From top: bin collectionb; Michael Taft

In Ireland, what’s good for Donegal is decided in Dublin.

This must change.

Michael Taft writes:

Whenever one compares Irish government finances with that of other small open economies or Nordic countries, showing that we spend far less on public services, social protection and investment someone invariably comes back with: ‘we can’t trust our government to spend efficiently, or honestly, or at all’.

For those of us who believe in a strong social state, this is a challenge. If people are to accept higher levels of taxation to pay for higher levels of public services, they have to have confidence in state institutions – or at least have confidence those institutions are accountable to them.

So how do the other countries do it?

There is no one answer but the following may be a contributing factor: other European countries are far more decentralised than the Irish state.

The Irish state is one of the most centralised in Europe, fiscally speaking. The central government here spends the highest proportion of total government spending than almost any other EU country. In the EU-15, central government accounts for 54 percent of all government spending; in Ireland it accounts for 95 percent.

Another way of look at this is the amount that local government spending makes up.

Let’s compare ourselves with those high-spending Nordic countries.

We can see how decentralised these other high-spending countries are – with Danish local government making up nearly two-thirds of total government spending (interestingly, Denmark is the highest spending state in the EU; the other countries are not far behind).

By contrast, Irish local government is weak, very weak.

So what do these other countries spend their money on through local government?

There are four main areas:

On average, in the Nordic countries local governments are the main financial sources for health, education and recreation & leisure. In Ireland, on the other hand, local government plays a much diminished and, in the case of health, a non-existent role.

Even in social protection, Nordic local governments play a prominent role. It should be noted that the category of social protection is not just about cash transfers; it includes in-kind benefits – home-helps to elderly and disabled, transport services, assistance with funeral services for survivors, holiday camps for children, etc.

In short, the Nordic countries are characterised by highly decentralised systems where policies and financing are provided by governmental tiers that are arguably ‘closer to the people’. In Ireland, what’s good for Donegal is decided in Dublin.

Could this decentralised structure imbue more confidence in higher spending regimes? And what implications does it have for Ireland. Well, if the answer to the first is potentially yes, the implications for Ireland are not good.

There are volumes of reports on local government reform going back to the 1940s but local government remains  manager-centred. So what would a reformed local government look like?

It’s too big an issue to go into here but this is just a sampler:

Why do we have four local authorities in Dublin, rather than a Greater Dublin Council? Councillors could be elected along Dail constituencies and would be full-time – part-time councillors don’t have the resources or the time to hold the managerial system to account.

There would be an Assembly with full-time staff and support services with a number of centralised functions devolved to the council level.

Another lower, part-time tier could be established through local area councils (a Swords Council, a Blanchardstown Council, an Inner City Council) with powers devolved through the Assembly.

In the rest of the country, there would need to be an upscaling of city/county councils. We used to have eight regional authorities; recent reforms have reduced to these three. Formerly it was probably too many, now it’s too few.

These are largely toothless but they could be turned into larger full-time professional councils along the lines of a Greater Dublin Council. The current structure could remain but reformed to bring about even more local democracy (a Tralee Council, Letterkenny, Drogheda, Athlone).

But all this is predicated on the willingness of the political culture to engage in a radical decentralisation and, given our historically centralised state, this would be a big task. But it’s one that progressives should investigate.

[Note: it could be argued that Ireland is too small to have a decentralised system. Yet, Iceland and Luxembourg spend more money through local government than we do.]

If people felt that such institutions – being closer to home – were more accountable, then the prospect of developing a strong social state could gain momentum. And there’s another reason.

The Left doesn’t look like taking national power anytime soon with its divisions, fragmentation and low-vote.

However, there are many areas in the country where the Left could form a majority and show that it is capable of governing.

This could set up alternative sources of power and prove useful preparation for hopefully, one day, national hegemony.

It’s not as if others haven’t noticed how weak our local government is. The Council of Europe produced a damning report on Ireland’s excessive centralisation, lack of funding transparency and limited local powers.

Isn’t it about time we noticed, too?

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: protestor Colm Reddy outside Leinster House during the Dail’s Apple Tax ruling debate last week; Michael Taft

Ireland could be stuck in a reputational and diplomatic damage-zone for years.

Michael Taft writes:

There has been so much written about the Apple tax ruling. Here I look at some of the longer-term implications.

But let’s first nail down some confusions and misunderstandings.

First, the ruling is not an attack on Ireland’s 12.5 percent tax rate. As Peter Brennan of EPS Consulting stated:

‘The Government argues that there is an effort to force Ireland to increase the current rate of corporation tax. Not so . . .There is a huge difference between alleged corporate tax avoidance and the setting of Ireland’s headline rate of corporation tax . . . a ruling from the commission in 1997 clearly indicated that Ireland’s single rate of corporate tax was a general measure under EU state aid rules and was therefore legal and consistent with EU competition policy.’

Second, this is not a tax ruling as such. According to Professor Edward Kleinbard:

‘”The heart of the case is simply that Ireland gave Apple hidden subsidies in exchange for jobs. The only tax connection is that Ireland harnessed its tax system as the instrument to deliver these subsidies. Imagine Dublin promised Apple €220,000 in cash annually for every job located in Ireland.

At 6,000 or so jobs, this totals about €13bn over 10 years. This would clearly equate to an instance of state aid . . . The commission concluded that this is the deal Ireland agreed — but, instead of collecting tax at the Irish 12.5 per cent tax rate and writing cheques to Apple, Ireland forgave substantially all of Apple’s Irish statutory tax liability.”

Nor is it about large nations ganging up on small nations. Before Apple, the largest EU ruling on illegal state aid delivered through the tax system was against France and the French EDF company.

This is about illegal state aids – something that has been part of the EU since the 1951European Coal and Steel Community treaty.

While there have been great memes on social media about what Ireland could do with the €13.5 billion, we shouldn’t get carried away.

