Notes On The Front

US Polls: Sunday Summary October 25th

The seventh Sunday summary of US state-wide polls and we are now in the home stretch with nine days left to the traditional polling date.  A strange election, though; over 50 million Americans have already voted – nearly a third – producing predictions of the biggest poll in a century.  And making poll trends coming into the election irrelevant for those who have voted.  But with the number of key battleground states still very close, even fractional changes could have an impact. 

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two in 2016.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 25^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

If you’re a Biden supporter you’re probably biting your nails.  Trump is closing the gap in most of the states, notably Florida with its 29 electoral votes.  Florida is a must win for Trump; if he loses it has little chance of retaining the White House.  For Biden, however, it would be a blow to lose the state but it wouldn’t’ be fatal.  Biden’s lead has halved in the last two weeks.

Still, Biden supporters shouldn’t despair.  The three key Mid-East states – Michigan, Pennsylvania and Wisconsin – are still firmly in his camp, even if the gap is narrowing slightly.  Biden wins these three states, he wins.

 (b)         The Economist

The story is the same with the Economist aggregator.  Biden’s lead is slipping in many states – especially Arizona and Florida.  However, his support is holding up in the three key Mid East states which would give Biden the victory.

* * *

There are now 9 days left in the US Presidential race.  Millions have of Americans have already voted through mail-in ballots and early voting.  Much will depend on the success of Republican tactics in many states to suppress the vote.  This could tip the balance in tight races in Florida, North Carolina, and Georgia.    However, if Biden maintains his lead in Michigan, Pennsylvania and Wisconsin, it’s game over for the incumbent.

Next week:  the last summary before the election date.

US Polls: Sunday Summary October 18th

This is the sixth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  We’re not quite in the home stretch but we’re coming up to the last bend.  Over the last few weeks we’ve seen Biden consolidate his lead in key swing states and even overtaken Trump where Republicans were leading.   Many national polls give Biden a double-digit lead at the national level but as we know, it is how the individual states vote that matter.  So where are we with a little over two weeks to go? 

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 18^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

The striking thing about the polls – starting in mid-September, is how stable they are which reflects the polarised nature of the contest.  The overwhelming majority of people made up their minds some time ago.  The small amounts of undecideds are not sufficient to significantly alter the race. 

For Biden, there are many positives.  His lead is consistent in the three key Mid-East states – Michigan, Pennsylvania, and Wisconsin.  If all other states vote as they did in 2016 and Biden wins these states, he’s taking up residence in the White House.

But he has alternative routes to victory, even if he stumbles in one of the Mid-East states.  If he wins Florida and/or Georgia and North Carolina, he will again cross the line.  Any number of combinations could bring victory to Biden – especially if we throw in Arizona and Iowa. 

For Trump, however, the situation is much more difficult.  Let’s assume that Texas and even Ohio stay in the Republican column; if he can’t bring Florida across the line he’s in a lot of trouble.  He also needs to hang on to at least two of the three Mid-East states with Pennsylvania being key.  The problem for Trump is that, while Biden doesn’t have to win all the competitive states, Trump has to come close – especially as he is unlikely to turn New Hampshire and Nevada, which voted Democrat last time out.

 (b)         The Economist

The Economist tells a slightly different story.  While Biden is still leading in key swing states – especially in the Mid-East – Trump is closing the gap over last week.  He has turned Georgia back in the Republican column (marginally) and has even pulled slightly closer in the key Mid-East states.  This might suggest that Biden has peaked and is now in a race to hold on.  This suggests the race is tighter than what many commentators are suggesting. 

* * *

There are now 16 days left in the US Presidential race.  Millions have of Americans have already voted through mail-in ballots and early voting.  Much will depend on the success of Republican tactics in many states to suppress the vote.  This could tip the balance in tight races in Florida, North Carolina, and Georgia.    If the Economist trend holds, Trump may climb back into contention in a number of state races.   If FiveThirtyEight holds Biden could be looking at an Electoral College landslide. And if the polls at state level get it wrong like they did in 2016 in many instances, it could be a long night.

No one should be calling this race yet.

US Polls: Sunday Summary October 11th

This is the fifth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  What a contest this is turning into.  First, Donald Trump gets infected with Covid-19, calling it a ‘blessing from God’; then the FBI thwarts a far right kidnapping plot against the Michigan governor.  Can’t wait for next week.

The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 11^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

• Biden now leads in all the competitive states, bar Texas. Back in mid-September, Trump led in four of them.  In the last week Iowa has turned from red to blue.
• Biden is building on his leads in the key Mid-East states of Michigan (8.2 percent), Pennsylvania (7.2 percent) and Wisconsin (7.2 percent).   If Biden wins these and all other states hold to the 2016 pattern, then he wins the election.
• Biden is also pulling ahead in Florida, Arizona and North Carolina – though not to the same extent as in the Mid-East states.
• Trump has almost no chance in picking up new states (i.e. states that voted Democrat in 2016).  Biden leads by 6.9 percent in Nevada and nearly 11 percent in New Hampshire.

(b)          The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  The only difference is that they are calling the races in Iowa and Ohio an effective tie.   

As it stands, Biden leads in nine of the 12 states with one a virtual tie.

* * *

There are now 23 days left in the US Presidential race.  While no one would call it yet, it is looking strong for the Democrats.  The number of undecided voters is very small and most voters are highly committed to their candidates.   From the very beginning of the campaign, Trump maintained a strong base but couldn’t reach out beyond that.  As for Biden, no one gets very excited about him.  As one commentator put it, this isn’t a race about ‘change’; it is about ‘putting an end to crazy.’

That being said, Trump will be returning to active physical campaigning.  Has Biden peaked too early?  Will voter repression measures being taken in a number of Republican-held states make a material difference?  Will far-right groups try to disrupt voting in strong Democrat areas (I never imagined I would be writing a sentence like that)? 

But taking the polls today, it would be an Electoral College landslide for Joe Biden. 

US Polls: Sunday Summary October 4th

This is the fourth Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.   This is truly a summary of two halves.  The first half is prior to Donald Trump contracting Covid-19.  That half was looking like a strengthening of Biden’s position in key states as Trump managed to alienate significant sections of the electorate through his debate performance. 

As to the second half – following Trump’s illness – there is universal agreement:  No. One. Knows.

Let’s keep with the first half (there is no choice).    The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on October 4^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

In this fourth summary week:

• Biden is maintaining his lead in the three key Mid-East states: Michigan, Wisconsin and Pennsylvania (in the latter he has extended his lead)

• Georgia has become fully competitive with Biden now leading for the first time in four weeks. Ohio, which turned to Biden last week, remains marginally in the Democratic camp.

• Biden seems to have stopped his slide in Florida

• At this stage, among all the competitive states, Trump can only be optimistic about Texas

• As it stands, Biden leads in 10 of the 12 competitive states

Remember, Biden needs 38 electoral votes to win.  If he takes Florida with its 29 votes, he’s well more than half way home.  If he simply takes the three Mid-East of Michigan, Pennsylvania and Wisconsin where he already has a lead – he gains 46 votes and the Presidency.  Biden has other fall backs – Arizona and North Carolina – with 11 and 15 votes respectively.  And if he can turn Ohio with its 18 votes and/or Georgia with its 16 votes, we could be looking at an Electoral College landslide.

 (b)         The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  Georgia has turned blue while Biden has stopped his slide in Florida.  The only difference is that Trump still maintains his lead in Ohio but it is narrowing.

As it stands, Biden leads in nine of the 12 states.

* * *

All in all, if you’re a Biden supporter you should be relatively happy – in particular the continuing strong trends in the Mid-East states with the potential to grab a couple of others.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, in FiveThirtyEight Biden leads by 171 votes.  In the Economist, it is less due to Ohio remaining in the Republican camp.

That takes us up to the end of the first half with a month ago.  How will Trump’s illness impact on the election?  No one can say.  This is unprecedented.  Even long-time analysts and observers are not even venturing a guess.  So we will have to wait over the next seven to 10 days to see how this plays out.

Essential Workers, Essential Living Standards, Essential Tools

Throughout the pandemic crisis we have heard much commentary lauding essential workers and, in many instances, pointing out the poor wages and working conditions they endure.   The following looks at the hourly wage levels of occupations the Government listed as ‘essential work’ in the market economy (largely private sector).

There are a number of caveats regarding this table.  First, though this data is from 2016 (the last year for detailed occupations), the focus here is relative wages which are not likely to have changed much in the last three years.

Second, the categorisation of essential work does not easily fit into occupational wage data, so this should be treated cautiously.  For instance, only some retail, accommodation and food services were listed as ‘essential’; similarly, with construction.  Nonetheless, the wages for the essential parts of these categories are not likely to be much different.

Third, these are averages for the sector, including all employees – even senior management.  Production and service workers will receive considerably less than professionals and managers.  The CSO shows that production and service workers earn less than 50 percent of professional and managerial salaries.

Given these caveats, what we find is a wide disparity in wages among essential workers.  Occupations dominated by professionals are, unsurprisingly, pad well.  The problem lies in the low hourly earnings in many of the essential occupations.  This is compounded by poor working conditions:

• Many of the low-paid sectors are marred by precarious contracts and involuntary part-time work (i.e. part-time workers who want but can’t find full-time work). This results in a widening gap when weekly income is factored in.

• Higher-paid workers will enjoy benefits such as sick pay, company pensions and maternity top-ups – benefits which most low and average income earners are denied. These features widen the gap even further.

This throws up not only a wide income gap, but a gap in social security and living standards.

In a recent examination of the minimum wage the ESRI’s Paul Redmond writes:

'Finally, there are fears among academics and policymakers that the Covid-19 crisis could exacerbate inequalities in health and wages.  The evidence on the impact of minimum wages on inequality is particularly relevant at this time . . . the 2016 increase in the Irish minimum wage was associated with a reduction in wage inequality, with the ratio of wages in the 90th and 10th percentiles falling by 8 per cent . . . a minimum wage is particularly important during a recession; by preventing the wages of the lowest paid workers from falling below a certain level, wage inequality stays relatively low. Given that the Covid-19 crisis will result in an economic contraction, the minimum wage may be an important policy to counteract inequality.’

This puts the paltry 10 cent increase proposed by the Low Pay Commission into perspective.

However, the issue goes far beyond a statutory wage floor.  Ireland suffers from a high level of wage inequality.

In Ireland, high income earners make more than four times the wage of low-income earners.  In other EU countries the gap is much less, indicating a fairer distribution of wages. 

It is worth noting that the three countries with the least amount of wage inequality – Denmark, Finland and Sweden – don’t even have a statutory national minimum wage.  They drive wages and greater equality through collective bargaining and strong labour rights. 

Professor Frank Walsh of UCD showed how this works in a paper he gave at the Nevin Economic Research Institute’s recent labour market conference.  He found that, when controlling for age, education, gender, weekly hours, job tenure, occupation and industry, workers in trade unions earn 12.2 percent more than their equivalent counterparts who are not in unions.  And this premium is more pronounced among low and average income earners:

‘There is a substantial Trade union Wage premium on average and across the distribution . . . The evidence suggests that trade unions lower wage inequality.’

Unfortunately, our legal-industrial institutions do not vindicate workers’ right to collective bargaining.  They allow employers a veto over worker’s ability to bargain collectively.  Of course, there is more to reducing wage inequality than collective bargaining and strong labour rights.  Taxation, anti-discrimination policies, strong state-financed in-work benefits and a general social democratic political culture are all important ingredients as well.

But there is another dimension, something less tangible but nonetheless important; namely, how a society values work.  Chris Johns makes an important point when discussing the recent sweatshop scandal of Leicester factories that supply Boohoo, the on-line retailer of fashion clothing, where low pay, poor working conditions and exploitation of migrant labour are the foundations of Boohoo’s business model.

‘The factories concerned were mostly suppliers to Boohoo rather than directly owned: integrated supply chain management is a feature of many of today’s successful industries . . . [Boohoo] senior directors knew about these issues last December but “didn’t feel responsible for them” . . . The reason given goes to the heart of all this: workers in Leicester were so far down the supply chain they were “invisible” to Boohoo’s senior management. And to others who also should have known better: the local council, tax authorities and the health and safety agency.’

It’s a powerful insight – that the low-paid and the exploited are invisible.  Do we see the cleaners and the waste collectors?  Even when we look at the workers who check out our groceries and bring us coffee to our table, do we see them?  Do we fully appreciate how poorly they are paid, how precarious their work contracts can be, their lack of security that many of us take for granted? 

This calls us to a politics of empathy.  Such a politics is no substitute for the hard work of workplace organising and political reform.  But a politics of empathy is part of the crucial cultural struggle which helps determine what is socially desirable and economically feasible.  When public opinion turns on a practice, laws eventually follow.  This includes business practices.  When a business practices exploitation it should not be described as ‘innovative’ or ‘creative’ or ‘pioneering’; it should be called out for what it is:  exploitative, no different from the sweatshops of the past.

If we are to take wage inequality seriously, then we all have a role to play regardless how small: as a participant in politics (even just voting), as a consumer, through social media, wherever we can engage.  Wage inequality and exploitation require an all-of-society effort.

The first step is visibility as a prelude to concerted industrial and political action.

US Polls: Sunday Summary September 27th

This is the third Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election.  The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 ‘competitive’ or swing states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 27^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

This third summary week is seeing a number of stories:

• Biden’s lead in Arizona and Florida is softening

• Trump’s lead in Georgia and Iowa is similarly shrinking

• However, Ohio has produced a big turnaround with Biden now in a marginal lead, after two weeks of Trump leading

• In the other key Mid-East states – Michigan, Pennsylvania and Wisconsin – Biden’s lead is holding up.

• And in the two states that the Democrats are defending – Nevada and New Hampshire – Trump is not gaining ground. It’s hard to see him winning ‘new’ electoral votes.

Remember, Biden needs 38 electoral votes to win.  If he takes Florida with its 29 votes, he’s well more than half way home.  If he simply takes the three Mid-East of Michigan, Pennsylvania and Wisconsin where he already has a lead – he gains 46 votes and the Presidency.  Biden has other fall backs – Arizona and North Carolina – with 11 and 15 votes respectively.  And if he can turn Ohio with its 18 votes, we could be looking at an Electoral College landslide.

 (b)         The Economist

The Economist tells pretty much the same story as FiveThirtyEight; in particular, Biden’s lead in the three Mid-East states.  While Trump is still in the lead in Ohio, his lead has shrunk considerably over the last two weeks.  And Trump is widening his lead in Texas – though it was always a long-shot that Biden would take the Lone Star state.

* * *

All in all, if you’re a Biden supporter you should be relatively happy – in particular the continuing strong trends in the Mid-East states with the potential to grab a couple of others.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, in FiveThirtyEight Biden leads by 164 votes.  In the Economist, Biden leads by 128.  The difference lies in the split between the two aggregators over where Ohio’s electoral votes will go.

As we keep saying, it’s still early days.  But less and less so.  Early mail-in voting is already taking place in a number of states.  And according to most polls, the overwhelming majority of Americans have already made up their mind.  Still, the first of the Presidential debates will take place on Tuesday and that could swing the few undecided or soft supporters.  Even a fractional shift could make all the difference in the key swing states.

Employers Resign from the Minimum Wage

The employer representatives on the Low Pay Commission (LPC) have effectively resigned from the minimum wage.  This left the trade union representatives - no choice but to resign from the Low Pay Commission itself.  10 cents per hour increase, or one percent, was the most employer representatives were willing to propose.  This was the lowest increase, in percentage terms, since the introduction of the minimum wage in 2000, bar the short-lived cut in 2011 which was quickly reversed when the new government took office.

There will be all manner of arguments for why the minimum wage should effectively remain the same in these uncertain times but they will miss the point.  Increasing the wage floor, increasing pay and working conditions for the lowest paid, is not a cost – it is an essential part of a recovery strategy.  Raising people’s living standards is a pathway towards a stronger, more resilient economy. 

For instance, many sectors and companies were forced to close down or were negatively impacted by the fall in turnover.  But we have moved on from the low point in the crisis.  63 percent of businesses are operating at normal capacity, with 75 percent of wholesale and retail businesses – where a sizeable proportion of minimum wage employees work - trading at full capacity.  The latter should not be surprising given that retail sales have recovered and, in some cases, are now exceeding levels at the start of the year.  50 percent of businesses report no impact on turnover (and some of these have even seen increased turnover).

