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    Welcome to reality: EU wasn’t serving least well-off

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    Last month, the UK referendum on membership of the European Union posited a seemingly simple question and delivered an obviously complex outcome. The vote on June 23 came in with a massive turnout of 71.8 percent, the highest for any UK-wide vote since the 1992 general election. In the end, England voted by a strong margin of 6.8 percentage points in favour of Leave, while Wales voted by 5 percentage points in favour. Scotland opted by a 24-point margin for Remain, and Northern Ireland voted Remain by 11.6 percentage points. Gibraltar voted 95.9 percent in favour of Remain, best in the class, pro-EU. Based on voter turnout-adjusted figures, eight out of the ten largest voting area across the UK posted majority Leave vote, with London (ranked number two in the total number of voters participating) and Scotland (ranked number eight) being two exceptions. The results were divisive. Widely reported results from Lord Ashcroft’s Polls show that only 27 percent of voters age 18-24 were in favour of leaving the EU, with 38 percent and 48 percent Leave support for 25-24 year olds and 35-44 year olds, respectively. In contrast, 56 percent of 45-54 year olds and 57 percent of 55-64 year olds were pro-Leave. 60 percent of those aged 65+ voted against the EU membership. The problem with interpreting the above results is that they are unadjusted for turnout figures. Based on the analysis of voting data, voter turnout strongly increased with age. According to the Financial Times (FT):“The generational divide on Brexit has been common knowledge throughout the campaign, and is apparent in the demographic data, even if only weakly”. The main factors driving voter decisions were socio-economic: education and occupation (with higher educational attainment and occupational position being the two statistically strongest determinants of propensity to vote ’Remain’); followed by the share of people holding a passport. The fourth factor was labour earnings. As the FT put it: “Before the vote several polls identified a common finding: people intending to vote Leave were much more likely than Remain voters to say they felt Britain’s economy was either stagnant or in decline”. In simple terms, the Brexit vote reflects the relatively more complex socio-economic divisions of the modern UK as opposed to the commonly-touted Leave voters’ age-determined anti-immigration sentiments, xenophobia and nationalism. The key forces shaping the anti-EU sentiment in the UK, as much as in other member states of the EU, are rooted in the realities of the modern economy: the post-Global Financial Crisis status quo of income and wealth divisions, and the underlying evolution of the global marketplace for labour and skills. The voter characteristics that defined Leave supporters, according to most economic literature, also determine earnings in the advanced economies. Most importantly, education and occupational choices drive two key earnings-related risks: labour productivity and the degree of worker substitutability by technology. In simple terms: lower-educated and less-skilled workers face more downward pressure on their earnings, higher volatility of earnings, a lower correlation between their own productivity and their earnings and higher risk to their jobs from automatisation, robotisation and technological displacement. They are also more exposed to direct competition from migrants. Based on recent research from the Resolution Foundation, published in February, it is clear UK middle-class earnings have been effectively stagnant since the early 2000s. This development took place during the period of EU enlargement, increased migration, and the push towards political harmonisation, exacerbated by the Global Financial Crisis and the Great Recession. Over the same period, the EU was shocked by the Euro-area sovereign debt crisis and the subsequent external migration crisis. Five out of seven key shocks between 2000 and today are directly linked to European-wide policiy choices. This, in the words of the Resolution Foundation analysts, fuelled the electorate’s “disillusionment at the economic and political status quo”. Since 2002, over half of middle-class UK households across the entire working-age population witnessed “falling or flat living standards [as] two-thirds of the growth in average working-age income has been wiped out by rising housing costs”. For the growing population of renters, the decline in private incomes net of housing costs was larger than increases in earnings. Meanwhile, home-ownership has dropped 16 percentage points for Millennials, compared to Generation-Xers, controlling for age. The bulk of home-ownership decline took place in middle-income households, with ownership trends relatively steady for the poorest and the wealthiest households. In a way, the Brexit vote was symmetric with voter tendencies across a number of countries. In its annual report for 2016, Sweden’s Timbro Institute documented the relentless rise of political populism in Europe: “Never before have populist parties had as strong support throughout Europe as they do today. On average a fifth of all European voters now vote for a left-wing or right-wing populist party. The voter demand for populism has increased steadily since the millennium shift all across Europe”. Which, of course, also reflects the dire lack of resonant pragmatic leadership. After decades of delegation of ethics and decision-making to narrow groups or substrata of technocrats – a process embodied by EU institutions, but also by national institutions – European voters no longer see a tangible connection between themselves (the governed) and those who lead them (the governors). The Global Financial Crisis and subsequent Great Recession have exposed the cartel-like nature of the corporatist systems in Europe (and increasingly also in the US). Again, Timbro notes: “2015 was the most successful year so far for populist parties, and consistent polls show that right-wing populist parties have grown significantly as a result of the 2015 refugee crisis…Today, populist parties are represented in the governments of nine European countries and act as parliamentary support in another two”. The net outrun is that: “…one third of the governments of Europe are constituted by or dependent on populist parties”. The official European (and Irish) Kommentariat are keen on blaming nationalism and xenophobia for these trends. But the causality is likely to flow the other way: the failure of the European political elites

