Tag Archives: Michael Taft

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.

Rollingnews

From top: Cliff Taylor of The Irish Times; public sector pay is determined by the Public Service Stability Agreement agreed at  Lansdowne House; Michael Taft

Commentators are increasingly turning to the subject of public sector pay – in large part, to warn against pay increases or increased employment. In some cases history is being re-written.

Let’s go through some of the arguments – focusing on a recent article by Irish Times’ columnist and managing editor Cliff Taylor.

Not that he got everything wrong – he is a serious commentator. And what we need is a serious and evidence-based debate. Note: Quotes in bold below come from Cliff Taylor’s article.

‘The increase in numbers and, more lately, in pay will this year put the public pay bill back above its previous 2008 peak. It is due to hit €18.1 billion this year, more than 6 per cent above its previous high.’

True, but it doesn’t get us very far.

Public employee compensation (which includes pensions and social insurance) may have returned to 2008 levels, but the economy has moved on.

Public employee compensation fell from 13.5 percent of GNI* in 2008 to 11.2 percent in 2018. This may seem small but if the public sector pay bill were to return to 2008 levels, it would need to rise by €4.6 billion, or 21 percent. We are a long way from a decade ago.

‘Remember, the build up in public spending in the 2000-2008 period, based on a shaky tax base, left the exchequer finances exposed and filling the resulting gap contributed to a massive jump in the national debt during the crisis. The result: this year the Irish taxpayer will pay €5.3 billion in interest on the State’s debt.’

What exposed Exchequer finances?

Let’s not avoid the historical elephant in the room.

Exchequer finances were exposed by banks recklessly over-extending themselves, exploiting a speculative property sector.

When the crash came jobs melted away. Between 2007 (when construction employment started falling as property prices topped out) and 2010, 150,000 building employees lost their jobs – half of the fall in total employment.

And that doesn’t include all property-related employment (building materials manufacturing, transport, property-related finance, home furnishing retail, professional services such as architects, etc.).

This was further compounded by Fianna Fail’s fiscal policy that tied tax revenue to property-related tax receipts while cutting every possible tax (corporation, inheritance and capital gains, income, stamp duties, etc.) resulting in what Cliff Taylor rightly refers to as a ‘shaky tax base’. In a mere two-year period – 2007 – 2009 – revenue collapsed by €15 billion or 21 percent.

It is hard to attribute reckless bank balance-sheets, property speculation, the collapse in tax revenue and the destruction of property-related jobs to the growth in public spending, public services or the public sector payroll.

And interest rates? There is the little matter of the bank bail-outs. Between 2008 and 2011, the state was hit with a €42 billion bank debt bill, primarily due to Anglo Irish and Irish Nationwide (the bailouts of the systemic banks – Bank of Ireland and AIB – were categorised as ‘investments’ and were paid out of the National Pension Reserve Fund).

This, too, could hardly be laid at the door of the public sector pay bill.

Public, household and corporate finances became seriously unbalanced in the pre-crash period as people, companies and the government chased an over-heating economy.

In 1998, Irish consumer prices were 3 percent above the EU average; by 2008 they were 27 percent above the EU average. And this doesn’t factor in mortgages and house prices.

Any analysis of the pre-crash period that doesn’t start with the speculative-based fiscal policies and bank balance sheets is likely to miss the point by a wide margin.

‘Public sector numbers – and particularly pay – ballooned in the run-up to the crisis . . .’

This, again, is true and, again, misses a larger point. In the decade up to 2008 the public sector pay bill (both pay and employment) grew by an average 16.2 percent annually. All wages in the economy grew by 14.9 percent.

When we drill down further into average compensation per employee, we find that between 1998 and 2008 there was an annual average increase of 8.2 percent in the public sector compared to 7.3 percent in the total economy – or less than 1 percent annually. This could hardly be considered extravagant.

But how much of this was due to a compositional effect? We can drill down even further courtesy of the CSO.

Average annual growth narrowed even further. The story here is that (a) public sector wages (the CSO excludes health) increased only slight faster than industrial wages; and (b) both industrial and public sector wages rose faster than service sector wages.

If we had the health sector data it would have depressed the public sector average given that in 2008, health sector weekly income was 7.5 percent below average.

To restate: there was a lot of ballooning but the toxic air came from a speculative-driven economy and a fiscal policy tied to property interests. The comparisons between the public and private sector show similar patterns.

‘Average public sector salaries here are 40 per cent ahead of the private sector. However, public servants are generally older and better educated, factors that have been used to justify higher pay levels. A CSO study which tried to adjust for this element suggests that at lower to medium levels, public pay is ahead of the private sector, though the position may be reversed at higher levels.’