Of course, there are wide variations in the economy, with some sectors (e.g. hospitality) taking big hits – and continuing to do so in areas like Dublin.   To compensate for this, the Government has engaged in substantial subsidies to the business sector – and rightly so.  46 percent of all businesses have received a pandemic-related state subsidy, with most of these being businesses relying on domestic demand.  The Temporary Wage Subsidy Scheme alone delivered €2.9 billion to businesses.  But that’s not all.  As of July, there has been €6 billion worth of loan breaks for SME’s.  Then there are the restart grants (€0.5 billion), Local Enterprise grants, sector-specific grants (childcare, arts, sports, beef), commercial rates waiver, VAT cuts, etc.].  More will be coming on stream in Budget 2021. 

So let’s do the crudest of back-of-the-envelope calculations.  In the last quarter of 2019, there were 122,000 workers on the national minimum wage.  My own rough estimate is that minimum wage earners work, on average, 27 hours per week.  Therefore, every one percent increase in the minimum wage would increase total payroll for all minimum wage workers by €18 million per year (including social contributions).  Therefore, a three percent increase would come in at €54 million on total payroll increases.

I emphasise – this is crude.  There will be further impacts as raising the wage floor also lifts wages which are slightly higher than the minimum wage (e.g. maintaining differentials, etc.).  However, even if this cost is doubled given knock-on effects higher up the wage scale, we’re looking at costs of under €120 million. 

Now set that against (a) companies that are maintaining billions of Euros turnover and operating at normal capacity, and (b) the billions being spent on subsidies.  An overall and decent pay rise for minimum wage workers is only a small percentage of normal turnover and subsidies.

And, yes, there are still businesses that would find it difficult to pay a three percent increase.  But there is relief for these firms.  They can avail of relief through the Labour Court and be exempt from paying the increase for up to a year.  Indeed, businesses that can’t afford to pay would get relief from those businesses who can afford to pay.  This is because minimum wage earners are spenders, not savers and, so, would recycle their wage increase back into the economy and back into the turnover of those firms who are temporarily exempt from paying the increases. 

It is possible to connect labour market policies (such as minimum wage increases) and business subsidies.  But the conflict is deeper than just a monetary analysis; it poses alternative ways of viewing the purpose of enterprise.  For some, the business primarily exists for the benefit of owners and the production of goods and services is instrumental to that benefit.  For most, the business exists to provide employment and living standards, to provide the goods and services that we need or want to purchase. 

For some, business is primarily a private concern; for most, business is a social agency.  By refusing to go beyond 10 cents an hour, the employers’ representatives have staked out their position – that they do not see themselves as part of a wider social process; even if, in objective terms, enterprises perform better when they embrace that embrace that process. 

The Government has a chance to rectify this.  The LPC recommendation is only that, a recommendation.  The Government can see fit to vary the minimum wage according to wider social and economic criteria than the employer representatives.  In particular, the Government can signal that wage increases are not a drag on growth but actually one of the primary engines that will drive recovery.  In addition, the Programme for Government commits to:

‘Progress to a living wage over the lifetime of the Government.’

Here is the first test of that commitment – to raise the minimum wage significantly above 10 cents per hour.

Healing Our Sick Pay System

In the budget the Government will have to show it has drawn lessons from the pandemic.  One of those lessons is Illness Benefit.

When the crisis broke, the Government realised our Illness Benefit system was wholly inadequate.  Not only did potential recipients have to wait a week to access the Benefit (thus receiving no income support in their first week of illness), the level of benefit at €203 per week for a single person (22 percent of an average full-time employee wage),meant that many people could not afford to take time off, thus risking the spread of the virus.

In March the Government abolished the 6-day waiting period and increased weekly payments to €300 per week, followed by another increase to €350 per week.  However, this only applied to Covid-19.

Another feature of poor sick pay coverage emerged.  According to surveys, only 44 percent of private sector employers had a sick pay top-up scheme (meaning the employer topped up the social protection payment in order to protect the employees’ income – though not necessarily to the full wage and for varying periods of time).  The majority of private sector employees have no occupational sick pay scheme and are totally reliant on the social protection system.  With no sick pay obligations on employers, workers’ benefits are reliant on what sector and company they happen to work in.

Any reform of sick pay needs to be based on two principles:

• All employees should have equal access to a full sick pay scheme (universal)

• Illness Benefits should protect people’s income while they are out sick (comprehensive)

In most EU countries, employers are required to pay an employee their illness over the short-term. For instance, German employers must pay full salary up to six weeks.  Dutch employers must pay at least 70 percent of pay for two years while Belgian employers must pay a month in sick leave, depending on the contract and length of service.  ICTU has produced an informative meme giving one-line summaries of sick pay schemes in other European countries.

It is this principle that informs the Labour Party’s private member’s bill – Sick Leave and Parental Leave (Covid-19) Bill - to ensure that every employee is entitled to six weeks of sick pay at full pay.  This is a positive and progressive proposal.  However, it is constrained given that a private member’s bill cannot place a charge on the Exchequer.  Therefore, there are no provisions for increased public support to fund sick pay schemes. 

For instance, in Germany employers with fewer than 30 employees receive a public subsidy of up to 80 percent of their sick pay costs.  In other countries, employees move from employers’ sick pay to social insurance payments which still maintain 50 to 70 percent of an employee’s wage.  The Labour Party bill was barred from including such provisions.

There is a strong argument to channel sick pay through the PRSI system, rather than through employers.  Some companies and sectors are more exposed to illness than others.

Companies and sectors with a higher proportion of women, older workers, low/average income earners, and caring activities will face higher sick pay bills.  Indeed, it is those sectors with higher skills and income, along with a younger profile that have less need to access Illness Benefit – and in these sectors you’ll find the most generous sick pay schemes (e.g. ICT, financial, professional and modern manufacturing). 

Under a social insurance system approach, each company pays an equal social insurance contribution rate (a percentage of payroll).  If paid through employers’ social insurance, it becomes part of employees’ compensation and could be part of a wider collective bargaining process (if we had such a process).  And through the social insurance system, the cost is socialised meaning that sectors will below-average illness rates subsidise those sectors with above average-rates; as a rule this means higher income sectors subsidising lower income sectors.

In 2019, €603 million was spent on Illness Benefit from the Social Insurance Fund.  This would likely more than double under a reformed benefits system.   A one percentage point increase in employers’ PRSI would have raised €850 million in 2019.  Obviously, the amount would be lower today and, in any event, one wouldn’t start increasing PRSI until recovery is fully embedded in the economy.  But a long-term, incremental rise starting within two to three years would pay for a universal and comprehensive sick pay plan available to all employees.

A model to work from would be the sick pay plans that exist in many private sector companies and the public sector; namely, three months on full pay followed three months on half pay in a rolling one year period.  To help reduce costs, a payment threshold equal to the average full-time pay - €48,000 – could be introduced. 

Businesses and the Exchequer would benefit from such a programme.  Companies would no longer need to fund their own company sick pay plans (though they could subsidise income above any threshold), bringing about payroll savings.  Second, the increased income to households would help spending and maintain demand.  Third, such benefits would be taxed, boosting revenue for the Exchequer.

The Government can use the budget as an opportunity to announce their future intentions.  They could establish a working party made up of relevant stakeholders (e.g. employees, employers) to draw up the plans.  At that stage it could be decided which would be a better sick pay mechanism:  through social insurance or through obliging employers to make the payments, or a combination of the two.

More importantly, this would give concrete proof of the Government’s social goals.  Minister Paschal Donohoe, discussing the rebooting of the economy following the pandemic crisis, stated:

‘It is very clear that we can create a new economy and the country can recover from this.’

And at the heart of any new economy is the rolling out of new, enhanced in-work benefits and social protection payments which can bring about greater social security for households – such as a universal and comprehensive Illness Benefit.

US Presidential Polls: Sunday Summary September 20th

This is the second Sunday summary of US state-wide polls, focusing on the ‘competitive’ states in the US Presidential election (you can read the first summary here).  The race will be determined by the Electoral College which is based on who wins at state level.  Most states are fairly predictable.  However, there are 12 states with 189 electoral votes (about 35 percent of all electoral votes) where the race will be won or lost. Of these 12 states, Trump won 10 back in 2016 with the Democrats winning two.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 20^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

(a)          FiveThirtyEight

FiveThirtyEight show the race in competitive states tightening.

Looking first at states won by Republicans in 2016, Biden leads in most of them.  However, in some of them, his lead is eroding; Florida and Wisconsin in particular.  Florida is a key state.  It has 29 votes – which would make up most of the 38 votes Biden needs.  If we turn to the mid-east states, Biden has stronger leads in Michigan, Pennsylvania and Wisconsin.  In 2016, Trump won each of these states with a margin of less than one percent.  Together, these make up 46 votes – enough to elect Biden. However, Biden’s lead is shrinking in Pennsylvania and Wisconsin.

Looking at the two states won by Democrats in 2016, Biden currently holds comfortable leads.

At this stage it is difficult to see Trump picking up ‘new’ votes.

(b)          The Economist

The Economist, on the other hand, shows Biden widening his lead and closing some of the Trump leads.

In Florida and Wisconsin, Biden has stretched his lead while cutting Trump’s lead in Iowa and Ohio.  In short, if Biden takes Florida and the three mid-east states – Michigan, Wisconsin and Pennsylvania – it is game over.  Biden could still afford to lose Florida if he can bring the mid-east states home.

And, again, Trump doesn’t look like taking some votes from the Democratic camp.

* * *

If you’re a Biden supporter, you’d be happier with the Economist poll count.  But with both of them, the shifts are, for the most part, minor.  We will need a couple of more Sunday summaries to see if there is a trend that both aggregators share.

Taking the polls today, this is the Electoral College count.  With 270 votes needed to win, Biden leads by 128 votes. 

But it is early days.  And the outcome in many states is within the margin of error.  And a number of polling companies called it wrong in several states in 2016. 

See you next week.

 

US Presidential Polls: Sunday Summary

In a little over seven weeks Americans will go to the polls.  So here is a summary of US polling in the Presidential election.  Currently, Joe Biden is leading in the national polls but as you may know, the American electorate does not directly elect the President.  The Electoral College elects the President.  The College is elected by people voting in their individual states which hold equal to the number of Senator and House representatives which are broadly proportional to their population (California has 55 votes, Alaska has 3 votes).  Sometimes the result can be perverse:  in 2016 Hilary Clinton won the national vote but Donald Trump won the Electoral College.

In 2016 Trump won 304 Electoral College votes to Clinton’s 227.  Actually, the count should have been 306 to 232 but seven electors voted for minor candidates.  So Biden needs to win 38 more electoral votes to be elected President.

Most states are fairly predictable.  California and New York are going Democrat; Oklahoma and Mississippi will vote Republican.  But there are a number of swing or competitive states which could go either way and will determine the winner. With the exception of Nevada and New Hampshire, all the competitive states were won by Trump in 2016.

What I will do here – and hopefully every Sunday – is summarise polling in these individual states.  I will use two polling aggregators:  FiveThirtyEight and the Economist’s Forecasting the US Elections.  Here’s what they are telling us on September 13^th.  This uses the US electoral colours – blue is Democrats and red is Republican.

Looking first at states won by Republicans in 2016, Biden leads in most of them.  Florida is a key state.  It has 29 votes – which would make up most of the 38 Biden needs.  While he holds the lead here – between two and three percent – it is fairly tight.

If we turn to the mid-east states, Biden has stronger leads in Michigan, Pennsylvania and Wisconsin.  In 2016, Trump won each of these states with a margin of less than one percent.  Together, these make up 46 votes – enough to elect Biden.

If Biden can manage to win one of the southern states (Georgia, North Carolina, Texas), he’d be in a very strong position. 

Looking at states won by Democrats in 2016, Biden currently holds comfortable leads.

If these polling results were replicated on election night, Biden would win comfortably.

But as they say, it is early days.  And the outcome in many states is within the margin of error.  And a number of polling companies called it wrong in several states in 2016. 

Next week we will hopefully start seeing trends:  is Trump closing the gap?  Is Biden holding firm?  Or even expanding his lead?

 

 

Reversing into a Crisis

Back in July the Tánaiste warned of a coming economic crisis that could be ‘very divisive’:

‘ . . . it’s a very serious economic crisis and one that’s very unequal . . . The country was very united during the pandemic. The economic crisis that is coming could be very divisive.’

Unknown to us (at least based on national statistics) was that a serious crisis was emerging in 2019.  The pandemic crisis is likely to give it legs and if we don’t act, it could run away from us.

The CSO has released its Survey of Income and Living Conditions (SILC) focused on the issue of enforced deprivation.  According to the CSO, the enforced deprivation rate measures the proportion of households that are considered to be marginalised or deprived because they cannot afford goods and services which are considered to be the norm for other people in society. Enforced deprivation is where a household experiences two or more of the following eleven deprivation items:

• Without heating at some stage in the last year
• Unable to afford a morning, afternoon or evening out in last fortnight
• Unable to afford two pairs of strong shoes
• Unable to afford a roast or an equivalent once a week
• Unable to afford a meal with meat, chicken or fish every second day
• Unable to afford new (not second-hand) clothes
• Unable to afford a warm waterproof coat
• Unable to afford to keep the home adequately warm
• Unable to afford to replace any worn out furniture
• Unable to afford to have family or friends for a drink or a meal once a month
• Unable to afford to buy presents for family or friends at least once a year

During the last crisis, 30 percent of the population experienced enforced deprivation.  Since that peak in 2013, the rate steadily declined.

Until last year when the enforced deprivation rate suddenly and unexpectedly rose.  In 2019, unemployment fell to 5 percent, numbers employed rose by 60,000, and wages increased by four percent.  Yet deprivation rose.  Even before the crisis, something in the social structure was wrong.

Those most at risk of deprivation are social housing tenants, those who can’t work because of illness or disability, and single parents.  The former two categories saw a sizeable increase in 2019, while close to half of single parents suffer multiple deprivation experiences.

We tend to assume that deprivation is associated with being out of work.  That would be a mistake.

Nearly one-in-eight people in work are categorised as deprived.  20 percent of households with one person working are deprived.  More surprisingly (and depressingly), even where there are two people at work in the household, more than one-in-ten suffer deprivation.  Clearly, in an economy with high levels of precarious working conditions and low pay, having a job is not a ticket out of deprivation and poverty.

And for children the situation is looking even grimmer.  In 2018, the deprivation rate for children (under-18s) was 19.7 percent.  It rose last year to 23.3 percent.  This is not only an indictment that nearly one-in-four children in the state suffers enforced deprivation; it also undermines future growth and prosperity for these households and society at large.

And in one final stat twist, 30 percent of the population still experience at least one enforced deprivation experience.

And all this in the year prior to the pandemic, during a year of growth and expansion.  This raises two questions:

• Will the pandemic accelerate these trends? As the Tánaiste put it – will it accelerate inequality and divisiveness?

• And if the answer to the first question is yes, then what are the policies that we need to put in place starting now in Budget 2021?

For we will need to do something.  If we go back to ‘normal’, we’re heading back into rising deprivation.

 

Stimulus, Deadweight, and Reheats

Any critique of the Government’s July Stimulus should acknowledge that they had to plan it in a metaphorical fog – not knowing the duration of the public health crisis, the extent of long-term economic damage, or the most efficient measures to employ in this unprecedented situation. 

Nonetheless, there are certain benchmarks we can use to assess the stimulus plan.  How much of the plan is actual additional spending (above what would have happened anyway)?  How much is just re-announcing previously announced measures?  How much is deadweight (that is, subsidising activity that would have happened anyway)? How much is targeted, going to the sectors most in need? 

None of these questions have black-and-white answers.  For instance, measure A may be more efficient than measure B, but the latter can be done almost immediately – urgency sometimes being the enemy of efficiency.  And, yes, this scheme may have deadweight, but do the benefits still outweigh the costs?  Fiscal policy, especially in a crisis, is not a slide-rule.

Given these caveats and the flying-in-the-fog acknowledgement, let’s see how some of the measures stack up.