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    Small Business Policy – Report Card

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    In its Programme for Government, no less than 25 small-business-specific commitments were identified. This recognition and focus in and of itself has been significant, and is justified, as the economic importance of small firms in Ireland cannot be overestimated. Even more problematic has been the championing of the trade-union-backed €11.50 “Living Wage” by some Government Ministers. Despite the fact it’s “not Government policy” and is “voluntary” Firms with less than 50 employees account for 44% of employees and 49% of total private -sector employees. Young and new firms in particular account for the majority of employment growth, with 106,000 net new jobs created between 2008 and 2012 by firms in existence less than 5 years (at a time when total private sector employment fell by 264,000). They make up a third of the total value of the economy and are responsible for 35% of business investment. They are crucial to regional employment, representing over 80% of the jobs in ten of our counties, for example. They play a central role in domestic-facing sectors such as construction, tourism and retail. On balance, this Government has listened to the concerns of business and has put us on a sustainable path to future growth. It is important to note that many of the opposition parties have been hugely supportive of small business policy issues and have used their influence effectively in helping us to achieve our goals. Report Card – Small Business Policy

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    Striking conservatism of opposition parties

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    There is no surprise that Budget 2016 was an election budget. The budget will play an important role in framing the economic debate in the run up to the election. It is worth looking at Budget 2016 and the pre-budget submissions made by the opposition parties, to gain insights into the parameters of this debate. While there were some good suggestions in these submissions, it must be noted that some of their figures could not be considered credible. The most striking conclusion from any such exercise is the lack of vision, from all sides, on how the budgetary process could help to put us on a different path, a path towards a more equal, inclusive, and sustainable society with an economy that benefits all. A new narrative about the future direction of Ireland is much needed. We can only hope that this will emerge in the coming months. The economic climate is much improved and this should have offered room for new vision. Ireland is the fastest growing economy in the EU and GDP is forecast to grow at 5-6% (and some suggest more) for the year, with strong growth predicted for 2016. However, the current strong growth rate is being helped by the weak euro, low oil prices and historically-low interest rates. These are external factors that we have no control over. Changes such as rising interest rates and energy costs could have a dampening effect on economic activity. The former Governor of the Central Bank, Patrick Honohan, urged caution in a letter to the Minister of Finance before budget day. He said: “The rate of economic growth is being exaggerated and may be leading to overconfidence in planning for the future”. The business activities of multinational companies were affecting the figures, he said, creating a risk that Government policy would not be based on a realistic view of future prospects. Still, employment is growing strongly. The numbers at work are expected to exceed 2,000,000 next year. Unemployment is falling. It stands at 9.1% (203,000 people). However, long-term unemployment remains high, with over half (54%) of those who are unemployed being categorised as long-term unemployed. Budget 2016 had a 50/50 split between tax cuts and increases in public expenditure. It failed to focus on increasing investment in our social and economic infrastructure to the scale required to support