While these are legitimate metaphors, Ireland is unlikely to receive this full amount. As Professor James Stewart observes:

“…the commission also note that the amount that may be recovered by Ireland will be much lower if as a result of information “revealed through the commission’s investigation” profits are reallocated to other jurisdictions . . . In addition, the commission note the amount recovered by Ireland would also be reduced if larger sums were reallocated to the US parent to “finance research and development”.

How much could Ireland hope to get? This is speculative at this stage. People who have a much greater grasp of these esoteric international tax rules than me have stated the final figure could be as low as €2 billion but maybe €5 billion. Or maybe more. Or possibly less. Nonetheless, this could be a boon for infrastructural investment.

Nor is it the case that the government is in full control over this ruling.

Apple has announced it will appeal and this process could take years. So instead of a neat situation whereby Ireland would receive €13.5 billion if the Government accepted the ruling, the reality is that we are likely to receive much less and – even if the Government didn’t appeal – we will have to wait years on Apple’s appeal (and may end up with nothing if the appeal is upheld by the European courts).

The Government’s decision to appeal can be partly explained by the fear of two queues forming at their doorstep. The first queue concerns the ruling itself.

As the EU Commission states:

‘The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period.’

It is already beginning – with Spain, Austria, Italy and France beginning to investigate what is due to them from the Apple profits. Just what any Government needs – negotiating with other countries, possibly going to court, all that snooping around our tax affairs.

The second queue may form if the EU Commission is investigating other companies potentially benefiting from illegal state aid.

It is being widely reported that the EU Commission is investigating six more cases of Irish deals with multi-national companies. And a Reuters investigation in 2013 showed that at least 74 percent of the 50 biggest U.S. technology companies, including Google and Facebook, use practices similar to Apple’s to reduce their tax bills (these are not all Irish based). So Apple may only be the beginning.

If either or both these queues start forming, Ireland could be stuck in a reputational and diplomatic damage-zone for some years.

The Dáil debate last week was conducted in the dark. TDs did not have access to the 150-page ruling (it will be published after the Government, Apple and the EU Commission agree on redactions for commercially-sensitive information – this could take months).

Therefore, it could not independently assess the ruling nor could it assess the likelihood of a successful Government appeal.

Fortune reports that:

‘Last year, the European Commission published a list of six tax rulings and 59 “measures similar in nature or effect” since 1991, which it had challenged on the basis of state aid rules. It was successful in almost all cases.’

The EU Commission has a high success rate in fighting off appeals in the European Court. The Government may know its chances are slim and are undertaking the appeal in an attempt to buy time.

What is the long-term impact of the Apple ruling on Ireland’s low-tax FDI strategy?

Technically, it could be very little. After all, the EU Commission ruling is not about tax policy; it’s about illegal state aid. And the tax provisions through which those subsidies were delivered no longer exist. In this respect, the Apple case is historical.

However, if the state were found to have made special deals with other companies this could give Ireland the image of operating an ad hoc legal and tax framework – one which business and just about everyone else would have little confidence in. That could be quite damaging.

But the biggest challenge for Ireland is that the Apple and related decisions will accelerate moves towards greater European tax cooperation and coordination.

Though hardly mentioned in Ireland, only weeks before the Apple ruling the European Parliament overwhelming passed a resolution containing a number of progressive measures to fight multi-national tax avoidance and evasion (the full text of the resolution can be found here):

EU register of beneficial owners of companies, and a global register of all assets held by individuals, companies and entities, such as trusts and foundations, to which tax authorities would have full access.

A tax havens blacklist with stronger sanctions against non-cooperative tax jurisdictions,
Action against abuse of “patent box” regimes and stricter definitions of what is allowed under transfer-pricing

Tax good governance rules in EU trade agreements

A common consolidated corporate tax base (CCCTB)

An EU-wide withholding tax, to be collected by member states, to ensure that profits made in the EU are taxed at least once before leaving it

Measures like these are necessary to advance corporate accountability and tax justice throughout Europe. However, Ireland continues to resist.

While this resolution found support across the political divide in the European Parliament (514 voted for, 68 against with 125 abstentions) among the Irish MEPs only Nessa Childers supported the measure; the rest opposed or abstained.

One lesson we can draw from the Apple ruling is that the only agency that can break the tax-avoidance/evasion strategies of multi-national capital is a supra-national one; in this instance, the EU. Would a single nation-state (never mind a small one) have been capable of making this ruling and making it stick? Extremely doubtful.

There is a fear that a rational, democratic and accountable corporate tax regime in Europe will undermine Ireland’s ability to incentivise foreign direct investment (FDI).

It is legitimate to ask whether Apple would have sited thousands of jobs here without the ‘tax-deal’. But such questions should not lead us into apologies for global tax avoidance, never mind our participation in it.

In the first instance, the Dáil should assert is role in this process even with the Government appealing.

The Public Accounts Committee or a special committee should hold hearings on the ruling itself, clarify the issues, assess the likelihood of a successful Government appeal and the potential for further cases down the line – in both Ireland throughout Europe.

This is supposed to be the era of ‘new politics’ with a heightened parliamentary role. Well, let’s heighten it.

But these questions should also lead us into a more profound, evidence-based debate on our future in the international marketplace and the policies to incentivise foreign investment.

That debate should start from this simple premise – what is good for FDI is also good for the Irish people: a modern infrastructure, investment in education, a culturally-diverse society, affordable housing costs, comprehensive public transport and accessible cities, strong public services (low-cost, high quality childcare) and social security (health and in-work income supports), transparent governance, recreation and leisure activities, economy-wide employee innovation and participation and so on.

And tax policy? One that supports investment, investment and more investment.

We can do this. Or we can continue to participate in a global race-to-the-bottom; and even worse. We can – just as we did during the speculative-fuelled boom years prior to the crash – continue to close our eyes to the reality around us

And hope the world doesn’t notice us.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Pensioner on the Ha’penny Bridge, Dublin; Michael Taft

The pension debate is overly complex and full of scare mongering.

That ends here.

Michael Taft writes:

Get ready for the big upcoming pension debate. Hopefully it won’t be conducted like the ‘we-are-taxed-too-much’ debate or the ‘Irish-wages-are-too-high’-debate.

