The article below was first published on 24th November 2010 by Robert Tallent on The Synergy Group website of that day.
Ireland’s National Recovery Plan 2011-2014 was unveiled yesterday afternoon 24th November 2010 by An Taoiseach – Brian Cowen.
The problem is that the gap between Government receipts and spending will be €18.5 billion in 2010. The aim is to make €15 billion adjustment in the public finances. This will come from €10 billion of cuts to public spending and €5 billion in taxation. For the €6 billion needed in 2011, €4 billion would be achieved in cuts and €2 billion by further taxes. I left it until today to write this article so I could see other reviews on the radio, TV & papers.
I saw a very good photo today of an elderly man holding a handwritten sign that said “IMF’ed and so are EU”. It portrays the sentiment in the Country at the moment.
The International Monetary Fund (IMF) is here at the moment under EU`s Commissioner for Economic Affairs, Olli Rehn looking at public finances and seeing how they can lend Ireland the money. Figures are spoken of up to €100 billion. Lets show that in figures – it is €100,000,000,000. That’s a huge number of zeros for a small country & works out at about €25,000 for every man, woman and child in the country. By the time interest is paid it will be €200,000,000,000. That’s €50,000 for every man woman and child.
This is what the Labour Leader -Eamon Gilmore - said at the time. Today, 2013, he is the Tanaiste and Minister for Foreign Affairs and believes in a completely different approach.
Let us look more at figures – the National Debt. For 2010 the national debt is €149bn + €31bn for the banks. In 2011 it will be €161bn, in 2012 - €169bn, 2013 €178bn and 2014 it will be €185bn.
Paddy Power became the largest financial institution in the State, by value, in 201,0 overtaking the banks. Both are gamblers. But the bookies are better at judging risks.
Summary of The Plan
- student charges to rise from €1,500 to €2,200 next year - further rises in the following years;
- Property tax in place by 2012 - household charge of €100 pa
- water charges in the future, but not until 2012-2014
- a reduction in pension tax reliefs for high earners;
- changes to public sector pensions, including a levy for existing pensioners; and
- a universal social charge to be the main tax raising tool.
- €15bn correction over four years
- Public expenditure down €10bn, tax up €5bn
- Corporation Tax will remain at 12.5%
- Social Welfare to be cut by €2.8bn by 2014
- VAT will rise to 23% by 2014
- Health spending to fall by €1.4bn over term of the plan
- Minimum wage to fall to €7.65 per hour
- Plan includes `full implementation of the Croke Park deal`
- New entrants to Public Service will face a 10% pay cut
- Public Service pensions to be cut by an average of 4%
- A new government could renegotiate plan - Enda Kenny/Eamon Gilmore
College fees will increase by €700 pa to €2200. This sounds like a lot, and it is, but if you were to compare it to the real cost, its quite small. For example, if you look at doing an MBA in DCU, the overall cost including exams, books, etc is about €30k for one year. If we assume the cost of a BA is one third of that, then €2200 is still quite small. The opposite of that says that we have to educate our people in order to attract foreign investment and companies. Then, of course, many qualified young people emigrate. My son is one of them. He’s a mechanical engineer and he went to Canada a few weeks ago. I’m quite upset that Brian Cowen’s government has not provided the economic environment for business to prosper here. I’m upset that my son is gone, yet I don’t blame him. He’s right, there’s nothing for him here and he has to spread his wings. Maybe they could have looked at increasing the fees to €3k pa and giving the students loans over a 10 or 20 year period to be repaid, regardless whether they are in Ireland or not. With that idea, while there may be a brain drain, at least the money is repaid.
Property tax will cause problems, e.g. valuations, unbuilt on land, 2nd properties, country Vs urban, farms, etc. In reality, this could be a wealth (or lack of) tax or poll tax regardless whether your cashflow can cover it or not. You could be stretched with mortgages, loans, leases, etc.
Water charges will appear with the next two years. They are waiting to install meters first. That probably means that Department of the Environment, Heritage and Local Government still plans for a 3-year, top-down programme to roll-out water meters, paid by the National Pensions Reserve Fund! A quicker system with a flat-water-charge-unless-you-install-a-meter-yourself can be up and running in a year.
Pensions: The breakdown in calculating cuts to those already drawing Public Service Pensions is:
- 0% on first €12,000
- 6% on €12,000-€24,000
- 9% on €24,001-€60,000
- 12% on above €60,000
TDs should only have one pension and that should be only when they are 65. State cars should be removed from them when they are out of office. Pensions that are in excess of €80k should be cut by varying amounts up to 50%.
Social Welfare is one of the largest spenders in the Country and there are plans to cut that by €2.8 bn by 2014. There is a need to look at all areas here to include giving the incentive to people to look for and/or take work (carrot and stick approach), people on welfare should be working on public jobs relevant to their skills for a few hours pw, abuses in the system to be abolished, single parent allowances to be examined, etc. I know of some people who are on welfare earning more than people working because they get allowances, e.g. rent, schoolbooks, ESB bills paid, medical cards, etc. Also, because those people are ‘in the system’ it’s easier to get other benefits. All this causes problems & is perceived to be wrong.
Corporation tax will stay at 12.5%. This is necessary to attract foreign companies into Ireland and a rise should be resisted.
