Economy
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By Caroline Hurley. This Sunday 21 November, the Irish Farmers Association (IFA) is spearheading another grinding Dublin city rally with tractors and machinery, one of a series to spotlight inadequate funding, and lack of government engagement with farmers’ leaders about changes in the Common Agricultural Policy. Farmers are a diverse bunch though, not uniformly represented by one voice, with a growing number welcoming measures they feel should have pertained all along. CAP Reform ‘Around ten million farms employing about twenty-two million workers make the EU one of the world’s leading agri-food producers and net exporters’ The EU’s Common Agricultural Policy (CAP) is undergoing another round of reforms. The EU budget agreement has provided for a total CAP funding for Ireland of €7.4 billion over the 5-year period from 2023 to 2027. The funding is split between Pillar 1 (direct payments and sectoral interventions including 25% for eco-schemes – €5.9 billion) and Pillar II (Rural Development including LEADER programmes – €1.56 billion). The Department of Agriculture (DAFM) has been translating the latest EU schemes into Ireland’s own CAP Strategic Plan 2023-2027 (CSP) for Irish farmers, still in its stranglehold despite environmental and climate measures gaining more purchase, especially with the passing of the Climate Action and Low Carbon Development Bill 2021 and Plan. Climate budgets for the period up to 2030 have just been allocated by the Climate Change Advisory Council (CCAC), seeking a paltry 21% to 30% reduction in emissions for the agriculture sector. ‘Professor John Sweeney of Maynooth University warns that expecting other sectors of society to make up for agriculture’s future deficit in curbing carbon could become an unbearable burden especially given the key impact of lifestock-created methane’ Professor John Sweeney of Maynooth University warns that expecting other sectors of society to make up for agriculture’s future deficit in curbing carbon could become an unbearable burden especially given the key impact of lifestock-created methane. Ireland’s alleged superior efficiency in dairy and beef production and agriculture’s unique economic place, are among counter-arguments cited. CCAC recommended cuts of between 11% to 19% cannot happen without mass mobilisation and conscious behaviour changes. Meanwhile at COP26 have just pledged to cut emissions 30% by 2030. On 20 October, after negotiations, analyses and public consultations, Minister for Agriculture Charlie McConalogue T.D. announced almost 30% increases in overall CSP funding, to rise to €9.8 billion in the 2023-2027 period, along with indicative allocations that would increase funding for Pillar II issues to €3.86 billion with €2.3 billion extra national funding provided. €723m of carbon tax funding has been earmarked for sustainable farming practices through a flagship agri-environment climate measure. 202407_c38f85e8-bd00-4c75-af3b-00ede0271c11 Donning the CAP The CAP evolved from the European Recovery Plan (ERP), lasting from 1948-1952 in Ireland and bankrolled through the American Marshall Plan during the precarious post-World War Two era. Eamon de Valera’s economic policy had stressed self-sufficiency using indigenous resources, in opposition to the globalising vision of larger world powers. During the precarious post-World War Two era. Eamon de Valera’s economic policy had stressed self-sufficiency using indigenous resources, in opposition to the globalised vision of larger world powers. Discouraging insularity, the Keynesian Marshall Plan Plan unevenly funded sixteen European countries with the proviso they would take the technical and economic advice given. According to Professor Bernadette Whelan “the Marshall Plan’s focus on public-private partnership, trade liberalisation, freeing up intra-European payments and trade, market organisation and financial stability were its most enduring legacy reinforcing to-day’s dominant neo-liberal economic ideology”. A seminal essay by Professor JL Sadie, ‘The Social Anthropology of Economic Development’ published in the 1960 Economic Journal, noted: “Economic development of an undeveloped people by themselves is not compatible with the maintenance of their traditional customs and mores. A break with the latter is prerequisite to economic progress…What is, therefore, required amounts to social disorganisation. Unhappiness and discontentment in the sense of wanting more than is obtainable at any moment is to be generated. The suffering and dislocation that may be caused in the process may be objectionable, but it appears to be the price that has to be paid for economic development: the condition of economic progress”. ‘When high wages and time-shortages prevail, the economic advantages of engaging in sustainable local practices are reduced’ When energy is scarce but time and labour abundant, people readily employ Schumacherian ‘small is beautiful’ methods, cultivating