers given a capitation grant for each child in their service. While there still might be a household co-payment, it would not constitute a bar to labour market entry or a burden on parents.

A key element in the UGL’s proposals is a radical decentralisation of public services to local and regional government. Once again, Ireland is a bottom dweller when it comes to local government spending.

In the Nordic countries over half of all public spending comes through local government, compared to 7.5 percent for Ireland. This may help explain why there is a general consensus in Nordic countries for higher spending – at local levels accountability is potentially enhanced.

However, ambitious and radical reform would be needed for Irish local (or sub-central) government to have the political and economic capacity to administer public services.

Most of all, UBS, in reframing the debate, could promote an inclusive and authentically democratic dialogue about the nature, operation and delivery of public services – a dialogue not just of ‘expert’ consultants but one that is extended throughout civil society, rooted in the experience and ideas of the producers (workers who deliver public services) and the users of those services; that is, all of us.

The emergence of public services in the late 19th century – education, health, sewers, water, waste collection, energy – was the foundation of social modernisation. We need to launch a new debate over the foundations of a 21st century public service infrastructure.

Universal Basic Services should play a significant role in that debate.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Labour Party leader Brendan Howlin at the party’s conference last Saturday, where he urged support for the EU’s digital sales tax; Michael Taft

Deputy Brendan Howlin made a surprising announcement during his leader’s speech to the Labour Party conference last weekend: Labour will support the EU’s digital services tax.

Labour is the first parliamentary party to break the green-jersey consensus to support this tax. The Workers’ Party has also come out in support of this measure (these are the only parties I know that are doing so; if I am mistaken I gladly stand corrected).

The digital services tax is a proposal from the European Commission to allow EU countries to impose a levy on the sales of digital services made in their own jurisdiction by large companies.

It has been described – especially by Irish detractors – as a tax on turnover as opposed to the traditional tax on profits but that is not the full story.

As the EU Commission puts it:

‘In the digital economy, value is often created from a combination of algorithms, user data, sales functions and knowledge. For example, a user contributes to value creation by sharing his/her preferences (e.g. liking a page) on a social media forum.

This data will later be used and monetised for targeted advertising. The profits are not necessarily taxed in the country of the user (and viewer of the advert), but rather in the country where the advertising algorithms has been developed, for example. This means that the user contribution to the profits is not taken into account when the company is taxed.’

In one respect, this is probably a rationalisation, though that doesn’t make it any less valid. A key driving force is the fact that digital companies are guilty of some of the most aggressive tax planning among multi-national companies, using sophisticated accounting and company formation strategies to drive down their tax payments.

This, and the prospect that some EU countries will unilaterally introduce their own digital levies, has prompted the EU Commission to make this proposal.

This levy has been widely criticised in Ireland as a ‘tax-grab’ by larger economies; as infringing ‘sovereignty’ over tax; and as he EU is ganging up on small countries.

However, these criticisms don’t stand up to close scrutiny. Either we let large digital companies decide where they pay tax (and how much) or we subject them to some type of democratic accountability.

For all its many faults, the EU represents a public response.

Rather than undermining Irish ‘tax sovereignty’, the tax-avoidance practices of many multi-nationals, including digital companies, are eroding the tax base of other countries and, so, their sovereignty. The digital services tax actually helps restore countries’ control over their tax base.

And if Ireland is being ‘ganged-up’ on, it is due to its key role in the global tax avoidance chain.

Another criticism is that this would undermine Ireland’s attractiveness to foreign capital. However, we are not relatively worse off given that this is an EU-wide measure. And foreign companies will still retain sufficient taxable income here and enjoy our low tax rates.

But supporting tax accountability over multi-nationals raises a number of other issues.

There is no doubt this would reduce Ireland’s corporate tax take. The Revenue Commissioners estimate a loss of €160 million from the digital services tax, but international tax experts I have spoken to suggest the figure could be much higher.

This will have to be made up with higher taxation in other areas; if not, we would have to resort to spending cuts.

Some commentators have said that the digital services tax – and other EU measures designed to counter aggressive tax planning – would undermine Ireland’s business model. If that means a model based on tax incentives that facilitate global tax avoidance, then that is a good thing.

But what comes after that? What policies do we need to attract foreign direct investment on a sustainable basis while building an internationally-competitive indigenous sector?

We need to start that debate now – and any new model shouldn’t start with tax breaks.