Additionality and the Pandemic Unemployment Payment (PUP)

The PUP will be extended to April.  However, it will be closed to new entrants in mid-September.  There is no doubt this payment provided a life-line to many households.  The number of recipients reached nearly 600,000, but with businesses re-opening the numbers have fallen by half.  In announcing the extension of PUP to April, Minister Heather Humphreys stated:

‘The total cost of the payment, if modified as proposed, between now and April 2021 is estimated at about €2.24 billion. This is about €380 million more than would be paid out at standard jobseeker rates (that is, if the scheme was closed as planned in August).’

I’m assuming this refers to the overall cost since the PUP was introduced (though, in truth, it’s hard to say).  It suggests that while PUP has put €2.2 billion into households and the economy, ordinary social protection payments would have put in €1.9 billion.  The additionality of PUP was only €380 million, which while desirable from the household’s perspective is far less than the headline number and, so, far less stimulating.

Cut in Headline VAT Rate and Commercial Rate Waiver

The Government took everyone by surprise by cutting the standard VAT rate from 23 percent to 21 percent.  This will have almost no impact on prices but will assist business cash-flow.   A VAT cut is administratively simple compared to an expenditure-based subsidy with qualifying conditions.  Similarly with the commercial waiver.  But since they are across the board they are not very well targeted.  Many businesses that don’t need help will still benefit.

The CSO reports that 10.2 percent of enterprises had higher than normal turnover in June/July, while another 28.2 percent had ‘turnover at or close to normal expectations’.  Nearly 40 percent are not in urgent need of relief, yet they will benefit from these two measures.  However, businesses that have yet to open or have substantially reduced turnover (10 percent report turnover decline of 75 to 100 percent) may get limited benefits – especially in the hospitality sector.

The VAT cut and rates waiver, at a cost of €440 and €600 million respectively, could be highly inefficient at targeting relief at enterprises which need it most, though they are relatively quick to implement.  

Help-to-Buy, Staycation and Deadweight

The Help-to-Buy scheme will be enhanced.  The level of support available to first-time buyers will be increased to €30,000, up from €20,000, or 10 per cent of the purchase price of the new home/self-build property.  This will run to the end of the year.

The Parliamentary Budget Office found the scheme was fraught with deadweight:

‘41% [of recipients) had a loan to value ratio of less than 85%, which means that they already had the 10% deposit requirement and didn’t need the scheme to meet the macro-prudential rules. This could be seen as a deadweight loss.’

Dominic Coyle makes this excellent point:

‘What housing needs is more supply, especially of affordable homes, not further tinkering to sustain prices that are already beyond the reach of so many aspiring homeowners.’

The only good thing about this measure is that it will only cost €18 million.  Hopefully, it won’t be continued. 

And what about the Stay and Spend Incentive?   Taxpayers spending over €625 on accommodation, food and non-alcoholic drinks between October and April can get up to €125 back through a tax credit.  How much of this money would have been spent anyway?  How much new spending will it induce (especially since people won’t get the credit until 2022)?  How much of this will actually stimulate anything?

Public Investment

The stimulus plan envisages €500 million in accelerated capital projects covering schools, public transport, heritage and tourism, fishery and on-farm renewable energy investments, peatlands rehabilitation, local authority housing, and town and village renewal. 

The July plan goes further:

‘The Government is also committing to increasing capital expenditure in 2021 to €9.1 billion.  This level of capital expenditure represents an increase of almost €1 billion or 12 percent on 2020 levels.’

This sounds impressive – an additional €1 billion for capital spending.  But is it additional?

While we don’t have the numbers, capital spending would have slowed in 2020 due to the pandemic crisis.  So the Government is correct in saying that their projection represents an increase over this year.  However, it doesn’t represent an increase over what was already projected – in last year’s budget and this year’s Stability Programme Update.

A smaller example of this is the provision of €15 million for peatlands rehabilitation, an important element of the overall Just Transition strategy.  However, in Budget 2020 reference was made to €5 million to be spent from carbon tax revenues and a reference to €7 million under the Culture, Heritage and the Gaeltacht portfolio.  Does the €15 million announced include these already committed allocations or are they additional to them?  

[Note: some enterprising TD or political party might consider exploring this whole area of additionality and re-announcing previously announced measures through Parliamentary Questions and research].

The Road Not Taken

TASC’s Shana Cohen noted:

‘This first economic litmus test for this new Government fails to impress because it does not give the sense that the new FF-FG-Green alliance is prepared to think big enough to move beyond Covid-19 to a new normal that is predicated on equality, and – more profoundly – hope for the future.  Instead of generating jobs for the sake of employment numbers, the stimulus package could have hinged on linking job creation to wellbeing, climate change and economic democracy.’

One could reasonably argue that the urgency of the situation required immediate action without the luxury of longer-term thinking.  Conditionalities can take time to devise and implement.  Nonetheless, while a government in the middle of crisis might not be able to work out the vision thing in the short term, it could give some signals as to where it might be heading. 

Take for instance the biggest subsidy – the Employment Wage Support Scheme (which replaces the Temporary Wage Subsidy Scheme).  This will cost €1.9 billion, or over a third of the entire stimulus package.  Under this scheme firms which have suffered a 30 percent decline in turnover will receive a flat-rate subsidy of up to €203 or €151 per employee, per week, depending on the employee’s gross weekly pay.  This is a significant, well-targeted subsidy.

The government could have established sectoral oversight committees comprising the relevant stakeholders in the sector:  employees, employers and civil society organisations.  This was proposed by the SIPTU trade union. These committees could have monitored the roll-out and implementation of the scheme, reported back on any sharp practices, and put forward policies to improve administration of the scheme.  This would have signalled that the government was moving towards a stakeholder model which could eventually develop the type of conditionalities that Shana Cohen referred to above.

Alas, there was no proposal, mention, or even hint that the Government was looking down this road.

* * *

We have programmes which are not delivering the headline amount of stimulus as is claimed (PUP), are administratively simple to introduce speedily but not very well targeted (VAT cut and rates waiver), spending targets which are just old targets (public investment), and are full of deadweight (help-to-buy, staycation incentive).  All told, these schemes make up the vast majority of the stimulus spending.

Given this, will it be enough or will we have to return to the stimulus table?  One good thing: the Government can revisit these and other missed opportunities in the roll-out of the National Economic Plan and associated sectoral initiatives in Budget 2021.

The jury is still out.

Let Mayo Decide

With Dara Calleary replacing Barry Cowen, Mayo finally has a Minister.  This should assuage the Western People.  When the Government initially ignored Mayo and all other Connaught counties, the paper’s leader writer became very exercised: 

‘The new Cabinet is the ultimate and final betrayal of the people of the West, the people of rural Ireland, the people who get up early and go to bed late just to keep the lights on in towns and villages buffeted by one economic storm after another since the turn of this millennium. Yesterday in the National Convention Centre in Dublin, the triumvirate of Micheál Martin, Leo Varadkar and Eamon Ryan unveiled a Cabinet that Oliver Cromwell would have been proud to call his own. To hell or to Connacht, indeed.’

To what extent a single Minister can address this complaint is questionable.  But there is logic to it.  Would a Cabinet only made up of urbanites be fully sensitive to the issues faced by rural dwellers?  Would a Cabinet only made up of men be fully sensitive to the issues faced by women?  Would a Cabinet comprising only business owners be fully sensitive to workers’ issues?

But it goes further than being regionally, gender and class- balanced.  We have a system whereby Ministers are expected to ‘deliver’ for their constituencies.  As Diarmuid Ferriter pointed out when critiquing the Western People’s claim of victimisation: 

‘What was really at play this week had nothing to do with a pure, downtrodden people but with what the political scientist Jane Suiter referred to as “Chieftains Delivering” . . . : whereby “individual, powerful ministers in charge of the purse strings direct funds to their own constituencies” ‘.

So now Chieftain-Minister Calleary will be expected to go to Dublin and bring economic dividends back home. 

And therein lays the problem for the people of Mayo, Connaught and the country as a whole.  The issue isn’t access to power through individuals, but lack of direct access to power.  And this lack of power can be seen in the ultra-weak status of local government in Ireland.

Ireland’s weak local government system has been well documented.  A good summary is provided by Dr. Mary Murphy of Maynooth University in a paper entitled ‘Democracy Works if You Let It’ written for the trade union campaign ‘More Power to You’.  According to Dr. Murphy:

‘The international index of self-autonomy uses seven categories (legal protection, organisational autonomy, and institutional depth, fiscal autonomy, financial selfreliance, borrowing autonomy, and financial transfer system, and administrative supervision, central or regional access) to assess self-autonomy. Over 1990 to 2015 Ireland declined from the third least powerful local authority to the weakest across all Europe [among 39 countries surveyed].’

Another way of looking at local government power is to compare the level of expenditure at local government level.  Surprise – Ireland lies near the bottom.

[Note:  this excludes Belgium, Germany, Spain and Austria which have an extra sub-central tier in addition to local government; that is, regional or state governments.    However, even with this regional structure, local government in these four countries have spending levels far above Irish levels.]

Denmark has the most fiscally decentralised system, with nearly two-thirds of total public spending occurring at local level while Sweden comes in at half.  Ireland on the other hand lies at the other end, with less than 10 percent of public spending being spent by local authorities.  Irish local spending would have to increase by three times their current level to reach the EU average.

In many countries, health and education are delivered at local level – something that doesn’t exist in Ireland.  Given this structural feature, there is an argument for excluding these spending categories.  When this is done, EU local government spending falls to 23.1 percent while Irish spending increases to 12.0 percent.

Excluding health and education spending, Irish local spending would have to nearly double to reach the EU average.

Let’s return to Mayo.  Mayo County Council adopted a budget for 2020 that provides for €147.5 million in spending, funded by state grants, receipts from goods and services (council rents, pay & display, planning fees, etc.), recoupment payments (e.g. work carried out on behalf of Irish Water), commercial rates and local property tax.

If Mayo spent at an average EU level (excluding health and education), its budget would nearly double – rising from €147.5 million to €284.4 million; or an additional €137 million. 

What could it spend it on?

• Mayo could provide affordable childcare (fees of less than €60 per week) through the 60 community childcare facilities – and do this with enhanced wages and working conditions.

• Mayo has a higher proportion of older people than the national average (7.3 percent are over 75 against a national average of 5.5 percent). With nearly 10,000 people over 75 years, Mayo could directly employ carers in the community to supplement HSE activity.

• Mayo could launch a business start-up and expansion programme for SMEs in the market economy to grow competitive commercial enterprises. This could be done through equity stakes so that Mayo would benefit when businesses are successful (and help defray the costs for businesses that aren’t).  Equity stakes of up to €500,000 could see a minimum of 20 businesses each year getting support.

• Mayo could launch its own public transport company that would link up urban and rural areas with low fares and frequent scheduling.

There are a number of commercial and social activities Mayo County Council could engage in, including issuing bonds to pay for major once-off infrastructural projects.

It could also launch a programme of participatory budgeting at town and village level.  For instance, based on a crude population count, Castlebar could expect an additional €14 million spending Mayo could spend at the same level as the EU.  The Council could conduct a series of community meetings, on-line surveys, focus groups, etc. to empower the people of Castlebar to decide how some of that money would be spent – on public amenities, social services, business supports, infrastructural investments, etc. 

In short, what the people of Mayo – and all people throughout the country – need is more power and resources at local level, and more ability to influence decisions that have a direct impact on their lives.  They don’t need brokers (though it always helps to have friends in high places).  They need greater democracy and greater localisation. 

That’s a campaign that should be taken up throughout the country.  Starting in Mayo.

 

Biting the Wormy Apple

What has been hailed as a ‘victory’ for Ireland and Apple in the verdict of the EU’s General Court could turn out to be pyrrhic at best.  Indeed, the biggest loser from this court decision could be Ireland’s tax-based FDI policy (Foreign Direct Investment), as EU countries step up their drive to end the multi-national manipulation of national tax codes.

You wouldn’t know it by the reaction here.   The Irish branch of the American Chamber of Commerce said the decision would help the European Union as a whole to:

‘ . . . maintain its hard-won global reputation as an inward investment destination.’

Other EU countries would strongly disagree, especially as it is their tax bases that are being eroded.

Tax partner Peter Vale said:

‘From a distance, it seems that the commission originally attempted to rewrite historic tax rules based on current laws and mood.’

Mood?  Global tax avoidance is not a mood.  Nor is opposition to it.

KPMG’s head of tax, Tom Wood stated: 

‘The initial indication is that it is a clear ruling in the taxpayer’s favour.’

Taxpayer’s favour?  Which taxpayer?  Domestic companies that cannot manipulate international tax rules?  People who have to pay higher taxes to make up for the holes created by multinational tax avoidance?

Minister for Finance Paschal Donohoe has said Wednesday’s ruling should lead critics of the State’s corporation tax regime to

 ‘. . . reassess their view … and some of the statements that have been made about it.’

Does this include IMF research which has listed Ireland as a tax haven?

Brian Keegan of Chartered Accountants Ireland thought the court’s decision offers hope:

‘ . . .  should curtail EU commission posturing on State aid . . . It is to be hoped that the commission will accept the decision of the General Court of the European Union, and not seek to damage the country’s reputation further with protracted legal proceedings.’

He shouldn’t be hopeful.  The Commission has made it clear it will continue and accelerate its drive for tax justice.  Up to now, Ireland could fall back on a blocking mechanism through the use of its national veto.  The Commission’s strategy in the Apple case was to use state-aid as a means to clamping down on tax avoidance. This approach has failed (though it is only half-time).  Regardless of an appeal, new approaches are being devised:

‘In what would amount to an unprecedented legal assault, the European Commission is exploring ways to trigger an unused treaty instrument to reduce multinationals’ ability to exploit highly advantageous corporate tax schemes.  Crucially, unlike ordinary tax legislation in the EU, the initiative would only require the backing of a qualified majority of the EU’s 27 member states rather than unanimous support of all countries, restricting a government’s ability to wield a veto. The measure would also need approval from the European parliament . . . Officials [said] that the plans, under Article 116 of the EU’s treaty, were at a very early stage but would aim to identify certain competitive national tax schemes as distortions of the single market.’

The Irish Times reports that:

‘The European Commission declared it was more determined than ever to clamp down on what it sees as unfairly low taxation rates used by some member states to attract multinational companies after losing its case against Apple and Ireland in an EU court.’

The report goes on to quote Valdis Dombrovskis (EU Commission Vice-President). 

‘This ruling makes it even more urgent and more clear the need for corporate tax reform the largest corporations are getting away with paying 1 per cent maximum or in many cases less on their European profits. It’s just not sustainable from a tax fairness point of view, it’s not sustainable from a public revenues point of view, and it needs to be addressed and the commission is determined to address it.  This one tax ruling is not going to change the commission’s determination in this regard.’

It remains to be seen whether using Article 116 to confront global tax avoidance is a runner, given that it has never been used that way.  But that it is actively being considered shows the extent to which time is running out for Ireland.  In truth, it was always just a matter of time.  No one wins the global tax avoidance game.  But some countries are slower losers than others.  Ireland is a slow loser, but will still eventually lose.

So what is the progressive response?   Donning an over-sized green jersey and burying our heads in it while chanting ‘we are not a tax haven, we are not a tax haven’ will not and should not suffice. 

But we should also be cautious about the impact of EU Commission moves.  Ireland is highly reliant (in some cases, over-reliant) on multi-nationals – for corporate tax revenue, personal tax revenue, high value-added employment, exports, etc.  The fact is that tax justice would cost Ireland billions of Euros in tax revenue, and could undermine future employment and investment in our modern export base.

We need to accept the reality of a new regime which will hopefully reduce global tax avoidance while at the same time protect our economic interests.  Even if Ireland is a tax haven, it is not a tax haven of the classical letter-box kind.  There is productivity attached to our FDI. 

We need to get ahead of the inevitable curve – staking out a model that protects our interests with apportionment formulae that emphasise our strengths in assets, labour and sales.  This would help us protect our multi-national base.

But what we desperately need is a new FDI policy – one that emphasises economic and social infrastructure, skills and an accommodating immigration policy.  A location with high rents, traffic congestion, low level of public amenities and an unwelcoming environment for migrants is not a place that will attract as much investment – either foreign or domestic.