Hopefully the pension debate will be evidence-based, without unsubstantiated assertions or slogans masquerading as policy. Let’s keep hope alive by looking at a couple of issues arising out of the report from the Interdepartmental Group on Fuller Working Lives.

For many, pensions are as exciting as a snail race. But believe me, when you get to a certain age it becomes seriously interesting. And with the rising number of elderly, it will become even more prominent in the debate.

The Interdepartmental report focused on the specific dilemma facing people forced to retire at the age of 65 but not being eligible for a pension until they turn 66 (by 2028 the eligibility age will be increased to 68). But the report touches upon wider issues. Let’s look at two of them.

We Can’t Afford Them

We’re going to get a lot of ‘we-can’t-afford-them’ – that is, future pension costs will be fiscally unsustainable due to the rising number of pensioners: .

‘Expenditure on State Pension payments and relevant supplementary payments is estimated to rise from just over €6.5bn in 2015 to around €8.7bn in 2026, assuming no further changes in rates – an increase of 34%.’

While they don’t scare-monger these numbers, others will. But should we be overly-worried about this number?

As a proportion of national output (GDP or GNP) these numbers indicate that pensions will actually cost less in the future; at least up to 2026.

Using the report’s own numbers, pensions as measured as a proportion of national output will fall between 2015 and 2026 – whether measured by GDP or GNP. In my own calculations,

inserting a 2.5 percent annual increase in weekly pension payments, the cost remains the same. This doesn’t factor in the increased revenue – higher income and indirect tax revenue which will offset a small part of the cost.

Yes, there is a problem with GDP and GNP measurements, but the above measure trends. After 2021 I assume a 4 percent nominal increase in GDP and a 3.5 percent nominal increase in GNP).

This is not to under-estimate the challenges of funding people’s post-retirement income; after 2026 the cost will continue to rise. But it is important to keep these rising costs in perspective.

There’s Going to Be More of Them

More pensioners, that is. Which brings us to another issue – the age-dependency ratio. It has been pointed out that there will be fewer people at work supporting more people retired – a real social, economic and fiscal challenge.

Ireland’s dependency ratio, while staying below the mean average of other EU-15 countries, will nonetheless double over the period to 2050 – to 45 percent. After that the ratio falls to the level that exists in other EU-15 average today – and then rises again.

A couple of things to note about this type of projections. First, it is highly sensitive to small changes in variables such as immigration levels, longevity, fertility, etc.

To show how fragile these projections can be, just remember Ireland in 1989. High emigration, low immigration; who would have imagined that within 10 years everything would be turned upside down. If it’s hard to project demographics over a decade, try attempting it over multiple decades.

Second, age and pension-dependency ratios are also a product of policy. For instance, even under same variables, the above chart is out-of-date. The age range is 65. But Irish policy is to increase the pension age to 68 by 2028. This will improve the dependency ratio under current projections.

Or how about this: the Government pledged to take in 4,000 Syrian refugees yet only 350 have arrived. If we were to have a more pro-active immigration policy, we could improve the dependency ratio.

Why do you think Germany committed to taking so many in? Under current projections, their dependency ratio will rise to a staggering 60 percent, with the population in decline (many EU countries are facing into falling populations).

That’s why what’s called the European ‘immigration crisis’ is actually a ‘social and economic opportunity’.

Again, this doesn’t under-estimate the challenge but hopefully it will point us to positive proposals, rather than an alarmist debate.

Just Outlaw It

The purpose of the inter-governmental report was to address the issue of raising the pension age while people were still required to retire at 65 years. The report calls for a number of interventions, mostly aspirational.

Why not just forbid forced retirement at the age of 65. Retirement should at least become mandatory only when someone is eligible for a state pension.

Or why not go further and just outlaw age-ism. People should be given a range of work-choices – continuing to work past the pension age, reduce working hours, or retire at the pension age. If someone is not considered fit to continue working in a company, it should be treated as a health and safety issue, not an issue of an arbitrary age.

There is no denying the complexity of the issues regarding ageing, pensions, life-time savings and the diminishing number of defined-benefit occupational schemes. We will need an informed debate based on evidence with proposals that are intended to enhance peoples’ life-options and living standards.

One might be pessimistic that this will happen when one considers the how debates over tax, spending cuts, competitiveness, etc. have been, and continue to be, conducted.

But one should live in hope – hopefully for a long, healthy and prosperous life-time.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

 

From top: Corporate ownership protest, Washington DC; Michael Taft

There has been a decades-long debate over who actually ‘owns’ the corporation, in the sense of who actually ‘controls’ it.

We may have an answer.

Michael Taft writes:

To ask ‘who owns the corporation’ is to invite a simple reply: the shareholders. After all, don’t shareholders vote at AGMs, doesn’t the law state that shareholders own the company. Doesn’t the company have to act in the interest of the shareholder?

Seems straight-forward. But it’s not. In fact, it has been argued that no one owns the corporation. If this is the case the implications could be significant.

The Financial Times’ Peter Kay argues the ‘no-one-owns-the-corporation’ line:

‘If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it . . . But shares give their holders no right of possession and no right of use.

If shareholders go to the company premises, they will more likely than not be turned away. They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts.

Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical.

They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.’

So who owns the company?

‘The answer is that no one does, any more than anyone owns the River Thames, the National Gallery, the streets of London, or the air we breathe.

There are many different kinds of claims, contracts and obligations in modern economies, and only occasionally are these well described by the term ownership.’

There has been a decades-long debate over who actually ‘owns’ the corporation, in the sense of who actually ‘controls’ it: managers or shareholders or a combination of both.

We can get a better handle on this if we recognise that the corporation is a legal fiction – a ‘legal person’ that enables the corporation to operate in the world (buy, sell, own, sue, go into debt, break the law, etc.). As such, this legal person is not ‘owned’ in the popular sense of the word.

Tom Powdrill quotes a Contexte summary of the revisions to the EU shareholders’ rights directives:

‘Shareholders do not own corporations: The directive will explicitly acknowledge that shareholders do not own corporations – a first in EU law.