organically for local markets, building with earth and natural materials, and rejecting industrial campaigns. When high wages and time-shortages prevail, the economic advantages of engaging in sustainable local practices are reduced. The communal, physical work involved in land-care is usually inaccurately disparaged as unskilled labour but can be highly dignified and creative. Despite the health, social and self-actualisation gains associated with rural occupations, the proportion of a population engaged in agriculture has come to be taken as a measure of how underdeveloped a country is. The CAP has played a big part in fostering this perspective. CAP’s Warp and Woof After the Treaty of Rome established the EEC in 1957, the CAP was launched in 1962 to ensure food continuity under uncertainty and to address rural poverty. Managed by the European Commission’s Department for Agriculture and Rural Development, it became the EU’s biggest and most costly programme. Intended for farmers in all EU countries, the CAP cost €58 billion in 2019. The CAP’s two budget funds are the European agricultural guarantee fund (EAGF) for direct and market payments, and the European agricultural fund for rural development (EAFRD). ‘The CAP cost €58 billion in 2019. The CAP’s two budget funds are the European agricultural guarantee fund (EAGF) for direct and market payments, and the European agricultural fund for rural development (EAFRD)’ The CAP allocates direct income support for wage regulation, intervenes in markets to address situations such as price drops due to temporary oversupply, and funds rural development. Payments are managed at national level. Around ten million farms employing about twenty-two million workers make the EU one of the world’s leading agri-food producers and net exporters. The
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Climate Finance Weak
Climate Finance Week is worthy but can’t mask the fact Irish Finance needs to stop promoting high carbon emitters By John Vivian Cooke In “The Sun Also Rises”, Ernest Hemingway notes that there are two ways to go bankrupt: “gradually, then suddenly”. It is difficult not to draw the conclusion that, for all the earnest recognition of the scale of the climate crisis expressed by individual participants in Climate Finance Week 2021, Ireland`s financial institutions have missed this lesson. At least, that is the conclusion to be drawn from the depressingly modest targets and entirely inadequate timetables that the industry revealed during a week-long series of panels, presentations and seminars. Climate Finance Week Ireland is now in its fourth year and attracts over 5,000 virtual attendees. It is organised by Sustainable Finance Ireland in association with the Department of Finance, and sponsored by AIB. Speakers included Gro Harlem Brundtland, James Cameron, Brian Hayes and Colin Hunt. The conference´s set piece, “Irish Sustainable Finance Roadmap”, was notable for the absence of quantifiable milestone targets to achieve net zero industry by 2050. Instead, the focus was on identifying opportunities for new business and a detailed plan of preparatory actions, dedicated to capability building and consultations to be completed by next year`s conference. It is unsurprising that an industry event, convened to discuss the business implications of climate change, should focus on the opportunities for profit. So there was much talk about the implications of the loss of value of underlying assets held as investments or as collateral due to climate change, and, how best to position Ireland to maximise new business opportunities in financing the transition to a green economy. In this context, individual participants can be forgiven for showcasing their own products and services as the nature of any industry-run event is given to bouts of self-promotion. Some consolation came from the genuine engagement by participants in treating the subject of climate change seriously and from sessions that gave details of the mechanisms by which the financial services industry will respond to the climate crisis. Green Finance There was widespread enthusiasm for the prospect of financing the transition to a green economy. Many participants are planning to develop a full ‘suite’ of green financial products to be marketed at advantageous prices. This is not to be sniffed at. The World Bank estimates that public funds will only cover about one third of the total cost of moving to a global net zero economy with the private sector funding the remaining costs. All parts of the economy will have significant borrowing requirements to pay for this transition and Irish financial institutions are eager to capture some of that business with green loans; green bonds; green equity funds; and climate insurance. But, in moving into the sustainable finance market, the industry is merely ensuring its own continued profitability by responding to market signals of future customer demand. Disclosure and Reporting The obligations on businesses