Ictu.ie

Irish Congress of Trade Unions
A Better, Fairer Way
2011 Pre-Budget Submission
Fairness is not
only morally
better, it is
superior as well
Fairness is not only morally
better, it is economically
superior as well
Irish Congress of Trade Unions
2011 Pre-Budget Submission
The National Economic & Social Council (NESC) points to five interlinked crises: economic, social, banking, reputational and fiscal. In this submission, we will deal with all of these but our primary focus is on mass unemployment, the fiscal and the banking crisis. EXECUTIVE SUMMARY
1. MASS UNEMPLOYMENT
2. THE FISCAL CRISIS
a) Austerity vs Stimulus b) Domestic Demand is Vital c) New Ideas on Funding Public Investment d) Cuts and Taxation e) What Should Be Done On The Adjustment? f) Fairness: The Corporate Contribution g) A Fiscal Council 3. THE BANKING CRISIS:

Negotiate with the Bondholders
4. TAXATION
5. THE ‘PRIVATISATION BOARD':

A Panic Response
6. REPUTATIONAL REFORM:

A Better Corporate Governance
7. TACKLING INEQUALITY
8. REC0MMENDATIONS ON SOCIAL WELFARE
9. OVERSEAS DEVELOPMENT AID
10. CONCLUSION
APPENDIX I:
A menu of areas where revenue -
up to E2.1 billion - could be raised in 2011
APPENDIX II:
Investing in the Economy
This will be the harshest
budget in the history of this
state. The real challenge is to
ensure fairness in the Budget's
distributional effects.
through the taxation of latent sources of Executive Summary
revenue and by achieving savings by means that do not entail taking large amounts of Extend the Adjustment Period,
money out of the economy.
Focus on Growth
From early 2009 Congress warned that that the Ultimately, the key is job creation and
economic choices made by this Government growth. Austerity is not a credible plan for
– austerity as opposed to stimulus – were a recipe for disaster. We said they would depress demand, cause job losses and retard prospects The liberal economic model has failed. Yet, by pursuing austerity, our Government appears to be still in thrall to it. As Keynes said: "Practical To date, we have seen three deflationary men, who believe themselves to be quite budgets that have taken some €14.5 billion exempt from any intellectual influence, are from the economy. Yet our budget deficit is usually the slaves of some defunct economist." now higher than when the austerity programme began and we have mass unemployment. That Economic Impact of Congress Proposals
is not a sign of success, by any standard. The economic impact of the proposals in our submission would be to provide a small It is now clear that we wil not meet the target stimulus overall to the economy. In contrast, the of reducing our budget deficit to 3% of GDP, Government's proposed cuts will deflate it by 2014. That target is arbitrary and artificial. substantially further. If their measures are in the If Government persists in trying to reach it, it order of €4bn they will deflate the economy by wil likely cause deep and lasting damage to an additional 3%. A precise figure depends on our economy and society. It wil devastate lives where the cuts and taxes are imposed.
and communities. Our submission contains a broad menu of The key to success is a credible plan which proposals and alternative options, so it is not demonstrates how we wil grow our economy possible to determine their precise impact on into a sustainable recovery. This would carry the economy. Congress would almost certainly far more weight with the investors in the prioritise some tax rises over others, in ways international bond markets than experimenting which would be far less deflationary. Appendix with unprecedentedly dangerous austerity plans.
I of our main submission contains a menu of areas where revenue of up to €2.1 billion could Congress believes that we should extend the adjustment period to 2017, thereby al owing growth a chance to take hold. The key to Job Creation & Protection
that growth is investment and we have set out a number of proposals on this, in our We need new initiatives and greater urgency submission. Deficit reduction can be achieved on job protection and creation. A sum of at least €2bn per annum for three years should be invested immediately in suitable projects extension of existing ones) through risk sharing to promote growth and leverage investment with private investors.
thereby facilitating job creation, job retention and upskilling. This can be done in a manner Government should adopt - as a matter of that meets Eurostat criteria. Some immediate urgency - the model of ‘job protection' so job creation ideas suggest themselves: successfully implemented across the EU. This • New Water & Waste Network Efficient use
provides state support to viable jobs threatened of water will generate considerable long-term by the downturn and makes solid social and environmental savings and could create over financial sense. 30,000 jobs during delivery stage and some 12,000 permanent jobs. New Ideas on Public Investment
• Retrofit Energy Inefficient Buildings
• Money from the National Pension
Comhar estimates the number of energy Reserve Fund should be utilised to invest
inefficient homes at 700,000. This work is in addressing our infrastructural deficit and labour-intensive and has major downstream jobs crisis. Over time, this could rise to €6 benefits (materials, manufacturers, suppliers billion that would be invested in Ireland's future, rather than in bank subsidies or foreign equities.
• Next Generation Broadband (NGB) The
Telecommunications & Internet Federation • Start auto-enrollment in the state pension
fund immediately, which will result in
€2.5 billion would bring a modern NGB network to 90% of all homes and buildings. substantial flows of funds to the Exchequer.
The benefits for employment and future • Introduce amending legislation to provide competitiveness are clear. for investment in Sovereign Bonds
• Education Third level institutions require
by Pension schemes as called for by
investment to accommodate the surge in Congress, IBEC, IAPF and others.
student numbers - new buildings, facilities, • Encourage PRSAs to invest in the state
refurbishment etc. pension scheme. If 20% invested next year,
this would provide around €1 billion.
There is also great scope for investment • Increase the interest on the National
in: national and secondary roads, Solidarity Bond (an idea originated by
green energy, electricity grid upgrade, Congress) and hypothecate the investment development of natural resources (peat, into designated projects and market it as forestry), conservation technologies, reskil ing and upskil ing our labour force, return to education, public transport, urban • The key role of state enterprises in our regeneration and flood defences. recovery must include the establishment of a State Holding company as a new, NPRF monies could also be used to incentivize the development of new enterprises (or the Contribution from the Corporate Sector
minimum wage. In the U.S., capital gains are We should extend the income levy to
taxed as income with lower discounted rates on corporate profits, in this time of national crisis,
long-term gains. We should do likewise.
until the 3% budget deficit target is reached. Only companies making a profit would pay.
The current threshold for inheritance from
parents (€414, 799) is far too high and should be
Multinationals could also defer repatriation
reduced. Specific protections might be required of a portion of their profits and set up a
in cases of people living in inherited property, fund to invest in new or existing Irish-based where these beneficiaries are on low incomes. enterprises and infrastructure. Such a fund could amount to bil ions of euro and could Place a (temporary) wealth tax on wealth
make a significant contribution towards above €2 million, wealth being defined as economic renewal and development.
current value of all assets, including the excess of €1m in the value of private houses. Banks & Bondholders
Reduce the 183 day test for tax residency
Government must act in the interests of its purposes to at least 90 days, as obtains in
people, not the markets. It must force down the the UK. Where a tax exile's main centre of
value of all bondholders' holdings - which they vital interest is here or if they are assessed on a risked in recklessly-run, private banks - to 10% permanent home test, they should pay tax here. of their nominal value. This could see a saving of up to €24 billion for taxpayers. If it is intended to merge the income and
health levies it is vital this is done in a way that
Tax Measures
ensures equity.
The tax system is rife with exemptions and
reliefs. Their combined impact narrows the tax
The minimum funding standard must be
base. Unless there is a proven benefit to the eased to help occupational pension schemes taxpayer, they must be closed. which are under great stress, with most defined benefit schemes in deficit. A rise in the general rate of DIRT to 30%
would raise an additional
Congress believes a 12.5% oil and gas
royalty tax - on production and profits - should
The minimum tax for high earners - using
be reintroduced. avoidance schemes - should be increased to 35% and the threshold reduced to There should be a limit on earnings for pension No further cuts to social welfare rates. Welfare
purposes of €100,000. recipients wil be badly af ected by the recent 5% increase in electricity prices. The price of The beneficiaries of capital gains are better
liquid fuel has also increased (by 26.8%), placing placed to meet tax liabilities than those on struggling households under further pressure. We should reform social welfare rules which
OPEN, Mental Health Ireland, the Irish National discourage employment: allow people who Organisation of the Unemployed and Inclusion work reduced hours more than three days in Ireland to protect the conditions of people with the week to be able to claim jobseekers benefit disabilities and lone parents on Community for the time they are not working Employment (CE) schemes. Tackle poverty traps, such as the loss of
medical card entitlement for low-income Congress recognises the critical role played earners which discourage people from taking by Overseas Development Assistance in
driving towards the realisation of the Millennium Development Goals and as a stable source of Introduce compensation to help mitigate the funding for poorer countries. We support the problem of fuel poverty and broaden fuel
introduction of a Financial Transaction Tax
allowance coverage to households in receipt of (FTT) which could raise between €160 and
Family Income Supplement.
€700 billion (more than 3 times the current levels of international aid). It would also tackle We remain opposed to means testing of child
corporate tax evasion and ensure more benefit in the absence of an adequate state
effective regulation of banks supported child care system. Congress supports the Nordic ‘flexisecurity'
model of robust social protection and strong
active labour market policies to promote
employment.
Privatising valuable state assets for short-term gain would be a grave mistake, especially when asset prices are very low. The record is not good. The Eircom debacle greatly delayed the roll out of fast universal broadband. Company laws must be radically reformed with a shift from the narrow interests of shareholders to the broader stakeholder model. Congress supports the campaign of SIPTU, Ireland has three interlinked economic
problems:
1. Mass unemployment 2. A fiscal crisis 3. A banking crisis There is little focus on the unemployment crisis. Address this and we will go a long way towards resolving the other problems. Pursuing cuts and bank bail-outs without carefully factoring in their impact on employment levels will lead to a downward deflationary spiral.
Historical evidence informs us, bluntly, that after a major financial crisis, it takes a long time for economies to revert to normal economic growth. The projections for Irish economic growth from the Government, ESRI, Central Bank and most economists are very optimistic, particularly as they are all hell-bent on deflating the economy even more.1 1 ESRI forecasts 0.25%, 2.75% for GDP, Central Bank at 0.2% and 2.4% and Government at -1.3% and +3.3% in 2010 and 2011. The Government then hopes that GDP will rise to 4.5%, 4.3% and 4.0% in the subsequent three years, in Budget 2010.
1 Economic Problem One:
spending will exacerbate the deflationary spiral Mass Unemployment
which has already taking hold.
While a lesson has been learned from the Investment is vital during a period of savage cuts in capital investment in the 1980s deflation as a stimulus and in to assist future - which delayed recovery for years - a bigger economic growth and well-being. Borrowing spend today could stimulate the economy now, for investment is good economics. This is when it is most required. particularly correct now. Economists agree on borrowing for investment. Where they disagree Congress is highly critical of al the taxpayers' is where and how the money should be spent. euros which are being poured into the black Such debate is healthy, but in the meantime, hole that is the Irish banking sector. This vast a major jobs intensive investment programme sum has been borrowed or taken from our should be the priority of Budget 2011.
members' Pension Reserve Fund. This vast "pseudo-investment" in the banks funds no jobs, Cutting investment is merely postponing it and no schools, no hospitals, no clinics, no trams, spending today, when jobs are desperately no buses. The only jobs are for an overpaid needed, will stimulate the economy professional elite of bankers, accountants and solicitors who are stil being paid excessively. Congress said that cuts in the National Development Plan - from €56.6 bil ion to €39 Minister Lenihan said: "Tender prices for bil ion - could have been worse. However, construction have fal en very considerably: in fact it is our view that the investment package they have fal en by 30%. Lower prices coupled should be much bigger. Ireland has a serious with improvements in public sector procurement infrastructural deficit, mass unemployment procedures (such as fixed price contracts) and the wider economy needs a greater boost wil af ord greater opportunities for value for than this reduced package wil deliver. Our money than existed during the boom years. suggestion of taking two bil ion euro from Government Departments are already benefiting the Pension Reserve Fund per year for each from these changed market conditions."2 year of the next three years and investing it Congress agrees and accepts that there is more in the real economy is actual y modest. There value for the investment today with lower tender could be a case for increasing it, on analysis prices, but that is precisely why we should have of investment needs and on the returns increased investment now, when it is cheap.
and multipliers. (Subject to the availability of sufficient suitable projects).