our growing and ageing population and create the conditions for productive and sustainable economic growth. Budget 2016 was not as regressive as previous budgets. However, it failed to address income inequality and provide the range of supports needed to reduce poverty and deprivation in any significant way. Would the opposition parties have done better? An overview of their pre-budget submissions provides insights into their priorities and an indication of the economic policies for their election manifestos. Their figures are taken at face value. The overall increase/decrease in taxation and expenditure is calculated as the submissions included a range of measures that increased and decreased the tax take and the expenditure level. What is of particular interest is the areas that they focus on and the balance between taxation and expenditure. Sinn Féin The main proposals in the Sinn Féin pre-budget submission included an enhanced capital investment programme; investment in homelessness and refuge services; investment in health and education services; supporting parents and investing in childcare; tackling income inequality and establishing an equality and budgetary advisory body; protecting communities; and making provision for frontline workers, the Haddington Road agreement, and demographics (growing and ageing population). It proposed a range of tax increases and cuts resulting in an overall increase in taxation of €292m, which includes a reduction in the USC, and the abolition of the property tax and water charges. Its expenditure proposals came to an overall increase of €1.8bn. All the political parties, with the exception of People Before Profit, who presented a balanced budget, cut the budget by €1.5bn   Fianna Fáil Fianna Fáil’s key proposals were to reduce the tax ‘burden’; tackle the housing crisis; invest in services; and support families and older people. Their proposed taxation measures would reduce overall taxation by €557m overall, with almost €400m of this coming from cuts to the USC. Its expenditure proposals would increase spending by €888m. Social Democrats The main proposals outlined in the Social Democrats’ pre-budget submission included a new capital programme; a focus on housing; supporting parents, children and childcare; addressing child poverty; enhancing education; supporting The Budget had a 50/50 split between tax cuts and increases in public expenditure. It failed to focus on increasing investment in our social and economic infrastructure CHART 1: PROPERTY TAX IN IRELAND AND THE EU (2012) enterprise and improving health provision. The submission included a range of tax increases and cuts that would result in an overall decrease in taxation of €3m, which includes a reduction in the USC, the abolition of water charges and reductions in the property tax in certain circumstances. Its overall expenditure increase came to €1.5bn. People Before Profit The priorities outlined in the People Before Profit pre-budget statement included the abolition of the property tax, water charges and the USC for salaries below €35,000; the reversal of cuts to social welfare; an expansion in health funding; the restoration of jobs and public services that were cut; investment in social housing, education and childcare facilities. Their budget costings were presented as a balance sheet with an opening credit balance of €1.5bn called ‘fiscal space’. The ‘credit available’ is €8.8bn, with total expenditure coming to €8.7bn, thus presenting a ‘balanced’ budget. All the political parties, with the exception of People Before Profit, who presented a balanced budget, kept within an overall package of tax cuts and expenditure increases that amounted to a value of €1.5bn. While there was variation in taxation measures, there was common ground in the expenditure measures, including housing, education, health and social welfare. All parties proposed cuts to varying degrees in the USC, property tax and water charges. New taxes included a wealth tax,

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    We don’t all have to love business