to disclose the environmental and social impact of their business activities was a major theme that emerged. The International Financial Reporting Standards Foundation is expected to publish a global standard at the imminent COP 26 which will bring order to the patchwork of existing reporting standards. Such a global standard for measuring companies` carbon management will allow comparison between different sets of published ESG reports and, moreover, encourage further ESG reporting by removing the need to generate different data sets for different reporting standards. Irrespective of the outcome of COP 26, the EUis pushing ahead with new reporting regulations that update the 2014 Non-Financial Reporting Directive. At the moment, Environmental, Social, and Governance (ESG) disclosures are published voluntarily in response to investor demands or as part of companies’ own ESG targets. However, it was noted that there is currently increased “supervisory engagement” with financial regulators as a prelude to the introduction of formal mandatory ESG disclosure regulations. The Bank of England is in the process of developing formal guidelines and, not only will companies have to disclose their GHG emissions but they will also have to disclose the financial risk to the value of the assets on their balance sheets from the impact of climate change. It was suggested that one possible consequence of similar reporting of financial risk would be the requirement that Irish banks might have to hold greater capital reserves over property they hold as collateral. Capability Building It was made clear throughout the week that Irish finance companies are not equipped to deliver a net zero financial industry in the immediate future. For the moment, they have neither the sufficient staff with relevant skills nor the business support and IT systems to become sustainable finance providers. As seen in the Roadmap, the industry is only in the very initial stages of laying the ground work for this change, and, most are still at the problem-scoping stage; still trying to figure out what sustainable finance would look like before they even begin to start to reconfigure their business models. Sarah Dempsey, Head of Sustainability Communications and Partnerships at AIB, gave specific examples of how this problem manifests itself on a day-to-day basis. The current information systems that AIB uses predate the concept of carbon management and were designed to provide information for financial control and regulatory compliance. As a result, the bank does not have access to data for validating data carbon emissions. For example, a substantial portion of its historic mortgage book is secured by homes that have never had a BER rating. Moreover, its effort to decarbonise its operations has a lag time as smaller suppliers in a complex supply chain do not have the capacity to produce data on their own carbon emissions. In fact, AIB spent the last 12 months mapping their loan book against carbon emissions as preliminary step to designing a carbon management system. That AIB is seen as the leader among Irish banks in sustainable finance shows just
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By Dr Peter Doran, Katherine Trebeck and Dr Tony Shannon. WELLBEING ECONOMY AGENDA FOR PEOPLE AND PLANET “Country marks a commons of earth and elements: a shared ecology of lands and waters”. (Richard Kearney and Sheila Gallagher, 2017) The Green Party may be lining up as relatively junior partners in the new government formation but the Atlantic wind is at their backs when it comes to owning and leading the narrative for a pioneering post-pandemic recovery that places a holistic vision of ‘wellbeing’ at the centre of a new programme for government. In doing so, the new government will find allies in an emerging alliance of wellbeing economy leaders in New Zealand, Iceland, Scotland and beyond. These countries’ leaders have been to the forefront of the response to the pandemic and they will also pioneer transformations for mid- to long-term wellbeing economies as part of a Wellbeing Economy Government network (WEGo). We are calling on Ireland to join other leaders in the Wellbeing Economy Government (WEGo) partnership so that Ireland can collaborate in learning how to ensure its economy works for people and planet: building a new economy fit for the 21st century. We are calling for all government outcomes and budget calls to be measured against agreed wellbeing outcomes with the full participation of all ministers, departments and agencies. New Zealand’s Prime Minister, Jacinda Ardern, has already placed intergenerational wellbeing goals at the heart of her Government’s programme. Ardern says fundamental values pursued by the New Zealand Government are empathy, care, compassion and collaborating for the common good. In her thought-leading book ‘Doughnut Economics: 7 ways to think like a 21st Century Economist’, Kate Raworth explains: “For over 70 years economics has been fixated on GDP, or