MEMORANDUM - Village Magazine

14 March 2015

The danger, now, is that many lessons of the crash of 2008 and what led up to it have not been learned and mistaken

policies are being pursued. One clear example of this is the widespread endorsement of the idea that taxation is too

high and tax cuts for this group or that group is a necessary and good thing to pursue (usually this comes with the

proviso that tax cuts must be for our group or interest but not for others). True, political parties do not win elections

on the basis of promising tax increases. However, if we are to be honest with ourselves, we have to ‘join up the dots’ to

establish priorities in areas such as health, education, childcare, transport, energy and increased poverty including

poverty among those in work struggling with

rising bills and charges of one sort of another.

The debate in the lead-up to the next election

needs to be informed by a vision of what sort of

society we envisage and how we are going to get

there. For the moment, a progressive political

agenda needs to focus on four things:

- Pay and welfare

- Employment – quantity and quality

- Public services

- Homes

What counts in terms of people’s economic

and living conditions is access to employment,

income and services built in a dynamic and

diverse enterprise economy.

1. Recession and recovery have oﬀered little for

wages. The latest trends show a downward

overall trend in average weekly earnings

from the beginning of 2009 to the third

quarter of last year. There was a sudden

and sharp increase in estimated average

weekly earnings in the last quarter of 2014.

This pushed the average weekly rate back

up to where it was at the beginning of the

recession. While there can be some ﬂux in

quarterly estimates and the ﬁnal quarter estimate is ‘provisional’ it does appear that the pattern of falling wages

has come to an end – provided that the economy continues to recover. When inﬂation is taken into account (using

the consumer price index which includes the eﬀect of falling mortgage interest costs in recent years) ‘real wages’

have moved more or less in tandem with nominal wages since the beginning of 2011 (reﬂecting low inﬂation). The

thin blue line in Chart 1 shows the movement in the consumer price index. There was a re-emergence of very mild

price deﬂation in the second half of last year – reﬂecting among other factors the impact falling oil prices.

The pattern of recovery in wages is very uneven across sectors and occupations (with some sectors and occupations

faring worse than others. From peak real earnings (end of 2009) to the end of 2014 real average weekly earnings fell

by just over 6% on average. Coupled with the impact of cuts in social welfare and increases in taxation the actual cut

in livings standards for households mainly dependent on wage income was greater than 6% over that period.

A key problem in Ireland is the unbalanced structure of the economy and the eﬀect of that on pay and welfare. There

is over-reliance on foreign direct investment and, as a consequence, a low share of wages as a component of national

income. Add to this a growing inequality in wages (before taxes and social welfare payments). This puts huge strain

on public ﬁnances and, at the same time, leaves Ireland extremely exposed to international shocks. Changing this

will take time. However, a start can be made by focusing on:

• The national minimum wage (currently €8.65 per hour).

• Low pay just above the minimum wage (typically under €12.20 per hour) as well as precarious work contracts

and conditions.

• Social-welfare payments and eligibility where a tightening of conditions and a lowering of some payment rates

Over coming

months,

Village

will outline a

suitable platform

for a radical

new movement

on the Left

MEMORANDUM

To: New Left Government

From: Tom Healy

Date: March 2016

Re.: Priorities to improve the economy and living conditions

Agenda

for a Left

Alliance

Chart 1: Average weekly earnings in the Irish Republic

Source: OECD Employment Outlook 2014

2008Q1

2008Q4

2009Q3

2010Q2

2011Q1

2011Q4

2012Q3

2013Q2

2014Q1

2014Q4

101

103

105

107

109

Consumer price index

Real average weekly earnings

Nominal average weekly earnings

Source: CSO EHECS CPI

March 2015 15

took place during the recession need to be reversed, especially where poverty rose as a direct consequence of

cuts to welfare.

• Reform of the welfare system and a movement to reduce and eventually abolish low pay goes hand in hand with

the establishment of the principle and practice of a living income that allows all persons and households to live

with dignity (something that is surely not unrealistic in a relatively prosperous country such as Ireland).