The CSO did more than that. It showed that public and private sector employees earned the same on a like-for-like basis (though prior to the crash there was a public sector premium).

In 2014, male public sector workers were paid 7 percent below their private sector counterparts. Women still held an advantage but that is due to a lower gender pay gap in the public sector (9.6 percent compared to 19.7 percent in the private sector).

‘International comparisons are more complex and vary from sector to sector. In general the percentage of public resources going to pay here is generally at or above the EU norm, though the numbers employed in the public sector here are lower than in many other EU countries.’

True, it is complex – made even more so by the lack of an internationally-agreed definition of ‘public sector’ employee. For instance, employee compensation in the health sector is not comparable across EU countries.

Many countries deliver their public health services through ‘non-governmental corporations’ such as social insurance-based occupational funds, or purchase them in the market. These are public in every sense of the word, but health employees are not categorised as ‘public’.

For instance, employee compensation makes up only four to six percent of the total health budget in countries such Germany, Belgium and the Netherlands, compared to tax-financed systems where employee compensation makes up over 40 percent of the health budget (UK, Sweden, Ireland). Other countries have hybrid systems. Comparing pay in the public health sector is not possible.

So let’s compare public sector pay excluding the health sector.

This still comprises 80 percent of public sector pay.

Ireland, based on GNI*, comes in at the bottom of the Eurozone, bar Germany. If we were to reach the Eurozone average we could employ over 40,000 additional public sector workers.

* * * *

None of this is to say that everything is fine in the public or private sector. And this is certainly not a full picture. There are important issues of fiscal management and productivity that we need to get right.

And who is best placed to lead sound management and improved efficiency?

Ellen Rosen was writing about the public sector but her focus on worker empowerment is just as applicable to the private sector.

‘It is the [public sector] workers who discover that things are not working as it was assumed they would, who first encounter the unexpected difficulties, and who are the first to hear from the clients about needs that the program is not meeting. In short, workers know the operations most intimately and are in the most immediate contact with the clientele.
Workers are not only the natural source of feedback on how things are going, but also the natural source of ideas and insights into the specifics of operations.’

We can have a shouting match over public sector pay and efficiencies (Cliff Taylor never descends to that) with duelling stats and anecdotal evidence that can border on the hysterical – remember the Ministerial claim of a ‘civil war’ between public and private sector workers?

Or we can have a more productive and effective exploration of the issues involved.

It shouldn’t be too difficult a choice.

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


From top: Finland’s two-year basic income trial failed to encourage its participants to work more but it did improve their wellbeing; Michael Taft

In 2017 the Finnish Government launched a two-year experiment in Universal Basic Income (UBI).

Two thousand unemployed people were selected at random and paid an unconditional €560 per month (though, in the complex Finish social protection system, they still retained social assistance, housing and sickness allowance).

Even if they found work they continued to receive the €560 per month – as per the nature of UBI. The experiment is over and an initial report published. The two main findings are:

The experimental UBI didn’t increase employment among the recipients;

however There was a marked increase in well-being

It is important to note this initial assessment only covers the first year of the experiment. So we are looking at half-time results. Things may have changed for recipients by the end of the second year.

The experiment has been criticised on the grounds that (a) the sample size was too small (it was originally intended to be 10,000); (b) only unemployed people were selected, whereas UBI would have benefits to those both in and out of work – for instance, the low-paid; (c) its design focussed almost exclusively on the impact on the labour market; i.e. whether it would increase employment among recipients.

Regarding the last criticism, if UBI were to create jobs it would be due to a substantial redistribution to low and average income earners which would boost demand in the economy (though it could also increase inflationary pressures).

The limited experiment was not designed to test demand-boost so the employment result is not all that surprising.

Yes, a number of people felt better but is that worth the price? There are identifiable fiscal benefits that come with this enhanced well-being.

For instance, in the experiment the UBI recipients claimed an average of €121 in sickness allowances compared with €216 for a control group of non-recipients. That would yield significant savings if applied across the economy.

So where does that leave the UBI debate in Ireland? It seems stuck between proponents arguing for a fundamental systemic change, and those who have economic and social objections to UBI in principle as well as those who pragmatically oppose it on grounds of cost and unintended consequences. In short, the debate is spinning its wheels.

This is unfortunate, because one does not have to be a proponent of a full-blown UBI to see the potential common sense in many aspects of it.

Here is an example of a policy based on certain UBI principles but which could win support of UBI sceptics.