national output, as its primary measure of progress. That fixation has been used to justify extreme inequalities of income and wealth coupled with unprecedented destruction of the living world. For the twenty-first century a far bigger goal is needed: meeting the human rights of every person within the means of our life-giving planet”. Those profound challenges that Covid-19 herald, offer an opportunity to society, to now build back a wellbeing economy instead of reverting to the same old structures: ‘building back better’ rather than returning to business as usual. Building on ‘The Great Pause’ The new Irish government looks set to emerge during this ‘great pause’ in the global economy. The unthinkable has become the imperative. In our homes, our workplaces, and places of education we have been on an enforced retreat, a time of reflection on what is most important to us. Connections with friends, family and colleagues have never appeared more important. The hidden, under-valued and intimate economy of regard and care – exemplified by the contributions of workers in hospitals and care settings. They are our new super-heroes. Nature has taken a breather, skies have cleared of urban pollution, and climate change emissions are on their way down. Foxes are reclaiming the night streets. Design is the first step to a new system. This applies to our economic systems just as surely as it applies to architecture, so it applies to the way in which we produce our food, our shelter and other necessities. Our societal and ecological crises are, at root, a crisis of value. This moment of pause has brought increasing clarity to the things we value most, we now see how valuable food, health, income security, education, mobility, access to nature, social connection and public services are to us. Our fixation on other measures of value, such as the relic of GDP, does more to obfuscate than inform such vital policy decisions. The root cause of our multiple challenges – of inequality, access to adequate shelter, universal health provision and the climate emergency – is how the economy is currently designed – in a way that does not balance the needs of people and planet and in a way that values measures such as short-term profit and GDP, rather than those broader values that are key to a decent society. These economics structures are design choices from the past – and hence can now be reconsidered and redesigned, for the future. Building Back Better The negotiations on the formation of a new government present a unique opportunity to (re)consider the policies required to ‘build back better’ so that, rather than our society remaining in service to our economy, our economy must serve us and our societal and ecological wellbeing. With international allies in other thought-leading nations shifting towards wellbeing, these negotiations present the next Irish government with a once-in-a-generation opportunity to advance society via positive disruption to the economic status quo, shifting to ‘build back better’ while easing back on the gears of an economic machine designed for another age. We can live well and flourish with some boundaries. In fact some limits are strangely liberating. Signatories Katherine Trebeck, Advocacy and Influencing Lead Wellbeing Economy Alliance; Co-author: The Economics of Arrival: Ideas for a Grown Up Economy; Senior Visiting Researcher University of Strathclyde | Honorary Professor University of the West of Scotland. katherine@wellbeingeconomy.org Dr Tony Shannon, Ripple Foundation, Dublin, Ireland tony.shannon@ripple.foundation Dr Peter Doran, School of Law, Queens University Belfast; Advisory Committee, UK What Works Centre for Wellbeing; Wellbeing Economy Alliance; Co-Convenor of Northern Ireland Roundtable on Wellbeing (with Carnegie United Kingdom Trust) (2014-2015). Author: A Political Economy of Attention: Reclaiming the Mindful Commons. p.f.doran@qub.ac.uk Reference: Ten principles for building back better to create wellbeing economies
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By Edmund Honohan MEDIA ANALYSIS of the EU Commission’s 2016 Apple judgment that Ireland gave the company €13bn in illegal tax aid is half-baked, and the Irish government’s defence even worse. The implications of the judgment are much further-reaching than many realise. The Commission has argued that Apple’s two subsidiary companies in Ireland – ASI and AOE – should have paid Corporation tax here at the full Irish rate of 12.5% on the profits of their businesses between 1991 and 2015. There’s no suggestion from either side in this case that profits on sales of merchandise abroad should be booked abroad and taxed there. In other words, if the EU is right, the entire balance must be paid here and not be subject to some international shareout. The EU Commission’s judgment refers to a 1991 ruling by Ireland’s Revenue Commissioners which fixed AOE’s net profit at 65% of branch operating costs (sic) up to US $50-60m and 20% above that, and ASI’s at 12.5% of