The EU Commission may have stumbled in the General Court, but they have the capacity and certainly the determination to put Ireland’s FDI model to the test.  Let’s hope they succeed.  And let’s hope progressives can ultimately lead the country to a better FDI model – one that doesn’t rely on low tax rates and eroding the tax bases of other countries.

PS.  Still, it would be nice to get our hands on the €13 billion.

Stimulating the Economy and Society: a Wishlist

The Government will be announcing its stimulus plan in the next few days.   This will continue with the announcement of sectoral initiatives under the National Economic Plan to be announced in Budget 2021.  We are in for weeks of doling out the dosh.

So here’s a wishlist – for stimulating the economy, giving people a voice in how we build a more socially-accountable economy while protecting households from poverty.  Some of these proposals will take a while to get off the ground (so best to start now).  Some of these proposals might not work so best to continually evaluate and reform).  But people and businesses are hurting. 

Youth Unemployment

Youth unemployment could be as high as 45 percent, with nearly 150,000 under 24s now unemployed.   Grants and incentives to businesses to hire young people might help in some respects.  But such grants do not create new jobs; they just prioritise certain categories – which mean non-young-people get pushed back in the queue.  The state needs to create jobs by directly employing young people.

A specifically designed ‘employer of last resort’ programme could be rolled out to provide for up to 25,000 - 50,000 jobs in time (here is how it can be implemented).  Young people would be employed in non-profit civil society organisations and public agencies (local government, etc.) on full-time, two to three year contracts.  These jobs would be integrated into training and education schemes.  Only the state has the ability to mobilise the resources to put people back to work while we re-structure the economy away from low value-added, low-pay activity to higher value- added, higher paid work.

Continue the Pandemic Supports

The Temporary Wage Subsidy Scheme (TWSS) should be continued on a sectoral basis into next year.  Clearly, hospitality and non-food retail should be targeted along with other sectors.  Enterprises outside the targeted sectors could also benefit on a case-by-case basis with clear benchmarks (reduced turnover, etc.).

This should be combined with continuing the Pandemic Unemployment Payment and the elevated Illness Benefit – until at least the end of the year when new, enhanced, income-related social protection payments could be introduced courtesy of Budget 2021. 

Helping SMEs

Business groups are queuing up for subsidies to re-open and stay open.  This is understandabl, given that many sectors will continue to suffer reduced demand owing to the health crisis (customer-facing businesses, sectors reliant on discretionary spending). 

The Central Bank Governor put the cat among the proverbial pigeons, stating that tax breaks such as VAT cuts may not be the best way forward given that they are not targeted.  I’d be inclined to agree.  A better way would be to focus on those businesses that have suffered a significant decline in turnover.  The 25 percent loss of turnover that is used for eligibility for the TWSS could be used.

To create efficiencies and a new revenue stream for the state, grants could be based on the actual amount of turnover loss or the number of employees (in full-time equivalents).  Subsidies could be based on either zero-percent loans or grants that are repaid through the tax system.  The latter would probably be more beneficial for firms, as they would only start repaying the loan when they have turned a profit; i.e. repay according to their means.  Under a loan, you have to pay regardless of your ability to meet the payment. 

If a tax-based grant system were used, the Government could apply a temporary VAT cut (one to two years) with the difference between that and the normal VAT rate being treated as a grant which would be repayable through the tax system.

Workers’ Voice

Any sectoral initiatives, such as continuing the TWSS as suggested above or sector-based grants, should be accompanied by the establishment of sectoral committees comprising representatives of employees, employers, government and other stakeholders.  The last government established a Tourism Recovery Taskforce to propose measures to support tourism.  This could have been useful but the Government hobbled the taskforce from the start by omitting to appoint employee representatives – the biggest number of stakeholders in the sector.

Sectoral committees would oversee the implantation of support schemes; draw up protocols (wages, working conditions, health & safety); report problems, etc.  In short, the sectoral committee would be a communication conduit from the ground to the policy makers and serve as early warning systems.  A key function would be to ensure that public supports and subsidies benefit all stakeholders. Disability campaigners used the phrase: 'No decision about us without us'.  This should be applied to all working people.

Household Supports

While the debate has been focussed on business supports and how to wind down the pandemic payments, what about households?  Many will be falling into debt, or more debt.  Many will be struggling, postponing key household repairs or purchases.  Prior to the crisis, nearly a third of households couldn’t afford an unexpected expense; that level is likely to rise with the Covid-19 crisis. 

For instance, according to the St. Vincent de Paul, quoting a Social Finance Foundation research paper:

‘ . . . there are an estimated 330,000 customers of moneylenders in Ireland, with an average loan size of €566. The majority of customers are female, in the lower socio-economic group and between 35 and 54 years of age. Most commonly loans are offered over 9 months at an APR of 125%.’

So why not offer a scheme (either a new one or retooling existing ones), operated though the credit unions or the Money Advisory Budgeting Service, which would roll up all such loans, redeem them and put people on a more sustainable interest rate/repayment schedule?  Such a scheme could be expanded to households facing rent, mortgage and credit card arrears.  There would need to be provisions to prevent moral hazard.

This could be complemented by an extension of the rent freeze and moratorium on evictions.  These steps, along with continuing pandemic payments until new social protection payments are introduced, should help households which are waiting for a return to full employment. 

Arbitration Panels

The Central Bank Governor sent another cat into the pigeon nest, calling on insurance companies to be more ‘consumer-centric’ when it comes to paying out on business interruption claims.  He identified three situations:  contracts that didn’t have a business interruption clause, those that did, and those where the position was uncertain.

There’s a very easy way to resolve this:  establish a binding arbitration panel through which businesses could pursue their claims, avoiding costly and length court proceedings.  The panel could rule that insurance companies must honour the claim in full (where it is obvious) or in part (where the situation is uncertain).

Similar arbitration panels could be established for commercial leases though which tenants could make a claim for relief; ditto for residential mortgages. 

These shouldn’t be treated as strictly private contracts.  Society has a stake in these claims as they impact on employment, incomes and economic growth.  Therefore, there is a legitimate public interest in resolutions that serve the social good.

New Asset Tax

The Government could announce that it will be introducing a net asset tax in Budget 2021 and set up a process of consultation on the best design.  A net asset tax, or wealth tax, would impact on the highest income groups and to ensure that everyone contributes to crisis resolution.  In any event, the super-rich seem to be warming to the idea.  88 billionaires wrote a letter to their respective governments calling for higher taxes on themselves:

‘No, we are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door.  But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.

‘So please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.’

* * *

That’s my wish list:  getting young people back to work, continuing supports, rolling out repayable grants, giving workers a say, supporting households, arbitration panels to help the productive economy, and a new asset tax. 

There will be other and better ideas.  So it’s important to keep up this conversation.  Because while there will be an announcement next week of Government measures, this will only be the start, with the National Economic Plan and Budget 2021 coming in the next few months.

The State is a Job Creator

David McWilliams makes a provocative argument in his recent article for the Irish Times that ‘Governments can't 'create' jobs, so why do they keep pontificating about it?’.  I respectfully disagree.  Governments, states and public agencies are deeply, deeply involved in job creation, both directly and indirectly.  It is hard to imagine a modern market economy without the job-creating role of the state.

• The state directly employs nearly 340,000 in a range of areas: health, education, public safety, local authorities, administration, etc.  These make up 18 percent of all employees. 

• The state provides subsidies to private for-profit and non-profit enterprises with the express purpose of creating employment. Subsidies to early years’ education providers employ 10,600.  There are 13,000 Section 39 health sector employees – grant-aided by the public sector. These jobs are additional to the traditional public sector employee count.

• There are 42,000 employed by public enterprises – wholly-owned state corporations.

The state employs – directly, through subsidies or through corporations – over 400,000 employees.  However, it does not end there. 

• Through its capital investment programme the state creates employment. The Government estimates that for every €1 billion of investment 9,500 construction-related jobs are created directly and indirectly. These are, of course, temporary (once a bridge is built, the employment ends).  However, this doesn’t factor in the long-term productivity-enhancing employment benefits from investment projects.

• The state spends €8.5 billion annually on sourcing goods and services from the private sector to produce public services. In addition, private companies (early years, Section 39, etc.) also purchase goods and services with their state subsidies.  And public enterprises have considerable procurement contracts.   Billions of Euros of private sector activity – and, so, employment – are based on doing business with public agencies.

Another job creation and job retention feature of the state’s role in the economy are the grant aids and supports for market businesses:  IDA, Enterprise Ireland, Údarás na Gaeltachta, Local Enterprise Offices, etc.  These help direct jobs here from abroad (multi-nationals), create jobs for domestic enterprises breaking into export markets, and support employment in local areas.

And let’s not forget the jobs in the private sector that are dependent on the huge demand created by the states’ direct and indirect job creation activities.  Billions of Euro are spent by the men and women whose employment is in some way dependent – whether wholly or partially – on the state.  And this money is spent in businesses up and down the country.  How many jobs are created from this considerable purchasing power?  Lots and lots.

The state also plays key roles in promoting a modern economic base.  Take education for example: it is agreed by all across the ideological divide that education is one of the best investments that can be made.  A state that invests in education – from early years to post-third-level on to adult – is a state investing in its future innovative and entrepreneurial capacity.  However, Ireland is a laggard in educational investment.  It would have to increase such investment by over 20 percent, or nearly €2 billion, to reach our EU peer group average. 

R&D is another state investment in an entrepreneurial future.  And, again, Ireland is a laggard, needing a 90 percent increase (or nearly €1 billion) to reach our EU peer group average. 

To assess the state’s full role in entrepreneurial-creation we have to go beyond just employment and budgetary numbers.  Mariana Mazzucato has popularised the theory of the entrepreneurial state

‘How many people know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant? Or that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK? Or that many of the most innovative young companies in the USA were funded not by private venture capital but by public venture capital such as through the Small Business Innovation Research (SBIR) programme?

Mazzucato goes on:

‘Not only has government funded the riskiest research, whether applied or basic, but it has indeed often been the source of the most radical, path-breaking types of innovation. To this extent it has actively created markets not just fixed them . . . from the development of aviation, nuclear energy, computers, the internet, the biotechnology revolution, nanotechnology and even now in green technology, it is, and has been, the state not the private sector that has kick-started and developed the engine of growth, because of its willingness to take risk in areas where the private sector has been too risk-averse.’

Sean O’Riain makes a similar argument in the Irish context, noting that in the 1990s the key investor in high-tech indigenous sectors was the state:

‘The ‘Celtic Tiger’ is not a product of heroic entrepreneurs but is a (partial) success made possible by the embeddedness of entrepreneurs and workers in dense social institutions. There is a significant collective contribution to the success of those who have benefited (professional classes, entrepreneurs) which rests heavily on collective social and state institutions.’

This doesn’t deny the concept of entrepreneurs.  They are essential to bringing goods and services to market.  However, the above shows that drawing a line between the public and private sector is a highly misleading characterisation of a modern, complex market economy.  The goal is to create a new dynamism arising out of the obvious inter-dependency between the public and the private.

But even when discussing ‘entrepreneurs’ we have to avoid clichés.  Entrepreneurship is not only a social phenomenon, where new products and services arise out of collective effort;  it is – or should be – a democratic phenomenon.  The role of labour is rarely referred to in this context but the evidence is substantial:  greater employee participation in the decision-making process of the firm or enterprise equals greater productivity, innovation and firm performance.  The same holds for collective bargaining, as employees bring their experience, knowledge and ideas to problem-solving. 

Cyrine Ben-Hafaïedh notes that the hunt for the single, heroic entrepreneur was like ‘hunting the Heffalump’:

‘ . . . even when it was proven that this quest was vain, entrepreneurship scholars continued to embody entrepreneurship in a single person, a lone and heroic entrepreneur. But  . . . the 'entrepreneur' in entrepreneurship is more likely to be plural, rather than singular’.

Entrepreneurship should be a collective, democratic process. In this respect, everyone is an entrepreneur. The problem is that not everyone is allowed. This is a profound question of workplace democracy.

The Covid-19 crisis has shown us the degree to which private sector activity is dependent on public resources.  There are other grave challenges, notably climate justice and the fourth industrial revolution involving automation, robotics and AI.  We will need an organising agency (the state); we will need greater public intervention in the market economy (public capital); and we will need a more democratic entrepreneurial practice (workplace democracy).  Simplistic notions of public and private sector, of the individual ‘heroic’ entrepreneur, will not help us meet these challenges. 

We need an ‘all-of-society’ approach. 

We need to let a hundred entrepreneurial flowers bloom. 

In short, we need an all-encompassing democracy – from the workplace floor to the boardrooms and beyond.

Follow the Money

 ‘You follow drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where the f*** it's gonna take you.’

- Detective Lester Freamon, The Wire

The Programme for Government (PfG) has been touted as transformative, progressive, even left-of-centre.  A former Minister claimed it was so left-wing that ‘James Connolly and Che Guevera could vote for it’.  But in the fog of spin and a promised plethora of reviews and commissions, it is hard to see the woods for the trees, to assess whether the PfG will usher in ‘transformative’ policies, or just a new vocabulary of rhetoric and aspiration.

So let’s ‘follow the money’.  A strong social state – based on enhanced public services, social security and climate justice with a Just Transition – will cost money.  The increased current expenditure (day-to-day spending on public services, social protection, interest and subsidies) will need to be matched by increased revenue in the medium term.  We will need a substantial increase in investment – to get the economy back on track and to deliver the carbon-reduction targets.  The lack of detail is understandable given the highly uncertain environment.  But let’s see where following the money takes us. 

Deficit

The PfG seeks a ‘broadly’ balanced budget.  That the deficit will fall is merely a function of a recovering economy, as revenue rises and unemployment costs fall.  The Irish Fiscal Advisory Council gives a sense of this trajectory on a no-policy-change basis in their recent Fiscal Assessment’s Central Scenario.

The deficit falls dramatically next year and in 2022, before settling down to a slower reduction.  However, this scenario was based on pre-pandemic crisis spending projections.  These will increase, if only because of elevated unemployment costs.  And introducing a single-tier health service or affordable childcare would require further spending.  Therefore, without any revenue measures the deficit will in all likelihood increase. 

The PfG gives no time-frame for achieving a balanced budget; however, the Government will make clear its plans within a few months: 

‘At Budget 2021 . . .  we will set out a medium-term roadmap detailing how Ireland will reduce the deficit and return to a broadly balanced budget.’

So we will have to wait to assess the Government’s intentions.  The real issue is whether the achievement of better public services, stronger in-work benefits and social protection, and higher investment can be achievable within this falling deficit.  The answer is quite clearly no.  It will require fiscal adjustments – notably tax increases.

Investment and Debt

We get only some insight into the Government’s ‘investment’ plans.  They have proposed a National Recovery Fund which appears to represent the stimulus part of the PfG for the next two-three years, diminishing as the economy grows (which is to be expected from stimulus expenditure).  However, not all of the Fund’s expenditure will be investment; much of it could be continuing the Temporary Wage Subsidy Scheme and other current spending initiatives.

One concerning aspect of the PfG is its treatment of windfalls to the state:

‘We will use any windfall gains, such as the National Asset Management Agency (NAMA) surplus, the final resolution of the liquidation of the Irish Bank Resolution Corporation (IBRC), or the sale of the state shareholdings in the banks, to reduce our borrowing requirements.’

Why?  Does it really make sense to pay down debt (i.e. save) when there is a crisis?  One would have thought these windfalls would be ideal resources for the temporary National Recovery Fund.  The picture becomes even cloudier given this article from the Irish Independent (thanks to Conor McCabe for pointing this out):

‘Finance Minister Paschal Donohoe said yesterday that spending cash windfalls makes sense when the alternative would be to increase borrowing.’

Absolutely.  But where does that leave the PfG commitment above?

Again, we will get a better sense of the Government’s intentions in Budget 2021.  But for comparison purposes we should note that in last year’s budget the Government intended to invest  €50.5 billion in the five years 2021 to 2025 (or €39.4 billion up to 2024 – I’ve estimated up to 2025 based on trend).

This €50 billion investment envelope was projected at a time when the economy was in danger of over-heating.  Given that the economy will have a lot of slack, we should expect the investment envelope to increase; or at the very least, be maintained.  Any new green stimulus investment should be additional (otherwise we’re robbing Investment Peter to pay Investment Paul).  We won’t be able to assess this until the Government’s projections in October..