The Government could transform personal tax credits into a basic or minimum guaranteed income for all. Currently, everyone at work – except for those whose income is below the entry threshold – receives a cash payment of €63.50 per week through the tax system: the combined personal and PAYE tax credit.

If that were paid to everyone the benefit would be almost exclusively focused on low earners – in particular, those in low-paid precarious work.

No one in the tax net would benefit – after all, the ‘cash’ payment is only equal to what they get today in personal credits

Social protection recipients wouldn’t receive any benefit either, as the cash payment would be absorbed into the current payment (which is not to say that social protection benefits shouldn’t be increased but that is a separate issue)

The only beneficiaries would be the low-paid who, if below the tax threshold, do not currently get the full benefit of the personal tax credits. It would also guarantee a minimum payment for those on precarious hours regardless of how many hours they work.

The cost would be substantially less than the Taoiseach’s promised tax cuts of €3 billion. A back-of-the-envelope calculation suggests that, in 2016, paying everyone in work €63.50 per week would cost €9.6 billion. There would be a saving of €8.0 billion in abolishing personal tax credits.

This would result in a net cost of €1.6 billion. This should be considered an outer bound figure (other calculations put the net cost lower).

But these are headline estimates. There could be further costs and savings through the interaction of social protection, subsidies and work income depending on the range of personal circumstances.

For instance, this new payment would replace most of the means-tested student grants and be available to all households (currently many average-income households are excluded). This could happen with other programmes.

€63.50 per week (€3,300 per year) sounds like a small amount and it is – but it would be an improvement for those on low pay and in precarious work.

For instance, someone who can only find work for 26 weeks of the year on the minimum wage would gain €1,260. If this is shown to have social and economic benefits this minimum income floor could be raised over subsequent years.

This is would not be a substitute for other measures to combat precariousness. That will require a number of strategies – collective bargaining rights, statutory reforms and fiscal instruments such as outlined here.

Ultimately, the advantage of this approach is that one does not have to be a supporter of UBI to see the advantage of transforming personal tax credits into a minimum payment to all.

And if the benefits revealed so far by the Finnish experiment are replicated here, we would be promoting social well-being as well.

Not a bad day’s work for a little common sense.

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

From top: Members of the Dundrum Housing Action group at the official opening of 44 new social homes at Rosemount Court, Dundrum, Dublin 14 last year; Michael Taft

With all the commentary understandably focused on a ‘hard border’ it is easy to forget that even in a soft Brexit, with a satisfactory outcome to the border, the hit to the economy could be substantial.

We need a progressive response to the issues – one that goes beyond merely throwing money at exposed companies in the hope that some of it will be used ‘smartly’.

The following outlines some proposals – but the most provocative one I’ve saved for last.

For a public housing drive can be of great assistance to softening the edges of a bad Brexit (and all Brexit outcomes, unless Britain remains in the custom union, are not good).

1. Sectoral Partnership Schemes

A number of manufacturing and service sectors have been identified as being relatively or highly dependent on the British market and, so exposed to a bad Brexit: food & beverages, traditional and materials manufacturing, printing, some pharmaceuticals.

Further, financial, communication and IT sectors could also be affected.

A Sectoral Partnership Scheme would direct state aid to sectors and companies to help them adapt. This could be through goods and market diversification, niche marketing in the UK, production efficiencies, finance accessing, R&D and innovation initiatives, etc.

Sectoral committees (based on specific sectors such as food, printing, etc.) would be established with employer, employee and government representatives who would oversee these supports. All stakeholders would be involved in the design, implementation and monitoring of public supports.

Employee participation in particular, through representative agencies such as trade unions, makes common sense since employees are the largest group of stakeholders affected. With input from employees, firm and sectoral strategies are likely to be improved.

2. Short-Time Working Scheme

The Government should introduce a short-time working scheme (similar to ICTU’s proposals re: the construction sector in 2009). Germany used this approach during the early part of the last recession.

This would help ensure that workers remain in work. Where there is a fall in firm output owing to a Brexit-caused market hit, instead of laying people off, working hours would be reduced with the state subsidising the employer/employee for the wage loss.

This would operate for a temporary period but it would give time for firms to adjust (e.g. for instance, under the proposed SPS above) or for job creation agencies to develop alternative employment in the area affected.

3. Strengthen Automatic Stabilisers – Introduce Pay-Related Unemployment Benefit

Unemployment Benefit acts as an automatic stabiliser when unemployment rises. Income from social benefit replaces income from work so that consumer demand can be maintained and the household’s income loss is ameliorated.

However, Ireland’s automatic stabilisers – unemployment benefit – are weak. In other EU countries, unemployment benefit is pay-related – up to 80 percent of previous wage for a period of time; in Ireland, it is flat-rate and represents less than 25 percent of an average full-time employee’s previous wage.