Contrary to the popular understanding, public companies have legal personhood and are not owned by their investors.

The position of shareholders is similar to that of bondholders, creditors and employees, all of whom have contractual relationships with companies, but do not own them. ‘

Even if one insists on the ‘ownership’ paradigm, one has to admit that the character of ownership has changed – from individuals to institutions with ownership being measured in weeks (an average of 35 weeks as opposed to 1970 when the average share holding lasted seven years); and sometimes in seconds due to high-frequency trading.

In this sense we can understand a corporation as a ‘space’, a dense series of contractual relationships that includes management, shareholders, bondholders and creditors, employees, etc.; in other words, the totality of relationships with all the stakeholders.

This list can be extended to communities, the environment, nation-states, supra-national organisations (e.g. the EU), etc.

And how are these contractual relationships determined? In the apparent instance, they are politically-determined (legislation that gives certain rights to different stakeholders). Ultimately, they are determined by the power-relationships between these different stakeholders.

So what? It’s still the same ol’ corporation that we have known and loved since the introduction of limited liability. I would say there are at least two reasons why this matters. First, is the concentration of ownership, control and power.

The New Scientist published a comprehensive survey of global multi-national corporations. In the first instance they found a core of 1,381 companies which collectively controlled the majority of world’s large blue chip and manufacturing firms (what’s called the ‘real economy’ – that is, the non-financial economy).

However, when they dug further they found what they called a ‘super-entity’ of 147 inter-locking companies controlled 40 percent of multi-national companies world-wide. Most of these 147 super-companies were financial institutions.

Second, the relationships within and between multi-nationals are more and more determined politically.

France’s decision to give more voting weight to shareholders who hold on to their shares longer (in the hope of incentivising long-term commitment); the OECD’s and the EU’s moves on tax transparency; the role of stakeholders in corporate governance legislation – all these can be interpreted as moves to make the corporation more accountable both to society and the productive economy. All these are political decisions.

Ultimately, though, this all suggests a new, potentially more democratic perspective.

If the corporation is not so much owned but exists through a series of contractual relationships between stakeholders and participants, then we can see the totality of the corporation as a ‘social’ or ‘collective’ asset that operates within a complex market of economic calculation and the international division of labour.

Once we break with the concept of ‘ownership’ (though we will always use this in a popular sense) and understand it as one of ‘control’ – this begs the question: who controls the controllers?

This is a both a political and economic issue; it is a systemic one. It is about power-relationships both within the corporation (the balance between capital and labour being a primary one) and the relation of the corporation with the rest of society, including the environment.

So if no one owns the corporation then can we all own the corporation? It is a democratic issue; neither simple nor unsolvable.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Ministers Richard Bruton, Leo Varadkar, Charlie Flanagan and Simon Harris  at the annual National Day of Commemoration Ceremony; Michael Taft

Minister for Social protection Leo Varadkar’s hope to increase unemployment benefits and reduce uncertainty for people losing their jobs  is a small step in the right direction.

Michael Taft writers:

The Minister for Social Protection, Leo Varadkar, has been floating some ideas. The latest one concerns increased unemployment benefits – along the lines of basic European practice (sort of).

His idea is that workers who become unemployed would receive €215 per week for the first three months; €200 for the second three months; after that, they would receive the current basic rate of €188 per week.

Though this is quite modest it is certainly heading in the right direction. This is about the economics of social security and what is called in the literature ‘uncertainty avoidance’. For people losing their jobs, they are liable to a sudden drop in their income which puts pressure on their living standards.

The economy suffers because of their reduced purchasing power. And this skewers the labour market as many people grab the first job they can regardless of the skill match – thus leading to less than optimal results.

Other European countries get over these problems by providing pay-related unemployment benefit. In its simplest terms, a worker receives a percentage of their previous wage for a set period of time – before falling back to a basic, usually means-tests, payment. This protects living standards, maintains demand, and facilitates optimal job-hunting.

The pay-related benefit can be quite substantial.

Ireland is not the lowest (the UK is, but Council Tax Benefit makes up on average more than twice the level of unemployment benefit) but it is well behind all other EU countries in our peer group. The Minister’s proposal would close some of the gap.

However, there is one big difference with the continental model. The Minister’s proposal is still a flat-rate. In other EU countries, the payment is linked to the previous wage; the higher the wage, the higher benefit. For instance, in Austria, the weekly benefit of €259 is for someone previously on €36,000 (the Irish average wage).

However, for an Austrian previously on €50,000 pay, unemployment benefit would rise to €335. This Minister’s proposal wouldn’t do that.

Also, the length of the payment is minimal compared to other countries where the pay-related benefit can last a year or longer.

The Minister has claimed his proposal would cost approximately €35 million. That is fairly minor cost. We should aim for a fully-blown pay-related payment with a high replacement ratio (unemployment benefit as a percentage of the previous gross wage) that lasts a year. There would be a threshold above which the payment would be frozen. And the payment would last a year.

Take the example of an employee who loses their job. She was earning €30,000. She will now receive 50 percent of her previous wage – €15,000. She will receive this for a year. If she is still unemployed after a year, her benefit will run out and she will switch to Jobseekers’ Allowance (a means-tested payment).

It is difficult to estimate the cost as we don’t have data on duration and previous income. In any event it would be phased in over three years or so.

But a back-of-the-envelope job – based on trebling the increase in the Minister’s proposals and doubling the length of time – would suggest a cost of €200 million (though it could be less depending on the income range of new entrants on to benefit and how long they stay on benefit).

This could be paid for – as it is on the continent – by an enhanced employers’ social insurance (Irish employers’ social insurance is one of the lowest in the EU; it would have to more than double to reach the European average). A fractional 0.25 percent increase would pay for the enhanced benefit – hardly onerous.

But there is benefit for business as well – the increased benefit would result in higher consumer spending. And the Government would benefit from the increased tax revenue – both income tax (unemployment benefit is taxable) and indirect taxes.

And for people the benefit is obvious: when they suffer the loss of employment, at least their income will be maintained for a period while they get back on their feet.