Taxation

There are three distinct taxation categories in the PfG

(a)          General Taxation

The PfG states:

‘We will utilise taxation measures, as well as expenditure measures, to close the deficit and fund public services, if required. In doing so, we will focus any tax rises on those taxes that tax behaviours with negative externalities, such as carbon tax, sugar tax, and plastics.’

The focus is on taxing environmentally-damaging activities which, while desirable, is inherently regressive.  Without some compensating mechanism, low-income groups will disproportionately carry the burden. There is also reference to increasing taxes on vaping and a review of motor taxes to capture nitrogen oxide and sulphur oxide emissions.

On the other hand, the Government has stated that income tax, USC, property tax (with minor exceptions) and corporation tax will not be touched.  Yet, these are progressive taxes.

In addition to freezing progressive taxes there are particular taxes mentioned with a view to cutting them (or increasing the tax break):

• The 3 percent USC surcharge for high-income self-employed
• Increase in the Earned Income Tax Credit (Self-employed)
• A cut in the Capital Gains tax
• Increase in the Home Carer Tax Credit
• Tax changes to facilitate remote working
• Tax changes to facilitate dairy enterprises in a volatile market
• Review the taxation environment for SMEs and entrepreneurs, with a view to introducing improvements
• From 2022 tax credits and tax bands credits to be indexed in line with earnings

This doesn’t mean all these will be implemented.  After all, this is a review, examine, consider and assess PfG which in many cases doesn’t give firm commitments.  However, the programme indicates intent.  The cost of some of these cuts would be significant, even factoring in the pandemic’s impact on fiscal performance:

• Abolishing the USC surcharge would cost €125 million.
• Capital Gains tax is currently set at 33 percent. Each percentage point cut would cost €32 million.  Fianna Fail’s manifesto pledge to cut capital gains tax to 25 percent would cost €256 million.
• Indexation of tax credits and allowances of 1 percent (that is, earnings rise by 1 percent) would cost €364 million.

These are serious tax cuts.  The story here is that regressive tax increases could well end up financing tax breaks, some of which would benefit the highest earners.

(b)          Carbon Tax

The PfG estimates the revenue over the next decade from increasing the carbon tax (by €7.5 per tonne each year up 2030) to be €9.5 billion.  This sounds like a lot money and it is, though it will only amount to approximately 1 percent of total spending during that period.

The PfG will ring-fence carbon tax revenue for three areas:  €3 billion for ‘targeted’ social protection measures to prevent fuel poverty; €5 billion for retrofitting; and €1.5 billion to encourage sustainable farming. 

The revenue will be spread out over 10 years.  But it will take a number of years to accumulate a significant sum in any one year.  From my own - admittedly back-of-the-envelope calculation - 45 percent of that €9.5 billion will only be realised between 2028 and 2030 inclusive.  So it will take time to accumulate.

(c)           Social Insurance

 ‘Consideration will be given to increasing all classes of PRSI over time to replenish the Social Insurance Fund to help pay for measures and changes to be agreed including, inter alia, to the state pension system, improvements to short-term sick pay benefits, parental leave benefits, pay-related jobseekers benefit and treatment benefits (medical, dental, optical, hearing).’

This is a positive proposal, a potentially decisive step towards a European-style social protection system.  Increasing employers’ PRSI opens up the possibility of enhancing in-work benefits such as Illness Benefit, Maternity Benefit and other family supports, and short-term unemployment payments.

However, except for carbon tax, the issues of taxation and social insurance will be kicked into a Commission on Welfare and Taxation.  This is not necessarily a bad thing (though we had a tax commission reporting back in 2009).  A Commission that looks in detail at all aspects of taxation and social protection could be a useful exercise.  However, there is a caveat:

‘It will review all existing tax measures and expenditures and have regard to the taxation practices in other similar-sized open economies in the OECD. It will have regard to the principles of taxation policy outlined within this document (i.e. PfG).’

If it has regard to similar-sized open economies, then the Commission will be looking at how to substantially increase taxes.  However, if it has regard to the principles in the PfG, it will be hamstrung given that the PfG has shut off so many areas for tax increases. 

* * *

Here are some very tentative conclusions;

• The PfG is committed to a ‘broadly’ balanced budget but we won’t know how quickly it intends to achieve that until October. If the trajectory follows the Fiscal Council’s Central Scenario, we will need a substantial increase in revenue to significantly improve public services and social protection.

• Windfalls from NAMA, IBRC and the sale of bank shares will be used to pay down debt, not for investment (maybe)

• We won’t know the extent of the medium-term investment programme for a few months. But if it falls below €50 billion out to 2025, it will constitute a cut compared to previous projections.

• There is little evidence that the PfG envisages a stronger social state. This would require a substantial increase in revenue to significantly improve public services and social protection, unless it is intended that social insurance do all the heavy lifting.  Issues such as Sláintecare, housing investment, Just Transition measures and education investment are either postponed, kicked into touch or reliant upon a Commission report.

• General taxation measures are unlikely to raise significant net revenue, especially given the references to potential tax cuts. The Carbon tax is a positive but could end up being highly regressive without compensation measures.  In any event, most of the revenue won’t accrue until the latter half of the decade.

The above has tried to follow the money but it hasn’t gotten us very far. There are few details.  However, the few indications in the PfG would suggest is that while we might increase spending, we will still labour under our historical low-tax status.

Hopefully, the incoming government will start to answer these questions soon.  Otherwise, James Connolly and Che Guevera will have to reconsider their support.

A Seedy Little Tax Cut

It is not the biggest issue in the Programme for Government (PfG).   But sometimes small proposals can speak volumes.  So what are we to make of the following commitment in the PfG?

‘The 3% USC surcharge applied to self-employed income is unfair and proposals will be considered to ameliorate this over time as resources allow.’

Reading though the lengthy document one might miss this or fail to grasp exactly what it entails.  After all, the 3 percent USC surcharge is not the subject of much political discussion – indeed, none at all.  Most would not be aware of it.  It is a minor tax.  But it’s one that is paid exclusively by the highest income earners in the economy – a 3 percent surcharge on self-employed income in excess of €100,000.

‘Proposals will be considered to ameliorate this tax over time  . . .’  Hats off to whoever came up with the word ‘ameliorate’.  We don’t cut taxes anymore.  We ‘ameliorate’ them.  And this amelioration would constitute a significant tax windfall to the highest income groups in the economy.

The surcharge originates in Budget 2011, which introduced the Universal Social Charge while abolishing the complex interaction of the income levy, health contribution and PRSI ceiling for PAYE employees.   This created an anomaly.  Prior to the budget, high-income self-employed paid a higher marginal tax rate because they didn’t have a PRSI ceiling (that is, they paid PRSI on the entire income).  When Budget 2011 abolished the ceiling for PAYE taxpayers, this resulted in a significant tax break for very high-income self-employed visa-a-vis those in the PAYE system (my post at the time highlighted this anomaly).

To fix this anomaly and return the situation to the pre-Budget 2011 status quo, the Government quickly amended their proposals and introduced a 3 percent USC surcharge on self-employed incomes above €100,000.  And that’s where things stand now.

Let’s do some quick stats, but note that these are probably overstated because the Revenue Commissioners treat married coupls and civil partners as a single tax unit.

• There are approximately 46,000 self-employed (including couples) whose incomes exceed €100,000
• They earn, on average, over €200,000
• There are 7,600 ‘cases’ (including couples) that earn over €275,000 – they average over €500,000 a year

Here are some examples of the tax benefit of abolishing the USC surcharge for those on high incomes:

Someone on €500,000 a year would gain €12,000 if the USC surcharge was abolished.  That’s a serious tax cut.

And how much would it cost the state to abolish (or fully ‘ameliorate’) the USC surcharge?  €125 million.  It’s not much in the grand scheme of things but neither is it small change.

Why would the new tri-party coalition consider cutting this surcharge?  It certainly can’t be because it is a disincentive to work (a common justification for cutting taxes).  Nor does the explanation lie in ‘promoting entrepreneurship’ (are these high earners going to work harder after the tax cut?).  And it certainly isn’t because it would be counter-cyclical.  These people would save, not spend, their tax windfall.

Maybe it’s because, as the PfG describes it,  ‘it’s unfair’.  There are two responses to this.  First, the self-employed are advantaged in the PRSI system.  They pay 4 percent PRSI contributions and now receive most PRSI benefits.  However, for employees the contribution rate is 14.75 percent - divided between employees (4 percent) and employers (10.75 percent).  Yes, employees pay the same rate.  However, if employers’ PRSI were abolished, wages would rise (mirroring the high-wage Danish experience which has no social insurance system).  Therefore, employees pay more through reduced wages.  Most European countries address this by charging the self-employed a contribution rate somewhere midway between the employee and employer rate.  We don’t do that here. The USC surcharge can be seen as a small nod towards equal treatment.

But, secondly . . . well, there are a lot of unfair things in this economy:  unemployment, poverty, business closures, growing arrears and debt.  Is the USC surcharge on incomes above €100,000 really in the same category?  Even if we were to concede it is ‘unfair’ (and I just can’t) then you would, at least, put righting-this-wrong at the back of the queue – the very back. 

There are many things we should ameliorate (cut) first:  ameliorate homelessness, ameliorate health waiting lists, ameliorate high rents, ameliorate joblessness, ameliorate workplace exploitation, etc. etc. 

The 3 percent USC surcharge is not one of them.

A Steeper Climb for Ireland

Ireland may well find it more difficult to restore the jobs lost during the emergency lockdown than most other high-income countries.  This is due to our over-reliance on sectors that are and will be the worst affected; not only because of the pandemic emergency but because of pre-crisis trends.   

First up is the hospitality sector.  Its reliance on foreign tourists and the impact of social distancing means it will restart slowly and may take over a year to recover.  With permanent changes in consumer behaviour, there is a good chance it will never be restored to levels that existed prior to the crisis.

We can estimate the damage to the Irish economy relative to our EU peer group by looking at the importance of hospitality in employment.

Market employment primarily refers to private sector activity.  Irish hospitality employment makes up 13 percent of total market employment, nearly twice as much as our EU peer-group average. 

Of course, there’s a good reason for a high level of hospitality employment.  For many foreign tourists, Ireland is a more appealing destination than Finland.  However, Austria has an even higher level of tourism but doesn’t rely as much on hospitality employment as Ireland, while France has tourism levels close to Irish ones (measured as tourists per capita) but with much lower jobs reliance in hospitality.  Whatever the reasons, the challenge of employment – or replacement employment – for a sector that will be hit hard over the medium term will be considerable.

We see a similar pattern with retail employment – another low-paid sector.

Again, Ireland leads the table although the gap with other countries is not as pronounced as with hospitality employment.  The retail sector faces particular challenges beyond overcoming the lockdown legacy.  Even before the crisis the sector was coming under pressure from online sales and automation.  Like hospitality, retail – especially non-food retail - is exposed to discretionary spending, so falls in disposable income will have a disproportionate impact.  Factor in commercial rents in major urban areas, and we have a sector under pressure on a number of fronts.

It should be noted that not only are these sectors low-paid, they are also heavily gendered.  Nearly 40 percent of women working in the market economy work in hospitality and distributive sectors.  If these sectors take a hit over the medium term, it will be women who suffer disproportionately.

One doesn’t have to be an expert in labour market economics to see the potential problems this will throw up.  If, for instance, hospitality is slow to resume normal business and there is a permanent loss of jobs (there were 170,000 employed in the sector prior to the crash), then the competition for what jobs become available will be intense.  We could see wages and working conditions being squeezed in a race-to-the-bottom.  This is all the more possible given the lack of sectoral or firm-level collective bargaining which could act as a bulwark against any degrading of working conditions (it’s noteworthy that the Tourism Recovery Taskforce has no employee representation). 

Many will call for supply-side strategies to tackle this employment shortfall; that is, retrain and upskill workers previously employed in hard-hit sectors.  That certainly would help.  However, there are two problems with this.

• First, Ireland doesn’t devote a lot of resources to active labour market policies.  Many other countries spend more.  Belgium, Denmark, Austria, France and the Netherlands all devote more than 2 percent of GDP on activation programmes (which include education, training and other supports).  Ireland spends closer to 1.5 percent (in GNI*).  That may not seem like much of a difference but it represents more than €500 million.
• Second, supply-side strategies assume there will be no demand-side problems.  However, we could retrain, re-skill and re-educate but if there are no alternative jobs to fill, unemployment will remain high while competition for what jobs are available will intensify.

There is no simple answer here.  The Irish domestic enterprise base has been dogged by stagnating productivity, and while continued foreign investment is welcome (and needed) it is unlikely to fill the gap of a sluggish recovery in low-paid sectors - if only because of a sizeable skill mismatch.

Historically, the Irish private sector has been attracted to property/construction or low value-added sectors.  We, of course, must create incentives to direct private investment in high-road enterprises but will that be enough?

We should start working out strategies of greater public sector involvement in the market (productive) economy – with new and expanded public enterprises, local public enterprises and public-led businesses such as labour-managed enterprises such as workers’ cooperatives. and community enterprises and cooperatives.

We either accept the need for substantial public capital intervention.  Or we resign ourselves to endemic and ongoing unemployment.

From Each Business According to Its Ability . . .

It is commonly asserted that we will have to be innovative, coming up with new solutions to the unprecedented challenges we face.  Of course.  The Financial Times’ Martin Sandbu has come up with such a new solution.  Referencing a policy letter from the Leibniz Institute for Financial Research SAFE, he writes:

‘Meanwhile, some smart new taxes can be introduced. A group of European economists has proposed helping small businesses not through loans, which can leave them overstretched in the recovery, but through grants combined with a later profit surtax — in effect mimicking government equity injections, even for sole traders and family companies.’

In effect, the Government would provide grants to businesses that would be repaid through a tax surcharge.  This would be superior to loans which negatively impact a business’s balance sheets.  Let’s compare a potential tax-based grant system with the SBCI’s (Strategic Banking Corporation of Ireland’s) ‘Working Capital Loan Scheme’.

• The SBCI scheme, open to micro-enterprises and SMEs, would provide loans of between €25,000 and €1.5 million with a maximum interest rate of 4 percent, to be repaid within three years.

• A tax-based grant scheme would provide similar loans but repayments would be based on profits – for instance, a company would pay their normal 12.5 percent corporate tax and then a 5 percent surcharge which would continue until the loan is repaid. Interest could be a marginal 0.5 percent.

The advantage to the business is that it wouldn’t be carrying debt, would only repay the loan when it was in profit, would spread out repayments as long as it took, and - if inflation exceeds 0.5 percent - the loan would be effectively written down over the medium term.

The advantage to the state is that it would recoup some of the subsidies to the business sector.  This would set up a revenue stream in the years ahead, though it wouldn’t recoup all the grant money as many businesses would still go under.  Nonetheless, effectively interest-free grants to be repaid over the medium-term and only out of profits, would increase the number of companies that survive.  Indeed by subjecting grants to a tax surcharge, the state can invest more in business supports.

Brian Keegan writes in the Sunday Business Post (pay-walled) of the bewildering range of business supports:

‘There are at least a dozen state-supported funding options announced from the Covid-19 working capital schemes to the SME credit guarantee scheme . . for many businesses owners struggling to deal with the day-to-day practicalities of handling a collapsing business, the range of options, terms and conditions can be bewildering . . . We need simple and quick supports to cope with the Covid-19 unemployment crisis, not a complex new industry of loans, grants, tax breaks and deferrals.’

Business groups are certainly not shy in making demands on the Exchequer:

‘Retail Excellence wants the Government to waive local authority rates for 12 months, give grants equal to 60 per cent of commercial rents for the period of the emergency, offer zero per cent loans for all impacted businesses as well as putting in place a Covid-19 compensation scheme.’

Without commenting on the efficiency of any particular proposal, far-ranging business supports will be needed.  Retail Excellence’s proposals could be easily wrapped up in an omnibus tax-based grant system.  We now have an opportunity to rationalise business supports into three main schemes:

• Equity provision for large companies, whereby the state gets a stake in a company in exchange for equity investment
• Tax-based grants as outlined above
• Direct, non-repayable grants (e.g. Temporary Wage Subsidy Scheme)

Rationalising and funding the schemes to the extent necessary to save as many businesses as possible has now become urgent.  It will be more equitable and efficient (e.g. avoid loading debt on business) if we adopt the following principle:

From each business according to its ability to pay, to each business according to its need.