Unemployment Benefit should be reformed to introduce a pay-related element (e.g. 75 percent of previous wage for a minimum of nine months). In the event of job losses arising this measure would help maintain consumer demand and, so, ensure that further job losses don’t occur because of educed consumer spending. It would also cushion the job-loss impact on household’s finances.

4. Public Housing

Public housing can be an important instrument in both resolving the housing crisis and reducing the hit from a bad Brexit; namely, a dedicated and substantial drive to construct public housing that can meet the housing needs of people both in and out of work.

There are two issues here. First, if we enter a downturn (not necessarily a recession) with a housing crisis, it is likely to be exacerbated and, so, cost even more to resolve on the other side of the downturn. In this instance, a public housing drive can be seen as cost-reducing measure over the medium-term.

More importantly, a public housing drive can replace the reduced growth arising out of a bad Brexit.

Let us assume that national income gets hit (GDP or GNI or GNI*). Consumer spending, domestic investment and employment are reduced with negative consequences for public finances: falling tax revenue, increased public spending through rising unemployment payments, etc.

A recent study from the Irish Fiscal Advisory Council provides evidence that a public housing construction drive could drive up GDP in the short-term.

What this graph – taken from the Fiscal Council data – shows is that for every increase in investment equal to 1 percent of the domestic economy, the benefits will be nearly doubled in the short to medium-term in terms of domestic economy growth.

Model 3 is lower because this measures the entire economy – both domestic and foreign-owned. The foreign-owned sector is unlikely to benefit from any such increases as they rely on foreign demand.

Over the long-term, the benefits disappear as is usual with once-off increases. But the issue here is to ameliorate any damage in the short-term from a bad Brexit. We can expect to see GDP/GNI* rise along with tax revenue; expenditure will fall given that more jobs are being created by the investment.

There are further, secondary, gains from a public housing drive that these multipliers wouldn’t pick up. For instance, more public housing would reduce expenditure on Housing Assistance Payments (HAP) and other subsidies to the private sector.

Secondly, if cost-rental housing is rolled-out, then the savings on rents for tenants (which could come to hundreds of Euros a month) would be redirected back into the productive economy, increasing spending on goods and services.

What all this points to is the need for substantial and cooperative intervention to counter an external threat; substantial in terms of state resources, and cooperative in terms of employee involvement.

That this can help resolve a pressing social need – housing for those in need – shows how a progressive response can lead the national response to a crisis manufactured in Britain.

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

Rollingnews

From top: Christmas shoppers on Grafton Street; Michael Taft

Colin Murphy has a provocative column in The Sunday Business Post (January 27 – behind paywall) about measuring our economy and national well-being.

The traditional measure is GDP. The traditional yardstick is the higher the GDP per capita, the more prosperous the society. Maybe.

Even the originator of GDP, Simon Kuznets, had his doubts about that, as Colin points out:

‘Kuznet argued that spending that did not further the welfare of society – such as on armaments – should not be included but he was overruled. And he consistently warned against the over-interpretation of the data. National income and GDP were not measures of economic welfare, he stressed: to understand welfare you would need to know not merely what income amounted to but how it was distributed. ‘

And now the illegal narcotics trade and prostitution are included in GDP. How does that fit in with ‘economic welfare’?

A number of economists, sociologists, statisticians and activists have tried to come up with an alternative set of data to reveal a more effective picture of a nation’s well-being but the range is so extensive, the interactions complex and the permutations voluminous.

Surprisingly, there is no consensus on how to do this.

The OECD has devised an interesting Better Life Index comprising housing, income, employment, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.

But there are other indexes that have over a hundred measurements and it is difficult to come up with a single number that can compete with GDP.

For instance, someone in country A may have a higher income than someone in country B. But people in country B pay less on rent and receive free healthcare – benefiting from lower costs and security. Though income-poorer they may be better off than people in country A.

Another problem is that wellbeing can be a subjective matter. It’s not just about how objectively we compare, it’s how we feel about our situation.

In this spirit of exploring the different indicators I’d like to draw attention to three particular measurements that don’t get much airing.

These are not conclusive tests or even the best indicators. But they do tell us something about people’s wellbeing.

Inability to Make Ends Meet

This is a subjective measurement contained in the EU Survey of Living Conditions that asks people how well they can make ends meet – that is, meet every day expenses. There are five responses: ‘with great difficulty’, ‘difficulty’, ‘some difficulty’, ‘fairly easily’ and ‘easily’.

