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In a nearly picture-perfect setting for a politician in the last days of a pre-official campaigning season, framed by snow, sun and high alps, surrounded by an unctuous cabal of journalists and global elites largely impervious to Ireland’s economic realities, Enda Kenny delivered his new vision for Government. His new Three Point Plan is composed entirely of the remnants of his 2011 Five Point Plan with a 2015/16 twist. “Since a new government was formed under my leadership in 2011, we have followed”, chirped Kenny, “a clear plan: fix our banks and the public finances quickly and get our country working again. That plan involved huge sacrifices by the people, but has clearly worked. Since the end of the bail-out in 2013, our economy (real GDP) grew by 5.2% in 2014 and is likely to have grown by a further 6.2% in 2015. Unemployment has fallen from a peak of over 15% to below 9%. Government borrowing has fallen from 11% of GDP in 2011 to less than 2% last year”. With his usual smile so full of thoughtfulness and compassion, he went on to add that “the recovery of the Irish economy is now driven by exports, business investment and high productivity, and is diversified across a range of sectors”. As half-truths go, these were pretty much on the money. It’s the economy… stupid Yes, GDP has expanded in the aggregate at a blistering pace. However, in per capital terms (even with massive outflows of migrants out of Ireland over the recent years), Final Domestic Demand (the sum total of household spending, government spending and private and public investment – the measure least polluted by Multinationals (MNSs)’ accounting shenanigans) remains 11% below pre-crisis peak and 40% below the level if the pre-bubble growth trend had persisted up to today. Unemployment has fallen significantly over time, but Ireland’s labour-force participation rate was 60.5% in the third quarter of 2015 (3Q 2015), virtually unchanged on 60.4% in 3Q 2011 and down on the 62.8% average for the pre-crisis period. Actual unemployment – according to the latest CSO data – stands at 9.3%, which is somewhat different from the “below 9%” claimed by Taoiseach. The Government is keen on citing the 137,400 new jobs added in 3Q 2015 compared to 3Q 2011, while forgetting to note that the current total level of employment is still 186,600 short of that for the same quarter in 2007. All of these missing jobs are accounted for by employees (155,500 short) and self-employees with employees (29,000 short). Meanwhile, stripping out people in self-employment with no employees and those assisting relatives the actual increase in employment during the tenure of this government falls to 107,100. A good number, but not as good as the boisterous claims from the Taoiseach’s quarters suggest. As to Enda Kenny’s claims that the Irish economy is now being driven by “sustainable” exports and investment, these too constitute a sausage roll: one quarter pork, three quarters fillers. In the first three quarters of 2015 (the only data we have so far), our GDP at constant market prices rose €9.94bn compared to the same period of 2014. Over the same period of time, exports More ‘Points’ than Growth The government’s substantial achievement is steadying the public finances by Constantin Gurdgiev GENERAL DELIVERY February 2016 47 net of imports fell €828m. Worse, unaccounted in the above, net factor payments from abroad (the balance between what MNCs expatriate out of Ireland in profits and what Irish companies and households earn abroad) rose €3.25bn. Which means our overall “exports-led recovery” delivered a net loss to the economy of €4.1bn in the first nine months of 2015. The table below sums up sources of growth in Irish GDP. So contrary to Mr Kenny’s assertion, 69% of growth in Irish GDP and more than 103% of growth in Irish GNP in 2015 came from one source: Fixed Capital Formation. This includes investments by the MNCs, the IFSC and aircraftleasing businesses, and vulture funds transacting with the likes of Nama. Our fabled growth also comprises some of the effects of tax inversions, for which Ireland is now well known worldwide. For example: in 2015, the top 5 Mergers and Acquisitions (M&A) deals in Ireland included the Pfizer-Allergan merger with a total value of €143.564bn, Teva Pharma’s purchase of the generic drugs business of Allergan at €35.454bn, Shire’s deal with Baxalta at €29.533bn and Willis Group Holdings’ purchase of some of the assets of Towers Watson at €15.566bn. The only Irish deal was CRH’s acquisition of Holcim & Lafarge’s assets at €7.671bn – outside Ireland, with no real effect on the Irish economy. According to the NTMA, the Irish current account surplus of around 4.3% of GDP over 2014-2015 reduces to 1.6 – 1.7% if we factor out tax-inversion-driven PLCs from our national accounts. Adjusting for intellectual property imports and aircraft leasing (just two distorting factors), Investment contributed 2.7 percentage points to GDP growth in 1Q – 3Q 2015 year-on-year, while net exports contributed only 1.6 percentage points. The balance of 2.6 percentage points accrued to all other sources. Last, but not least, Enda Kenny cited the miracle of Irish productivity growth. Recent analysis from the EU and NTMA shows that Ireland has the largest gap between claimed competitiveness gains and recorded productivity increases of all EU countries. This gap is explained by one simple factor – completely outside the Government control – devaluation of the euro. Other sources of our productivity growth include such ‘organic’ gains as changes in MNCs’ tax optimisation strategies, corporate tax inversions, changes in the mix of goods and services billed through Ireland and so on. Now devaluations work the following way: they improve trading conditions for exporters (predominantly MNCs) at the expense of importers (predominantly households). So based on EU data, Ireland leads the way in transferring real income from its people to foreign multinationals. That is some ‘productivity growth’. Exchequer Bubbly Mr Kenny is on stronger ground when he speaks about our public