Raising Tax Revenues and Raising Taxes

The Sunday Independent headline was certainly dramatic:

‘Reality bites: Watchdog warns on tax hikes and pension age as recession kicks in’

The article featured comments by the Chairperson of the Irish Fiscal Advisory Council Sebastian Barnes which, on closer reading, weren’t as dramatic.  But it nonetheless raises the issues of how we are going to fund the economic and social repair job once this emergency is over; never mind the increase in investment  necessary for not-for-profit housing, a fully universal health service, affordable childcare and, not least, a Green New Deal.

Here I just want to focus on one issue; how we can increase tax revenue without increasing taxes.  For this we need to go outside the usual fiscal box and look into a recent paper written by Paul MacFlynn of the Nevin Economic Research Institute, ‘The Impact of Collective Bargaining on pay in Northern Ireland’.  This is not a paper about raising taxes.  It concerns industrial relations. But the implications of the findings could have a positive benefit on public finances.

Paul shows that there is a pay premium for those workers who bargain collectively with their employer; that is, those who bargain through a single agency – usually a trade union.   These workers earn, on average, 13 percent more in pay than those employees who bargain on their own with their employer:

‘ . . . workers negotiating as a collective are able to mimic or replicate the unity that employers have when they negotiate with their workforce. The market logic is that in any transaction, the power lies on the side with the least number of participants.’

Of course, the situation in the Republic could be different.  A similar study might not find a similar premium level.  A significant difference is the presence of multinationals, though Eurostat reports that in the multinational sector the average wage, including employers’ social insurance, is lower in the Republic than in any EU country in our peer group. 

The OECD estimates that 33 percent of Irish employees are covered by collective bargaining agreements.  Approximately half of this would be in the public sector.  So we would find only a small proportion of private sector workers covered under collective agreements – certainly fewer than one-in-five.  Let’s assume there is a premium of 10 percent, the level found in this study. Were collective bargaining to be extended throughout the private sector, the level of wages would rise.

This is all pre-crisis but the point is nonetheless valid even if the magnitude is different:  collective bargaining raises wages.  And with that, tax revenue.  This can be seen in the labour share - wages as a percentage of national income.  In this measurement Ireland comes up short.

Were the wage share to rise towards the average, we should expect tax revenue to rise.  In 2018, Irish employees paid, on average, 28 percent of their wages in income tax, USC and PRSI.  If this held as wages rose, a one percent increase in the labour share would increase personal tax revenue by €400 million.

This should be seen as indicative.  One would have to factor in the distribution of the wage increase (towards the low-paid or the high-paid); and the impact on profits and investment.  However, this doesn’t take account the positive impact on consumption taxes (VAT).  And as Paul and Tom McDonnell point out, there is a link between collective bargaining and productivity, which means that rising wages are not zero-sum.  Companies engaged in collective bargaining benefit from the increased productivity. 

‘Seeking these types of pay increases is more likely to be associated with agreements on upskilling and innovation, which provide benefits to the firm as a whole. In this sense, collective bargaining provides a route for firms to boost wages without suffering competitive loss to firms who do not follow their lead.’

Another way the economy would benefit would be the ability of collective bargaining to reduce precariousness in the workplace.  Precariousness costs the individual worker and the economy at large.  Workers with uncertain, intermittent income find it hard to forward-plan their expenditure, limiting their full participation in the consumer economy.  This leads not only to in-work poverty, it also leads to reduced tax revenue and higher social protection income supports. 

Coming out of the lockdown we will need every fiscal edge we can find.  Extending collective bargaining to every workplace where employees so wish  can help maximise the gains of the recovery and the substantial subsidies that will be provided for business.  The last thing we should do is squander public subsidies as we did with the VAT reductions for the hospitality sector in the last crisis. 

Collective bargaining is a win-win-win process – higher wages and tax revenue, higher productivity and reduced precariousness.  Providing every worker with the right to bargain collectively with their employer would have a verifiable and beneficial impact on public finances.  Paul makes the point that:

‘Collective bargaining thus represents one of the few policy levers that government has in order to increase wages and ultimately the labour share of income.’

The same could be said for increasing tax revenue.  And this without increasing taxes.

Agents of Recovery

The low-paid, the precarious worker, the gig worker and temporary agency worker, the under-employed, the undocumented and the marginalised in the labour market:  these are the women and men we now recognise as vital agents in networks delivering essential goods and services in these crisis times.  Where we once, as a society, assumed such poor quality employment was the inevitable result of new business models or low value-added sectors or the competitive nature of markets, we are starting now to see such work and these workers differently. 

And as we begin the long unlocking of the lockdown we have an opportunity to assign these men and women a new role; namely, agents of recovery.

The Government projects that consumer spending will fall by 14.2 percent.  To put that in perspective, in the worst year of the last crisis – 2009 – consumer spending fell by less than 5 percent.  The Government projects consumer spending will bounce back next year – by 8.7 percent; however this will still leave it at 93 percent of 2019 levels.  We certainly won’t see a full recovery until at least 2022 and possibly 2023.

Even when the current emergency has passed (bearing in mind that there is no permanent exit without a vaccine), consumer spending may struggle.  Large numbers of people will be out of work (and, so, unable to spend much).  Even those in work may be reticent to spend – especially in discretionary sectors such as hospitality due to fears of a second wave or of lack of social distancing.  Fear and behavioural change may undermine a consumer recovery for years.

Driving a consumer recovery will involve many elements; in particular, privileging the ‘spenders’ - those who have a high propensity to consume.  This means privileging lower-income groups and average income households with children.  If you give €100 to someone with a low income they are likely to spend all of it; a high-income earner is likely to save some if not most of it.  In uncertain times, it makes sense for a household to save but that doesn’t help the overall economy.

This goes further than just redistribution.  It is about giving those on low pay and precarious contracts the tools to effect this progressive distribution.  Let’s look at some of these tools.

Collective Bargaining

Collective bargaining has been shown to lift wage floors for the low-paid.  The ability of employees to come together to negotiate with their employer strengthens their bargaining power which, in turn, contributes to higher wages and better working conditions than would have prevailed under individualised or market-based bargaining.

Collective bargaining could be extended throughout the economy in two ways:

• Provide every employee with the legal right to bargain collectively; where a substantial number of employees in any enterprise opt for this method of bargaining, the employer must acknowledge this and engage

• Establish sector-wide bargaining where representatives of employees and employers negotiate wages and working conditions across a sector (e.g. retail, hotels, agriculture, food manufacturing, etc.). This would protect both workers and ‘good’ employers from businesses that use low-road business models (reduced wages, working conditions) to gain a competitive edge.

Such a model, which prevails in many European countries, provides flexibility (sectoral agreements can be adjusted at enterprise level to take account of local business conditions) and promotes productivity through high-road strategies (shifting emphasis on to product and service quality, innovation, customer satisfaction, and investment).  Most of all, it lifts the wage floor for the lowest paid, providing additional income for ‘the spenders’.

Precarious Contracts

If people experience uncertain income they cannot plan their expenditure and, so, cannot fully participate in the consumer economy.  Collective bargaining can address many of these issues at sector and enterprise level, but there will still need to be policy interventions.  Given the range of contracts, there is no magic bullet to solve precariousness but here’s one small example.  Bogus self-employment, whereby employees are treated by their employer as self-employed (to avoid higher social insurance payments, holiday pay, etc.) has long been a feature of the construction sector but is now spreading to other sectors.  This deprives employees of benefits while the state loses out on social insurance payments.  In effect, this is an attempt to drive down wages and income. 

A very simple rule could be introduced:  all employment contracts are considered a standard employer-employee contract unless the employer, with the agreement of the employee, can show that it is truly a matter of self-employment.  If they can’t do that, with reference to Revenue Commissioner and Department of Employment Affairs and Social Protection guidelines, then the contract is assumed to be standard. This would set a new floor for workers in sectors affected by bogus self-employment.

Part-Time Flexibility

Employees should be provided with the flexibility of moving between part-time and full-time work in an enterprise where the hours become available.  This was the intention of the European Directive on Part-time Employment but it was never fully transposed into Irish law.  This would give workers some autonomy over their working hours, reducing them when they have other commitments (usually caring) and increasing them when they need extra income.

Regularisation

There are an estimated 17,000 undocumented workers (pre-emergency).  These workers are subject to considerable exploitation which has the effect of driving down wages and working conditions for all employees at firm or sectoral level.  Alan Desmond, law lecturer at the University of Leicester, suggests we:

‘ . .  establish a mechanism allowing for automatic transition to legal status for irregular migrants who have spent a specified minimum period of time, say five years, in the state. While such a mechanism may justifiably be accompanied by requirements like the absence of a criminal record, such limitations should be few in number to ensure that as broad a swathe as possible of the irregular migrant population can avail of the regularisation measure.’

Automatic and accessible regularisation would remove another low-road element in our business model and help workers to become more fully integrated into the consumer economy.

* * *

These and other reforms – the Living Wage, pay-related social insurance payments, a guaranteed minimum income – would raise the income and living standard floor, privileging low-paid and precarious workers and, so, boosting a critical aspect of recovery:  consumer spending.

What’s even more important is that these structural reforms would actually give workers themselves the tools to drive the recovery by improving their living standards. 

Orthodox theory suggests that restoring growth – restoring profits, employment, investment and fiscal confidence – will address these issues, but that is patently not the case.  Prior to the emergency Ireland had one of the highest levels of low pay in the industrialised world, while the Nevin Economic Research Institute found that up to 500,000 employees were at elevated risk of contractual precariousness with another large cohort at risk of precarious living standards (in-work deprivation, inability to meet an unexpected expense). 

Orthodox theory is wedded to trickle-down economics.  What we need is a new surge-up economics – raising wages, working condition and living standard floors.  And what’s the best way of achieving that?

Give workers the tools and the choice to address their issues – through collective bargaining, precariousness reduction, flexibility, and regularisation.

Do this, and they will become for all of us the agents of recovery.

Reading the Fine Print

The Green Party is currently debating whether to enter government with Fianna Fail and Fine Gael.  There are legitimate arguments on all sides of this question.  However, before making a decision I would strongly advise the Greens to read the fine print; in particular, the fine print of the Stability Programme Update (SPU) – the Government’s latest economic and fiscal projections.

Of particular interest are the fiscal projections, the Government’s estimate of public spending in 2021.  This is a baseline, a product of layering the Medium Term Fiscal Strategy on to the Budget 2020 projections and then adding the impact of the crisis (falling tax revenue, rising unemployment and healthcare costs, etc.).  This baseline reveals the challenge for the Greens and their programme – a programme which emphasises investment to address climate chaos, a new social contract, the housing shortage and other elements of their 17 demands.

Let’s compare the SPU projections with those contained in Budget 2020 (the latter was put together last autumn).  This comparison is useful because it shows the leeway the Government is now giving to the radically altered post-coronavirus economy.   The problem is the Government is not giving much leeway.

In 2020, spending will greatly exceed the Budget 2020 projections – by €5 billion.  This is driven by increases in social payments (unemployment payments, wage subsidy scheme) and healthcare expenditure.  However, in 2021 the SPU pulls public spending back to the Budget projections.

Overall public spending (primary expenditure excludes interest payments) and spending on public services are being pulled back to pre-coronavirus projections.  In fact, when we exclude social payments, public spending under the SPU actually falls below that projected in the budget last year. 

The real question is:  how are people’s demands for enhanced public services, especially a single-tier health service, going to be met using pre-crisis budget projections?  What about the enhanced income supports?  Or a renewed public housing programme?  What about the multi-billion Euro stimulus programme for business that will be needed?   Now, add in a significant Green New Deal investment programme.  All that on the basis of spending projections presented prior to the current crisis.

Then there’s the orthodox mood music.   The Minister for Finance stated in the Dail recently:

‘Our deficit will have to be reduced, our national finances must return to a position of balance again.’

Why?  Why must we ‘return’ to a position of balance?  Even the Fiscal Rules, as orthodox a set of rules you’ll find anywhere, allow for deficits.  The rationale for a deficit-spending strategy is set out here.  Any attempt to pursue a balanced-budget strategy in the medium term will unnecessarily restrict social, environmental and economic investment.

Sebastian Barnes, the acting chair of the Irish Fiscal Advisory Council, writes in the Irish Times:

‘Compared with the 2008 crisis, it should be possible to avoid severe austerity.’

That’s good but note the word ‘severe’.  The acting Chair goes on:

‘There will likely need to be fiscal adjustment to make up for any permanent shortfall of tax revenues . . . but there should also be some space to support demand . . . public investment should be a key part of a new national economic plan . . . Despite the difficult background, universal healthcare, better housing and addressing climate change are all still achievable.  However, these goals require substantial resources to succeed . . . This will require hard political choices about how to fund these policies . . .  Spending will have to be reprioritised between programmes or become more efficient, or the tax burden will need to increase. Someone will need to pay.’

This carefully crafted op-ed has something for everyone:  ‘fiscal adjustments’ (in the last crisis this was code for spending cuts); ‘public investment’; achievable social and environmental goals; ‘hard political choices’; ‘reprioritised’ spending, ‘increased’ tax – ending with the ‘someone will need to pay’.

Nothing in the above is wrong or misleading.  But it shows how amorphous the debate can be – until, that is, we get to the fiscally programmatic.  The word ‘austerity’ will be avoided.  However, that doesn’t mean it won’t feature in other forms.  The SPU projections mirror the projections in the last budget.  And those showed how misleading headline numbers can be.  For example, Budget 2020 projections for public service spending (government consumption) up to 2024:

Public service expenditure rises by nearly 10 percent between 2019 and 2024. That’s the headline number.  However, when we factor in inflation and population growth it falls by over three percent.  This can be called austerity below the radar – using inflation to squeeze spending.  That the Government returned to the 2021 level of public service spending in their SPU should warn us about future trends in the post-crisis environment. 

Let’s bottom-line this:  while many people are rightly saying there can be no return to the old normal (a two-tier health system, inadequate income supports), that’s exactly what these projections are doing.  They are returning us back to the old fiscal normal.

The Green Party will have to make an assessment based on this fine print, below-the-radar reading.  Do they believe the two larger parties are willing to engage in fiscal expansion over the medium term to fund social, environmental and economic investment?  Will there be enough money to fund Slaintecare, improved income supports and a Green New Deal?  And if not, how do the two parties intend to fund these?  Or do they intend to?  Will the two parties hide behind possibilities and eventualities, headline numbers and selective application of the Fiscal Rules?

There is an alternative.  The Fianna Fail-Fine Gael document states:

‘We also recognise the need for a strong Opposition to hold the Government to account – one that can contribute, critique, challenge, and change policies.’

A strong opposition could wield significant influence, contributing to and changing policy. And a strong opposition is the first step towards an alternative government.  If the two larger parties are reliant on independents, an early election becomes more likely. 

And in that alternative government made up of progressive parties, the Greens would be far better placed to ensure that their programme is implemented.  Indeed, they could lead climate justice policy. 

If the Green Party is still unsure, then all they need to do is read the fine print. 

Beyond Fiscal Clichés

The Irish Times headline had a familiar, ominous ring:

“We must not forget coronavirus bill will have to be paid someday”

Donal Donovan went on:

‘Clearly, the deficit will be a huge number and likely to be followed by more significant red ink in 2021.  Who will pay for this? . . . at some stage Ireland will have to pay the bill associated with the virus . . . Payment will come in the form of higher taxes or postponement of otherwise planned expenditures.’

We’ve been here before.  Who will pay for this?  The question is framed in the wrong way.  It is not about who will pay but what will pay.  Cliff Taylor talks about the ‘tough choices to be faced on tax and spending’.  But the real issue is making the right choices.  Neither tax increases nor spending cuts are going to ‘pay’ for the substantial debts arising from the crisis, unless we want to risk an extended period of stagnation.

The ESRI has projected a deficit of €12.7 billion for this year, or 4.3 percent of GDP – but that was early on in the crisis.  The Central Bank has estimated a deficit of 6 percent of GDP, which could work out close to €18 billion. 