Combining ‘great difficulty’, ‘difficulty’, and ‘some difficulty’ we find Ireland at the top of the EU high-income league. 61 percent expressed some type of difficulty in making ends meet – compared to a 32 percent average among other EU high-income countries.

Irish households are nearly twice as likely to experience difficulty making ends meet and nearly four times the German rate. [It is worth noting the high French levels – could this be a contributing factor to the emergence of the gilet jaune protests?]

There is a difference, though, between ‘some’ difficulty and ‘great’ difficulty. How does Ireland fare in the specific difficulty categories?

Ireland leads the most difficult categories – more than twice the ‘great difficulty’ average. With ‘some difficulty’ Ireland ranks second behind France.

The only bright spot in these depressing numbers is that difficulty experiences are falling from even higher rates that were generated during the recession / austerity period.

Households experiencing ‘great ‘difficulty have halved since the peak in 2012/13 and are back to 2007 levels. Those experiencing difficulty has also fallen since the 2013 high and is nearly back to pre-crash levels. However, those experiencing ‘some’ difficulty are still close to the recession high and still significantly above pre-crash levels.

It should also be noted that had we returned to pre-crash levels (54.3) we would still be well above the EU high-income country average.

Unable to Meet Unexpected Expenses

The EU Survey on Living Conditions also asks households their ability to meet unexpected expenses. This differs from making ends meet as it refers to meeting a substantial cost such as replacing a broken cooker, boiler, fridge or car; or some other expense of equal value that is unexpected (a hole in the roof is another example). Again, Ireland fares poorly.

We are the league leaders – four out of ten households are unable to meet unexpected expenses. This is considerably above the average of other EU high-income countries and more than twice the rate of Sweden that has the lowest level.

At least we are improving. A decade ago – in 2007 – the rate was 39.1 percent and rose to a recession / austerity high of 56.4 percent in 2012. However, even if we were to return to pre-crash levels we would still well above the average.

Living Standards: Actual Individual Consumption

Actual Individual Consumption (AIC) is used by the EU as a proxy for living standards. It combines consumer spending per capita and Government spending on goods and services for households (this includes services that the Government offers free or at below market-rates). It is adjusted for inflation and the purchasing power standard (PPS).

Ireland is at the bottom – far behind the average but also far behind the next lowest country, France. Ireland would have to increase AIC (real consumer spending and Government services) by 23 percent to reach the average.

In fact, so poor do we rate in this measurement that we are behind Italy and not that much higher than Spain or Lithuania.

And we are still quite a bit away from the pre-crash level. In 2007, Irish AIC was 21,600 PPS. This fell to a recession low of 18,800 PPS in 2010. In 2017 this this has risen to 20,500 PPS but we still have a ways to get back to where we started a decade ago.

The one drawback with this measurement is that we shouldn’t assume that high consumer or social spending equates to well-being. Consumer spending may be poorly distributed (i.e. more spending by a small group at the top) and social spending may be inefficient.

There is some co-relation with this graph and inability to make ends meet: France and Ireland are low in the AIC table and high in the making ends meet table. Germany is reverse. But for other countries there are slightly contrasting stories.

* * *

What do we do about this? We can make reasonable assumptions about why people are finding it hard to make ends meet: lack of income and low-pay, high rents, medical bills, cost of raising children, mortgage arrears, etc.

However, we can make a more forensic analysis. Quite simply, we should ask people why they are finding it hard to make ends meet and what they need to make their situation better.

The CSO could be provided the resources to conduct this in-depth survey (and the resources would be miniscule). The results should give rise to a national debate, for clearly a significant proportion of households suffer inability to make ends meet and to meet unexpected expenses.

That doesn’t mean we have to wait for such results. We should start addressing the housing crisis in and of its own right. We should start giving employees greater collective rights in the workplace to increase enterprise efficiency and combat low-pay. We should go much, much further to combat precarious work.

However, rather than just assuming what people need, we ask the people themselves. This is the first step in getting people socially and economically engaged. It’s when people start determining the policy responses that substantial progress can be made.

In short: well-being is a political issue.

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

Rollingnews

From top: Refugees march during The International May Day festival in Dublin in 2017; Michael Taft

The far Right and their allies may not yet be a significant political force in Ireland but they are proliferating on a number of internet platforms, with the constant threat this could spill out into the mainstream debate.

Working under the cover of extremist hashtags one of their weapons is to distort data to give their claims some credence.

Claims that Ireland has a high level of non-citizens, that we are being inundated with asylum-seekers, that immigrants come here to live off our ‘generous’ social welfare payments dominate the far Right discourse.