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    Enda Kenny’s real vision is to make Ireland the “best little country in the world in which to do business”. Business doesn’t deserve him. Worse, business doesn’t deserve the rest of us. Business in Ireland is utterly corruptible. Big business in particular, Perhaps small businesses do their best but even there farmers are over-subsidized and led by millionaires, retailers and restaurants are homogenised and over-priced, and builders have for generations specialized in sprawl and mediocrity. BIG BUSINESS Let’s have a look at bigger businesses. Biggest indigenous companies Big business is most obviously represented on the Irish Stock Market whose members’ average capitalisation is around €2.5bn. Member companies typically eschew the tedious rigors of ethics. Village did several pieces recently documenting the dubious history of building materials group CRH, Ireland’s biggest company with a worldwide turnover of €19 billion (2014).   Why would Enda Kenny in God’s name think the most important thing is to be the best little country in which to do business?   Since the 1930s CRH has been intermittently beset at its edges by conspiracies, scandals and corruption, together with repeated allegations of its involvement in criminal price-fixing and market-sharing. When, 40 years ago, Roadstone Ltd took over Irish Cement which had a monopoly in cement production in Ireland, Roadstone had a dominant position in downstream operations such as quarries, concrete and tarmac. Bad start. There were political fingerprints everywhere. The first Chairman of the new Cement Roadstone Holdings was the retired Taoiseach, Sean Lemass. After Lemass’s death in 1971, there was an abortive attempt to make Charles Haughey chairman. Richard Bruton once worked for CRH as an accountant. In February 2000, Mary Harney gave an undertaking that the Revenue Commissioners, Competition Authority and the soon-to-be-instigated Office of the Director of Corporate Enforcement (ODCE) would carry out a comprehensive investigation into CRH, but this has never happened. Patrick Massey, then head of the Competition Authority, resigned his position that very same month stating: “it is no longer possible for me to continue as director of competition enforcement due to the failure to provide adequate resources to enable me to do the job properly”. Depressingly, in May of this year Gardaí and officials from the Competition and Consumer Protection Commission (CCPC) raided Irish Cement’s offices in an investigation – but only into the €50m bagged-cement industry. DCC is Ireland’s second biggest indigenous company. The Supreme Court found that, when DCC sold its stake in Fyffes, a fruit and vegetable distributor, for €106m in early 2000 at an €85m profit, DCC had inside information – price-sensitive trading reports . But no prosecution ensued as the CEO had been following legal advice, albeit as it turned out bad legal advice. The lesson is get yourself a bad lawyer. Since the 1930s CRH has been clouded by conspiracies, scandals and corruption, together with repeated allegations of its involvement in criminal price-fixing and market-share Banks Until seven years ago the banks were the biggest forces on the stock exchange here. In 2008 Ireland’s banks were bailed out by the state for €64bn – €14,000 per head. Ireland’s bank bailouts cost the country the equivalent of nearly 40% of its annual economic output, most of which it is unlikely to see again. Ireland topped the chart, spending 37.3% of GDP, followed by Greece at 24.8%. France, Italy and Finland, spent next to nothing on bank bailouts. In the US the Treasury expects to recover all but $42bn of the $370bn it lent to ailing companies, with the portion lent to banks actually showing a slight profit. It is clear we owe the banks nothing. In fact, after an awful lot of moral hazard, luck and heartache, the State could eventually recoup all the cash used to bail out AIB, Bank of Ireland and Permanent TSB. This would leave the €35bn cost of bailing out Anglo (€29.6bn) and INBS (€5.4bn). For that is down the tube. Anglo Irish Bank – to say the least – overdid it on the commercial side, was nationalized and closed down after costing the state €29bn with its protagonists facing, or having faced, criminal charges, its CEO a fugitive, and off-account loans to directors. Its head of capital markets admitted they initially asked for 7bn to suck in the government which would then be so committed that it would have to give the balance. He said he ‘plucked the figure out of his arse’. That’s Business I guess. Nama The State-owned bad bank, NAMA was created to work through Ireland’s largely problematic commercial loans which it is parceling up into packages which it calls Projects and to which it gives irritating names, like ‘Eagle’, before flogging them at bargain basement prices to vulture funds. Often since the banks in Ireland are still dormant, US ones. The sellout is masked by the boom which means NAMA will still realise a profit on the prices it paid in 2008 in an imploded market. Mick Wallace, an Independent TD, has made allegations – significantly, in the Dáil – over the €1.6bn Project Eagle portfolio sale to US investment trust Cerberus by Nama which got approx 27c in the dollar. That missing 73p has been picked up by the Irish taxpayer, Wallace has claimed £Stg 45m has been paid to fixers. Investigations are ongoing over €9.5 m discovered in an Isle of Man off-shore account. The UK’s National Crime Agency and even the US Department of Justice are investigating the matter. Wallace claimed that Irish taxpayers had covered the cost of massive losses on the deal while the US investment fund, which boasted former US vice president Dan Quayle among its senior ranks, Moribund Democratic Unionist Party leader Peter Robinson has vehemently rejected allegations he was to receive any payment linked to the Project Eagle sale after he was named at a parliamentary committee in the North. Mick Wallace is a failed former big developer and his loans have now actually been bought by Cerberus. Wallace has claimed a representative of Cerberus