Let’s hope the Minister continues floating these kinds of ideas. Here’s a few more he may wish to let glide:

Pay-related sickness benefit

Pay-related maternity and paternity benefit

Pay-related validity pension and occupational injuries benefit

And, ultimately, a pay-related old age pension

We may yet join the rest of Europe in providing a modern social protection system.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

Rollingnews

From top: Cycling in Copenhagen, Denmark, Michaerl Taft

There’s something rotten here.

Only the poorer Mediterranean countries spend less on public services.

Michael Taft writes:

One of the impacts of the CSO’s recent National Accounts data – the one that shows the economy growing by 26 percent – is that all our main economic measurements are practically useless.

It’s not that we didn’t have trouble before last week.

Using GDP was always fraught, given multi-national accounting practices. But at least we could fall back on GNP or GNI or the Irish Fiscal Council’s hybrid-GDP measurements. Now these are shot as well. We are in a fog.

The former Governor of the Central Bank, Patrick Honohan, was spot on:

‘The statistical distortions created by the impact on the Irish National Accounts of the global assets and activities of a handful of large multinational corporations have now become so large as to make a mockery of conventional uses of Irish GDP . . . GNP is now almost as unhelpful an aggregate economic measure for Ireland as GDP . . . Ratios to GDP are now almost meaningless for Ireland in most contexts. They need to be supplemented by alternative purpose-constructed ratios for specific uses . . .’

So now the hunt is on for robust ‘purpose-constructed ratios for specific uses.’ This will entail a new debate, a flurry of number-mongering and endless disagreements.

Take, for example, our expenditure on public services. Using CSO figures spending on public services fell from 13.7 percent of GDP in 2014 to 10.5 percent last year, even though spending on public services rose.

And comparing ourselves to other European countries is equally meaningless. GDP per capita in the EU-15 was €33,000 in 2015. According to the Government projections, Irish GDP per capita was supposed to be €46,000 – already inflated by multi-national activity.

After the CSO release, GDP per capita has shot up to €55,000. That’s 67 percent above the EU-15 average. Unreal.

So how does our spending on public services compare with other European countries? Here’s one suggestion for an ‘alternative purpose-constructed ratios’: spending on public services per capita.

Of course, nothing ever being simple, we have to choose between nominal spending (actual Euros and cents) and real spending (factoring in actual purchasing power).

I’ll go with the latter – this counts what countries actually get for their spending excluding inflation and living costs.

This shows Ireland a low spender. Only the poorer Mediterranean countries spend less on public services. We fall 10 percent below the EU-15 average.

However, it doesn’t tell us much that we spend more per capita than, say, Greece or Portugal – two relatively poor countries in this table.

So when we compare ourselves to our peer group, Northern and Central European economies (NCEE: excludes the Mediterranean countries), we fall 18 percent behind.

And when we compare ourselves to another peer group, other small open economics (SOE: Austria, Belgium, Denmark, Finland and Sweden), we fall 25 percent behind.

But there are a couple of things we should bear in mind:

First, given that we don’t have as high a proportion of elderly, we wouldn’t have to spend as much on health and other elderly-related services. However, we have a much proportion of young people; therefore we have to spend more on education and other services.To what extent these spending ratios cancel each other out would require more research.

Second, Irish spending on public services is subject to very low purchasing power (like consumer spending). We have to spend €113 to match the EU-15’s average €100 just to purchase the same goods and services.

This inflation, though, is not confined to Ireland. Denmark, Sweden and the UK have weaker purchasing power than us.

Another issue is that of reform. The previous government claimed to reform public services but this was mostly made up of cutting employment, increasing hours and cutting wages.

‘Doing more with less’ only means we have less.

A real reform process would include the producers and users – the public sector workers and the users of the public services. It would further distinguish between process issues (are we doing things in the most efficient way) and structural issues.

For instance, does the role of the private sector in our public health system drive up costs? Does it produce perverse incentives that increase costs per patient?

The bottom-line, however, is that we are an under-spender on public services.

To reach the EU-15 average, we’d have to spend an additional €3.6 billion

To reach the average of Northern and Central European economies, we’d have to spend an additional €7.3 billion

To reach the average of other small open economies, we’d have to spend an additional €11.2 billion
These are big sums. Even after tackling inflation and reform issues, we will still be faced with big sums.With the aid of purpose-constructed ratios for specific uses we now see the challenge we are facing.

How will the ‘new politics’ measure up?

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Taoiseach Enda Kenny at the Low Pay Commission report on the minimum wage last year; Michael Taft

The relationship between wages and competitiveness is not a crude reductionist equation.

We pay a real cost for our low wage levels.

Michael Taft writes:

There is a narrative among the Left that claims that capital has not wasted the recessionary opportunity, that capital has exploited the crisis to depress wages in order to boost profits.

We should, of course, be sceptical about such sweeping narratives. We live in a complicated, complex world where exceptions and caveats invariably rule.

So let’s test this claim and see if it holds – at least in Ireland; at least on the issue of wages.

There are many ways to measure wages (Dr. Tom Healy of the Nevin Economic Research Institute looks at it this way). I will use employee compensation as a percentage of Gross National Income (GNI).

Employee Compensation: this is made up of the direct wage (what the employer pays the employee) and the ‘social’ wage (what the employer pays into a social insurance or similar fund – out of which employees access public services at below-market costs such as health, and in-work benefits such as sick-pay, maternity benefit, etc.).

Gross National Income: this is essentially GNP. This is not an optimal benchmark as it excludes a significant amount of wealth that is generated in the economy.

However, it does have the advantage of excluding both multi-national profits that are generated in other countries but end up here for tax avoidance purposes, along with profits that are actually generated here but then repatriated. Therefore, GNI is the bottom-line of bottom-lines.

So how do Irish workers fare?

We don’t fare well.

Up to the crash, when wages were rising, Ireland was still below the main European comparators – the EU-15, Northern and Central European economies (NCEE – this excludes the poorer Mediterranean countries), and other small open economies – (Other SOE, countries with a similar open, export-dependent structure: Austria, Belgium, Denmark, Finland and Sweden).