One might be tempted to ignore them since to date, they are a tiny force. But, as we have seen with the suspected arson attacks on proposed direct provision centres in Moville and Rooskey, their claims can feed into dangerous results.

So let’s go through their assertions.


Non-Citizens in Ireland and the EU

Ireland has a higher proportion of non-citizens than the EU high-income countries average – with nearly one-in-eight Irish residents being citizens of another country. But when we look under the hood, we find something interesting about the composition of Irish non-citizens.

Nearly one-in-five of non-citizens living in Ireland are UK citizens. In the EU high-income countries, UK citizens make up less than 2.5 percent. This is not surprising. Nor is the level of non-citizens from other English-speaking countries.

US, Canadian, Australian and New Zealand citizens make up twice the proportion of non-citizens living in Ireland as compared to other high-income EU countries. There is no data for France and the UK across these groups – though US citizens made up 2.5 percent of all non-citizens living in the UK; the comparable figure for Ireland is 2.2 percent.

Maybe the Far Right is concerned about all those English, Scots, Welsh and even Northern Irish (Eurostat categorises them as non-citizens) living here. Or similarly with Yanks, Aussies, etc.

I suspect, however, that what agitates the Far Right are all those ‘others’ – Asians, Africans, South Americans and people from the Middle East.

These are small numbers. And when the Irish Far Right gets in their ‘Islamophobia’ mode they are getting worked up over really small numbers. Of course, they might reply the situation is ‘getting worse’. Translation: there are more and more of these folk pouring in here, tsunami-like.

But no, there is almost no growth in the population of these non-citizen groups in Ireland.

Immigrants and the Labour Market

Another feature of the Far Right discourse is that immigrants come here to ‘live off the state’ (like senior creditors of banks, I suppose).

So let’s examine the unemployment rates among non-citizens in the high-income EU countries. The labour market gives us a sense of alleged ‘sponging’. It is also an indicator of integration – work being that social space where people from everywhere come together to contribute to the economy and society.

The following looks at the unemployment rate among citizens and non-citizens and the resulting ratio. Unfortunately, this database doesn’t break down unemployment by the countries of non-citizens.

The higher the ratio, the greater unemployment is among the non-citizen group; the lower the ratio the higher the level of integration.

Let’s walk through this table. The unemployment rate here among Irish citizens was 6.6 percent in 2017; among non-EU citizens it was 8.9 percent. This results in a ratio of 1.3. This is the best result among the high-income EU countries.

Other countries are struggling to integrate non EU-citizens into their labour markets. For instance, in Sweden, while unemployment among Swedish citizens was 5 percent, among non-EU citizens it was a staggering 29 percent – a ratio of 5.4. Germany, Austria and Belgium are similarly struggling – though it should be pointed out that over the recent past these countries welcomed a large number of people fleeing wars and deprivation. It will take time to integrate these people into the domestic labour market.

The point here is that the claims that people come here to sponge off the state are ill-founded. We have one of the best records of integrating non-EU citizens into our labour market.

Asylum Seekers

A third trope of the Far Right is that we are being overrun with asylum-seekers or, as some would have it, ‘bogus’ asylum-seekers.

Again, the data doesn’t bear this out.

Along with the UK (which puts their Brexit/immigration debate into some context), Ireland had the lowest level of asylum applications in the period between 2015 and 2017 – the years of the European migrant crisis.

Over the three-year period there were 8,400 asylum applications in Ireland. If the applications were at the high-income EU average, this would have meant 39,000 (if at the level of table-topper Sweden, it would have been 96,000).

And lest some would argue that we have a lax regime, that anyone who applies for asylum is granted it, the fact is that Ireland is rather tough.

Only 39 percent of asylum applications are met with a positive decision here. The average for high-income countries is 55 percent.

* * * *

To summarise:

Ireland has a relatively high level of non-citizens in its population. But this is down to the high level of UK citizens and citizens from other English-speaking countries (US, Canada, Australia and New Zealand).

Ireland has significantly fewer non-citizens from outside the English-speaking world than high-income EU countries.

The proportion of non-citizens has remained stable over the last 10 years (i.e. there is no ‘surge’).

Non-citizens in Ireland are more integrated into the labour market than any other high-income EU country – that is, there is lower unemployment among non-citizens. So much for the ‘sponging-off-the-state’ argument.

We have had far fewer asylum-seekers and we grant asylum to far fewer than most other high-income EU countries.

The claims of the Far Right and their allies collapse when we look to reality.

There are many who get taken in by the Far Right and not because they are racist or anti-immigrant. Many are confused, hurting, looking for answers. Progressives must engage with this constituency with empathy, pointing out the reality and providing a better alternative for them, their families and their communities.