Congress again calls for all stops to be pulled out to ensure that all money allocated is spent On the other hand, deep cuts – now and that planning and bureaucratic obstacles understood to be well over €3 billion - in public are removed urgently.
2 On 26th July 2010.
Cutting the general government deficit in the (a) the spillover effect of such growth on tax absence of promoting economic growth is a self revenues, additional job creation and local defeating policy. Already we have taken some economy procurement is minimal due to the €14.5 bil ion out of the Irish economy over the capital intensity of the projects and transfer last three budgets and we are stil facing a similar pricing arrangements and general government deficit as we had in 2009. (b) more importantly, there is now a grave This does not include the bank recapitalisations. concern that the sources of this growth are The fiscal consolidation plan in its current form is becoming increasingly concentrated. not a plan but a series of targets. They wil not be reached unless a serious and credible strategy Pharmaceutical and chemicals now account for for growth is put in place. Current growth almost half of the value of all output in the Irish forecasts are grossly optimistic, particularly as economy in 2010, up from a share of over one- they are being undermined by large cuts. third in 2008. This is due in part to the large fall off in electronics and computer processing Last December, the Government forecast that in this country. With the Irish pharmachem the Irish economy would emerge from recession sector industry set to face a major shake-up in the second half of 2010 and would record in competition in future years, with the expiry 3.3% growth in 2011 and an average rise in of some notable blockbuster patents such as GDP of 4.3% in the years thereafter, based on Lipitor in 2011, the need for a broad-based the over-optimistic notion that Ireland could recovery across the traded and non traded ef ectively piggy back on the growth in our sectors of the Irish economy is all the more trading partners. These projections appear al the urgent, if the general government deficit as a more fanciful now with the latest OECD forecasts share of GDP is to be reduced.
projecting that the US is set to record its slowest rate of quarterly growth in the last quarter of Jobs – The Priority
2010 since emerging from recession in Spring 2009. Similarly for the EU, the most recent Officially unemployment is close to 14%.
European Commission interim forecasts suggest By the CSO's S3 measure unemployment is
that the second quarter of 2010 was better than 17.9%. If this is adjusted to the then higher
expected due to a pick up in temporary factors participation rate of 2007, the numbers of
i.e. inventory and construction, but that the euro people who want to work but cannot find
area is facing into a soft patch over the second jobs was almost 21% at mid 2010.
half of the year. The number of young people out of work is Manufacturing output did enjoy a good 2010, growing rapidly.
thanks to pharmaceuticals and chemicals and while there are tentative signs of strong growth The number of long term unemployed is rising for overall industrial output and exports this year, there are two main concerns with regard to the future of Irish economic growth; Emigration is soaring.
In our ten point plan, ‘There is a Better In our May 2009 Job Creation & Protection Fairer Way,' the first point made was on Plan we had sought investment of €1 billion in job protection. We argued that the social jobs. We argued that employers should discuss welfare system must be radically altered and alternatives to redundancy with workers and integrated with skills enhancement, education their unions and where workers agree to and training. We suggested that this can be options such as short time working then the augmented with additional funding from the social welfare system should support this Public Capital Programme.
move by providing payment to compensate for the ‘off time'. In turn, workers would agree to Almost two years ago we had sought a engage in training during any such ‘off time'. €1 bil ion investment in a jobs plan but Where there is a cost associated with the Government would only agree to a far smal er training, financial support should be available to initiative. We cal ed for greater ambition cover this from the programme.
in a major drive for jobs and employment protection, as the crisis worsened.
We propose, for example, four jobs initiatives to be led by the state: Congress reiterates our calls for greater • A State-of-the-Art Water & Waste
initiatives and urgency on job protection and Network would cost €4.2 bil ion. Efficient
on job creation. The one billion to be taken use of water wil create considerable long- from the National Pension Reserve Fund term environmental savings and wil have the should be invested immediately in job creation, capacity to create over 30,000 jobs during job retention and upskilling. The German delivery stage and up to 12,000 permanent job retention scheme has worked very well. jobs. If this network was placed in a national The Government jobs initiative announced agency, it would secure considerable savings at the end of September seems to be more in scale, planning and procurement, while aspirational than realistic.
reducing future maintenance costs (currently, our water network is divided up among over 30 Imaginative but prudent initiatives are required local authorities and much of the cost is spent around employment retention. For example, it on band-aiding a Victorian-age system).3 would be far better to increase funding to the Arts Council for employment intensive areas, • Retrofit our Energy Inefficient Buildings
rather than paying unemployment benefit to this could help create an €8 bil ion industry. those who are made redundant because project Comhar estimates the number of energy funding has been cut. While it is regrettable inefficient homes at approximately 700,000. that many working in the Arts are not wel paid, Not only is this work labour-intensive, it has this means that the net cost to the state in considerable downstream benefit (materials maintaining and indeed boosting employment in manufacturers/suppliers, transport of the Arts is marginal. Further, the employment and materials, etc.). In addition, energy-efficient artistic work generated brings pleasure to many.
buildings consume less fossil-fuel imports, thus reducing our import bil . This will 3 NewERA, Fine Gael, 2010: http://www.new-era.ie/NewERA2010.pdf increase non-energy consumer spending Congress proposed many initiatives around and investment resources as a result of protecting jobs7 including a) welfare reform to decreased energy costs. This wil help coordinate it with employment; b) redundancy the large number of unemployed building rules which need to be reformed to ensure workers and employment for early school- that workers do not lose out on redundancy leavers could be combined with part-time payments by agreeing, for example, to engage training/return to education.4 in short-term working for a lengthy period of • Next Generation Broadband (NGB) the
time, as redundancy is calculated by reference Telecommunications and Internet Federation to final wages; c) a social innovation fund; d) has estimated that it would cost linking education to employment; e) a training to bring a modern NGB network to 90% of guarantee that would support workers learning all homes and buildings. Two-thirds of this and provide access to training and provide cost would be taken up with civil engineering minimum training rights, such as a guaranteed works while the supply-side benefit would number of paid hours for up/reskilling and persist for many years after.
vocational training; improve standards in employment; etc.
• The Higher Education Authority6 estimates
that third level institutions will require €4 billion investment to accommodate the surge in student numbers - new buildings, facilities, refurbishment, etc.).
These are just four examples. Given that Ireland's infrastructural capacity ranks as one of the poorest in the European Union 15, there is welcome scope for a sustained investment programme: the postponed national and secondary roads programme, green technology, electricity grid upgrade, development of natural resources (peat, forestry, etc.), conservation technologies, human resources (reskilling and upskilling our labour force), return to education, public transport and rail, urban regeneration programmes (social housing, leisure facilities), flood defences, etc. 4 Towards a Green New Deal for Ireland, Comhar, 2010: http://www.comharsdc.ie/_files/2009_TowardsGNDIreland_rpt.pdf 5 Building a Next Generation Access Network for Ireland: http://www.tif.ie/Sectors/TIF/TIF.nsf/vPages/ 2 Economic Problem Two:
on tax-cutting, tax-shifting, and de-regulated The Fiscal Crisis
financial markets. Free market economic fundamentalism ruled and it failed, spectacularly. The tax-cutting policies to the late 1990s were There is something deeply wrong in Ireland. reasonable for a few years, a) when personal There is an obsession about an ‘adjustment' of taxes were high, and b) when they were not first €3 bil ion, then €4 bil ion, even €5 bil ion pro-cyclical. But by 2001, tax cutting, even with plus, in Budget 2011, while many more bil ions large surpluses, was the wrong policy for the Irish have been poured into the banks. There have Government to continue to pursue. However, been no benefits from this ‘sinkhole' investment. it was in the grip of a pernicious economic philosophy. These policies fuel ed the boom and • The markets are not impressed and our led to a far greater bust.
borrowing costs are still high • The cost of the bank rescue is staggering Congress was highly critical of Government • It may undermine the real economy fiscal policies in the past decade and we were correct and perhaps we are again today. It • Deflation is making matters worse by: seems that even the ‘markets' think so. More - Slowing the recovery by years and more are coming to our point of view, - Increasing unemployment including even stockbroker economists. - Reducing tax revenue Government polices over the last decade - Shattering business confidence largely destroyed a fine economy by pursuing - Reducing needed public services essentially liberal, pro-cyclical, tax-cutting - Hurting the poorest most policies. It is pursuing pro-cyclical spending - Cutting needed investment cuts now. When Congress opposed the tax- - Reducing future prosperity cutting, de-regulation, tax subsidies policies of the noughties, we did not realise how A: Austerity Vs Stimulus
destructive they were – destroying so much value within the Irish economy. The Irish Congress of Trade Unions has been deeply opposed to the broad thrust of While this government has a credibility problem, Government economic policy since the Crash it is exacerbating it with deflationary policies. of 2008. It is deflationary and is prolonging There is no comfort for praise for its macho the recession, dampening domestic demand, ‘austerity' policies from the likes of the Wall reducing tax revenue, destroying jobs and Street Journal and right-wing think tanks. On hurting the poorest most.
the other hand, much of the foreign media which had applauded the rapid pursuit of The economic policies which underwrote the austerity is now questioning if "the harsh domestical y generated boom were based medicine is killing the patient".8 8 Lex column in Financial Terms, 15 June 2010, "But the process of fiscal adjustment … is so arbitrary, so uncoordinated, and – in countries like Ireland and Greece – so savage that the cure is as likely as is the disease to kill the poor patient." The international media has been increasingly recovery by cutting too much and by slavishly critical of Irish fiscal policy as deflationary and following a arbitrary timetable.
wrong-headed. The Financial Times has had many critical articles including its lead editorial Nobel Prize-winning economist Joseph Stiglitz on 22nd September - the same day as the said in an interview on Morning Ireland: "Cutting Guardian warned against the folly of following back willy-nilly on high-return investments just Ireland's Austerity programme9. Adam Posen, to make the picture of the deficit look better is a US economist who is an external member really foolish." European governments made a of the Bank of England's MPC has warned "wrong bet" by pushing for austerity after the against austerity too, calling for central banks to global recession, resulting in slower economic "undertake more monetary stimulus."10 growth for the region and the US.12 He also warned of the dangers of what the "Ireland's struggle to revitalize its economy after wrong fiscal policy can do to a country. In the country's worst recession on record shows the case of the lost decade in Japan, he said the risks of focusing on deficits," Stiglitz said. "Japan's Great Recession was the result of a "Because so many in Europe are focusing on series of macroeconomic and financial policy the 3% artificial number, which has no reality and mistakes. Thus, it was largely avoidable once is just looking at one side of a balance sheet, the initial shock from the bubble bursting Europe is at risk of going into a double-dip." He has long argued that: "In a recession, you Professor Skidelsky, who spoke at a Congress want to raise (or not decrease) the level of lecture on October 12 last has warned that total spending… However, state spending the fiscal hawks risk undermining any potential reductions have the opposite effect: each dollar 9 4"Irish woes should give pause to the cutting coalition in London. There are important differences, of course, for both the bubble and the bust overwhelmed the republic more comprehensively than the broader-based economy here. But that did not stop rightwing pundits hailing Ireland's early move to meet the maelstrom with masochism as an example for Britain. Nor should it stop the rest of us from learning lessons about what happened next, after the early cuts. The private sector did not immediately rush to fill the gap left by the public, and by the sluggish summer of this year the government's creditworthiness was being called into question not so much because it was spending too much, as because of fears that the economy would soon be too small to sustain the debt being racked up." Guardian 22nd Sept 2010.