We are likely to see a significant reduction in the deficit in 2021 as people return to work.  However, much will depend on to what extent employment and enterprises are permanently destroyed, the pace of the return to work, and progress towards a vaccine. 

There are few estimates about what the economy might look like next year; understandable given the unprecedented nature of the crisis.  The OECD claims that Ireland will be one of the least affected economically by the crisis, given the presence of medical and big-tech multinationals.  However, there could be significant sectoral and regional variations.

The IMF produced a set of projections which look promising if they turn out to be true:

Irish output levels will nearly recover in 2021.  The deficit will return to nearly a balanced budget situation.  And unemployment, while high, will be reduced to single figures.

There is a major caveat.  The IMF uses a global GDP model applied to all countries.  It is not an analysis of the detailed conditions for each country.  So this GDP model could well over-estimate the Irish economy’s resilience. 

Even if the deficit recovers quickly in 2021, we will hear calls to reduce our overall debt levels.  There are few projections for these, but with a €15 to €20 billion deficit this year, and the likelihood of this continuing into 2021, debt will rise.

In the short term, general tax increases and spending cuts of the type we saw in the last crisis will only make the recovery more difficult.  Unemployment will still be high after the emergency.  Households and businesses could fall into debt.  Disposable incomes will be reduced.  And this doesn’t count the demand to maintain the positive features of the Government’s response to the crisis:  a more equitable healthcare system, a fully subsidised childcare system, enhanced income supports. 

Rushing to a balanced budget, never mind a surplus, to pay down this debt would be a mistake.  The best way to repair the economy, build on social equity, and reduce the debt would be to embark on a medium-term strategy of deficit spending.  This might seem counter-intuitive – deficit spending to reduce the debt – but that’s exactly what Ireland did coming out of the stagnation of the 1980s.

Even though the Government ran a continuous deficit over this decade, and the actual amount of debt rose by 25 percent, the debt burden (debt measured as a percentage of GNP) fell substantially.  Of course, one can’t make straight-forward comparisons.  In the 1988/97 decade, government revenue was boosted by a tax amnesty, privatisation proceeds (which actually flattered the deficit), EU funds, and growth rates, especially in the latter half.  Nonetheless, while running deficits, the debt burden fell by 46 percent even as the actual debt pile grew.  Even if growth rates were a third less, the debt would have fallen in excess of what the fiscal rules would have required, if they were operating back then.

It’s actually just common sense.  If growth rises faster than the deficit, the debt burden falls.  Let’s run this through an extremely simple exercise.  Let’s assume that GDP falls back to 2018 levels (€325 billion) and debt increases to €250 billion (or 20 percent above 2018 levels).  Further, let’s assume the deficit runs at 2 percent per year while GDP growth rates are 4 percent (between 2012 and 2018 GNI* averaged nearly 8 percent annual growth).

Over a 10-year period, with an accumulated deficit of nearly €50 billion, the debt burden still falls; and that’s with a subdued growth rate.  One would hope for higher growth, obviating the need for a deficit in each of these 10 years.  Nonetheless, this simple illustration shows that you can reduce the debt burden while running deficits.

And we should also note that the Fiscal Rules, which are for the time being suspended (thankfully), still allow for deficit spending.  And that suspension, along with continued ECB interventions, is likely to continue.  In 2021, the IMF predicts a deficit of nearly 4 percent for the Eurozone as a whole.   

Fiscal policy, however, cannot rely on deficits alone.  It needs to encompass other initiatives such as productive investment, judicious use of our cash balances (estimated to be over €20 billion), shifting taxation on to assets, and increasing employers’ social insurance (but only when we are fully out of the emergency), and collective bargaining rights to raise wage floors.

If we fall back on fiscal clichés, the recovery will be harder, the social damage will be greater, and our ability to vindicate people’s desire for stronger public services and income supports will be greatly reduced.

And if that happens we should at least know that it will be a political, not an economic choice.

What's a Small Party to Do?

All manner of pressure is being put on the ‘smaller’ parties – Greens, Labour, Social Democrats – to sign up to a new Fianna Fail-Fine Gael government.  Some of the reasoning is specious, some naïve.  And some know exactly what is at stake; namely, a progressive government in the short term that excludes both Fianna Fail and Fine Gael.

One of the best descriptions of the current situation came from the Today with Sean O’Rourke programme:  the Fianna Fail-Fine Gael document is a colouring book and smaller parties are being invited to fill in the blank spaces. And that’s the problem: the smaller parties won’t own the book, write the story or even get to draw the picture.

One argument is that smaller parties should enter government to influence policy.  But how do we measure the potential to influence – either to implement good policies, or block bad ones?  Influence is intangible.  It is a political, not an empirical, measurement.  It is not a slide-rule.  That’s why it is so seductive – one doesn’t have to offer any proof of how much or how little.  (By the way, one can substitute the word ‘power’ for influence; you end up in the same space). 

If we use parliamentary seats as a measure of influence, then a smaller party’s influence will be minimal.  The six seats held by Labour and the Social Democrats each would barely fill a corner of a room where Fianna Fail and Fine Gael occupy 72 seats.  Even the Greens would struggle to find space with their 12 seats. 

Another variant of this ‘influence’ argument  is that if smaller parties reject participation in government, this just shows they are not interested in power; they are afraid of making ‘tough decisions’; they want to retreat into the ‘luxury of opposition’. 

Of course, parties should be afraid of making the wrong decisions, tough or otherwise.  However, the best response to the influence argument actually comes from the Fianna Fail-Fine Gael document itself:

‘We also recognise the need for a strong Opposition to hold the Government to account – one that can contribute, critique, challenge, and change policies.’

So even the larger parties acknowledge that a ‘strong’ opposition can influence policy.  Smaller parties can accept the invitation of the two larger parties – and actively participate in building a strong opposition that can ‘change’ policy and ‘contribute’ to policy.  This is not luxury.  This is hard work.

The most effective way to influence a government is to build an opposition capable of winning people over to an alternative set of ideas; one that is ready to replace the sitting government.  Government parties in situ will continually look over their shoulders, steal and borrow from the opposition, in an attempt to appease a public wanting change.  And for many commentators and politicians, this is the real fear.  Not only that a strong opposition will push the centre of political gravity to the Left; but that a strong opposition will eventually form the government.

This is the graph that unnerves conservative forces.  Over the last 40 years there has been a consistent pattern:  loss of support for the two conservative parties, rising support for progressive parties – so much so that in terms of the popular vote and seats they are now almost even. 

Imagine Pearse Doherty in Finance, Eoin O’Broin in Housing, Ged Nash in Enterprise and Employment Affairs, Roisin Shortall in Health, Nessa Hourigan in Environment, Brid Smith in Transport and, from the Independents, Thomas Pringle in Fisheries and Coastal Economies.  There’s always a danger in name-checking because you can’t list all of them – and a progressive government will have a depth and breadth of talent and abilities to draw on: Catherine Murphy, Louise O’Reilly, Catherine Martin, Cian O’Callaghan, Richard Boyd-Barret, Catherine Connolly, Roderic O’Gorman and – from future TDs – Marie Sherlock and Lynn Boylan.  Now put in the party leaders.  And all those I haven’t the space to list. 

This is a powerful and exciting cabinet that could lead a truly transformational government.  And what might have been a fantasy cabinet is now more than just a possibility.  This is what unnerves conservative forces.

]Note:  maybe someone out there in social media land could set up and launch a Progressive Cabinet Builder on-line where everyone could list their preferences in future Cabinet portfolios.  It would be fun, informative and eventually realised.]

In the past, small parties (usually Labour) didn’t have much choice.  Governments were led by either Fianna Fail or Fine Gael.  Small parties participated as very junior partners in an attempt to make the best of a bad situation.  Now, progressive parties can make the best of a good situation.  That’s what unnerves conservative forces.

So what should a small party do? 

• Take up Fianna Fail and Fine Gael’s invitation to help build a strong opposition in order to change and influence government policy

• Work with other progressive parties to build a future progressive government where their influence will be even stronger

• Develop innovative, progressive and popular policies that can challenge all of us to do better, think better

• Elect more TDs – we can’t get enough progressive TDs

• Help push the red line in the above graph ever higher and, so, push the blue even further down

It is likely, though not inevitable, that the next election will be in the short term – within 12 to 18 months.  A Fianna Fail-Fine Gael minority government could be a shaky construction.  The nature of the crisis (absolutely unforeseen back in February) will accentuate the need for alternatives.  The public demand for a new post-emergency government could become irresistible. 

Small progressive parties, like all progressive forces – throughout political and civil society – should start to realise a future that has been a long time coming; not be diverted by colouring books, and build a stronger party so as to make a progressive government a reality in a very short time.

History is beckoning.

The More Things Change (etc. etc. etc.)

‘New economy’, ‘truly historic’, ‘very substantial change’, ‘more left-wing than Sinn Fein’s election manifesto’, a ‘new relationship between the public and private sector’:  like a film whose best scenes are in the trailer, the draft Document produced by Fianna Fail and Fine Gael (Document) was never going to live up to the previews.  But it's even more problematic than that.

Let’s focus on the fiscal issues.  Understandably, given the unprecedented nature of the economic shutdown and the lag in data, the Document is light on specific targets and numbers.  However, what can we glean?

First, there are the usual protestations: ‘sound management of the public finances’ and ‘safeguard the public finances’ and ‘all decisions with regard to our national finances must be fair and sustainable’.   These are logically meaningless.  Is there anyone arguing for ‘unsound’, or ‘unsustainable’ public finances?  It’s like the politician who comes out against crime. 

However, it is an attempt to taint anyone who may, at some future point, disagree with their policies as being ‘fiscally irresponsible.  This provides a potential clue to the future direction of fiscal policy; that is, they are already preparing the ground for down-the-line fiscal ‘consolidation’ (another meaningless term except that it portends austerity).

Not only that:  we can gain some insight into the nature of this down-the-line consolidation from the promise that there will be ‘no increases in income tax and/or Universal Social Charge (USC)’.  This provides a clear signal that future consolidation will be more focused on the spending side. 

The most concerning aspect of the Document is its treatment of the Fiscal Rules:

‘Exercise sound management of the public finances, by . . . [complying] with the EU Fiscal Rules and the Stability and Growth Pact.’

This completely ignores the fact that the current government has actually abandoned the Fiscal Rules.  In the 2018 Summer Economic Statement the Government stated:

 ‘The fiscal rules are currently unhelpful  . . . A full and literal application of the fiscal rules would involve the adoption of pro-cyclical policies not remotely appropriate to our position in the economic cycle.  That is why fiscal space is increasingly an inappropriate concept . . . A literal application of the fiscal rules would damage our economy; that is why policy will no longer be formulated on the basis of ‘fiscal space’.

What’s going on here?  Simple:  when the Fiscal Rules required austerity, the Government implemented them.  When they allowed for higher spending (as started to happen in 2018), the Government abandoned them on the basis that they would fuel over-heating.  Now that we are back in big-spend times, they can be used to justify future ‘consolidation’.  In short, the Fiscal Rules are merely instrumental.

The game is further revealed when the Document discusses policy at EU level. 

• There is no suggestion the Government will argue for reform of the Fiscal Rules – at the very least, the exclusion of investment when calculating the deficit – or their continued suspension.

• There is no reference to mutualising debt between the Eurozone counties, though the reference to ‘work at an EU level to . . .  respond effectively to the COVID-19 Emergency and its aftermath, based on solidarity between Member States’  hints at this. 

• There is no recognition that an active role for the European Central Bank in absorbing national debt is the most economically efficient and socially equitable way to get us through this crisis.

There is no sense at all that the current fiscal architecture at EU or domestic level is an obstacle to recovery.  This, combined with declared fealty to unreformed fiscal rules, does not bode well.    

Already, Cliff Taylor is worrying about the cost of the commitments.  He’s not the only commentator with such concerns.  However, there is also consensus that the Document is ‘aspirational’.  Therefore, many are missing the point – because an aspiration has little cost;  though it can provide hostages to fortune. 

For instance, one can worry about the cost implication of the Document’s commitment to place ‘the State firmly at the centre of the Irish housing market’, but the best palliative for this is to read the rest of the section on housing which has little that is not already policy.  The only exception, and a welcomed one at that, is the prospect of a constitutional referendum on property rights arising out of a commitment to reduce the cost of land.

As curious as the idea that aspirations have cost is the notion that this is somehow a ‘left-wing’ document.  Newly elected Labour leader, Alan Kelly, TD:

‘ . . . welcomed the fact that the parties had come around to “a different way of thinking” . . . that they have come around to a different way of thinking on a new social contract and other social democratic policies.’

Personally I don’t see it.  Increased spending is not synonymous with social democracy or any other progressive articulation of policy.  Between 1995 and 2008, health spending more than quadrupled but we still don’t have a European-style healthcare system (i.e. single-tier, free and comprehensive – it took a pandemic to achieve that temporarily).  In the last few years the Government has substantially increased spending on early years and childcare.  But we still have the highest fees in the EU, with some of the lowest-paid workers in the economy. 

The problem with past government policy is not that they didn’t spend money – when they had it.  The problem is that they avoided the necessary structural reforms to achieve efficient and equitable outcomes.

So, the lack of fiscal numbers and targets is not the problem.  The failure to point to the necessary structural reforms is. 

If we want to pursue fiscal stability we will need to shift taxation on to:

• Assets and property, including financial property (or a wealth tax)
• Passive income such as inheritances and gifts
• Capital income and unproductive activities (can somebody please explain how currency speculation, trading in commodity futures, or buying back shares contributes anything remotely related to economic value-added?)
• Environmentally-damaging activities.

We will need higher employers’ social insurance (in the long-term, can’t be done in the short-term) to pay for European-style pay-related benefits for illness, unemployment and parental leave. 

We will need to direct state competition into the private rental sector through cost-rental accommodation – to direct spending and investment away from rentiers to the productive economy.

And we will need to strengthen an unsung plank of fiscal policy – the expansion of labour rights in the workplace.  The statutory right to collective bargaining can increase wage floors and reduce precariousness.  This would have a significant fiscal benefit through increased tax revenue and private consumption.

It is up to progressive parties whether they want to tango with this draft Document for Government.  But, if so, start the dance with eyes wide open.  The idea that they can ‘influence’ or ‘shape’ the final Programme may be enticing. 

But lurking behind the text and aspirations is a fiscal orthodoxy that is waiting to come roaring back – domestically, at Eurozone level and, if this morning’s media commentary is a taster, in the public debate. 

And then what will progressive parties do?

Easter Sunday Morning

‘The words of the prophets are written on the subway walls and tenement halls.’ (Paul Simon)

‘As I went down in the river to pray, studying about the good ol’ ways, and you should wear the starry crown – good lord, show me the way.’ (African-American Slave Hymn)

The first book I read, and the first book that was read to me, was the Bible. The first sin I was taught was the sin of racism. My mother was a fundamentalist protestant Christian.  So was Dr. Martin Luther King.  So much of the progressive politics of my birth-country was rooted in faith – from the pre-civil war Presbyterian abolitionists; to many of the first trade unionists, gunned down by para-military agents of employers; to the founders of the Catholic Worker Movement; and the civil rights movement of the 50s and 60s.  All were informed by a number of sources, and faith was one of them.

Why should we be surprised?  The Old Testament prophet wrote:

‘Those who recline on beds of ivory and sprawl on their couches, who eat lambs from the flock and dink wine from by the bowlful, while anointing themselves with finest of oils – you have turned justice into wormwood and hate the man dispensing justice and detest those who speak with honesty.  You have imposed heavy rent on the people, extorting levies on their wheat. You have sold the poor for a pair of sandals and left the widow and orphan outside the city gate – I will destroy your mansions and all who dwell in them (only a few will escape to carry out the bones).  I do not want to hear your prayers; I do not want to smell your sacrificial feasts. ). I reject your solemn assemblies.  I want justice to flow like a river.  Thus speaks Yahweh.’ (Amos:  5 and 6).

Class war has nothing on this.

So, Easter Sunday. Christians celebrate Jesus’ physical resurrection from death and his return to the creator, his father.   All great religions have similar stories: the Jewish migration from slavery to the Promised Land, Mohamed’s first revelation in the cave outside Mecca, Buddha’s awakening under the Bodhi tree, Krishna’s counsel on the battlefield of life, Lao Tzu’s final advice before he leaves into exile. These stories contain great sacrifice, great defeats and ultimately, great victory. We are, first and foremost, story-tellers and our first stories are those of struggle and liberation.