VAT is due to rise. Has the government no sense at all. In marketing there is a term called price elasticity. In short, a price elastic product will sell more if the price is reduced and less if it’s increased. We all saw what happened a year or so ago when it was increased by just a half a percent. People crossed the border in their swarms and if they carry out this action it will be doubled or trebled. This will devastate business within 200 kms of the border.
Health spending has to fall, but not the way it’s planned. Its planned to reduce people, therefore close beds, reduce services and increase waiting times. This is disastrous. They should be looking at reducing wages and salaries, increasing efficiencies, cutting out sections of management and improving the front line. The Health service is a business and must be treated as such. Medical consultants earn enormous salaries and have freedom to work privately also. I can`t understand how they get the time to work privately if they`re working so hard for the HSE. These have to be reduced, thereby reducing costs. Medicines and drugs have to be reduced in price also. Compared to the rest of the world, our prices are a multiple of maybe 5 times higher. I have heard that the foreign multinationals who have plants here have put pressure on the government to keep prices high. If that is correct, then a way should be found to break this.
Our minimum wage is too high. That’s a fact. Its close to the highest in Europe. It should never have gone that high, but that’s what Bertie wanted so that’s what he got. In turn, it has damaged competitiveness in business. In saying all that, I don’t think it should go down now either because that could remove the incentive for someone unemployed to actually take work. They may be better off on welfare, see previous section. Also, they are close to the bottom of the ladder in earning stakes and are finding it difficult already. This cannot be enforced on its own, it must be looked at in conjunction with welfare.
The Croke Park deal: now we’re into a complete turmoil here. This should never have been agreed upon and is costing the taxpayer a huge amount. Just look at what I said earlier, the gap between income and spending is €18.5 bn in 2010. Most of that is on wages and the Croke Park deal is keeping them high. It doesn`t take a genius to work that out. The time is right to renege on this deal. If we don’t, the country is crippled. Take the bull by the horns. Do not accept go slows, blue flus, work to rules, strikes or whatever else. If they don’t want to work, sack them and bring in people who will. Ronald Reagan did it with the air traffic controllers, so can we.
The public service unions are the largest in the country and are flexing their muscle here. They don’t have the greater good at stake. If they don’t co-operate, find a way to bring them down to size. Why didn’t they flex their muscle with FLS and Dell?
Benchmarking: Do the public service know what benchmarking really means? Obviously not. It has to do with comparing with best to become the best. They used it as an excuse to raise wages in 2002. It worked. BUT, it also has to have productivity increases. That didn’t happen in all cases, in fact did it happen in any case? Now that wages have gone down – way down – outside the public service, they have to accept benchmarking in that manner also. Now I don’t mean across the board. I mean on a graded scale. People earning over €50k pa and up to nearly €200k pa have to have serious cuts. Also, perks have to be removed, e.g. privilege days.
Sick leave has jumped since the 1980`s in the civil service. On average, 59% of all public staff availed of sick leave in 2007. The average employee was absent, on average, for just over 11 days and sick leave has doubled since the 1980`s. That would not be accepted outside the public service. For example, I have a nephew who had an operation for gallstones and he had to go back to work 2 days after the operation. Why, because he was on contract and if he didn’t, someone else would have taken his job.
Perception is an important word here. That is how something is seen, by you and me and the normal Joe on the street. If we think something is wrong, then it is wrong – in our eyes. That means that it`s up to someone else to either convince us or change our minds. In this situation, that someone else is the Government. Now I know the rule that says you go after what will produce most for you. But that doesn’t mean that you don’t go after others also, like our government ministers, TDs & senators wages and their expenses, cars, pensions and so on. There is a perceived unfairness and you have to lead from the front. That means that they have to take cuts in all areas & take only one pension – when they’re 65. Do we need 166 ministers? Do we need a Senate? Does our Taoiseach need a salary higher than President Obama? Do our semi state organisations and county councils have to continue giving their staff such high salaries with big perks and conditions that have evolved over time into conditions of inefficiency? Now, don’t pick me up wrong here, I’m not saying everyone falls into this category, but some do, therefore you can see what I mean about perception.
I was talking to a friend of mine a couple of days ago who suggested a brilliant idea to me, and I wonder why it hasn’t been put into effect. That is to go after the Irish ex-pats. The people who are living outside the state and who are not paying their fair share. In the US, if you hold an American passport, then you pay American taxes. That’s it. Why don’t we have it that if you hold an Irish passport, regardless of where you are in the world, then you have to pay Irish taxes. People who try to evade or avoid Irish taxes have to be told that transferring their lives or business/financial dealings outside the State is unacceptable and that if they want to continue to hold an Irish passport, then they have to pay Irish taxes. Now this will bring in a lot of money from business people and pop groups and so on.
You will notice that I haven’t mentioned the bankers, banks, tycoons, developers, property, builders here. I also haven’t spoken about how the people who got us into this mess are ones who have got us deeper into it. I also haven`t spoken about Brian Lenihan saying we were all having a party for the past few years. I’ll save all that for another day. I also haven’t mentioned the disgusting act of transferring assets into your spouses name or running away to America in order to avoid payment and then crying that you are being tried by media and asking the court to reject the banks application to question him.