In recent months there have been many references by politicians and economic commentators to Ireland having one of the most progressive tax systems in the OECD. These statements reference data from the OECD Taxing Wages database which provides “…an insight into the levels of progressivity in the income tax systems of OECD countries”. However, progressivity in the income tax system is often presented as the tax system as a whole being progressive, but this a different matter entirely. The overall progressivity of the tax system cannot be measured by the levels of income tax alone and a comprehensive overview of progressivity should include the effect of all taxes, charges and tax reliefs that make up the whole tax system. The Irish income tax system is progressive using the OECD method, which means those on higher incomes pay proportionately more tax on their income than lower earners. The OECD method compares the tax liability of a single person earning two-thirds of average earnings (67%) with that of someone with a gross income of one-and-two-thirds (167%) of average earnings. Where the difference between these two tax liabilities is high, the tax system is considered progressive, as those with higher earnings pay more as a percentage of their income than those on lower incomes. In Ireland, the person on higher earnings pays 19.3% more of his/her income on tax than the person on lower earnings, whereas this difference across the OECD is an average of 9.6%. It is important to note that Ireland’s high progressivity score (as measured by the OECD) is a result of having low taxes on low incomes rather than particularly high taxes on high incomes. It is also important to remember that measuring the progressivity of the income tax system in this way, is based on the theoretical level of tax payable and not on Revenue data of the actual amount of tax paid. In practice this means that the OECD data only includes personal allowances and universal cash benefits, which in this case, is child benefit. It doesn’t include tax deductions such as mortgage interest, health insurance, pension deductions or tax relief on investments, which are used to reduce the amount of tax that is actually paid (the effective tax rate). These reliefs disproportionately benefit high earners. These tax reliefs are particularly important in an Irish context because the OECD’s Economic Survey of Ireland 2009 found that the average EU level of tax breaks in the income tax system was equivalent to 5.6% of the total tax take, whereas the equivalent number for Ireland was 18.3%. While many tax reliefs, such as those relating to property development, have been closed off, tax reliefs continue to feature strongly in the Irish tax system. The Tax Strategy Group, for example, in its 2014 report on ‘High Income Individuals’ Restrictions’ found that those with gross incomes of €140,000 to €160,000 had an average effective income tax rate of 25%, despite paying most of their income tax at the marginal tax rate of 40%. The Revenue data shows that while there is progressivity in the Irish income tax system, in that the proportion of gross income that is paid as income tax increases as income rises, the extent of progressivity is significantly reduced by the effects of tax reliefs beyond the basic system of tax credits. Micheál Collins’ analysis of the ‘Total Direct and Indirect Tax Contributions of Households’ in Ireland uses the Household Budget Survey data to estimate total household income tax and social insurance contributions. The lowest 10% of households pay 0.3% of their gross income in income tax, while the top 10% of households pay 23% of their gross income in income tax and social insurance (Chart 1). The average income tax and social insurance is 14%. This analysis shows progressivity in the income tax system, with contributions increasing as incomes increase. The effects of other taxes also needs to be factored into assessing the level of ‘progressivity’ in the tax system. The OECD data relates to income tax, and this accounts for less than half (43%) of the overall tax system. Taxes on consumption account for 35% of the tax system, while taxes on capital account for 22% of the overall tax system. Consumption taxes are also known as indirect taxes and they include VAT, excise duties, levies, local taxes and charges. This type of taxation is regressive, which means that low income families pay proportionately more of their income to these taxes compared to high income families. The lowest income households contributed over 4 times more of their income (27%) to It is important to note that Ireland’s high progressivity score (as measured by the OECD) is a result of having low taxes on low incomes rather than particularly high taxes on high incomes. Going backwards How progressive is the Irish tax system? Something wrong here GENERAL DELIVERY February 2016 51 indirect taxes than the highest income households (6%) (Chart 2). Ireland is more reliant on consumption/indirect taxes than other European countries, with an EU average of 28.5% of revenue coming from this source compared to 35% in Ireland. Micheál Collins combines the effects of direct (income tax and social insurance) and indirect taxation (VAT, excise, levies etc.) (Chart 3). On average, households contribute 24% of their gross income in direct and indirect taxes. The lowest income households contribute 28% of gross income in taxes, most of which is made up of indirect taxes. The highest income households contribute over 29% of their gross income in direct and indirect taxes. Using this analysis, the Irish tax system can be described as regressive, as the lowest income households pay only slightly less tax (as a proportion of their income) than the highest income households. Micheál Collins concludes his analysis by stating “judging tax contributions by income taxes alone offers a limited and misleading picture of the distribution of tax contributions across society.” With the general election campaign in full swing, all of the political parties have set