The Financial Times (22nd Sept 2010) editorial urged the Irish government to cut the ground from the banks' bondholders and to cease its obsession with cutting public spending - "a course that anyway might further harm a growth path that looks set to lag the government's own projections". The editorial began by also saying that "It would be better if Irish deputies focused less on his (the Taoiseach's) alleged tipsiness, and more on his misguided strategy for dealing with the country's banking sector. FT, 19th September 2010, Munchau "the economic malaise in Ireland, whose crisis is growing worse by the day, FT 25th September; "Investors are still nervous about whether Ireland's fiscal adjustments will see the country turn." FT 30 June 2010; "Paul Krugman the Nobel-laureate economist, argued last week that Ireland had seen little reward for its brave fiscal measures - "Virtuous, suffering Ireland is gaining nothing,"' FT 29th September, 2010 "Is Ireland restaging Greek tragedy" where it asked if "the country has been too austere in its effort to reduce debt at the expense of growth." 10 Speech called "The case for doing more" Hull, 28th Sept 2010 and Daily Telegraph, 30 June 201011 THE REALITIES AND RELEVANCE OF JAPAN'S GREAT RECESSION, London School of Economics, 24 May 201012 RTE Radio 24 August 2010 quoted on Bloomberg 7th Sept. and in Economic Times on 25th August.
less that the state spends generally reduces able to protect themselves. The second threat consumption by the same amount."13 is failure to secure the medium-term structural shifts in fiscal positions, in management of the The blind faith in the capacity of Ireland's private financial sector and in export-dependency that sector to make up for the huge cuts in public are needed if a sustained and healthy global spending would be misplaced in a normal recovery is to occur."15 economy, but Ireland has a unique "private enterprise deficit." It was not just the banking Wolf also warned of over-dependency on sector that failed itself and failed Ireland, but al of exports. This is a serious issue for Ireland. While the banks' boards were fil ed with the so-cal ed a small economy with good export performance "enterprise leaders" of Ireland, from al sectors. through popular exports (food and drugs) As the banks bosses, they were al property at present, we are nonetheless vulnerable. speculators and not real entrepreneurs. Therefore The deflationary policies being pursued are it is naïve to expect the private sector to fil the squashing out domestic demand – which huge gap left by cuts in public expenditure in this makes up around 70% of GDP.
country for some time.
Cutting the general government deficit in the There have been major debates over the absence of promoting economic growth is Austerity vs Stimulus in other countries, but it self-defeating. Already we have taken some has been muted here. Congress recognises €13 billion out of the Irish economy over the that the majority of mainstream economists last three budgets and we are still facing into a have, to date, supported the Government's similar general government deficit as a share of austerity programme. But that does not make GDP in 2010 as we had in 2009, excluding the it correct. Most of them were either wrong bank recapitalisations. The fiscal consolidation or silent14 during the boom, when we were a plan in its current form is not a plan but a series lone voice against direct tax-cutting and de- of targets, which will not be reached unless a regulation. The unexpected fall in GDP of 1.2% serious and credible strategy for growth is put in Q2.2010 underlines the policy failure.
As Martin Wolf of the Financial Times has The Illusion of Future Growth
regularly argued, there are "two huge threats in Last December, the Government adopted front of us. The first is the failure to recognise the over-optimistic notion that Ireland could the strength of the deflationary pressures. The effectively piggy-back on the growth in our danger that premature fiscal and monetary trading partners. It forecast that the Irish tightening will end up tipping the world economy would emerge from recession in the economy back into recession is not small, even second half of 2010 and would record 3.3% if the largest emerging countries should be well 13 Tax Policy Center: April 27, 2003.
14 Silence makes them eequally culpable, particularly if they were silent because they were supporters of the tax-cutting which contributed so much to the Crash of 2008, 15 FT, 14 July 2010.
growth in 2011 and an average rise in GDP of single year in 1990 and increased by 27% in 4.3% in the years thereafter. the fol owing year. This strategy is very dubious now with present Rather than waiting for economic growth to fears that the advanced Western economies are return, the time to get more enterprise up on heading for a double dip recession. The latest its feet is now. Such proposals do not always OECD forecasts envisage the US recording involve the State providing the money for its slowest rate of quarterly growth in the last investment from its own savings and also funds quarter of 2010 since emerging from recession can also be harnessed and encouraged from in Spring 2009. Similarly for the EU, the most the corporate and household sector, as we recent European Commission interim forecasts suggest elsewhere. highlighted that the better than expected second quarter of 2010 was due to temporary B: Domestic Demand Is Vital
factors i.e. inventory and construction, and that The Government is over-reliant on exports the euro area is facing into a soft patch over to lead Ireland out of the recession. It is second half of the year. not neglecting domestic demand, but it is undermining it. It is not plausible to argue that In spite of the evidence, those on the in a smal open economy domestic demand is ideological Right remain wedded to the notion unimportant. It makes up some 70% of GDP. The of ‘expansionary fiscal contraction', whereby Government's near total dependence on exports purging the economy wil ultimately make way is misplaced. It is correct that when world exports for economic renewal. However, proponents declined dramatical y, ours continued to perform conveniently play down the crucial impact of wel and very wel in recent months. But the exogenous monetary and fiscal shocks on source of our best performing exports is highly the Irish economy when the country emerged capital intensive and low in employment content. from its last economic recession. An 8% Economic policy is reducing domestic demand devaluation of the punt in 1986 was fol owed and may push Ireland into a long deflationary by the 1987 global stock market crash which spiral, similar to Japan.
led to an overal decline in international interest rates. This, combined with the Lawson boom Demand is made up of private consumption in the UK which was prompted by large expenditure, public current expenditure, tax cuts, brought about a revival in global exports and investment. Investment is made demand and provided the context for a 10% by the state and the private sector. Personal jump in the rate of growth of Irish exports in consumption by people is way down and is 1987 alone.16 Exports recorded a cumulative being pushed further down by cuts in public increase of 16% in the subsequent two years. spending. It fell by almost 7% last year and On the fiscal side, EU transfers to Ireland will fall again this year. Retail sales are down covering structural and cohesion funds and and those with money are saving hard, with payments under the CAP jumped 44% in a 16 Bradley J and K Whelan (1997), "The Irish expansionary fiscal contraction; a tale of one small European economy". McAleese D. and FD McCarthy (1989) "Adjustment and External Shocks in Ireland." the savings ratios up by 50%. The growth C: New Ideas On Funding
in unemployment is a major cause of the Public Investment
downturn in personal consumption, but so is To avoid further deflation, Congress proposes: high personal debt; cuts in weekly earnings in the private sector (where hourly earnings have • No cut of €1 billion in investment as the actually continued to rise, until recently, over the Government proposes. Take €2 billion from past two years); much more substantial cuts in the National Pension Reserve Fund. earnings in the public sector; uncertainty allied • Start auto-enrollment in the state pension to lack of confidence and the belief that fiscal fund immediately. This will give substantial policy is failing and things are getting worse.
flows of funds to the Exchequer.
Businesses are neither hiring nor investing as • Provide amending legislation to provide for credit is difficult to access; demand is way investment in Sovereign Bonds by Pension down; cuts to public spending, more important schemes as called for by Congress, IBEC, to many businesses than one might believe, are taking their toll; domestic demand is also down • Encourage PRSAs to invest in the state in an economy one-fifth smaller than just three pension scheme. If 20% invested in it next years ago and confidence is gone. Investment year, it would provide around €1 billion.
has imploded not just in construction but in • Increase the interest on the Solidarity most other sectors too.
Bond (an idea originated by Congress) and hypothecate the investment into designated So that leaves Government as the remaining projects and market it as such – good value component of demand. With cuts of around savings and patriotic domestic lending to €4 billion in current spending since 2008, its Ireland, in a time of crisis.
contribution to domestic demand has been reduced too. The public capital programme is • Establish the State Holding Company which also being reduced to ‘contribute' to the deficit would attract pension funds into investing reduction, but such cuts are sucking demand in these companies and into much needed out of the economy, when so much remains public infrastructure17. to be done. On top of this, the Government • Multinational companies could help Ireland is pouring money into the banks. There is no and themselves by deferring the repatriation increase in demand from this activity. Its impact of some of their profits for a period and to on the real economy is nil.
set up an investment fund, on a commercial basis, to invest in new or existing Irish based Therefore, ‘adjustment' must be not made up enterprises and infrastructure. Several such only by cuts in public expenditure, but more companies would set up this fund, amounting judiciously, in ways which best maintain and even to billions and it would make a significant stimulate domestic demand and employment.
17 See section on External Equity p7 of Congress' A new Governance Structure for State Companies, 2005.
contribution towards economic renewal and proponents of austerity, most of whom cal ed development (see "corporate contribution" it wrong during the boom, argue that any below) outside G&SP.
investment wil ‘leak out' into imports. Yet • Extend the income levy to corporate income effective investment in infrastructure and in (profits) in this time of national crisis, until the skil s retention and enhancement can and will deficit is reduced to 3% of GDP.
generate excel ent returns.
• Increase other taxes as set out in Appendix I.
The intellectual justification for austerity comes D: Cuts And Taxation
largely from a recent Harvard University paper by Alesina and Ardagna.18 They argued that Congress recognises that there cannot be austerity can even boost growth in the short a major stimulus introduced successful y term, as savers feel more certain once a by a smal open economy, particularly in programme is put in place and so go out and the absence of stimuli in trading partner spend. And they claim austerity works even in countries. In the austerity/stimulus debate, the correct policy for Ireland is not at the extreme of austerity. This is where we are However this paper has been challenged by, today. It is clearly not working. The correct of all people, the International Monetary Fund macro policy today is to move quickly from (IMF). In its Outlook of October 201019, the IMF the extreme of austerity. This failing policy has criticised the methodology used by Alesina and been pursued unsuccessful y for three years in Ardagna as "flawed." The IMF study found that Ireland. The pro-cyclical, cost-cutting policies austerity of 1% of GDP generally leads to on are tax-revenue reducing, growth-reducing, average fall of 0.5% in GDP after two years and employment-reducing, confidence-reducing, to a rise in unemployment of 0.3%. while they increase poverty.
While the IMF paper argued that spending cuts There are cal s for even harsher cuts in do less damage than tax rises (a point which this Budget, what is euphemistical y cal ed many economists dispute)20, this was because ‘front-loading', but should be cal ed ‘blanket cuts are associated with larger falls in interest bombing' of the Irish economy. This savage rates. However, as interest rates are low and approach - always advocated by those unlikely to fall further, this impact is negated. who wil suffer least - is likely to ensure that Further a rise in net exports due to depreciation the much sought after ‘green shoots' will helps too – not an option for Ireland. be few and far between. Furthermore, the 18 Large Changes in Fiscal Policy: Taxes Versus Spending", by Alberto Alesina and Silvia Ardagna. NBER Working Paper No. 15438, revised January 2010 19 "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation". Chapter 3 of the IMF's October 2010 "World Economic Outlook"20 the oft cited assertion by conservatives that spending cuts do less damage than tax rises is of course just an opinion. It depends on where the cuts are made and where taxes are levied. Further this is recognised in the paper, where tax rises can be inflationary eg VAT and so Central Banks act, dampening demand and thus the recovery. But in Ireland's case, there is not an independent central bank governing monetary policy, inflation is currently non-existent and the tax rises proposed by us would have no inflationary impact.