2. Creating ‘full employment’ means creating enough well paid jobs that can sustain individuals, families and

communities. This will require a co-ordinated approach to strategic investment, banking, lending to ﬁrms,

upskilling and a growth in new forms of economic activity based on co-operative ownership and public and

community enterprise. Moving towards full employment will mean creating enough full-time and part-time

jobs for everyone who wants to work and can work on a living income with proper conditions. Investment in

sustainable sources of energy could give an important boost to employment creation as well as move Ireland’s

towards a medium-term goal of lower dependency on imported oil and gas. The potential for revenues coming

from oil and gas oﬀ the Irish coast should be re-assessed and, where warranted, the rate of corporation tax on

such proﬁts raised.

3. Much of Europe taxes more and spends more money on social services than ireland does. The European Commis-

sion Taxation Trends shows that taxes (including social insurance, VAT etc.) came

to 28.7% of GDP in the Republic of Ireland in 2012. The corresponding ﬁgure,

in France, was 45%. However, there is at least one very signiﬁcant diﬀerence –

culturally, politically and economically – between Ireland and France. It is that

enterprises, in France, spend a much larger amount by way of employer social

security. The Republic of Ireland has an exceptionally low rate of employer and

employee social insurance contribution. Chart 2 shows the total amount of social

insurance contributions as a percentage of GDP. France shows that social insur-

ance contributions account for 17.1% of GDP in 2012, whereas, in the Republic

of Ireland it was 4.4%.

The Republic of Ireland has the lowest overall rate of social insurance contribu-

tion of any EU Member State (Denmark is not included in the comparison due to the

fact that is insurance system is organised in a very diﬀerent way). ary of politicians,

commentators and economists who come to our TV screens oﬀering treats of ‘more

money in your pocket’ through tax cuts. We might ask them to price these tax cuts

in public service forgone, community health centres not opened, public transport

not invested in, quality and aﬀordable childcare not provided. And if they mutter

something about ineﬃciencies in the public sector we may ask them to quantify (a)

productivities gained since 2008 and (b) potential productivities to be extracted

over the next 20 year.

Given Ireland’s growing population as well as a higher proportion of people over

the age of 65 there is a need to create a more eﬃcient, expanded and accountable

public service. Government should invest in, and provide directly, early childhood

education and care for children in the 2-4 age bracket. A key to funding a European

level of public service will be an expanded and properly resourced social insur-

ance fund. This will involve an adequate level of contribution from employers and

employees. A start could be made by raising the employer rate of social insurance

contribution by 3 percentage points on all wages above €100,000 a year.

4. Sometime in the 1980s, Ireland like the UK moved from a culture of residen-

tial houses or apartments being primarily ‘homes’ to a situation where an

increased number of houses/apartments were seen as investment assets. Esca-

lating prices in the 1995-2007 period brought large capital gains to a great

many home owners just as collapsing house prices in 2008-2012 wiped some

of those gains and placed recent borrowers in positions of ‘negative equity’

or extreme ﬁnancial pressure (which is not necessarily the same as being in

negative equity).

The impact of ﬁscal austerity in the 1980s was such as to greatly reduce the proportion of local authority housing

as a proportion of housing stock or new housing units. The traditional ratio of public to private dwellings shifted

once and for all in the late 1980s and has never recovered. The acute accommodation shortages and escalating

rental prices of recent years is not unrelated to this. The total of local authority and housing association house-

building construction in housing output went from 28% in 1985 to 6% in 2012.

An emergency programme of social housing provision needs to be introduced allied to controls on rent which

are normal in many European countries at least until such time as the supply shortage has been rectiﬁed.

With a general election looming sometime between now and this time next year it is timely to consider what

choices and policy options are appropriate. The Nevin Economic Research Institute of which I am director is not

associated with any political party or platform. Our job is to undertake economic research informed by the evi-

dence. The Memorandum is written in a personal capacity. •

Chart 2: Total social insurance paid as % of GDP, 2012

Source: Online Eurostat database (gov_a_tax_ag)

Source: OECD Employment Outlook 2014

France

Employers

Employees

Self-employed

Employer 3.1

Employee 1.1

Netherlands

Germany

Czech Rep.

Slovenia

Austria

Belgium

Italy

Finland

Hungary

EU-28

Slovakia

Poland

Spain

Luxembourg

Estonia

Croatia

Lithuania

Greece

Cyprus

Romania

Portugal

Latvia

Sweden

Bulgaria

Malta

Ireland (Rep. of)

0.0 5.0 10.0 15.0 20.0