At the end of the day, even if international tax justice doesn’t float your boat, supporting measures like the digital services tax can be based on a hard-headed pragmatism.

The game is up.

The Government knows this, the Department of Finance knows this, even the Big Four accounting firms know this. We need to get ahead of the curve on this so that we can cut the best deal possible. Claiming that there is nothing to see here is no longer sufficient.

So Labour’s position is welcome. It certainly marks a policy change in matters relating to multi-national taxation, given their recent support for the Government’s decision to appeal the Apple tax ruling.

The logical extension of supporting the digital service tax – and the logical position of progressive politics in general – should be to support the principle of the Common Consolidated Corporate Tax Base and the Financial Transactions Tax.

These are, after all, part of a long journey with the goal of imposing democratic accountability on multi-national companies and finance capital.

Supporting the digital services tax is a good first step.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Taoiseach Leo Varadkar and Peter Casey at the Presidential election centre at Dublin Castle on Saturday; Michael Taft

The worrying thing about Peter Casey’s campaign was that it was unplanned. Having spent weeks hovering around two percent, he stumbled into his controversy on the Travelling community.

Such was the outcry he temporarily withdrew from the contest. However, he apparently received enough support that he came out of isolation to talk about the hard-working Irish, paying for everything and getting nothing in return, the alarm-clock people, the culture of entitlement and welfare-dependency – all in the last few days.

He ended up with over 23 percent.

Now imagine if all this was planned from the very beginning, that his starting platform encompassed these issues and more. Imagine if went on about how we were forced to pay for banks, how we had to ‘control’ immigration, how the EU is taking power from the people (insert your favourite complaint here). What might his support have been?

There’s been a lot of commentary deconstructing this vote – what it represents (racism?), who it represents, its long-term political impact. There’s been exaggeration and dismissal. One Minister called Casey voters moaners. However, with nearly one-in-four voters supporting Casey, dismissal and name-calling doesn’t help us understand.

We can describe Casey’s vote as anti-politics – the rejection of traditional politics, institutions and discourse. Hence, the epigrammatic ‘he speaks the language of the people’; ‘he connects with ordinary folk’, ‘he’s not afraid to say what people think.’

This rejection emerges out of the de-politicisation of public space:

‘The New Right Project of the last few decades – neoliberalism – has attacked the public domain in the name of free markets and market discipline. Public choice theorists have positioned politicians and civil servants as self-interested rent-seekers. Deregulation, privatisation, and audit have removed power and responsibility from public actors. Why should people engage with formal politics when those involved are not to be trusted and no longer powerful?’

Therefore, in a contest for a ceremonial office in which the winner was already known, people could vote with few consequences. And many used it to express a frustration at a stifling political consensus, crystallised in a supply-and-confidence agreement between the two largest parties playing out a mock battle of Government and Opposition.

Anti-politics defies neat ideological categorisation. Casey can go on RTÉ radio and attack the greed of the one percent and even describe himself as a socialist-capitalist symbiosis. We can call it a right-wing vote, even a far-right vote, but there were not insignificant strands of anti-politics in the anti-austerity demonstrations a few years ago.

What ties all this together is an inchoate ‘anti-establishmentism’: the juxtaposition of a corrupt elite (liberal establishment, the rich, cosmopolitans) who exploit a ‘pure’ people. Ironically, Casey victimised the Travelling community but many people who voted for Casey see themselves as victims.

It’s not that Casey’s vote will result in a new party or movement – though Gemma O’Doherty is already calling on people to organise ‘anti-corruption’ candidates for the next locals and Europeans. It’s that it may infect political culture in subtle, indirect and subterranean ways, awaiting a clever, opportunistic leader to exploit people’s legitimate concerns. And that’s when the danger would become real.

Currently, the Left is incapable of meeting this challenge – whether to channel people’s understandable frustrations into a more positive politics or to challenge the more reactionary elements it contains. The Presidential campaign was one more example of that.

Michael D. Higgins showed that a life-long politician of the Left, a principled proponent of progressive causes, thoughtful, intelligent and capable of reaching a broad range of the population in all social constituencies, can win national office not just once, but twice – the latter in handsome fashion.

What does that say for the fragmented Left, stagnating in the polls? Some supported the President, some opposed him and others abstained.

President Higgins is holding up a mirror to us: what is it that he can do that we seemingly can’t? What is it that he is saying that we’re not?

More importantly, how is it that he instills confidence in the majority of people and we don’t?