When the crash hit, the graph shows Irish wages spiking but one has to be careful. Between 2007 and 2009 wages rose – as a proportion of GNI (from 46 to 52 percent of GNI); yet, during this period total wages actually fell by 6 percent. In fact total wages fell a further 8 percent up to 2012.

The reason for the spike is not rising wages but falling national income.

But as we came out of the recession, wages didn’t recover their pre-crash levels. Between 2000 and 2007, Irish wage levels averaged 44.2 percent of GNI. In 2017, the EU estimates this will have fallen to 39.6 percent.

And it’s not like Ireland is a ‘poor’ country.

When we measure GNI per capita we find that Irish levels are 10 percent higher than the EU-15, marginally ahead of Northern and Central European economies and at that same level as other small open economies.

Unite the Union recently published its The Truth About Irish Wages. Using EU labour cost data it found that Irish wages are well below the European benchmarks.

But the real story is how low Irish wages in low-paid sectors are.

Irish compensation levels in these sectors are well below the average of other European countries – well below.

The Irish low-paid are ultra-low paid.

Some might argue that we need low wages so that our exports are/become/remain competitive. However, other small open economies have much higher wage levels than we do and it doesn’t seem to affect their export levels.

Further, in our main export sectors – chemicals/pharmaceuticals and the information & communication sector – our wages are at average European levels. These sectors haven’t been affected negatively.

The relationship between wages and competitiveness is not a crude reductionist equation.We pay a real cost for our low wage levels.

First, is the low level of tax revenues. Taxes on labour are higher than taxes on capital. Therefore, when the latter is privileged, tax revenues are not optimised.

Second, our business sector suffers from low levels of consumer income. This not only affects businesses that primarily sell into the domestic markets; it makes it difficult for domestic businesses to transition to export markets.

Moving into exports requires a considerable investment which higher sales revenue from domestic income can help finance.

Third, it affects workers’ living standards and especially those in sectors that are reliant on discretionary spend; less revenue coming into sectors like restaurants means less money that goes on pay.

So, yes, those lefties and their sweeping narrative appear to be on to something. Now we have to start debating how we write another narrative.

Growing wages to the European level – including both direct and social wages – is one of our main challenges. We need a strategy to make a fundamental shift from an economy reliant on low wages and low-paid sectors.

This goes beyond just increasing wages. It is about creating high-road employment and businesses that are focused on investment, R&D, re-skilling and innovation, rather than sweating labour.

The big question is: do we have the capitalists to do that?

And if we don’t, what do we do then?

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Waiting staff have seen no increase in wages; Michael Taft

Employese are thumbing their nose at the state’s collective bargaining machinery, amassing profits while depressing wages.

Michael Taft writes:

The Low Pay Commission (LPC) will soon be making its recommendation for the National Minimum Wage.

Last year, they recommended a 50 cents increase in the hourly wage – nine years after the last time it was increased (in early 2011 the minimum wage was cut by €1 but this only lasted a few weeks as the new government quickly reversed it).

What will the LPC recommend this year?

We’ll know soon enough. But hopefully they will take note of what is happening in low-paid sectors.

Because in the hospitality sector, for example, profits are going through the roof.

The hospitality sector, comprising accommodation and restaurants / food services, took a big hit in 2008, continuing to slide until 2010. However, since then profits have risen considerably. By 2014:

Total profits in the sector had risen to 36 percent above their pre-crash (2007) level. In 2007, total hospitality profits were €517 million; by 2014 they exceeded €700 million.

Profits per hour in the sector increased by over 43 percent. They rose from €2.50 per hour worked in 2007 to €3.60 in 2014.

Since the sector hit its trough in 2010, profits have increased by more than three-fold. What accounts for this?

First, the Government rolled out a stimulus programme (at least in one sector they heeded what progressives had been advocating for years): a reduction in VAT and a cut in the low-rate employers’ PRSI (the latter has been reversed).

Second, tourism expenditure increased by 50 percent between 2010 and 2014.
In this same period total household income increased by nearly 6 percent, potentially giving a disproportional boost to discretionary expenditure.

The National Accounts data only goes up to 2014. The CSO produces a Services Index which tracks real (i.e. after inflation) gross value added. This brings us up to 2016 1st quarter. Gross value added is equal to ‘sales minus costs’. Profits and wages are paid out of Gross Value Added.

What has been happening in the sector?

Between 2014 and the first quarter of this year, restaurants and food services has seen an increase of 19.2 percent in real gross value added.

In the same short period accommodation increased by 22.3 percent.

This is a strong indication that profits are continuing to grow at a brisk pace.

There have been a lot of good things happening in the hospitality sector – except for wages.

CSO data only goes back to the first quarter of 2008 but it shows that wages and weekly income have stagnated despite the recovery in profits and enterprise activity.

Between 2008 and 2016 the hourly wage has fallen marginally – from €12.51 to €12.48 per hour

In that same period average weekly earnings have fallen from €334 to €321, as weekly working hours have fallen.

Profits are over 40 percent above their pre-crash levels; wages have fallen. That tells a tale.

Here’s another story.

Eurostat data differs from the above CSO number in that they include employers’ PRSI and other labour costs, using a different methodology (though the Irish data would have been supplied by the CSO).

We find that employee compensation (or labour costs) in the Irish hospitality sector rank 12th out of the 14 EU countries.

Irish hospitality wages are 20 percent below the average of the EU-15 countries (Portugal not reporting).

They are 26 percent below one of our peer groups – Northern and Central European economies (which excludes the poorer Mediterranean countries).

And they are 36 percent below other small open economies (Austria, Belgium, Denmark, Finland and Sweden).

Compared to their fellow workers in other European countries, Irish workers in the hospitality sector are ultra-low paid.

And what are the employers’ response to all this? The Restaurant Association of Ireland has not only called for a freeze on minimum wage increases for five years; they are boycotting the Joint Labour Committee which was re-established by the last government in order to allow collective bargaining across the entire sector.