Furthermore, as the deficit in rich countries of adjustment in the public finances has been averaged 9% in 2009 and the average debt excessively on the taxation side."21 to GDP will be 100% by end 2010, most are attempting to cut their deficits in tandem, thus Now there are leaks that the ‘adjustment' in the impact of a fiscal contraction is amplified. 2011 must be over €3 billion, with the former Therefore a cut of 1% of GDP actually leads Chairman of BP and current chair of Goldman to a reduction of 1%, not 0.5% as had been Sachs International (the bank which helped thought by the proponents of austerity.
Greece fiddle the books), Peter Sutherland, calling for €5 billion cuts in 201122. Mr. The Government said in its Stability report, in Sutherland is also a former chairman of AIB. Congress recognised the huge gap between "The path that has been set out to bring Ireland Government revenue and taxation of around out of excessive deficit has been adhered to in €18.8 bil ion projected in the Budget for terms of the identified correction for 2010, i.e. 2010. The adjustment must not be made adjustments amounting to €4 billion or 2½% only by major reductions in public spending. of GDP have been delivered in Budget 2010. Taxation has a major role in bridging the The scale of future adjustments will not now gap and in doing so in a fair way. Congress be as large as previously thought. For 2011, supplied a list of major taxes that could be it is estimated that the necessary adjustments raised in 2010 - with minimum deflationary will be of the order of €3 billion, with €1 billion impact. This was largely ignored in favour already identified and incorporated into the of cuts in 2010. Al of the adjustment was in capital expenditure forecasts taking account cuts, none was in taxation. While it appeared of revised investment priorities reflecting the to bring the books closer to balance, the changed economic environment. The remaining overal impact on the real economy has been €2 billion will be achieved through a series to depress activity substantial y. of further expenditure and taxation measures as signaled by the Minister for Finance in his It would be totally unacceptable if the Budget day speech." adjustment in 2011 was not to include substantial revenue from judiciously applied At the end of the day, there was a carbon tax progressive taxes. and some progressive changes in CGT and inheritance taxes but with cuts in excise duty, The Governor of the Central Bank, Patrick the net ef ect was that, overal , no additional tax Honahan, called for the ‘adjustment' to be revenue was raised. Thus al of the ‘adjustment' increased because the cost of borrowing in 2010 was imposed by cutting spending. has risen and markets are unhappy with the The employers' body IBEC is thus incorrect Irish government's response. But the cuts are when it asserted, that: "To date the balance deflating the economy and making it worse. 21 IBEC, Pre-Budget Submission October 2010, p1.
22 Irish Times 8th October 2010.
He is in danger of falling into the trap of what cannot meet that artificial target. It will not economist Joe Stiglitz called "appearances" work. Even the most brutal slash and burn – where it appears to look good to cut to programme, as advocated by more extreme apparently meet a deficit target. But in the real, elements on the right, will not work. It is not a dynamic economy, such action can deliver the simple arithmetical adjustment, but represents opposite results. That is what is happening. real hardship for many people. Paul Krugman in a one liner response to Prof Honahan said "Don't cry for me Argentina." He The fact that the ‘adjustment' figure is
referred to a BBC story which listed how its moving rapidly upwards from €3 billion
2001 austerity programme led to resignations to €3.2 billion, to €3.5 billion, to €4 billion
and a general economic collapse, ending and now to €5 billion plus shows the level
with "President de la Rua reportedly charged of delusion and confusion gripping the
with treason for unlawfully renegotiating the body politic!
country's external debt."23 Congress disagrees on: A great deal of Irish taxpayers money is going a) level of cuts; to foreign bondholders who invested in Anglo Irish Bank and the other banks. They should b) on the level of taxation and have lost all of their investment, as all the banks c) cutting capital expenditure, when so much collapsed. However, the Government, on our remains to be done and the economic and unwilling behalf, decided to rescue them with a social returns are good.
blanket guarantee. Congress also disagrees on the original target E: What Should Be Done On
of a €3 billion adjustment. Markets will not be appeased by further deflationary action. The The Government and most Irish commentators fall (again) in national income of both GDP and must end their self-delusion on the crisis. GNP in 2010 (Q2) shows how the deflationary They are fooling themselves if they think the policy is failing. Citizens are unimpressed and artificial 3% target can achieved over four years it will be they who bear the brunt of the cuts. if we inflict hard pain on ourselves (or rather Market are also unimpressed. on others); that austerity works and leads to growth; that exports alone will lead us out of recession; and most importantly, that growth figures projected for Ireland are not from the Wizard of Oz.
The EU Commission says that Ireland cannot extend the period of adjustment beyond 2014. Congress reiterates the view that Ireland simply The solution has three
self- defeating policy. Already we have taken some €14.5 billion out of the Irish economy over the last three budgets and we are still facing into a similar general government deficit First, we must recognise the immense difficulty – as a share of GDP in 2010 as we had in 2009, near impossibility - of reducing the deficit to 3% excluding the bank recapitalisations. The fiscal of GDP by 2014. Thus Ireland should realistical y consolidation plan in its current form is not a extend the period of recovery further, but to plan but a series of targets, which will not be emphasise that we are on the difficult road to reached unless a serious and credible strategy deficit reduction. Congress had said the initial for growth is put in place. target of 2013 was total y unrealistic. It is now clear that the target of 2014 set by the EU is Hans Blommestein, head of bond markets too short. Thus the proposed Four Year Plan and public debt management at the OECD cannot work. Further, with the massive cost of (who should know a bit about public debt), the banks' bailout, this target, in reality, wil take warned that "there was a danger that some much more time to achieve. governments might go too far with austerity measures as they sought to reassure Congress believes the adjustment period investors that they were talking their deficit should be extended to 2017. problems. That in turn could jeopardise their economic recovery."25 It wil be argued the any delay wil spook international bond markets. But these people Blommestein, cited peripheral countries, need to see a feasible plan. They would prefer including Ireland, where "the markets are one which wil work, rather than an aspirational creating a situation where countries could target which fails, as it deflates economic activity be forced to retrench too far and introduce and thus shifts the target backwards.Empirical austere fiscal policies that are not good for their studies on sovereign risk premia across a economies as its risks stifling growth." number of countries suggest that it is not the value of the total debt but a country's capacity The EU's 3% target may have been a to service its debt that is the strongest influence reasonable target in normal times. These are on the cost of borrowing to the Irish State24. not normal times, especially for Ireland.
Meeting that debt servicing obligation without the spil over benefits from a growing economy will The theoretical budget deficit is 32% of GDP ultimately prove an intolerable burden.
when the bank bailouts are added in – more that ten times the EU Growth and Stability Cutting the general government deficit in the target. We should not delude ourselves that we absence of promoting economic growth is a can reduce the real deficit rapidly.
24 Haugh D, P Ollivaud and D Turner (2009), "What drives sovereign risk premiums…" (OECD).
25 Financial Times, front page, "Eurozone investors accused of overreacting to sovereign risk." 11 October 2010.
26 Is it "realistic" to talk of cuts of such staggering magnitude when every year since the 1930s public spending has increased. It starkly reveals the gross mismanagement of the economy by the pursuit of liberal economic policies.
Graph 2.1: Overall tax-to-GDP ratio (incl. SSC) in the EU, US and Japan - 2008, in%
44.3 43.1 42.8 42.8 42.8 34.5 34.3 33.3 33.1 32.6 32.2 29.3 29.1 28.9 28.0 0 DK SE BE FI AT IT FR HU DE CY NL SI UK PT CZ LU MT PL BG ES EL EE LT IE SK LV RO
EA EU27 US JPOECD Note: Data for Japan and the OCED refer to 2007. Figures for US are provisional.
Source: Commission services for the EU countries, OECD (2009) for the US and Japan Secondly, any cuts in public spending, must of between €0.8 and €1.2 billion27. These be targeted and restricted to realistic levels26 taxes can be taken from the list in the menu of between €0.8 and €1.2 bil ion. As stated Congress published last year as a supplement above, we have had three years of Austerity to our budget submission (Appendix I). and pay cuts. We have had cuts totaling €3 bil ion in 2010 on top of deflationary It is a principle of taxation that income from cuts in 2009 and in 2008. Any cuts must all sources should be taxed in the same way. be aimed clearly at those with the broadest The Government agreed to this in a national shoulders. We would make judicious cuts, agreement some years ago. It has gone such as considering the phasing out the €100 somewhat towards executing this major reform mil ion to private schools over time, ensuring of taxation by increasing inheritance taxes and education grants are based on both wealth CGT in recent budgets, so that their rates are and income (to reduce the bias against PAYE closer to the effective rate of income tax which workers and towards the self-employed is around 30%. It can be seen from the graph and farmers), cutting al subsidies to private above that Ireland was a low tax economy healthcare, to high earners' pensions and in 2008. This is changing rapidly, but there is ending al property tax breaks.
clearly room for increases, but thoughtful new taxes represent an opportunity to make our Third, the ‘adjustment' of the tax and cuts system more equitable in the crisis.
must include carefully considered tax increases 27 In addition to any increase in tax, with fiscal drag (i.e. an additional €1.7 billion was listed for 2011 with no changes in Budget 2010, Graph 2.13: Decomposition of the implicit tax rate on labour, 2008
0 IT BE HU SE FR AT FI CZ DE EL DK SI NL EE SK LT PL LU ES PT RO LV BG UK IE CY MT
Note: The ITR on labour is calculated as the ratio of taxes and SSC on employed labour income to total compensation of employee.
Source: Commission services The above graph shows taxes on workers This investment may require time to ratchet wages in many countries, broken down up, but we suggest a further €2 bil ion by personal income tax, employers and would be invested from the Fund in 2012, employees contributions. which gives certainty to addressing Ireland's infrastructural deficit and assists in building a Congress also proposes that there be no cut large jobs-centered investment programme in public investment, i.e. in capital expenditure, over time. Then a further €2 bil ion would at all, next year. The €1 billion that is planned fol ow for projects in 2013. Thus a total of €6 to be cut should not occur. Instead, €2 billion bil ion would be invested in Ireland's future, should be taken in cash and drawn down as rather than in bank subsidies or foreign projects ratchet up, from the National Pension equities. (The €30m it is investing in Venture €24.1 billion which is our Capital firms (October 7, 2010) is welcome 'rainy day' fund (largely invested in equities and but the sum is inadequate in this crisis).
bonds of other countries). It could be invested through the State Holding Company to meet Indeed subject to the availability of suitable EU rules. Alternatively and/or simultaneously, projects, a greater amount than €2bn could the establishment of a state bank which would be expended in years one and two thus get credit flowing to SMEs and new start ups as frontloading investment to partial y offset the well as investing commercially in infrastructural effect of cuts elsewhere. projects, should be considered. The EU criteria for meeting the terms of the projects to be progressed which otherwise might Growth & Stability Pact are restrictive and fal foul of the reduction in capital expenditure. can be perverse when it comes to sovereign One project which seems ideal y suited to such wealth funds such as the NPRF in the an approach would be the modernisation of the attainment of the debt/GDP ratio criterion water supply infrastructure. Congress would because it considers gross, rather than net support the use of funds from the NPRF to national debt. It therefore total y excludes upgrade the water supply infrastructure by the the Funds' substantial €24.1 bil ion value in creation of a National Water Company. This assessing Ireland. Nevertheless, money from new state owned company would have the the Fund can be invested provided it meets current water supply infrastructure vested in it three criteria. The first way is by showing and would be given capital from the NRPF to that the investment is ‘commercial'28 and invest in an upgrade of the infrastructure and to this is strengthened when there is third party develop a means by which the new company involvement in projects. The Fund, plus all could be remunerated on a commercial basis for other state monies (including grants), must supplying water. amount to under 50% of the project. The second factor is that the Government, while Risk Sharing for Enterprise & Innovation
having a proportionate influence in projects, In addition to the above, NPRF monies could must not have control ing direction of them. be employed to incentivise the development This in turn can be strengthened if there is a of new enterprises (or the expansion of separate board, an existing state company existing ones) through risk-sharing. The to make it more an arms length relationship. funds channeled through the State Holding Thus, the SHC would be useful on meeting Company, or state investment bank, could take this point in undertaking such investment. up to 49% of the equity, thus greatly reducing The third is that the private sector must take entrepreneurial risk. The project company could the ful risk on its investment. In other words, be structured to enable the majority shareholder private investors cannot be bailed out by the to buy out the state investment at a commercial taxpayer. This means that the EU insists on price within a set time frame. reversion to the old rules of capitalism, which were abandoned by the Irish Government In short, utilising the resources of the NPRF during this crisis. Judicious investment of the is easily achievable within the criteria of EU Fund's money can meet these criteria, while rules on excessive deficit procedure. However, other ‘less commercial' investments can be the Government must want to do so. It or made from existing NDP exchequer funds. its agencies could present obstacles if it so wishes, but they can quickly be removed.