branch operating costs. The basis of capital allowances was fixed in the ruling, but not explained. In 2007, for example, ASI’s bill under the 12.5% liability came to $230m; but, in what was described in the accounts as “an adjustment for income taxed at lower rates”, this was then lowered to $8.9m. Ireland doesn’t want any of that money back, but the EU says the adjustments were State Aid to ASI and AOE and, as such, in breach of Article 107 of the Treaty on the Functioning of the European Union, one of the two main Treaties that underpin EU law. To be exact, the EU’s argument is that the accepted accountancy approach to the allocation of profits among companies in a group company architecture was neither followed in 1991 nor in the Revenue ruling in 2007, when Apple sought and obtained assurances from the Revenue Commissioners in Dublin as to the basis on which ASI and AOE would be taxed. The Commission says that all of Apple’s retail business outside of the Americas and Singapore was handled in Ireland, and that the respective head offices of ASI and AOE in the USA were brass-plate addresses with no employees. It adds that any functions performed, or “fictitious remuneration for services provided for free” by Apple Inc employees for ASI and AOE would be outside the scope of the assessment of profit allocation as between ASI, AOE and their respective head offices. In its 300,000-word decision issued in late 2016, the Commission was deeply critical of instances of poor professional quality in the Irish submissions. In paragraph 353, it notes: “at least three of the 52 companies chosen by PwC as comparables are in liquidation”. But it is even more critical of the actions of Revenue, who issued the rulings, stating that “none of the documents provided in support of the contested tax rulings contain either a contemporaneous profit allocation study or a transfer pricing report”. It later says that Revenue “should have at the very least analysed how that branch’s access to the Apple IP (intellectual property), which it needed to perform its functions, was ensured and set up within the company. There is no evidence that such an analysis was ever conducted”. The Commission says that in regard to allocation of profits to Irish branches of non-resident companies for the purposes of applying Section 25 of the 1997 Taxes Consolidation Act, “the profit allocation ruling practice of Irish Revenue demonstrates that no consistent criteria are applied”. But the Commission also cites cases of Revenue applying the arm’s length principle, with a Revenue tax advisor in one case confirming the OECD model as “little more than a restatement of the position under domestic law”. There’s no suggestion here that if a Pear or an Apricot were to come knocking, Ireland could still legitimately offer it the same deal it gave Apple in 1991. Nor does Ireland attempt to approach the case on a collaborative basis, to reconcile differing perspectives. Ireland hasn’t even offered a draft formula for a judgment in its favour, except to say that what we know now about fiscal State Aid was not known then, even by the Commission. The Commission was not happy with an after-the-event attempt to represent the profit allocation as a bona fide group company accounting exercise, with justifiable transfer pricing, holding that “the fact that the costs of the CSA (cost sharing agreement) were allocated to AOE’s Irish branch by Apple itself should have made Irish Revenue question the unsubstantiated assumption underlying the profit allocation methods ultimately endorsed by it”. The Commission goes on dramatically: “Even if Irish Revenue had been right to have accepted the unsubstantiated assumption that the Apple IP licences held by ASI and AOE should be allocated outside of Ireland, which the Commission contests, the inappropriate choice of operating expense and the inappropriately low levels of return accepted by Irish Revenue in the application of the one-sided profit allocation methods endorsed by the contested tax rulings result in an annual taxable profit for ASI and AOE in Ireland that, in any event, departs from a reliable approximation of a market based outcome for their respective Irish branches”. And in relation to a possible derogation if justified by the nature or general scheme of the tax system: “Ireland has not put forward any justification at all for the selective treatment”, and ”the argument (is) put forward by Apple that ‘the( tax rulings) derive from the intrinsic principles of Section 25 TCA 97’, without further explaining how this is to be understood or how this could justify the selective treatment in this case”. While it’s an arguable defence that the Commission’s pursuit of fiscal State Aid is in conflict with Member States’ general autonomy in taxation, the last time Ireland intervened in Court to make that point – in a case against Belgium – the Court gave it short shrift. Ireland has also pleaded that even if the accounting was a back-of-an-envelope exercise