Hopefully the Presidential election will force progressives and the broad Left to do some serious reflection on the nature of anti-politics – both its symbols and its underlying narrative.

But just as importantly, we need to begin constructing a politics that can convince people, inspire their confidence, and seriously challenge for power – to persuade them that politics itself has the power to resolve problems collectively, and reverse the marketisation of people’s economic and social relationships.

A big ask but at least we have one important asset – for the next seven years we have a President who understands these issues.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

Yesterday: Bryan Wall: A Warning Shot

From top: Presidential hopeful Peter Casey; Michael Taft

So, Peter Casey has decided to continue inflicting his presidential campaign on all of us. And now he has stepped up his wannabe-Trumpism by showing off his ignorance of social protection.

In a Sunday Independent article he described Ireland as a ‘welfare-dependent state’, stating:

‘We have become a nation of people who expect, no demand, that the State looks after them. Pay all of their bills, provide them with homes, provide all sorts of social benefits.’

To be fair, Casey is not alone in getting social protection wrong. In my last post I showed that the Government projected a real (after inflation) cut in social protection.

This led someone to comment that I didn’t understand that when unemployment falls, so does social protection expenditure.

What this commentator didn’t know was that unemployment benefits make up only 12 percent of total social protection spending.

It is not fully appreciated what makes up social protection spending. Total Social Protection expenditure in 2017 was €19.9 billion.

What was it spent on?

The biggest category is pension expenditure – and this will continue to rise. Is Casey suggesting that the elderly are a needy, demanding group even if they have paid social insurance contributions their whole working lives?

The next biggest category is the sick, people with disability and those in need of care – another needy, demanding group in Casey’s opinion I suspect. And most child-related expenditure goes to households in work.

Another widespread misunderstanding is that social protection is paid out of taxes. Only a little over half of the total budget is paid out of taxes (€10.9 billion); the rest is paid out of the Social Insurance Fund which is financed by insurance contributions from employees, employers and the self-employed.

If you exclude the only universal payment – Child Benefit – then only a minority of the Social Protection budget is paid out of taxation.

This is not to say that there aren’t issues regarding access to, and participation in, Social Protection:

1. The social protection system works overtime to compensate for high levels of market inequality.

There is higher Irish inequality in the ‘market’ (that is, before social transfers) than in the Eurozone. Therefore, in order to achieve more equality (and reduce poverty) we need to spend more on Social Protection payments.

2. Ireland’s employment rate is low compared to most of the other EU peer-group countries.

Irish employment rates would always struggle to reach the higher levels of participation given the high proportion of households with dependent children (such households have lower employment rates in all countries).

However, the lack of affordable childcare and uncertain work hours exacerbates this. This leads to higher unemployment and non-activity.

3. Ireland suffers relatively high levels of chronic long-term unemployment.

Even though it has fallen substantially since the depths of the recession, there are still 70,000 long-term unemployed. The longer many people are unemployed the more difficult it is to return to work (e.g. skill erosion, reputational, etc.).

There are other issues, notably the relatively high level of unemployment among people with a disability. And it is worth noting that Ireland pays a much a higher level of housing allowances than in the Eurozone – a feature of subsidies chasing rising rents in a dysfunctional private market.

Addressing difficult issues with populist sound-bites (entitlement-culture, etc.) only means we don’t get any closer to resolving these issues.

Collective bargaining and ending precariousness can help in addressing market inequalities, affordable childcare can help in addressing sustainable access to a job, employer of last resort programmes (with the state and civil society organisations working in partnership) can help in reducing chronic long-term unemployment.

But, ultimately, what Casey’s ignorance overlooks is that, instead of having too much social protection, we don’t have enough.

In other countries, workers benefit from pay-related unemployment benefit and pay-related sickness benefit; women receive 100 percent of their pay in maternity benefit (in Ireland it is relatively small flat-rate payment); while in other countries workers receive pay-related pensions through the social insurance system unlike Ireland where workers are forced on to the private pension industry to top up their flat-rate state pensions.

In other words, social protection is just that – fully social and fully protective.

Peter Casey could have spoken to these issues and helped inform the debate. Instead, he just threw out nonsense on matters he didn’t understand. Unfortunately, there are a lot of Caseys out there.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Minister for Finance Paschal Donohoe unveiling Budget 2019 at Government Buildings last week; Michael Taft

After all the post-budget commentary – the articles, interviews, studio debates – I’ll attempt to summarise the broad direction of the budget with three charts based on the detailed tables at the end of the budget’s Economic and Fiscal Outlook.