As to the Far Right and their allies, I am loathe to use the label ‘racist’. However, their manipulation of information can legitimately lead one to conclude that many, if not most, are either conviction-racists or instrumental-racists (i.e. they are not racist themselves but use racist arguments in pursuit of their agenda). I’m not sure there is any objective difference.

But progressives should not be content to point out the failings of the other side. Throughout Europe, the issue of immigration has divided the Left. Its complexity – culturally, economically – means there are no simple answers.

It is imperative we create a space to hear a range of progressive viewpoints. We don’t have to agree – indeed, we can disagree robustly – with different propositions and analysis. However, to curtain-off the debate over migration-management leaves us with fewer tools to construct an alternative.

The Far Right – through its extremism and manipulation of facts – is trying to poison the immigration debate in order to polarise positions. In reality, the Far Right doesn’t want an informed debate on immigration. They want a shouting match.

They hope, in this atmosphere, to make gains. We shouldn’t allow them that oxygen. We should challenge them at every turn.

And engage in an inclusive dialogue throughout society that can win people over to a positive message – about the economic, social and cultural benefits of immigration and the immigrants themselves.

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

Rollingnews

Michael Taft (above) writes:

Today, just six working days into the New Year, the average remuneration for CEO’s in the top 26 Irish companies (which represent 95 percent of the market value of the Irish Stock Exchange), has already exceeded the average yearly pay for a full-time employee.

The rest of the year is cream.

ICTU has release their latest survey of CEO compensation. They found that in the top 26 Irish companies CEO pay – basic pay, bonuses, long-term investment plans, benefits-in-kind and pensions – now averages €2.3 million. This compares to annual compensation for a full-time employee of €53,800 (including employers’ social insurance and other in-work benefits).

Starting at the top we find the CEOs in CRH, Kerry Group, DCC, Tullow Oil, Paddy Powers and Ryanair all had compensation packages in excess of €3 million.

In 20 of the 26 companies, CEO pay exceeded €1 million.

Not only is the level of CEO remuneration high, the rate of growth has also been high.  Between 2009 and 2015 – the years when we were all supposed to be tightening our belts – the average increase in CEO remuneration was 75 percent, or €890,000.

Average employee compensation for full-time employees increased by 1.6 percent, or approximately €850.

In 2017, this upward trend continued though at a slightly slower pace. Average CEO pay increased by 6 percent. This compares to an increase for full-time employees of 1.7 percent.

CEO compensation is made up of a number of components:

Basic pay makes 33 percent of total compensation. Long Term Incentive Plans (generally share options) make up another third with bonuses making up a quarter.

Some may argue that CEOs earn their level of remuneration. However, there is no consensus among scholars regarding a link between CEO pay and firm performance.  Indeed, there are links between high pay and negative economic and enterprise impacts.

Chris Dillow’s post here refers to a number of studies that show high pay can lead to lower productivity, perverse incentives, and a disproportionate focus on short-term indicators at the expense of long-term outcomes such as investment.

Further, we should remember that CEO pay is not set by the ‘market’ but rather by remuneration committees; in other words, the CEO’s peer group.  The purpose of these committees is to provide a robust criteria and company comparisons in order to set CEO pay.

But as TASC’s report, Mapping the Golden Circle, points out, there can be an incestuous relationship between, CEOs, Board Directors and members of remuneration committees.

The latter sit on the boards of companies and board directors can be CEOs or senior executives of other companies:

‘ . . . executive compensation in large publicly traded firms often is excessive because of the feeble incentives of boards of directors to police compensation … Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO.’

To put it another way, what would be the reaction if we proposed that workers set the wage of other workers in comparable firms by committee?

If high CEO pay has negative economic and firm consequences, along with offending our more egalitarian instincts, what can be done?  ICTU has a number of suggestions:

Require companies to set objective criteria for CEO pay including factors such as employee welfare and environmental protection as well as financial performance

Expand the remit of the Low Pay Commission to monitor the relationship between highest and lowest pay

Report on the use of temporary agency workers and sole traders (which in many cases are used to drive down payroll expenses)

Make shareholders’ decisions on executive pay binding rather than advisory (yes, the ‘owners’ of the company do not have an automatic right to collectively set pay – so much for ‘ownership’)

A higher tax on very high incomes (e.g. in excess of €1 million).

However, if high executive pay is part of a larger picture, we need broader economic and social strategies to address the problem of the widening gap.  There isn’t the space to go into that here but as a start I would propose the extension and deepening of collective bargaining.

As the OECD pointed out – and discussed here – the top 1 percent have a lower share of income in economics where more workers are covered by collective bargaining.