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The revelation that the National Asset Management Agency (NAMA) has failed to disclose “relevant material” to the Commission of Investigation into its controversial sale of its 11.5 billion (£1.24 million) Project Eagle loan portfolio in the North in 2014 will not come as any surprise. Many NAMA watchers have been wondering how the Commission, headed by retired High Court judge, John Cooke, has been progressing given that it is now more than a year since it was established. It took the previous two years to convince the reluctant former Minister for Finance, Michael Noonan, and then Taoiseach, Enda Kenny, to concede to a formal inquiry into the portfolio sale to US fund Cerberus despite the dramatic and shocking allegations of corporate and political corruption that first emerged in July 2015. At that time, Independent TD, Mick Wallace, told the Dáil that a sum of £7m had been lodged in an Isle of Man bank account in connection with the sale and that it was intended for political and business interests associated with Project Eagle. NAMA executives were not exactly forthcoming about the background to the loan disposal and rejected out of hand the conclusions of the Comptroller and Auditor General (C&AG), in September 2016 that the agency had incurred a loss of a potential €223m (£190m) from the sale. The C&AG, Seamus McCarthy, resisted intense pressure from Noonan, the Department of Finance and NAMA executives and board to withdraw his damning report which then formed the basis of an inquiry by the Public Accounts Committee in late 2016. Its report was even more damning of the agency and of Noonan’s role in permitting the sale to proceed despite knowledge of questionable fee payments relating to it. The finance committee at Stormont carried out its own investigation in 2015 to which many of the parties to the deal gave evidence – although the NAMA chairman, Frank Daly and chief executive, Brendan McDonagh declined an invitation to attend as did the senior staff and advisors of the agency most intimately connected to the Project Eagle sale. Although it was essentially a ‘value for money’ exercise the C&AG report highlighted serious conflicts of interest in the sale process, not least relating to the role of Frank Cushnahan, the former member of the Northern Ireland Advisory Committee of NAMA. The C&AG reported that NAMA underestimated the value of the loans, applied too high a discount and had failed to act when it discovered details of some £15m in “success fees” promised to Cushnahan, US law rm Brown Rudnick and Belfast solicitor, Ian Coulter of Tughans by US fund PIMCO before it withdrew from the sale in March 2014. Since then Cushnahan, Coulter and a former head of asset recovery at the agency, Ronnie Hanna, have been questioned by the National Crime Agency in connection with the deal while former first minister, Peter Robinson and his son Gareth, have also come under scrutiny for their role in the extraordinary Project Eagle affair. Hanna and Cushnahan were arrested in May 2016 while Coulter, a former head of the Confederation of British Industry in the North who was responsible for transferring some £5 million to the Isle of Man in late 2014 after the sale to Cerberus was completed was also subjected to a grilling by the NCA team. Property developer John Miskelly who admitted to the BBC some years ago that he had legitimately paid large sums of cash to Cushnahan, and had secretly taped his exchanges with the business consultant, was also arrested in 2017 as part of the NCA probe. Last month, it emerged that charges may now be brought against two of the nine people under investigation and there is intense speculation as to who, if anyone, will finally be brought to account over a property disposal that helped to Enrich Cerberus and associated accountancy, legal and other professionals at the expense of the public purse. Also intriguing is the recent decision by the DPP to withdraw charges against a former NAMA official who was accused of disclosing confidential information from the agency. In this case, NAMA executives made the complaint which led to the arrest of its former staff member Paul Pugh in 2013. Pugh was charged with intentionally disclosing loan and other details relating to builder, John McCabe and his UK company, McCabe Builders. Pugh was accused of sending the information to Gehane Tew k of London based Connaught & Whitehall Capital UK in June 2012. When the case came to court in recent months the DPP and investigating gardaí said that they were not proceeding with the prosecution for reasons that were not fully explained to the judge or the public. It appears that the NAMA executives whose complaint prompted the arrest of Pugh in the first place are now less than enthusiastic about pursuing the case, despite the five-year investigation into the matter. Not for the first time, NAMA has failed to disclose its reasons for not pursuing this case to conclusion. Frank Connolly
