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Neri post budget 2019 michael taft - 17 oct 18


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Presentation by Michael Taft, SIPTU re Budget 2019

Published in: Economy & Finance
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Neri post budget 2019 michael taft - 17 oct 18

  1. 1. ANALYSIS of BUDGET 2019 Michael Taft, Research October 2018
  2. 2. 1. Farewell, Fiscal Rules We Hardly Knew Ye • The Fiscal Rules have been dispensed with. Remember the Fiscal Treaty Referendum – how we needed these rules to protect ourselves from fiscal selves. • Then the Summer Economic Statement: ‘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. . . . the fiscal rules would damage our economy; that is why policy will no longer be formulated on the basis of ‘fiscal space’.
  3. 3. Not Spending What We Can Spend 990 2,400 700 2019 2020 2021 Additional Fiscal Space the Government doesn't intend to use (€ million)
  4. 4. 2. Budget Summarised in 3 Charts 148.7 80 90 100 110 120 130 140 150 160 2017 2018 2019 2020 2021 2022 2023 Real Public Investment per capita: 2017 - 2023 (2017 = 100)
  5. 5. Squeezing Public Services 92.2 82 84 86 88 90 92 94 96 98 100 102 104 2017 2018 2019 2020 2021 2022 2023 Real Spending on Public Services per capita: 2017 - 2023 (2017 = 100)
  6. 6. Below Average • It’s not that Irish public spending on public services is high by the standards of our EU Peer-Group. • Last year would have had to spend an additional €5.6 billion to reach our peer-group. With inflation factored in, we would have to spend an additional €10 billion. • If we use an output measurement (spending as a proportion of GDP / GNI*), Ireland would have to spend an additional €9.7 billion. Per Capita (€) Real Per Capita (PPP) Denmark 12,492 Denmark 9,782 Sweden 12,345 Sweden 9,324 Netherlands 10,382 Netherlands 9,196 Finland 9,351 Finland 8,364 Belgium 9,025 France 8,230 EU Peer Group 8,538 EU Peer Group 8,222 Austria 8,197 Belgium 8,175 France 8,057 Germany 7,855 Germany 7,721 Austria 7,392 IRELAND 7,371 IRELAND 6,410 UK 6,448 UK 6,278
  7. 7. Squeezing Social Protection 90.8 86 88 90 92 94 96 98 100 102 2017 2018 2019 2020 2021 2022 2023 Real Spending on Social Protection per capita: 2017 - 2023 (2017 = 100)
  8. 8. 3. Privatising the Future • It’s not enough that the Government intends to squeeze the social state; it will be pursuing a privatisation agenda in major sectors of the economy. • Finance: the proposed privatisation of AIB is proceeding without even a debate. So much for learning the lessons of the past – handing back valuable financial assets to the same class that landed us in the crash. • Property: the Land Development Agency has the potential of handing over land to the developer class in a dysfunctional market in exchange for a small amount of public housing (which may be bought at high market prices).
  9. 9. More Mood Music • Pensions: the Government’s proposed framework is based on a Defined Contribution scheme reliant on the private pension industry which puts the risk on the employee and the state (through its Exchequer top-up). • Rural Broadband: still suffering from the fall-out of the Eircom privatisation we are now descending into an absurd situation with only one bidder with no utility- provision experience and a contaminated process.
  10. 10. 4. Macro-Economic Risks • In their macro-economic risk assessment matrix the Government identified 21 external and domestic risks. Of these, three are categorised as ‘highly likely’: • Corporate tax concentration: difficult to resolve (if MNCs continue to use Ireland as a tax haven-conduit and the state accommodates) – but degrading efficient taxes such as USC and property tax doesn’t help. • EU climate change targets: the budget failed on carbon taxes and diesel tax. • Housing supply issues: Government in denial (claims policy is working despite rising rents, house prices and homelessness).
  11. 11. Assessment 1) Fiscal rules are thrown out at the very moment the rules allow for higher investment. 2) Spending on public services and social protection is being cut to pay for capital investment. 3) The privatisation train keeps on rolling. 4) And the Government flunks their own risk assessment.
  12. 12. 5. A Progressive Focus • What should progressives focus on? The productive economy. NERI (McDonnell) has provided a road-map for long-term economic growth. Key areas in addition to capital investment: • EDUCATION: human capital will play the key role in driving growth and innovation. But Ireland is lagging it’s peer- group. In 2015, education spending would have had to increase by over 20 percent, or €1.8 billion to reach average. 10,820 10,086 9,902 9,582 9,556 9,282 9,032 8,606 8,183 7,447 Austria Sweden United Kingdom Netherlands Belgium Germany EU-Peer Group Finland France Ireland Real Spending per pupil: 2015 (PPP)