Congress envisages many potential uses for The NPRF is our members' fund and it is funds from the National Pensions Reserve Fund being raided without any proper strategy to (NPRF) in supporting the Government's capital bail out the failed private banks. The use of programme. The use of the fund wil al ow for its assets to bail out the failed banks is, in the 28 Yet this "commercial" criterion is met if the Fund is investing in shares such as those of AIB and BOI, as the Fund is doing, which a prudent private investor would eschew! view of Congress, through to the purchase some other way and we'll be saying, ‘ok that's their shares, a cynical interpretation of what your choice. If you don't deal with it that way, is "commercial" as their shares are almost how are you going to do it'".30 worthless. It can best be seen as a job maintenance fund of the last resort.
This observation reflects a long held European antipathy to what is the cornerstone of Irish As the largest civil society group in Ireland industrial policy. It also reflects the extraordinary and the recognised representative body of vulnerability of that policy which locks us into the employees in Ireland, the Irish Congress of semi-periphery of the world production system. Trade Unions has the greatest degree of Recognising the reality of our dependence on legitimacy to speak about this fund, after the FDI, particularly at this time when investment elected Government. But the Government in the economy is so crucial to recovery, is one must listen to Congress, as our members have pole of a dilemma and distributional unfairness is contributed more to the Fund than any other the other. This is because unless it can be shown representative body – by a very long way.
that the sacrifices of the citizens are matched This fund is best used to boost employment in some way by the contribution of corporate and maintain jobs in this unparalleled crisis Ireland, then any distributional settlement built rather than invested in the shares of foreign around fiscal adjustment is unlikely to endure. multinationals. This additional €2 billion must Based on previous statements the Government be put into jobs, in job retention, in upskilling, wil be anxious to avoid any signs which imply training and in physical infrastructure and thus policy change in this area. One way of avoiding will boost the real economy. that and yet providing for the corporate sector to make a fair contribution to fiscal recovery would Why borrow money when we have it in our own be to leave the corporation tax structure intact National Pension Reserve Fund? This is the but to extend the levies introduced in earlier rainy day fund and it is pouring.
budgets to corporate income on a temporary basis, specifical y until the target of reducing F: Fairness: The Corporate Contribution
borrowing below 3 per cent of GDP is achieved.
Ms Catherine Day, an Irish born senior EU official, recently drew attention to the Another way the multinational companies dilemma posed for Ireland by its policy of low earning profits from their Irish based operations corporation tax.
could further help the country would be to defer 29 She was quoted in the Irish the repatriation of a portion of their profits for Times of 7th October, 2010 as saying:"So if Ireland decides it wants to keep a low a period and to set up an investment fund, corporation tax, it has to deal with the deficit in operated by them on a strictly commercial 29 Irish Times, 7th October 2010.
30 Rates of Corporation Tax in Other Countries

Switzerland *21.00 Netherlands 25.50 Source: IDA Ireland. basis, to invest in new or existing Irish based would also be essentially undemocratic as they enterprises and infrastructure e.g. broadband would be unaccountable, without strong rules provision or in the State Holding Company. This on its governance. could be done by a number of such companies coming together to set up this fund. Such a An ‘independent' Fiscal Council would fund could amount to billions of euro in size and be fine provided its terms of reference could make a significant contribution towards included assessing fiscal policy together economic renewal and development. This with employment and social inclusion as fund would not be under government control, major complementary targets to achieving would not require any government support fiscal balances. It should be as independent or guarantee and would therefore not add to as possible, but advisory. To give such a national debt, and would be designed to not council powers to oversee budgets would be alone recover the original sums invested but to dangerous, especially if it were to bring us back also make a modest profit.31 to the 1930s economics of balanced budgets.
It is noteworthy that several of the eight largest technology companies, which have about €200 bil ion in what is cal ed "trapped cash"32- Microsoft, Google and Apple - have major operations in Ireland. Their advisors, like JP Morgan, are seeking a ‘tax amnesty' from the US Government to al ow them repatriate the cash and pay less than the tax of 25-35% which they should pay. However, it is highly unlikely that the Obama administration will al ow this, as skeptics feel it wil probably be paid to shareholders rather than to create jobs in the US.
G: A Fiscal Council
Congress views with some reservations the idea of an office to oversee budgets. Whatever our politicians' faults they are elected by the people and are responsible to them. An office of technocratic economists, especially those who believe that economics is a ‘science' would be immensely dangerous for society. It 31 In 2009, the figure for profits in the BOP a/cs was e32.6 billion and 15.4 was in dividends or distributed branch profits. 32 FT 19th October, 2010.
3 Economic Problem
In the words of one commentator, Wolfgang Three: The Banking
Munchau,35 who cannot understand why all the bondholders are not sharing in the burden: "My concern is that Dublin is overburdening the taxpayer and might worsen the downward Negotiate With The
spiral" …. and he wonders if Brian Lenihan's Bank Bondholders
"monumentally unfair taxpayer bailout will "bring down Ireland."' It is disappointing that the Minster for Finance, representing Irish taxpayers says that "he is Congress demands that all bondholders, still opposed to senior debtholders having to including senior debt holders, not just accept any losses as part of the taxpayers, share the pain. All stakeholders in bail-out."33 The only implication is that the banks must take a haircut before the taxpayer. innocent taxpayer will pick up all of the senior It is disgraceful that the Irish Government has debt bill run up by the Golden Circle of the Irish pursued the policy of not imposing a share in bank boards - the apex of the private sector. the risk with all the bondholders for two long, uncertain years. Why the long delay in even The Government must be run in the interests of tackling the junk bondholders. Why are the its people, not the markets. It must force down other bondholders not being hit now? the value of all bondholders' holdings - which they risked in what were recklessly-run, private The way forward is to withdraw the guarantee Irish banks - to 10% of their nominal value. This from al (not just new lenders) lenders in Anglo could see Irish taxpayers being saved up to Irish Bank, and Irish Nationwide (the real y bad banks) and so drive down the price of the €24 billion34. bonds. But Government should not then turn Congress demands that all bondholders share the bondholders into equity but buy them out the cost of the total collapse of Irish private when the bonds have col apsed, to say 10% sector banking. All would have received nothing of nominal value. Bondholders in Eurotunnel without the taxpayer rescue. All should be took huge write downs and it is common in grateful with 10 or 15% of their investment in business col apses. what were private companies. Congress does not accept that there is not a clear distinction The inability to deal effectively with the between sovereign debt of a government and bondholders and the banks' bosses appears to debt run up by reckless private bankers. be driven by an awe of free-market economics 33 FT, 12 October 2010.
34 The bonds in Anglo Irish Bank were at €18.8 billion on 31 August 2010; INBS would be in the order of €4 billion; and a competent Government negotiator would also deal with the bondholders in nationalised AIB on behalf of the taxpayer. A 90% haircut on the three state bailed-out banks would thus give a saving to Sean and Mary Citizen of the order of €20 billion to €24 billion. The question has to be asked why this has not already been done, already? Fear of the Bondmarkets? If a competent government shaved even part of this sum off in negotiations with the bondholders - who know that they took out bonds in failed banks and are thus lucky to get anything – then surely Ireland's credit rating would improve and rapidly? 35 Financial Times, 4 October 2010 in the Irish administration. Yet its policy on separately. The main depositors are the Central the banks to date has been the antithesis of free market, liberal economics. It has turned risk and reward on its head, by bailing out It is inconceivable that every cent of our the most reckless and risky lending ever members taxes - and al other taxpayers - for the undertaken by banks.
next four and a half years wil go wholesale to the bondholders, junk or senior, of Anglo Irish Bank. Negotiating with the bondholders of Anglo Irish But this is what is currently being planned.
Bank and achieving a write down of its debt per its 2009 balance sheet would reduce these The rescue of what were private banks by the liabilities by a massive €15.6 billion. This is far taxpayer means that the nature of risk/reward in greater than the €3 or €4 billion ‘adjustment' capitalism has changed radically in Ireland. Irish we are all talking about, but Anglo must not company law and corporate governance must be allowed to redeem bonds as it has done to be radically altered to reflect this. It is deeply date. Negotiation down to 10% is a good deal regrettable that this important issue was not for the bondholders, compared to a liquidation. even properly discussed until recently.
A 90% haircut on all the bondholders of
the three state bailed-out banks would
deliver savings to our citizens of the order
of €20-€24 billion.
In time, this reduces Ireland's risk premium
and lowers borrowing costs.
Why this has not already been done,
already? Why have we wasted two years,
adding to uncertainty?
Contrary to the self-serving propaganda of bondholders, bankers and their commentators, there is a clear distinction between debt run up by a sovereign government and that run up by a private bank, Anglo. They allege that there will be reputational damage to Ireland.36 On the contrary, there would be an enhancement of Ireland's reputation as we will have reduced our debt overnight to a fraction of the current cost of the banks' bailout! It is common to negotiate with bondholders. Depositors can be protected 36 That this gained serious currency shows how weak some financial commentary has been and the power and reach of the bondholders in Ireland. It also shows how weak government policy for two long years after the bailout has been in this area. Only now is it moving on the junk bondholders and it is still hesitating on negotiating with the others.
4 Taxation – Addressing
Contribution and Income Levies as proposed Social, Economic &
by Government could create confusion and undermine the social insurance system. It is likely that any merger of the Health Contribution and Income Levies could entail A) Income Tax And Levies
a reduction in the exemption limit to that Our regime of low corporate tax rates, applicable to the Income Levy or similar. This combined with a refusal to treat capital gains would mean a disproportionate increase in as income, a continued refusal to treat much payment for those currently earning between property or wealth as tax sources have resulted the different exemption limits. This would have in an over-dependence on income tax, (36% to be taken fully into account in any proposal of tax income), and consumption taxes, (VAT is to reduce the effective income tax thresholds. 32% of tax income while Excise duties make up Likewise, any attempt to reduce the PAYE tax 14% of tax income). Yet tax based incentives credit as well as the personal tax credits would have greatly narrowed the income tax base. amount to a double reduction in workers' pay. It should be noted that workers paid below Government announcements regarding the effective income tax threshold may not pay possible changes in the 2011 Budget appear to income tax but they do pay a range of other rule out, yet again, any attempt to encompass taxes (e.g. VAT, excise duties, carbon taxes), as charges on domestic property assets. This has well as a range of local and other changes. led, in turn, to suggestions that ‘broadening the base' amounts to merely reducing the entry Income Tax Measures Required
point for liability for income tax.