These are the Government spending projections. I have used the GDP deflator for inflation and the IMF’s population projections.

Capital Investment

After the slashing and burning of public investment during the austerity years the projected increase in capital spending is welcome.

Investment is projected to increase by nearly 50 percent in real (i.e. after inflation) terms per capita out to 2023. Of course, we still need a debate over the best use of that money but the large envelope is certainly what the economy needs.

Public Services

Projected spending on public services (Government consumption), however, tells a far different story.

The Government’s projection will result in a real cut of nearly 8 percent in spending on public services per capita. This will occur at a time when a rising age demographic will require even more age-related expenditure.

Social Protection

Social protection payments will experience a similar trend as spending on public services.

Like public services, the Government’s projection will see total social protection payments cut in real terms per capita. This includes both cash transfers and benefits-in-kind. Again, this is taking place against rising pension payments.

* * *

The story is simple. The increase in capital spending is being funded by real cuts in public services and social protection. We should note, however, that the Government has given itself some wriggle room.

They have pencilled in €3.6 billion in ‘unallocated’ spending in 2023. But even if this were to be divided between public services and social protection, they would still experience real cuts.

And the Government still has fiscal space that it doesn’t intend to use. But dipping into that could undermine their plans to run strong surpluses.

So these are just projections. And there is always the danger of external shocks. Even a ‘soft-Brexit’ could see revenue decline and spending rise (through business closures and job losses). In the event of a ‘hard’ or ‘no-deal’ Brexit, all bets are off.

The point here is that the Government’s starting point is to squeeze public services and social protection to pay for increases in public investment.

That’s their strategy. It may not finally come to that. But it won’t be want for planning it.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Minister for Finance Paschal Donohue during last year’s budget press conference; Michael Taft

Budget day, today. Since all measures will be revealed later this afternoon there is little sense in going through what should be.

Let’s just throw a few facts into the debate for there are plenty of assumptions, assertions and ‘in passing’ comments that pretend to be self-evident truths.

While the following is a bit number-wonk we can take this as just one example of the unfortunate state of the debate over the economy.

In particular, it has been stated on a number of occasions that day-to-day current spending (health, education, social protection) is rising ‘too quickly’ and that the improvement in our public finances is ‘slowing-down’.

The evidence, however, is weak.

Current Spending
Since 2014, when current spending reached an austerity low, it has been increasing. But is it rising faster than the European norm?

Growth in Irish current spending since the start of fiscal recovery (2014) has been approximately average by Eurozone standards. T

his is particularly modest when one considers that Irish current spending fell by over six percent during the austerity years while Eurozone spending grew by nearly seven percent.

The fact is that current spending is not growing ‘fast’ – not in comparison with other Eurozone countries.

National Debt
There is a claim that our progress on reducing the debt and the deficit is sluggish. Let’s look at debt figures.

Since 2013 (when Irish debt was its highest) Eurozone debt has fallen by 9.8 percentage points when measured as a percentage of GDP; Irish debt has fallen by 53.1 percentage points when measured as a percentage of GNI*.

Of course, Irish debt was extremely high in 2013. But on any reckoning, this has been an incredible achievement.

Even looking at short-term period – the projected debt between 2017 and 2019 – Irish debt will fall by 6.9 percentage points; the Eurozone will only fall by 4.7 percentage points.

Our debt is falling faster than all other Eurozone countries. We still have a long ways to go to bring it to Eurozone levels but we are heading in the right direction.

Deficit
Remember those double digit deficit figures when the recession hit? By next year we will have effectively balanced the budget.

Indeed, we will have a significant current budget surplus – meaning that we are raising considerably more revenue than we are spending on day-to-day budget.

And we are doing better than the Eurozone average. Next year, Ireland will have a 0.2 percent deficit (measured against GNI*); the Eurozone deficit will be 0.6 percent.

* * *

This may seem small griefs but this is the type of debate we have – assertions and assumptions that prepare the ground for a restrictive fiscal stance regardless of the context or even the fiscal rules.

This is compounded by a general media commentary (with some exceptions) which accepts these assertions uncritically.

The best example of this is the Government’s claim that it has only €800 million to spend before discretionary measures (i.e. before tax increases); actually, it is €1.7 billion but you wouldn’t know that by that following public debate. Ironically, to get the actual state of affairs you need to read the Government’s own statements.