  13. 13. Research & Design • If want a truly ‘competitive’ economy (and not some low- wage ghetto), we need to drive investment in basic research. • Ireland is at the bottom of the table. We would have to more than treble expenditure – or €1 billion – to reach the peer-group average. • And to reach the levels of other small open economies would require even more investment. 658 562 434 362 313 278 214 187 102 61 3 Denmark Sweden Belgium Germany Finland EU Peer Group Austria Netherlands France Ireland United Kingdom Real Spending on Basic Research: 2016 (€ per capita)
  14. 14. Early Years Investment • We have a crisis in childcare (affordability and working conditions); we have a crisis in early years investment. No one disputes this. • What we don’t have is a roadmap to a high-quality, affordable, professionalised pay sector. • Irish expenditure has – as a proportion of GNI* - not increased significantly. We could need up to an additional €1 billion. 1.6 1.4 1.3 1.1 0.8 0.8 0.7 0.7 0.6 0.5 0.25 0.2 Sweden Denmark France Finland Belgium UK EU average Netherlands Germany Austria Ireland (GNI* 2018) Ireland (GNI*) Expenditure on Early Years Sector: % of GDP (2013)
  15. 15. 6. Privilege Collective Consumption • Prioritise collective over individual consumption to increase living standards and social security • In other EU countries this is done through the Social Wage – employers’ social insurance. • Employers’ PRSI is not a tax – it is part of employees’ compensation and can be integrated into collective bargaining. • Pay-related unemployment and sick benefit • Pay-related maternity benefit and paternity leave • Free / low-cost healthcare and subsidised prescription medicine • A second-tier pension system that provides pay-related and certain retirement income.
  16. 16. Ireland’s Low Social Wage • Though comparisons between countries’ social insurance systems can be difficult, a broad indicative measurement can be produced. • The Irish Social Wage is well below that of our peer-group (€9 billion less). While account must be taken of demographics (e.g. old age pensions), if we want a European level of in-work benefits we will have to increase the social wage. 34.5 30.5 24.3 23.0 22.8 22.3 15.8 13.7 10.0 9.1 France Sweden Austria Belgium EU-Peer Group Finland Germany Netherlands Ireland UK Employers' Social Insurance (Social Wage): % of Total Wages 2016
  17. 17. 7. Principle for Productive Taxation • The key principle is that taxation must work for the productive economy. Less taxes on productive forces, more taxes on unproductive ones (property, rentier income, passive and unearned income, degrading environmental activities). • Some Blue Sky suggestions: 1) Abolish income tax and substitute USC. Substantially reduce marginal tax rates (especially middle income) by broadening tax base and maintaining tax revenue.
  18. 18. Rethinking How We Tax The Economy 2) Substantially reduce taxation on productive income and increase taxation on net wealth. A 3 percent levy on net wealth would raise as much revenue as income tax. 3) Tax income from labour and capital the same. Implicit tax rate on labour: 33 percent – implicit tax rate on capital: 13 percent. • These are intended to provoke discussion about how to shift taxation away from the productive to the unproductive sector and re-think how we tax the economy.
  19. 19. 8. The Ultimate Budgetary Reform Is there a way to  increase tax revenue,  reduce expenditure (specifically, social protection subsidies to low- wage employers and sectors),  reduce wage inequality,  shrink the share of the top 1 percent,  squeeze precariousness (rather than public services)  boost social benefits,  reduce gender pay gaps  increase social security  Boost productivity and do so without any tax or spending measure? Yes.
  20. 20. Give Workers the Tools • Give workers the tools to begin transforming the economy in their workplace.  Vindicate their right to bargain together, to bargain collectively in the workplace and across sectors • Workers bargaining together have been shown to boost low and average incomes, reduce low-pay subsidies, promote equality wage and gender quality, boost enterprise performance and undermine precariousness. • We can start doing that now – with our fellow workers. And as we gain strength we can campaign more effectively for the statutory instruments to provide us even more tools. • To paraphrase John Maynard Keynes – if you look after workers’ rights, the workers will look after the economy.
  21. 21.