1. The existing tax system is overloaded with exemptions. It is not argued here that In principle, all income should be taxable. There each and every such exemption is without has to be a fundamental overhaul of our entire merit, in itself, but the combined impact tax system, which includes implementing this of 'incentives' through the use of the tax principle. The extraordinary and unnecessary system narrows the tax base. In the 2010 profligacy of the Government between Finance Act, at a time when the public 1998 and 2002 undermined the tax base. It finances were/are in crisis, it is notable that culminated in the then Minister announcing in many new and additional exemptions were 2001 his intention to reduce personal taxation granted. As the vast bulk of exemptions that year by £1,231m which, he boasted, was do not benefit those on PAYE, the effect nearly three times what was agreed under the is to dump a disproportionate share of the Programme for Prosperity and Fairness (PPF). income tax burden on those on PAYE--above 80% of income tax--and to create a It is essential that PRSI continues to be a social requirement for high levels of consumption insurance contribution with benefits flowing as a taxes that are regressive in impacting right to contributors who satisfy the contributions disproportionately on those with low requirements. A merger of PRSI, Health incomes. A major overhaul of exemptions Commission on Taxation has recommended, designed to rebalance the tax system and to where a tax exile's main centre of vital remove these distorting impacts is required.
interest, is in Ireland or if they are assessed 2. A rise in the general rate of DIRT to 30% on a permanent home test, then they should would raise an additional be obliged to pay tax here. It is difficult to rates of consumption taxes and low rates estimate the value to Revenue, (likely to be of savings taxes amount, in effect, to the €50m+), but it makes it clear that taxes also transfer of the taxation burden onto those apply to the rich.
on low incomes. VAT accounts for 32% of 7. The taxation of Child Benefit is a very total tax receipts and Excise duties make up difficult issue. Last year Congress said 14%. By contrast DIRT raised 2% of total that there is a strong case in equity for tax receipts in 2008.
such a tax with this costly state benefit 3. Our income tax system allows some self- also going to the highest earners. Child employed persons to pay far less income Benefit is used for a range of costs in tax than they should. Audits by Revenue not relation to children - food, clothing, only have the capacity to raise school books, uniforms and childcare. in a given year, they also give confidence to We concluded that in the absence of compliant tax payers that it is a fair system. a properly supported and resourced We totally reject any reduction in the PAYE childcare system in Ireland - local crèches, allowance which tacitly redresses the early education, etc.- added to the fact imbalance somewhat between employees that the payment is made directly to and those on Schedule D.
women, Congress could not support the taxation of Child Benefit. 4. The minimum tax for high earners (using avoidance schemes) should be increased 8. Last year, we said that while there is a to 35% and the threshold should be strong case for a top rate of tax of around 49% for those on high incomes, with the €100,000. Further, there should be a limit on earnings for pension many levies it is best to wait til the crisis is over to reform the income tax system. €100,000. The combined value of such changes would be €103 - 9. Occupational pension schemes are €107 m for the Exchequer.
under great threat due to losses in the 5. If it is intended to merge the income and investment market in recent years with health levies into the tax system, it is vital most defined benefit schemes being in that this is done in such a way as to significant deficit. The minimum funding ensure equity.
standard must be eased. There are also some changes that could be made to 6. We must reduce our current 183 days test reduce the benefits of pension schemes for tax residency purposes t o, at least, the as tax avoidance measures. For example, UK equivalent of 90 days, but probably the rate of accumulation of the overall substantially more. Furthermore, as the pension fund (€5m plus) could be restricted based on age37, and/or by A 5% reduction in allowances and credits the maximum tax free amount that an would raise a substantial but deflationary (as employer could include in any year as a it hits all those on low incomes) €0.6 billion contribution towards any individual scheme in a full year, tax revenue that a 2% levy on members benefit, whether on termination corporate incomes would raise without any or otherwise. Likewise, a cash cap could deflationary impact. be placed on the maximum lump sum payable, while leaving the general limits of B) A Financial Transaction Tax
1.5 salary or 25% of the fund value in place. A Financial Transaction Tax (FTT) makes The annual minimum distribution (3% at good economic sense and it is also a present) for Approved Retirement Funds matter of justice and equity. G20 leaders could be increased for larger funds e.g. agreed at their September 2009 Summit in 3% on the first €250,000, 5% on the next Pittsburgh that the financial sector should €250,000 etc. The Commission on Taxation "make a fair and substantial contribution" to recommended a hybrid tax rate of 33% pay for the extraordinary cost to taxpayers of for pension contributions. There is some concern that if implemented this might have implications for defined benefit schemes. An FTT of as little as 0.05% could raise Accordingly, the Government should between €160 billion and €700 billion (or more amend existing legislation which restricts than 3 times the current levels of international trustees from investing other than at AAA aid) depending on the way it is structured. rated bonds for purposes of security in the Congress believes that putting an FTT at the event of a winding up situation to meet centre of an overall package of measures the funding standards, to provide for the which would also tackle corporate tax evasion utilisation of an average figure, which would and ensure effective regulation of banks and be based on a basket of European bonds. finance would help in achieving the Millennium Then, on that basis, the Commission on Development Goals. Taxation's recommendation of a rate of 33% should be implemented. Congress and Global Unions support the FTT because it will generate important revenues The Government's stated intention is to lower needed to fill the fiscal gap created by the the income tax entry point in Budget 2011. financial crisis and ensuing global recession, As the income distribution is pyramid shaped, along with development assistance and lowering the threshold yields substantial climate-change finance commitments. The revenue from all, including low and high comes. European Parliament and the intergovernmental Yet many ‘tax units' are part timers and earn Leading Group on Innovative Financing very, very little at all. Congress is opposed for Development have issued reports that to this move. It's not just unfair, but bad recognize the positive role an FTT could play. economics. It will deflate the economy further. 37 This could be similar to the age related maximum annual contribution limits but could be done in a manner that allowed for the "evening out" or "averaging" of contributions by those with "volatile" incomes that differ greatly from year to year.
Although the IMF's main report for the G20 on required in cases of people living in inherited financial sector taxation expressed preference property, where these beneficiaries are on for other options, it concluded that "sufficient basis exists for practical implementation of at 5. In our submission on the 2010 Budget, least some form of FTT".
Congress proposed a temporary wealth tax on those with wealth above €2 million, with A number of civil society organizations, wealth being defined as current value of all governments and business leaders have assets, including the excess of €1m in value supported the idea of an FTT. Along with its of private houses. Congress suggested that revenue-generating capacity, an FTT could this could raise over €30 million annually. If, contribute to reducing ‘short-termism', asset- as Government has hinted, the entry point price bubbles and recurrent financial crises, for income tax liability is to be lowered, and instead encourage productive job-creating it needs to be accompanied by a clear investments in the real economy. intention of immediately obliging those who can afford to do so, to pay more. C) Other Tax Measures
6. While the introduction of higher taxes on oil 1. Extend temporary income levies to and gas profits in 2007 was welcome, a tax corporate income.
on production would be more transparent 2. It is noted that a ‘site value tax' forms part of and efficient. Congress believes that the the Programme for Government. Congress 12.5% royalty tax - a tax on production, as supported this last year and takes the view well as on profits - should be reintroduced. that there is no long term solution in relying It gives a definite return to the owners of on transaction taxes for sustainable revenue the resources, the Irish people. Further, if when there is an urgent need to widen the there is a worldwide oil and gas shortage, taxation base.
and Ireland has gas and oil resources, it 3. There is no logical explanation for treating could still be pumped out of Ireland to other beneficiaries of income derived from markets and we would have no say in the investment more favourably than those matter. EU law does not prevent Ireland who derive their income from labour. The ensuring any oil or gas found here is offered beneficiaries of capital gains are better for sale first in Ireland, rather than on the placed to meet tax liabilities than those on international market. We should have the minimum wage. In the U.S., capital gains right of first refusal on our own gas and oil in are taxed as income with lower discounted such circumstances.
rates on long-term capital gains. We should 7. Finally, in the long history of Irish tax evasion it is clear that there is a great deal of hidden 4. The current threshold for inheritance from money out there. Ireland's wealthy have a long record of tax avoidance, aided and €414, 799 is far too high, especially in this crisis and should be abetted by the Government over many reduced. Specific protections might be years. There is still money out there to be taxed. Those who sold land before the crash Further the Minister left a long termination made money and most still have it. It is one period of seven years for existing tax avoiders.
reason why the saving ratio rose by 50% in recent times.
What was a real surprise was that the Report on Tax Expenditures listed 18 tax breaks D) Tax Breaks
introduced or amended in Budget 2010 - in the Congress has the strongest record of opposition middle of a deep fiscal crisis! At over 100 pages of any organisation to many to the tax breaks this long document refers only to the new tax especial y around property. These many breaks in Budget 2010. For all the promises of uncosted tax breaks led to the near bankruptcy the need to widen the tax base by abolishing of this economy, distorted the market, provided tax breaks, this document is revealing. rich people with many tax avoidance loopholes, cost the state a fortune and had many The One51 patent tax dodge only came unintended consequences. For example, the out into the public view when there was Irish hotel industry is in deep trouble due to an internal row in the company. Some €2 gross overcapacity, in turn because of the mess mil ion (of €4.9m) was paid out to nine top of tax breaks granted to new investors. Many executive share tax-free payouts in 2008 and decent, hard working hoteliers faced unfair, tax- 2009. Congress has always been skeptical of such tax breaks, which general y benefit ‘senior executives' and the better off and have Congress was relentless in our opposition dubious economic benefits. Many tax breaks to tax breaks, even appealing to the EU around patents and other areas must be Commission in December 2006 against the curtailed. They must be cut, not just because extension of the BES scheme. We appealed they are being abused, but also because they in order to highlight the extent and costs of distort the market and make it unfair for hard these breaks and the lack of prior Cost/Benefit working firms in related but uncovered areas Analyses before all tax breaks were introduced. The publication by the Department of Finance in Congress was highly critical of government July 2010 of a new Report on Tax Expenditures policies in the over recent years. As we stated is most welcome. It is published under Section last year and in our detailed submission to the 1 of the Finance Act 2010, which requires that Banking Enquiry of 2010, if we were at fault, it a cost/benefit analysis of tax breaks is laid is that we were too mild in our criticism of the before the house, within three months. This liberal tax cutting policies and of the pursuit of has been long sought by Congress. We had growth for growth's sake. success with the publication of the Indecon and Goodbody Reports on property breaks back in E) End Evasion & Avoidance
2006, but these reports, while recommending The forthcoming tough Budget has to be abolition of nearly all property tax breaks, accompanied by a strong drive against evasion left the health sector out of the terminations. and avoidance with large investigations. The crackdown must be real and sustained… not a PR exercise.