In a similar vein, the Irish Hotel Federation is also boycotting the Joint Labour Committee.

In effect, the employers’ are thumbing their nose at the state’s collective bargaining machinery, amassing profits while depressing wages. How’s that for responsible social actors?

Hopefully, the Low Pay Commission will take note of all this and respond accordingly. The chefs, floor staff, cleaners, clerical staff, bartenders – these are the men and women that make our hospitality sector work. The least, the very least they should get is a living wage.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Euro coin; Michael Taft

A Europe that descends towards disintegration and far-right ascendency, mainstream paralysis and progressive atrophy will wash over our shores and no amount of corporate tax appeasement will prove an adequate flood defence.

Michael Taft writes:

Does the Brexit vote, with all its contradictions and incongruities, represent an anti-establishment vote?

The Brexit campaign was a struggle between two wings of the Tory party (including its breakaway, UKIP). Boris Johnston, Michael Gove and Nigel Farage on one side – representing small and nativist capital; David Cameron representing large and finance capital.

In essence, it was two establishments warring against each other as the chronically obstreperous alliance within the Tories broke down into a fight over ascendency and personalities. These two ‘establishments’ set the choice and the parameters of the debate.

Ultimately, the Johnston/UKIP wing was successful as it proved adept at exploiting many people’s intolerable economic circumstances and profound experience of powerlessness, projecting these on to the EU (not to mention outright appeals to an ultra-nationalism and anti-immigrant prejudice described  London Mayor Sadiq Khan as ‘Project Hate’).

This was a remarkable feat given that the Johnston/Gove/Farage troika were the chief cheerleaders of home-grown British austerity and the neo-liberalism that dominates EU policy.

The proportion of the Brexit vote that was a legitimate vote against austerity and powerlessness was effectively co-opted by right-wing elitist forces.

So, yes, the Brexit vote can be interpreted as two-fingers to the establishment. But only if it is remembered that those two fingers are attached to the hand of forces that Paul Mason rightly claims want to turn Britain into a ‘Thatcherite free-market wasteland’.

So how do we read this? As Thomas Fricke points out, the overwhelming majority of blue-collar workers supported the far-right Freedom Party in the recent Austria presidential campaign.

Does this constitute a vote for far-right values? Or it is a vote for the only outlet left to express opposition against alienation, loss of power, loss of identity – a vote which represents the powerlessness that working people experience throughout Europe and not just Britain.

In any event, what was the argument for Remain? To stay in an undemocratic and, at times, anti-democratic EU (witness the attack on elected Governments in Italy and Greece)? An EU which demands adherence to irrational fiscal rules that impoverishes huge swathes of Europe? An EU which has botched a common immigration policy?

An EU based on a flawed currency design overseen by a flawed central bank. Distant, centralised and bureaucratic – as one leading German insider put it – a bloodless technocracy: very difficult to mount an argument for that.

Cameron – and his wing of the Tory party – was even more compromised; having made a virtue for years of attacking the EU, detaching the UK at every opportunity; all in the name of maintaining ascendency over the nativist Troika, or at least an uneasy truce.

When this broke down, when battle commenced, arguing for Remain was a circle too big to be squared. Labour and progressives were reduced to either highlighting the dangers of Brexit (‘it’s bad now, but it could get worse’ – hardly a positive message), or producing abstractions such as ‘remain and reform’, without detailing what those reforms might be or if they were even possible. In truth, progressives were never going to win a battle that was being fought out between the two wings of the Tory establishment.

Ultimately, the anti-establishment vote merely ended up reinforcing an establishment which is seeking more ‘freedom’ from EU restraints, to exploit labour (Jeremy Corbyn’s ‘bonfire of workers rights’), to degrade social and environmental rights.

The Brexit victory risks giving even more oxygen to forces that are not just intent on undermining the EU; they are intent on returning to borders and currencies and narrow nationalist ideologies.

These forces are the greatest threat to European cohesion and cooperation. It was not the progressive parties who welcomed the Brexit result. It was Marine Le Pen. It was Geert Wilders. It was Donal Trump.

A friend of mine said she wished there was another vote she could cast – neither Remain nor Leave. This sums up the progressive dilemma which struggled to find some traction, some positioning in the referendum – struggled because there wasn’t a progressive option.

In the Irish Republic we are a little more fortunate as it is highly unlikely we will be faced with this choice. Support for the EU is very high. A recent poll showed 90 percent support for remaining in the EU and even after years of recession, austerity and bail-out economics, and 87 percent believe the EU has done more good than harm.

Nonetheless, we shouldn’t be sanguine. We are not an island afar off. A Europe that descends towards disintegration and far-right ascendency, mainstream paralysis and progressive atrophy will wash over our shores and no amount of corporate tax appeasement will prove an adequate flood defence.

The EU orthodoxy has no prescription. Its knee-jerk reaction to the Brexit result has been to call for greater integration. This ignores the swelling of disenchantment across Europe over the direction of the EU.

While the UK (and Greece) may be at the more extreme end, there is a plurality in each of the countries polled for greater national powers.

This is not some narrow nationalist demand; it is a legitimate demand for more democracy, more popular participation and control in decision-making which, in current circumstances, can only be achieved at national level.

However, this is the conundrum: monetary unions, without fiscal and political union, do not survive for very long. A central bank needs a central government. If the Euro is to survive, greater integration is needed.

Yet greater integration is becoming more and more politically problematic. How can this circle be squared? Can it? What are the options? Or do we get mired in a ‘business-as-usual’ mode, clasping a copy of the Five President’s report, oblivious to everything outside the bubble?

Only the European Left is capable of confronting this issue.

Despite the complicity of many progressive sections with austerity and the neo-liberalism of the EU, its ideological roots put it in opposition – or at least in contra-distinction – to current economic and social policies which result from the current institutional configuration.

Only the Left is capable of taking on the nationalism of the Far Right and the centrifugal forces that would return us to borders, through the promotion of an ever deepening democracy.

However, the European Left has to be honest itself.