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    No to €350m

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    It has been a long and hard struggle for a Financial Transaction Tax in Europe. Now it looks like a breakthrough is possible. This has yet to make an impression on the Irish media and there has been no critique of the Irish Government’s refusal to participate. The European Commission had proposed an EU-wide Financial Transactions Tax but failed to get the necessary unanimous support. Eleven Member States decided to proceed with introducing it through what is called the ‘enhanced co-operation’ procedure. These were Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia. It was given a green light in January 2013. Even the International Monetary Fund has stated that the financial services sector is under-taxed Britain took a case to the Europeaember States as to what they were actually going to do. Now it’s down to the wire. The December 8th meeting of ECOFIN economics and finance ministers is widely seen as the make or break moment for the Financial Transactions Tax. The prospects are surprisingly good. France is pushing it, as it really needs new sources of finance if the COP 21 climate outcomes are to be ambitious and to be implemented. Germany remains determined but warns it must happen now or never. Angela Merkel has been clear all along “that financial markets have to contribute their share to the recovery of economies”. The final proposal must be agreed unanimously by all participating countries. They are working towards the progressive implementation of a tax that would involve a harmonised minimum 0.1% tax rate for transactions in all types of financial instruments except derivatives (to which a 0.01% rate would apply). It is suggested that this would enable the financial sector to make a fair and substantial contribution to tax revenues and complement regulatory and supervisory measures by creating a disincentive to transactions that “do not enhance the efficiency of financial markets”. There are blocks to be overcome. It seems that there is agreement to tax shares, corporate bonds and all derivatives with the exception of derivatives linked to sovereign bonds. This means particular issues for indebted nations are addressed. However, agreement has still not been reached on how the Financial Transactions Tax should be levied. Some Member States have also put forward specific proposals to meet their particular needs. If they do get agreement the Financial Transactions Tax would be levied from the second quarter in 2017. This is a small tax but with the potential to raise significant revenue for hard-pressed national budgets. It is estimated that the tax will raise between 30 and 35 billion Euro for the eleven Member States involved. NERI, a thinktank, has estimated that the tax would increase exchequer revenue by €350 m per annum in Ireland. Who could say no to that? At a time when tax revenue is needed to address alarming levels of poverty and homelessness and to restore damaged and diminished public services, why would an Irish Minister of Finance say no to an additional €350m? At a time when new revenue is needed to fund global development and the Sustainable Development Goals and measures to respond to climate change and the conclusions of COP 21 why would he say no? It is ultimately a measure of the power of the financial services sector in Ireland and its ability to influence politics. Michael Noonan says there would be job losses and that financial services would desert us for London. This argument fails to reflect the low level of tax proposed and the very favourable conditions enjoyed by companies in the Irish Financial Services Centre. Those campaigning for the tax – in a campaign organised by Claiming Our Future, argue that it would actually increase jobs because of the additional public expenditure. The Irish government put €64bn of public money into rescuing the banks. Some €42bn of this was borrowed. Over 20% of our public debt is now a result of the bank bailout. The Irish people are estimated to be paying €9,000 Euro each for the banking-crisis debt – the highest in the world. Across the rest of Europe, the average cost per person is just €192. Even the International Monetary Fund has stated that the financial services sector is under-taxed. It is not too late. Member States can sign up to enhanced co-operation at any time. We need a Minister for Finance who will say yes to a tax that would yield much needed revenue, reduce financial speculation, and ensure the financial sector pays its way.  

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