A tough regime of audits will pay off, with strong enforcement. It will be well received by hard-pressed PAYE workers who are bailing out the banks with higher taxes. Taxes must now be seen to be collected as soon as possible. Progressive taxation in the crisis can have a demonstration effect which will reduce the political impact of cuts. 5 The Privatisation Board:
paucity of imagination and slavish adherence to A Panic Response
a failing ideology. The state's record on privatisation is not good. Ireland has a serious shortage of enterprising The privatisation of Eircom greatly delayed the leaders and of enterprises. Many of the best roll out of fast universal broadband and makes firms here are foreign owned and many of a mockery of the drive for a ‘Smart Economy.'38 the leading Irish firms were failed banks or failed property tycoons. That leaves some fine The privatisation of the state banks, ACC and competitive, Irish firms. But not enough of ICC, both of which served the nation well, was them. Within that smal important group are ill-timed, coming before all the private banks the state owned firms. Why sel them off to failed. Ireland could have done with at least foreign multinationals which wil then ship key one well-run bank. The privatisation of Aer functions abroad? Lingus did nothing for its performance, perhaps hindering it. It certainly did not serve the The private banking system in Ireland has interests of an island economy. collapsed. It is being bailed out at great cost by the taxpayer. No state company ever received A) The State Holding Company
anything near the money being poured into The key role of state enterprises in our the private sector by this Government. All the indigenous contribution to our recovery must companies are commercially run. It is possible include the State Holding Company as a new that the Minister meant to say that overall, it will commercial y focused governance structure, be both sectors which will work to create jobs. out of the hands of civil servants. Congress suggested in our last two pre-Budget Last year we warned against a panic response submissions that the shareholding in the banks to the crisis by resorting to short term solutions be invested in a State Holding Company, like privatisation. Poorly thought out terms of similar to UK Financial Investments (UK FI). reference lead to poor policy. This is costly. Congress has argued for the establishment of Three of the four terms demand sell offs in one a State Holding Company (SHC) since 2005.39 form or another. This is pernicious.
The body would be a passive investor in the commercial state companies providing an Congress opposes privatisation and to even opportunity for Pension funds and others to consider it for apparent short-term financial invest in them and to provide additional capital gain would be a grave mistake, especially when for their expansion. The €2 bil ion from the asset prices are very low. The knee-jerk liberal NPRF would be channeled through the SHC response towards privatisation as a ‘solution' into commercial investments to comply with to fiscal problems in this era of wholesale nationalisation is ironic. And it demonstrates a 38 See forthcoming pamphlet on The Debacle of Eircom's Privatisation from Congress, 2010.
39 A New Governance Structure for State Companies, Summer 2005, Congress.
The SHC is a good vehicle for storing the partnerships, mutuals and cooperatives (as in banks' shares and for re-investing the money if the food sector) etc.
and when it is repaid to the state. B) After The Crisis: One State Owned Bank
The Review appears to be a simple reaction Last year, we said that one Irish bank must to the crisis by selling off the state's most continue to be held in majority state ownership, productive assets. This is not a serious review when the crisis is over. of the potential of the companies, which would see these major companies as developmental, Even the most fervent free market from a long term perspective, not for some fundamentalist can no longer say that the short term cash in a fire sale. Their potential private sector banking is in any way superior for jobs, and wealth creation and strategic to publicly owned banks. We had two good development has never been so vital now state development banks which were recently that many leading private sector indigenous privatised, ACC and ICC. However, the companies have imploded. independence of the new state bank from the political process must be guaranteed by To sel off public monopolies would be a proper structures and a representative and double disaster. The ESB, BGE, DAA, An competent board. Post, RTE in many areas and Coil te have monopoly operations which must be While the new oversight of banking should regulated not privatised. In 1999 the FF/PD include good regulation, majority ownership government privatised the fixed line monopoly of a major credit institution is essential to Eircom, with disastrous consequences. As keep credit flowing, just like the ICC and ACC a largely state owned company Eircom was did for many years as state developmental debt free, profitable and investing heavily in banks. It also al ows the state to have broadband and in its mobile arm. Privatised, it professional insider-knowledge of banking was asset stripped and is now a shadow of its and its current practices. former self.
Today the Irish economy is in deep crisis. We pointed out in our submission to the Banking Enquiry that 17 of the original directors of both AIB and BOI refused to resign and were still ‘running' the banks and drawing their fat directors' fees in 2008. Their myopia and greed led us into this crisis. Their continuing deep influence is disturbing.
Thus new forms of enterprise are needed, including state owned, public-private 6 Reputational Reform
suppliers, women, the communities and the - Better Corporate
environment must be considered for inclusion on company boards, under law. The farce Governance
where boards are ‘elected' by shareholders, in essence, self-perpetuating cliques of elites must be addressed by Government. This deep crisis is due to the major failure in Corporate Governance in the Private Sector, Congress calls on the Government to move inspired by the ‘shareholder value' model of immediately to reform Irish company law away capitalism underwritten by Irish company law. It from the Anglo-American Shareholder value was especially so in banking, assisted by poor mode to a more inclusive European style regulation. It is beginning to look as if we will stakeholder interest model. We also seek wider, see a return to ‘business as usual' in the private more diverse representation on supervisory/ sector and especially in management of the regulatory and state boards from employees, banking sector. This is deeply disturbing.
consumer interests, to many more women. It is our view that Irish company law must be The governance of all financial services re-written. The ‘free market' no longer exists companies at board level and at regulator level and thus the rules of ‘free' market economics must be changed by law, not by supposed must be re-written. Company laws must be ‘best practice' engineered by the ‘Big Four' radically reformed and there must be a shift accounting firms. from the narrow interests of shareholders, i.e. the ‘shareholder value model' to the broader stakeholder model, as in Germany, the Nordics or even Japan. The Father of Shareholder Value - Jack Welch - admitted that the whole basis of company law, based on shareholder value was wrong. He said that "shareholder value is the dumbest idea in the world". Welch now admits that employees, customers and products matter. Ireland's company laws must now reflect modern capitalism.
Irish company law must be reformed sooner. Congress called for this in last year's submission and nothing has been done. Debate is muted. There has to be a more inclusive corporate governance – where the wider interests of workers, consumers, majority of precarious jobs, they have lower 7 Tackling Inequality
pay and lower social security, and they have the greatest responsibility for care of children It has recently become possible to compare the and dependent family members – they were scale of income disparities in different societies already hit hard before the crisis and they and see how the fabric of society is affected by may be among the last to benefit from any the level of inequality. Wilkinson and Pickett40 recovery. We need to create equal opportunities demonstrated that problems more common for women and men in education and skills among the least well-off are worse in societies training, sharing family responsibilities, with bigger income differences. remuneration of work, formal economy jobs and entrepreneurship development and in Congress notes the recent coming into force exercising their rights at work.
of 90% of the provisions in the Equality Act 2010, in the UK, which contains many excellent Congress supports the SIPTU, OPEN, Mental measures. But the section of the Equality Act Health Ireland, the Irish National Organisation relating to income inequality - the provision of the Unemployed (INOU) and Inclusion Ireland known as the socio-economic duty on public campaign to protect the conditions of people bodies - was missing from the list. Congress with disabilities and lone parents who work on believes that the inclusion of a socio-economic Community Employment (CE) schemes. ground in our own equality legislation could have both symbolic and practical impact. If ‘An Bord Snip' recommended that welfare we are to tackle inequality in our society in a payments to lone parents and people with concerted and sustained way, we will need disabilities who work on Community Employment to think strategically about what more can be Schemes should be stopped. Department done to address socio-economic disadvantage. of Finance officials recently stated that the Only then will we see real change with withdrawal of these payments to Community tangible, measurable outcomes. We urge the Employment workers was under active Government to strongly consider such a move consideration. There are over 20,000 Community in order to help fulfill this important ambition.
Employment Workers including 5,045 lone parents and 5,057 people with disabilities. CE Congress has repeatedly made the case for supports a wide range of community services gender equality to be a core component of and programmes, including: childcare, eldercare, any national recovery plan. If the Government youth work, drug rehabilitation, environmental continues on its current course, the work, and ‘meals on wheels'. If these cuts economic crisis wil jeopardise fragile gains in are made lone parents and those on disability empowering women. payments wil not be able to work on CE, which wil have a huge impact on their families and also Urgent measures are needed to address the on their communities, which could lose more accumulated and persistent disadvantages than 10,000 workers.
of working women, because they have the 40 "THE SPIRIT LEVEL, Why More Equal Societies Almost Always Do Better" by Richard Wilkinson and Kate Pickett, Penguin 2009 ‘An Bord Snip Nua' also recommended that 8 Recommendations On
the funds flowing from the Dormant account fund no longer be ring-fenced for use by the Community and Voluntary sector for their • No further cuts to social welfare rates. The work with disadvantaged areas and persons, cuts to date have exacerbated the level of but be allocated into the general Exchequer inequality in Ireland. 16% of the population funds. At a time when severe cuts have already was ‘at risk of poverty', i.e. below 60% of been imposed on the sector and when more median income in 2008 and 4.2% were living are pending, this particular source of funding in consistent poverty (‘Measuring Ireland's should not be cut off and Congress calls for this Progress', 2009, Central Statistics Office). recommendation not to be implemented.
The Government has signed up to play a role in reducing poverty in the EU by 20 Congress demands that the proposed cuts are million people by 2020 under the ‘Europe not implemented. The provisions which mean 2020' Strategy. This commitment must be that lone parents and people with disabilities honoured. The cuts to social welfare rates can retain a portion of their social welfare in previous budgets threaten to worsen the payments were put in place to respond to situation of vulnerable households and any the specific ‘welfare to work' needs of those additional reductions in Budget 2011 risk groups. These needs have not changed and further endangering basic living standards. therefore there is no rationale to withdraw Welfare recipients will be particularly affected such supports.
by the 5% increase in electricity prices effective from October 2010. Moreover, the We are of the view that national recovery can price of liquid fuel increased by 26.8% in not be achieved at the expense of dismantling August 2010 compared to the same month hard-won protections for the rights of the in 2009, placing struggling households under vulnerable and weakest in our society, or of further pressure.
those institutions that combat discrimination • Reform social welfare rules which discourage and promote equality and human rights. employment e.g. allow people who work reduced hours more than three days in the week to be able to claim jobseekers benefit for the time they are not working.
• Tackle poverty traps, such as the loss of medical card entitlement for low-income earners which discourage people from taking up employment. • Introduce compensation to help mitigate the problem of fuel poverty which has been exacerbated by the regressive effect of the carbon tax on low-income households. Furthermore, broaden fuel allowance 9 Overseas Development
coverage to working poor households in receipt of the family income supplement.
• We reiterate Congress's opposition to the We know that 2010 is a crucial year for tackling means testing of child benefit in the absence extreme poverty and hunger - a key foreign of an adequate state supported child care policy priority for Ireland - as this is the year the world's nations take stock of a decade's efforts to progress towards achievement of • Congress supports the Nordic ‘flexisecurity' the Millennium Development Goals. Official model of robust social protection and strong Development Assistance (ODA) is essential for active labour market policies to promote development, with the current economic crisis having shown that it functions as a safety net, proving a stable source of financing at a time when private flows are much diminished. ODA allows developing countries to maintain basic social services, general functioning of the state and basic economic activity and is a good investment in regional and global stability, as recognised by the European Commission.
growth is not choked off with saturation bombing of the economy, pushing us into a long, downward deflationary spiral.
This is a jobs crisis, a fiscal crisis and a
banking crisis. They all interact with each
This collapse must no longer bear other. The ‘fiscal hawks' now want bigger
disproportionately on the most vulnerable. If cuts in public spending than the €3 billion
we work together in solidarity to find equitable that were originally proposed. This is on
economic solutions, Ireland can emerge top of the savage cuts of the past three
stronger. Together in adversity, we can develop budgets. The budget adjustment must
better businesses, more educated and skilled pass three tests:
workers, reduce inequality, improve our public • Is it necessary?
infrastructure, protect poorer citizens and solve our immense problems. We can use the crisis • Is it equitable?
to build a genuinely inclusive society and a • Will it lead to recovery?
more productive economy. After two years, it is now clear that
As deep fiscal cutting for three hard years deflationary policies are failing and we
has failed so spectacularly, let us now adopt are in danger of falling into a downward
more moderate, inclusive policies which will spiral. So we are failing two of the tests.
actually work.