I may have moved away from my mother’s faith, but maybe because I grew up with it, the Christian story strikes me as particularly thought-provoking. For though there are mythological precedents, in the Easter narrative God (the Word made flesh) actually dies. It is a brave faith that contemplates the death of its deity. No wonder darkness descends, earthquakes rip open the tombs and the dead walk the city (Mathew 27: 51-53).

The first Christian telling of that Easter morning was not, however about how Jesus appeared to the many.  References to Jesus’ physical re-appearance were later textual interpolations. That’s why none of the Gospel writers agree on the main points of what happened after the resurrection: Jesus ascended to heaven on the day of his resurrection or he spent 40 days on Earth;  he appeared in his own form or in many forms; he ascended from Galilee or maybe from Jerusalem;  and so on. Confusion?  Yes. Important?  No.

The earliest Christian manuscript, Mark, actually ends with Jesus’ disappearance, not his reappearance – a more ambiguous but, for me, a more provocative ending. For on that first Easter morning, when Jesus’ mother, Mary Magdalene and Salome went to Jesus’ tomb to perform the death rituals they did not find him there or anywhere else. All they found was a ‘young man’ telling them that Jesus wasn’t there, that he had risen. And what was there reaction? The last line of the original Christian story puts it this way:

 ‘And the women went out and fled from the tomb, for trembling and astonishment had gripped them and they said nothing to anyone, for they were very afraid.' (Mark 16:8)

The Christian faith was rooted in an empty tomb, a cryptic message from an unknown, unnamed man . . . and fear. And who brought this story to the world? Women – who in Biblical times were (and still are in so many places and households) treated as second-class, without rights, chattel. The Christian story of salvation starts with a confused message brought to the world by the marginalised.

Today, people celebrate the evolution of that Easter story – evolved not by hidden or supernatural forces – but by men and women filled with the Good News they now couldn’t wait to spread:  that death has no domain, that the cryptic message is now clear as the darkness recedes; and that our original fear is not only conquered but transformed into celebration.  Or, put another way, we are no longer enslaved.   The lyrics of the African-American slave hymn quoted above contained hidden messages on how to escape – ‘to go into the river’ is advice to use the water to escape the scent of the tracker hounds; the ‘starry crown’ – use the stars to navigate; ‘show me the way’ – get to the Underground Railroad and, so, freedom).

On this Easter morning, so many here and throughout the world will wake up to concern and fear – fear of a virus, fear of losing loved ones and friends, fear of what the future may hold (this is in addition to the millions waking up to hunger and war, exile and dispossession). On this Easter morning, we can choose.

We can hide in our fear, and passively submit ourselves to a future designed by others for others.  Or, coming out of this crisis, we can raise each other up and, like the first evangelists, spread the good news – of prosperity and hope, democracy and equality; from that tomb, that dark space of decay, comes a new light, a new recovery, our recovery where everyone is invited – no one left behind – to collectively rewrite what is now a desultory narrative.

It is our choice.  This is Easter Sunday morning.  It belongs to all of us.

Photo of painting, Harriet Tubman's Underground Railroad, by Paul Collins

Learning from the VAT Cuts

The Sunday Business Post (paywall) reports that Fianna Fail and Fine Gael are discussing various fiscal responses to reboot the economy when the emergency is over.

‘Initiatives such as temporary VAT cuts across a number of the worst affected sectors, rather than just the tourism and hospitality industry, are expected to be in the mix.  The plan will also seek to answer calls from business groups for the write-off of rates bills and access to working capital for business.’

There is nothing wrong with this approach in principle.  We need to get our enterprise base back up on its feet.  The question is:  how can we optimise any incentives, subsidies and supports?  In this respect, we can learn lessons from the last time the Government intervened to boost a sector with the VAT cuts - in the hospitality sector back in 2011.

One of the first things the Fine Gael / Labour government did on entering office was to launch a Jobs Initiative which included a temporary cut in the VAT rate from 13.5 percent to 9 percent.  This was intended to do two things:  reduce prices to incentivise demand, and help repair balance sheets.    These, in turn, were intended to drive hospitality employment and, so, help overcome the jobs crisis at the time.

Temporarily reducing VAT to boost economic activity is a classic Keynesian, social democratic or counter-cyclical tool.  During the crisis one commentator taunted the trade union movement with the success of the VAT rate cut, not realising that it was the trade union movement who had first come up with the idea.

Focussing on the hospitality sector, the headline results were impressive.  Numbers employed in the sector topped out at 147,000 in 2007.  This bottomed out at 113,000 in 2011.  However, from that point, at approximately the same time as the VAT cut, employment rose so that by 2015 it surpassed pre-crash highs and by 2018 – the year the VAT cut was reversed - there were over 180,000 employed.

How much of this was due to the VAT rate cut is open to debate.  For instance, the number of visits to Ireland from abroad fell to 6.1 million in 2010.  This started rising in 2011 and by 2015, the numbers increased to 8.6 million.  By 2018 this rose again to 10.6 million.  The hospitality sector benefitted from foreign demand (that is, it was reliant upon the spending capacity of people from outside the country).  Most of this increased foreign demand would have been down to rising incomes and consumer confidence in other countries.

Nonetheless, we can be reasonably satisfied that the VAT rate cut was helpful, even if we can’t quite identify its precise contribution to employment growth.

However, within the sector, there are some issues to consider. According to the CSO, value-added in the hospitality sector rose significantly after the VAT cuts.   

Value-added rose by 28 percent in the period between 2009 and 2018 while wages stagnated, rising by less than 4 percent (this was a third of the rise in the overall private sector).

Eurostat reports that, in 2008, profits made up 7 percent of value-added.  After going into negative territory during the height of the recession, profits started rising in 2012, going from four percent to 24.6 percent in 2017.  Meanwhile wages stagnated, rising only 3.7 percent during this same period.

We can see a similar pattern of profit growth in industry surveys.  

Crowe Howarth charts the rising level of profits per hotel room.  Profits more than doubled between 2012 and 2018.

The failure to match wage growth with profit growth – so that the benefits from a cut in VAT (which is subsidised by everyone) are spread out evenly – not only constitutes a social inequity and industrial injustice.  It imposes costs on the public and other businesses as well.

• Suppressing wages means less tax revenue (income tax, PRSI, consumption taxes) and higher social protection costs (Working Family Payment, Part-Time Unemployment Benefit).

• Consumer spending is hit – not only by low wages but by precarious work contracts where income is uncertain from one week to the next. This has a negative impact on other businesses that rely on workers’ purchasing power.

In short, by suppressing wage growth companies in the hospitality sector externalised, or imposed, costs on to other sectors of the economy, so that they could grab ever-higher profits. 

Cutting VAT rates remains a potentially beneficial strategy in reviving economic activity.  However, the strategy will be costly and inefficient if it follows the pattern of the last VAT cuts.  How can we make it better? 

We can make it better by ensuring that workers in these sectors have a voice at the table, by creating sectoral collective bargaining bodies in those sectors directly benefitting from any proposed VAT cuts such as hospitality, retail, business services, etc.  Representatives of employees would negotiate an agreement with employer representatives covering issues such as wage increases, overtime, pay scales, working conditions (e.g. health & safety) and contractual certainty (e.g. secure hours, minimum hours, secure income).  Such sectoral collective bargaining should be accompanied by the right of employees to bargain collectively at firm level.  And neither employees nor employers would have the right to undermine these bodies by boycotting them (as is being done currently by employers with the Joint Labour Committees).  This could be done by implementing the principles in the private members bill introduced by Senator Ged Nash last year (now a TD). 

There's also the anti-social behaviour of many hospitality employers - demanding state subsidies but refusing to abide by the state's industrial relations machinery.

We can no longer indulge employers who demand state subsidies but refuse to engage with the state's industrial relations machinery.  VAT cuts must be accompanied by stakeholder justice – the right of employees to participate in the benefit that a public subsidy provides (and which they pay for).  This would ensure such state interventions are socially equitable, fiscally beneficial and economically optimal.

In other words, common sense.

The New Normal and the Old Normal

We’re all fiscal expansionists now.   From the fiscal orthodoxy to the radicals of the Left there is one message:  throw money at it, don’t worry about the deficit, do whatever is necessary and worry about the cost later.  Absolutely correct.  But progressives should now start debating the implications of that ‘cost later’.  Because after the emergency the issue will turn to ‘who’s picking up the bill’.

A good starting point is the ESRI’s current Quarterly Economic Commentary.  While normally these contain forecasts, such is the uncertainty that the authors produced a scenario instead.  For 2020:

• GDP falls by 7.1 percent
• Unemployment more than doubles to 12.6 percent
• The deficit rises to nearly €13 billion with a deficit-to-GDP ratio of -4.3 percent

And the ESRI says this scenario could be on the ‘benign’ side; that is, it could be worse.  They assume a short sharp hit in the second quarter, with the recovery coming on stream in the third and fourth quarters.  However, we don’t know how big the hit will be, when the recovery will start or how robust it will be.  There are assumptions layered on assumptions.  For instance, the ESRI assumes the trajectory of unemployment to be:

The unemployment rate in the second quarter of 18 percent suggests nearly 450,000 unemployed, falling to approximately 260,000 by the last quarter if the national and international recovery starts in July.   However, what happens if the second quarter is worse and the recovery is more sluggish? What if there is no vaccine or effective treatment found by the end of the year?  Will we see another round of infections, isolation and lockdowns?   Even the fear of a fresh round would depress investment and consumer spending, prolonging the recession.

In terms of the budget, what should have been a surplus in 2020 will now be a deficit of nearly €13 billion in the ESRI’s scenario, or -4.3 percent of GDP.   Though the ESRI doesn’t provide a scenario for public debt, we can extrapolate.  Based on the pessimistic Brexit budget projections, the Government estimated a debt level of nearly €200 billion, or 56 percent of GDP (97 percent of GNI*).  They produced new more optimistic projections earlier this year, but didn’t include debt numbers.   However, based on the budget projections, the debt could rise to over 70 percent of GDP and over 120 percent of GNI* under the ESRI scenario.  A return to growth should help to bring this ratio down, but it may be some time before it returns to pre-crisis levels. 

What can we expect?

1)            On the other side of the emergency, the Government will need to engage in another bout of spending to resuscitate business activity. These will be the stimulus measures (the current measures can be better described as ‘disaster prevention’).  Those measures may include investment increases (though this takes time to come on stream), VAT cuts, cuts in employers’ PRSI, continued liquidity to businesses, etc. 

2)            At some point, the argument over fiscal retrenchment will start – to rein in the deficit and debt.  It will be austerity but it will be called something else (‘consolidation’, ‘stabilisation’, etc.).  However, there could be political limits.  For instance, after experiencing a single-tier health system, will people tolerate a reversion back to the two-tier regime and the old normal of waiting lists and over-crowded A&Es?  Will people tolerate the reduction of Illness Benefit from €350 per week back to €203?

3)            Nonetheless, the fiscal orthodoxy will want to use the pre-crisis levels of public spending as a baseline, even if demand-based expenditure (e.g. social protection, healthcare) cannot be easily reduced.  And it is doubtful whether increasing taxation will form a significant part of an austerity/baseline strategy and with some good reason – increasing taxation while an economy is recovering would have the same negative impact it did in the last crisis; but, then, so would cutting public spending.

How should progressives respond?  Some starting points to discuss:

• First, the elevated expenditure on health care and income supports during the emergency – on public services and social protection – are not sustainable on the current tax base.

• Second, in the election some progressive parties proposed substantial tax cuts. These proposals should be scrapped.  There may be room for limited, forensic tax reductions where social equity and economic efficiency can be shown.  But as a rule, tax cuts should be treated as guilty until proven innocent. 

• Third, strategies to make the ‘rich’ and ‘corporations’ pay for the crisis will disappoint. For instance, corporate tax receipts will decline in the medium term.  This was on the cards prior to the crisis.  After the emergency, countries will be even more desperate to find extra revenue.  This will accelerate (and rightly so) the clampdown on international corporate tax avoidance.  Given that we are a beneficiary of such avoidance, this will hit Irish tax revenue. 

And while there is nothing wrong with soaking the rich (or giving them a good splash), higher tax rates on high incomes, withdrawal of tax credits, etc. would make up about 1 percent of total Government revenue.  And a new wealth tax would have to take into account the fact that most wealth is tied up in people’s homes, business and farming assets.  So, yes, increase progressive taxes but don’t think it will be sufficient to fund a new dispensation. 

There are no easy solutions.  A key part of progressives’ response should be to explore all the potential and ramifications of fiscal reform.  In particular, we should develop a medium-term strategy based on deficit-spending that can still reduce the debt ratio.  But this could be hemmed in or curtailed by the return of the fiscal rules and their enforcement by conditional European Central Bank funding.   

However, the response cannot be limited to fiscal measures.  The fiscal is a consequence of the economic, and the economic is the totality of power relationships. 

We need to look at systemic reforms which can lay the foundation for a successful fiscal policy.  At the end of the day, getting a few hundred million Euros from the rich, or even a couple of billion, is not the key question (though, please, let’s have it).  It is the system that privileges the rich – whether we understand that as individuals, corporate and financial institutions, or simply the logic of capital accumulation; that suborns the productive economy to rentier capital; that excludes or marginalises the role of the producers (a.k.a. the workers).

If we want to ensure the new normal doesn’t end up looking like the old normal, this is the territory we must occupy.

Nationalising Dog Walking

Not quite.  But in Portugal the Carnide local authority, a small suburb in Lisbon, is offering a dog walking service for older people who can’t come out due to the coronavirus crisis.   The local authority is also training teenagers online to talk with elderly people who are alone at home and who feel the need to talk by telephone.  In addition, the elderly or chronically ill may request delivery of products from the pharmacy or grocery shopping and the local authority organizes orders and pick-ups. 

These are the stories throughout countries undergoing Irish-style lockdowns.  However, the structure of local government in Portugal has an advantage (shared by many other EU countries but not here):  a structure which is neighbourhood based.  This is part of a multi-layer decentralised system.

There are 18 districts in Portugal.  Below that are over 300 municipalities.  And below that are over 3,000 civil parishes (or Junta de Freguesia).  These civil parishes average have an average population of around 3,400 – though in the urban areas they are likely to be larger while in the rural areas much smaller.  These are no so much local authorities as neighbourhood authorities.

These small civil parishes have elected councillors, offices, employees and a budget (funded by the municipality, of which property tax and national grants are a major revenue source).  Their powers revolve around support for the population in their area and physical improvements (street repairs, cemetery upkeep, etc.).

However, they are in a strong position to help mobilise, organise and support civil society initiatives.  For instance, the dog-walkers in Carnide are local volunteers, organised through the neighbourhood authority. 

Imagine if we had a network of such neighbourhood authorities which could help create networks of cooperation and support – and not just through the bad times.  For instance, my local street held annual festivals – with food (prepared by the residents) and games for children.  However, this relied heavily on the work of one or two people and the organisation was considerable.  A neighbourhood authority could lift some of the burden and expense of organising these and other events.

There are a range of recreational, cultural, musical events that could be held at neighbourhood level.  Training support for young people, local clean-ups, childcare services, supports for small local businesses and cooperatives, sporting initiatives – there are any range of activities that could be initiated by people, using the neighbourhood authority to help them organisationally and financially.

But Ireland doesn’t do well in the local government stakes.  We have the weakest local government system in Europe bar Moldova.  Portuguese local government expenditure is twice the level of Ireland.  In places like Denmark and Sweden, local government expenditure exceeds central government expenditure.  In Ireland, on the other hand, local government makes up only 10 percent of central government expenditure.

Imagine if we had a tier of local government situated at the neighbourhood level – a public authority for every 3,000 to 5,000 residents – which could work with civil society (both organisations and individuals) on any range of activities that boost life quality and social capital, creating layers of support and networks of mutual assistance.

There are many lessons to be drawn from this crisis.  One of them is the capacity of civil society to respond with collective action.  We should reform government structures that provide a stronger foundation for civil society initiatives, working in partnership at neighbourhood level.