Should there be a restrictive budget? A surplus? An increasing emphasis on reducing the debt (and the manner in which you do that)? These are all legitimate areas for debate.

Unfortunately, we don’t get that debate. We get hollow arguments and unsubstantiated claims which only degrade economic discourse and close off alternative options.

Just like the debate over austerity.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

Rollingnews

From top: Minister for Finance Paschal Donohoe; Michael Taft

It’s that time of year when people and organisations put forward their favourite tax cut, tax rise or new tax altogether.

So in that spirit I’d like to put forward one of my favourite blue-sky reforms: abolish income tax and substitute an expanded Universal Social Charge (USC).

The USC is a great tax. It is simple, transparent and no matter how many accountants you hire, you can’t escape it. The tax has almost no exemptions, reliefs, or allowances – unlike the income tax system which is riddled with tax expenditures.

The rates for USC are:

Up to €12,012: 0.5 percent (though if you earn below €13,000 you will be exempt)

€12,012 to €19,372: 2 percent

€19,372 to €70,044: 4.75 percent

Above €70,044: 8 percent (except for self-employed – income above €100,000 is taxed at 11 percent)

In 2016, income tax – with rates of 20 and 40 percent – raised €14.3 billion. The USC – with rates of between 1 and 8 percent (the standard rate then was 5.5 percent) raised €3.6 billion.

The cuts to USC since 2014 have been substantial.

Originally, the USC had three rates: 2, 4, and 7 percent. Why cut a tax that is simple, transparent, easy to administer and raises substantial revenue on low rates? One can always change the rates and thresholds and still maintain revenue.

Let’s play out this exercise and assume the Government abolished income tax in the budget. By how much would USC rates have to rise to make up the lost revenue?

I am not suggesting that these same rates and thresholds are optimal. They would be very high and penal for those on low incomes. However, rates and thresholds can be changed quite easily with a provision to exempt income below a higher threshold.

What it does show is the potential to substantially reduce marginal income tax rates among middle income earners who now pay 44.75 percent (48.75 percent if you include PRSI) while maintaining tax revenue.

The above doesn’t provide for any tax reliefs. We could re-introduce tax reliefs into the system – credit for dependent adults, health insurance, pension contributions, etc. But for each credit introduced, we’d have to increase the tax rates or reduce the thresholds or both to maintain revenue.

As a rule, for each €100 million in tax relief, each of the rates above would need to increase by approximately 0.1 percentage point. However, moving towards a USC system would allow us to revisit the way we provide resources for households.

Take a small but important relief – the Blind Persons’ Tax Credit. The implication of moving to a USC-based system would be to remove this credit which is worth €1,650 (or approximately €32 per week) for recipients.

There is an additional relief for guide dogs worth €165. Removing this credit would seem, at first glance, inequitable.

But here’s what the Commission on Taxation said about this credit when it recommended that it be abolished:

‘We consider it inequitable that this tax expenditure only benefits blind persons who are liable to tax and with sufficient income to absorb the credit; blind persons on lower incomes or those dependent on social welfare obtain no benefit from this credit.

We recommend that the appropriate level of State support be provided to blind persons through the direct expenditure route and that the tax credit be discontinued.

However . . direct expenditure support at the appropriate level should be put in place first; only then should the tax credit be withdrawn.’

So those on social protection and those at work, but whose income is so low they don’t pay income tax, do not benefit from this credit. This is not equitable.

The Commission’s proposal would mean that all people with visual impairment would benefit – regardless of their employment or tax status.

We could go one better. We could increase the direct payment and tax it. This would mean that those on low incomes would benefit even more while those on high incomes would receive only a proportional benefit, commensurate with their income.

This would turn the payment into a progressive one.

There are a number of tax expenditures that could be turned into direct payments with progressive effect. Another one is the credit for households with an incapacitated child.

This is a valuable credit for households with real needs; however, those on low incomes do not benefit.

Again, the Commission on Taxation proposes the credit become a direct expenditure equivalent to the same amount – and then abolish the credit.

So moving to a USC-based system is not just about tax rates and thresholds – it could also reform way we deliver support to households.

We would need more detailed data and an assessment of the impact on different income groups – especially those who rely on crucial tax reliefs to make ends meet.

But this approach can help focus the debate away from marginal tax rates and on to effective tax rates – creating a simpler, more transparent and efficient tax system.

It is not about cutting revenue. It is about reform.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

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