Such cuts may appear to help balance the
books, but in the real economy, they are
deflationary - they reduce jobs, growth and
tax revenue.
This is a very deep economic crisis. It was brought about by very poor governance in private firms, by poor public governance, by a culture of de-regulation, by tax-cutting during a boom, and by many tax breaks for wealthy people. It led to the collapse in the Irish economy, and is spilling into society. Ireland is suffering the biggest collapse in National Income in the world, with a fall of 20% in GNP between 2008 and 2010. Those who argue for a major, front-loaded assault on the public finances now must realise this ensures ‘green shoots' will not be seen for a long time. It is imperative that economic Appendix I
new levies are progressive and in time should be re-assessed and merged into the tax system at an appropriate time in the future to provide A Menu of Areas where taxes can and
for a new high rate on very high earners. might be raised in Budget 2011
Pending that reconfiguration there is a case in distributional equity for further refining the levy Last year Congress was given access to structure as follows: the Department of Finance so that we could quantify the areas where we thought the Government should raise taxes. This year the costings, based on last years, are our own estimates. We provide a menu of taxes where When a review of the income tax system is revenue amounting up to a substantial €2.1 completed and the mish-mash of levies and billion could be chosen for Budget 2011. From charges are rationalised, after the crisis, the old this list we suggest that additional taxes of €1 third rate of income tax should be re-introduced billion or more be raised in 2011. Choices can at 48% on those earning over €100,000 each. be made from this list. While the Government In the interim, there is a strong case for raising did accept some of our suggestions in Budget the PRSI ceiling on equity grounds. 2010, but only to a very limited degree. Overall Revenue: Raised under the levy on tax
no additional taxation was raised. Al of the 2010 "adjustment" was regrettably Tax Exiles or Tax Fugitives
through cuts in public services and in investment.
Tax Fugitives make huge sums here and pay no The Tax on High Income Earners
tax. While there are 5,867 non resident individuals who file tax return here, many are foreign The minimum tax for high earners was nationals and many Irish would have genuine increased last year but it should be increased foreign domicile. Yet a sizeable number of very further to 35% and the threshold should be wealthy individuals make a lot of their money here reduced to €100,000, not rising to €400,000 in – Ireland is the centre of their economic interests. full. Further, there should be a limit on earnings Some of them have the families who live here and for pension purposes of €100,000.
children who go to school here. We welcome the Revenue: The combined value of such
introduction of the domicile levy €200,000 last changes would be around €100 m for the
year, but it is not enough.
Revenue: Around €55m for the Exchequer.
A New Top Rate of Tax of 48% – after
Excise Taxes
reform of income tax
While we would prefer not to raise indirect Congress has long sought the return of the taxes, we point out that modest increases in third, top rate of income taxation. Yet the taxes on petrol (10c) and cigarettes (50c) etc. system now is very complex and distorted. The will raise €250m.
Revenue: €250 m for the Exchequer.
Taxation on savings is levied at rates well below A Temporary Wealth Tax
that on tax on work and enterprise. A rise in the Wealthy people don't spend much of what they general rate to 30% would bring it closer to the earn – they simply cannot. In such a deep crisis, effective rate of income tax.
why not have a temporary wealth tax on those with wealth of over say €2m for the next 3 years. Potential Revenue: around €75m
Wealth would be defined as current value of all assets, including private homes in excess of Tax Evasion
€1m value. This should raise €35m or more, Ireland's elite has a long and inglorious history of tax evasion. Audits are very good at Potential Revenue: €35m
exposing webs of evasion.
Potential Revenue: €300m -€400m
Extend the Income Levy to
Corporate Income
Uncollected Taxes
Congress called for the temporary levy to There are substantial uncollected taxes. A be raised on all income in previous Budget proportion of this is Fiduciary Taxes. While it submissions. In Social partnership agreements is recognised that the Revenue is pursing this the Government accepted that a basic principle money routinely more direct action is required. of taxation is that income from all sources A hard drive would pull in €350 to €450m in should be taxed in so far as possible to taxes 2011 when the money is so urgently needed. in the same way. It has neglected this principle Revenue: €350 to €450m
of taxation in the main until recently. This levy was imposed on personal incomes, on Capital Gains Tax
inheritances and savings, but not on corporate income. There is an unanswerable case for the The rate of Capital Gains Tax is 25%, whereas additional income levy to be extended to the the marginal rate of income tax is 41%. The income of the corporate sector until the 3% effective income tax rate is around 30%. Last deficit target is met. It is utterly is compelling. It year, we proposed raising the rate of CGT would be only temporary and it would only be by 5% to 30% in the Budget. This would raised on profits made. A modest increase of have raised at least €65m in 2010.42 We also 2% was estimated to raise €614m in 2010.
propose that a proportion of the gains on the Potential Revenue: €630m in 2011
disposal of private residences in value of over
€1m be subject to CGT and that the normal
principle private residence exemption cannot be
availed of more than once every 3 years.
Potential Revenue: €65m - €75m
41 Congress' estimate42 PQ 3rd Nov 09 Capital Acquisition Tax
Taxes & Royalties on Oil and Gas
Capital Acquisition Tax was increased in last two While the introduction of a new tax on oil and Budget, for the first times ever. Yet it remains gas profits in 2007 was welcome, a tax on low and gives a n unfair start to those who are production would be more transparent and born sons or daughters of rich people. The efficient. Congress believes that the 12.5% reversion to several progressive rates based on royalty tax - a tax on production, as well as on rising thresholds (abolished in 1999) should be profits should be reintroduced. It gives a definite re-introduced. It was also proposed that the return to the owners of the resources, the Irish minimum annual distribution for tax purposes of Discretionary Trusts is increased to the same Potential Revenue unknown, but around
level as that of approved retirement funds.
€12m today and growing rapidly once
Potential Revenue: €250m
Or Re-Introduce the Probate Tax
Low Earners
The Probate Tax at 2% of estates was Some 1.05m (46%) of the total of 2.29 tax units abolished some years ago. Re-imposition at did not pay income tax in 2007– their income four percent would raise around €110m in being too low. Many of them are part timers 2010.43 However, if the CAT tax was properly and earn very, very little at all. The Government re-structured, an additional tax on probates has signaled (with a megaphone) that it intends would not be required. to raise tax from those on low incomes, Potential Revenue: €110m
supported by the usual coterie of economic and business reactionaries as it means they Personal Tax Deductions
may have to pay less. Congress has suggested many detailed reforms to personal tax deductions over the years. Our As there are so many on low incomes, the proposals centered on equity. All would raise revenue raised can be substantial overal . additional taxes from wealthy and very high Congress is opposed to this move. It's not earners. These have included curbing pension just unfair, but bad economics. It wil deflate allowances for high income earners, a ceiling the economy further. The more raised from on artist exemptions, patent royalties and an the low incomes,45 the greater the deflationary end to the bloodstock industry exemption. impact on the economy. As the income Some have been implemented. All remaining distribution is pyramid shaped, lowering incentives should now be reformed equitably to the threshold yields much revenue from al , raise much need cash. These changes could including low and high comes. raise tens of millions, say €40-50m.44
Potential Revenue:
This is a menu to raise additional tax
revenue of at least €1 billion in budget
43 Finance44 Congress' estimate45 With the exception of households where there are others who earn good incomes.
2011 from a total of at least €2.1billion.
Appendix II
Raising some of these taxes would make
the tax system more progressive, generate
greater levels of income in the future
Additional Ideas for Encouraging Investing
and render many cuts in public services
in the Economy
There are four pillars to our €2 bn annual, three year additional investment proposals: 1) Supporting the Working Capital of
Companies
The first step is to institute a State credit guarantee scheme, which would be operated through Enterprise Ireland and the Dept. of Enterprise, Trade and Innovation financed by part of the €2bn three year, annual investment from the Pension Fund. The State would provide a credit guarantee up to a certain portion of a loan, which in turn the SME could use to get short or medium term financing from any of the main banks operating in Ireland. The Government would impose a limit to the size of loans available and also impose a maximum loan criteria as a share of the business's turnover.
Since the global crisis emerged in 2009, a State guarantee scheme for businesses has been the most widely adopted measure across OECD countries. Here in Ireland, the Government imposed specific targets this year for lending to SMEs by the two main Irish banks worth some €12 bil ion over 2011 and 2012. But in the absence of clear sanctions arising from the failure to comply, there can be little assurance that the scale of this new lending wil occur, particularly at a time when the two main Irish banks wil have to contract their balance sheets to improve their overal capital base. While the establishment of a Credit Review Office this year is to be welcomed, its powers are limited to issuing opinions only. Although the credit guarantee scheme investors. A very low minimum investment would be much more onerous to operate, it threshold would have to be put in place as provides those companies who are currently would a scheme for regular investments into the experiencing difficulties but who are potentially overal fund, in order to attract individuals from viable with a credit rating, which in effect can across the income distribution. There would be be used as collateral when approaching any no guarantee but given that the funds wil be bank operating in this country. Secondly, it diversified across high potential start up and brings those particular companies with potential existing companies, investment should prove an viability into contact with the state enterprise agency where additional supports and sources of funding could also be made available.
In order to incentivise individuals into investing According to Eurostat's national accounting in these funds, a number of methods could guidelines for member states with guarantee be considered such as investments in the schemes for business, the contingent liability is form of preference loans that are paid back not recorded in the national accounts.
at multiple times the original loan value. This ensures that any dividend tax liability does not 2) Citizen's Investment in Innovation
arise and gets around the need to grant equity Enterprise Ireland currently participates in share capital. Alternatively, depositors could venture capital and seed funding worth up to be encouraged to invest in venture and seed capital if equity is granted at a multiple of the €600m intended for high potential start up business and for existing business engaging in funds invested in. In other words, for every expansion. With significant retrenchment in the share bought, two shares could be granted. global venture capital industry and a retreat to This funding plus a greater investment more conservative investment positions, there al ocation from the NPRF would provide a is a need to harness other sources of funding to significant boost to funding available for new support business activities in this country. and innovative or expanding businesses. The National Pension Reserve Fund already 3) Restructuring Private Debt
participates in these funds as part of its ongoing Throughout this economic crisis, a recurring investment activities, but in order to attract problem amongst so many troubled additional investment, it is proposed that a companies with trade union members has Government backed Innovation Fund would
been the crippling indebtedness that many be established to attract individual deposit companies now find themselves saddled with. savers into investing in these venture and seed While turnover in a large number of sectors capital funds. This investment programme could has dipped considerably, in general many be managed by Enterprise Ireland and would viable companies have adapted operations not necessarily be limited to resident persons to generate an operating profit. However, here, but should be also open to foreign excessive gearing has ensured that this profit is quickly wiped out by interest owing on loans outstanding. Companies who can demonstrate their potential commercial viability should be facilitated in restructuring and renegotiating part of their existing debt. This proposal does not automatically imply a debt write-down or a debt equity swap by the banks, but could also include private equity capital. There is a role for Enterprise Ireland is establishing and overseeing this process. Given the oft negative experience in recent years both here and in the UK of private equity companies in terms of asset stripping and compulsory redundancies, the programme would have to be very tightly regulated. Just as Congress believes some form of write down of outstanding debt for troubled mortgage holders should be put in place, a parallel scheme for Irish businesses also needs to be put in place in order to secure jobs and kick start domestic consumption.
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Source: http://www.ictu.ie/download/pdf/prebudget_submission_web.pdf