It is divided, politically exposed, and intellectually inert. If there is a way out of this, it will have to do two things: first, end the division – between social democracy, the communist and allied tradition, progressive greens and the popular anti-austerity movements. Progressive unity is vital.

And this should lead to the second task – to engage in a revitalised discourse together, connecting with the working class and progressive constituencies, to re-imagine Europe and our relationship with each other; all pointing to new European re-foundation.

In this way we can move beyond a leave/remain divide determined by conservative elites and towards a more authentic divide: between more or less democracy.

It’s either that or expect the Brexit vote to be the first step down a road that will have an unhappy destination for all Europeans.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

From top: Paul Murphy TD leads Protests outside South Dublin City Council offices yesterday; Michael Taft

What we need is an alternative to the current system of waste management.

Michael Taft writes:

The bin charges debacle is spiralling into chaos.

We have areas where two or three or four bin companies operate and other areas where companies are threatening to leave; escalating charges becoming an intolerable burden on many low-income households; considerable price variations between counties; off-shored private companies pursuing wage suppression to increase profits; considerable illegal dumping; charges for recycling which disincentivises a social good; and on and on.

This is not a waste management policy; it is a circus.

The Minister is set to introduce a freeze on bin charges which would at least give us some breathing space.

The following sets out an alternative outline to waste management. This is not a hard proposal; others will come up with better ideas.

However, it is clear that the current situation is not sustainable – from an environmental, economic, and social perspective.

1. A Public Service

Waste collection should be a public service. In the late 19th century great strides in public health came from water, sewerage and waste collection services; all provided as a public good.

We should return to this principle. This does not necessarily mean that waste collection would be provided directly by the local authority or some other public agency (but it could – see below).

However, rather than relying on market-forces to provide the service or set the charges, local authorities should re-assert active management and control of waste collection.

2. Service Provision

Each local authority would have the choice to either:

(a) Provide waste collection directly, or

(b) Franchise out the waste collection to a single operator in a single area.

The latter would, at least, end the competition ‘within the market’ and replace it with competition ‘for the market’. Companies could bid for areas but they would have to comply with a strict protocol covering service quality and workplace relations.

However, under this system they would not set the rate or collect charges. They would merely bid on the cost of providing the service.

As a complement, or an alternative route, a national public agency could be established which would act on an agency basis for local authorities.

This agency would advise local authorities on costs, help roll out a directly provided waste service (e.g. local authorities could be facilitated to combine to achieve economies of scale and efficencies) or manage the franchising administration.

3. Financing Service Provision

It is difficult to estimate how much households nationally spend on waste collection. Prices are higher outside Dublin – in some cases considerable so. In 2006 the Ombudsman showed average yearly charges ranging from €200 to €400 a year.

The CSO’s Household Budget Survey – from 2009/10 – shows a national average of approximately €200 per year per household.

This should be treated as a proxy as it includes sewerage and skip hire but these make up only a small expense relative to waste. In any event, the distribution of costs would be approximately the same.

Unsurprisingly, the distribution of costs is highly regressive – given that waste charges are not related to income.

The lowest 10 percent income cohort pays more than five times the amount as the highest 10 percent – measured as a proportion of disposable income; and nearly three times the national average.

We could bring the entire cost be brought back into general taxation with free provision of service. There are two potential problems with this.

First, is the opportunity cost: with so many areas crying out for resources (housing, health, education, investment, social protection, a range of public services), the new expense of free waste collection would crowd out spending in other areas.

Second, is the lack of recycling incentives (though this is more contestable).
Nearly everyone is required to pay for a service – those in work and those reliant on social protection. So the issue isn’t so much charge vs. free; rather it is regressive charge vs. progressive charge.

Therefore, a fractional levy on all income, including capital income (e.g. 0.3 percent) deducted at source should be sufficient to fund a public waste collection service. Some may argue that those on social protection shouldn’t have to pay the levy – but they pay for highly regressive charges already.

A fractional levy would yield them considerable savings. All households with a combined income of approximately €80,000 would be better off – that is, most households.

What about recycling?

It is often asserted that pay-by-weight incentivises recycling. This is never quantified but currently Ireland is an EU leader in recycling.

We have the third highest recycling rate, behind Slovenia and Germany; and are well above the EU average. And that’s with only 20 percent of households paying on a pay-by-weight basis.

If pay-be-weight is brought in, it could be done on the basis of charging for ‘excessive’ waste. In other words, each household would get a ‘waste-free allowance’.

But incentivising recycling is more than just about ‘sticks’; there should be carrots as well. For instance, in the Dublin North Inner City the bring centre closes at four and is not open at the weekend – hardly helpful for households in full-time work.

When visiting other European cities, one sees small recycling banks in a number of places; in Dublin there are relatively few.

And if one is concerned with the ‘polluter pays’ principle, the household is merely the final user in a chain of waste. In Germany, supermarkets are required to have recycling banks on site, so that households can get rid of much of the packaging before leaving.

The point in all this is that levies and pay-by-weight charges would be set by public authorities which would go to pay for the price of either directly provided or franchised services.

Appropriate waivers or additional allowances could be granted to households with special needs. These wouldn’t be set by private companies but democratically accountable officials in a public market.

4. Beyond Just Picking Up Waste

There are three further potential benefits from this system.

First, the entire sector would be subject to a Sectoral Employment Order (SEO) which would regulate pay and working conditions.

Since the privatisation of the waste services, wages have been driven down by employers. A SEO would ensure that competition for the market is not based on squeezing labour but is based on service quality.

Second, if a national public agency was set up, they could take charge of managing landfills and waste chains. The agency could maximise renewable energy sources from landfill gas and waste-to-energy projects – so that we get an environmental (and commercial) return.

If the agency established an R&D unit, this could research renewable projects, best-practice in waste management, recycling initiatives, etc.

Third, all private companies that bid for franchise contracts would be required to publish their annual financial statements – just like so many other businesses are required to. This would provide commercial accountability.

This outlines one model. There are other models. If the Minister announces a charge-freeze, we have a year to work out a new model.

And there is a strong argument that any model that emerges from such discussions should be grounded in waste collection as a public service.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

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