This makes sense: collective bargaining puts upward pressure on low and average incomes and, so, puts downward pressure on higher incomes – whether in the firm or the economy.

There is no magic bullet in all this.

ICTU continues to do the debate a service in providing annual information on CEO pay.  Hopefully, this will provoke greater public, political and academic interest in the subject.  Excessive gaps in income and high levels of inequality are socially corrosive and economically inefficient.

If we’re not careful, every day in the future will be a day for fat cats.

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


From top: Irish waste workers would need nearly 60 percent pay rise to reach their EU peer-group’s mean average; Michael Taft

In their EU peer group, the Irish low-paid are some of the lowest paid, according to recently published Eurostat data.

In the overall economy, Irish employees are paid less than their peer group – other high-income EU economies (essentially, the EU-15 excluding the poorer Mediterranean counties and, very shortly, the UK).

Eurostat estimates employee compensation (including labour costs which make up a fraction of the total) for firms employing 10 workers or more. Public Administration is excluded as many countries do not report this.

Ireland is at the bottom of the table, above only low-paid UK. On average, Irish employees would need an 18 percent increase in compensation to reach the mean average of our peer group.

It should be noted that the average is mean; another measurement would be the weighted average but Eurostat does not provide this. However, the weighted average would, in most cases, be somewhere between German and French levels since they dominate this grouping. This would still leave Irish workers requiring a 13 percent increase.

Let’s turn to the Irish low-paid sectors in the market economy (essentially the private sector), which for the purposes here are calculated at 2/3 of the Irish average.

There are eight sub-sectors below this benchmark: retail, hotels, restaurants, waste collection, security, building services (cleaners and gardeners), and wearing apparel and furniture manufacture.

There are 315,000 people employed in these sectors, or one-third of market economy employment.

The largest sub-sector is the retail sector with over 153,000 employees. Ireland is at the very bottom, even below low-paid UK.

Irish retail workers would need a 43 percent increase in compensation (a 33 percent increase if we use our short-cut weighted average; that is, half the difference between Germany and France). The gap between Irish and average peer-group pay is more than twice as much as the national gap.

The next two biggest sectors are in the hospitality industry: hotels and restaurants.

If anything, the situation is worse for the 128,000 Irish hospitality employees – with a larger gap with their peer-group than retail workers have.

There are two other low-paid service areas: private security personnel and building service workers (primarily cleaners and gardeners).

The 27,000 Irish workers in these sectors also see their compensation trailing significantly.
The story is much the same for the other sectors. The small manufacturing sectors of furniture and wearing apparel also find themselves well behind their peer-group.

There is one last group: the waste collection sector. These are the workers – 3,500 of them – who pick up, treat, recycle and dispose of our rubbish.

Irish waste workers would need a nearly 60 percent compensation increase to reach their peer-group’s mean average. Even taking the short-cut weighted measure, they would need a 42 percent increase, but this probably understates this measurement given the high compensation levels pertaining in other countries.

None of the above factors in inflation (purchasing power parities). If we did that we would find the gap with the mean average shrinking but, when using a weighted average, it would widen (largely because Germany is low-inflation economy).

It should be further noted that employee compensation includes both the direct wage (paid directly to the employee) and the social wage (paid to a Social Insurance Fund).

Through the social wage, employees in continental Europe can access free (or low-cost) health care, subsidised prescription medicine, and in-work income supports (pay-related sick benefit, maternity and paternity leave, etc.).

Further, in many countries the social wage – apart from social insurance – subsidises public transport (e.g. Paris) and generous family supports (e.g. Austria).

Even when you exclude the social wage, Irish wages are low – with retail workers needing a 22 percent increase just to reach their peer group mean average (or 15 percent when inflation is factored in).

Add in all those costs Irish workers bear that workers in other countries get subsidised through the social wage, and we now we see why Irish living standards are relatively low.

Getting a pay rise is only one aspect of correcting this situation.

There is a need to increase the social wage (employers’ social insurance) so that workers can consume more public services and supports collectively.

We need to focus on the lowest-paid in society. It is scandalous that so many are left behind on such low wages.

We need to focus on employees’ rights in the workplace (e.g. collective bargaining), bargaining across sectors and, just as importantly, a social-cultural transformation that no longer tolerates such grim conditions.

These are the people – our neighbours, friends, family members, and fellow residents – who serve our meals, clean up after us, secure our buildings, assist us in the shops, pick up our rubbish and manufacture the goods we use.

Maybe it’s a bit passé or old-fashioned to say that this is a moral issue. But given the level of low pay, hopefully not.

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

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.