Recently in Economy Category

Following publication of the Report of the Innovation Task Force in March 2010, I thought it would be interesting to dust off a report entitled Stimulating Indigenous High Tech Manufacturing Industry (SIHTMI) which I wrote back in 1983 for an Education, Innovation and Entrepeneurship Research Programme.

To place 1983 in context, it was the year that:

• The domain name system for the Internet was created
• Compaq launched the first portable PC.
• 64k 8-bit memory devices were the norm
• Lotus 1-2-3 and the IBM PC XT were launched
• World market for NMR imaging machines was only 80 units
• UK introduced the Business Expansion Scheme to bridge the "equity-gap"
• EEC was formulating plans for technology support programmes
• The US market for cellular radio services was worth less than US$200 million .

The SIHTMI Report estimated that, at that time, there were about 20-40 indigenous high tech manufacturing firms in Ireland employing between 400 and 800 people. High tech was defined as covering microelectronics, biotech, materials and speciality chemicals, specialised mechanical products and software.

The report concluded that (despite hype at the time) a high tech sector didn't exist and would not develop without major changes. It indicated a need to create a national policy on high tech; to streamline state support to high tech firms; to pursue strategies based in identified niches; to establish centres of excellence and better HE/industry interaction; to encourage proven entrepreneurs and senior managers to locate to Ireland using tax breaks; to introduce tax incentives to encourage investment; and to improve the general infrastructure, environment and competitveness.

These recommendations, when compared with the Innovation Task Force's, shows just how much (or how little) progress has been made over almost three decades.

Here is the Full Report  (140 pages) and a Summary.

When a quarter of Iceland's electorate opposed the payment of €3.8 billion to the UK and Dutch governments arising from its banking crisis, its President refused to sign the relevant bill into law and the matter goes to the people in a referendum.

Meantime, our Government rams Nama down the electorate's throat and bails out banks and developers at a cost of at least €20 billion notwithstanding widespread opposition.

Whereas the Icelandic government resigns, our government clings to power in spite of having presided over the entire crisis.

While Iceland hires a high-powered, international investigator to help investigate possible criminal actions by bankers, our government dithers about even holding an enquiry.

Clearly, the Celtic Tiger has turned the Irish electorate into pussycats.

Letter published in the Irish Times on 15th January 2010.

The 2010 budget was extremely one sided as it excluded general tax increases for the high paid who retain existing after-tax incomes and additionally benefit from deflation. At the other end of the spectrum, social welfare recipients and lower-paid public sector workers are experiencing cuts on account of the same deflation.

Letter published in the Irish Times on 10th December 2009.

It is truly extraordinary that the Minister presented a budget detailing cuts of €4 billion but failed to state that he had recently gifted a similar amount to Anglo Irish Bank for absolutely no return and will probably flush a further €4-6 billion down its plug hole. This is on top of €7 billion provided to the main banks and possibly to be followed by billions more during 2010. Nor did he mention Nama's planned overpayment of €7+ billion for property loans and resultant €54 billion increase in national debt. Talk about ignoring elephants in the room.

Letter published in the Sunday Business Post on 20th December 2009.

The CSO's recent review of economic and social progress for 2008 incorporates EU-wide comparisons based on GDP (Gross Domestic Product) and GNI (Gross National Income). For Ireland, these measures differ by about 14 percent. In many situations, the lower GNI is the most appropriate measure of Ireland's output as it excludes the huge profits generated by multinationals. However, comparative studies by the EU, OECD, IMF etc. are based on GDPs which for many countries are very close to their GNI values. Consequently, their findings over- or understate Ireland's true performance as illustrated by the following examples derived from the CSO's review and covering the 27 EU states:

• Ireland ranked second place in terms of purchasing power per person based on GDP but fell to fifth place based on GNI.
• For capital investment, Ireland jumped from 16th place based on GDP to a much more favourable 8th position based on GNI.
• Social protection expenditure based on GDP placed Ireland in 20th place. This improved to 15th based on GNI.
• For public expenditure on education, Ireland ranked 15th based on GDP but rose to a commendable 7th place for GNI.
• Ireland's ranking for public health expenditure jumped from 17th place when related to GDP to an above-average 11th place for GNI.

Surely, domestic and international studies should assess Ireland's performance based on GNI as well as GDP, even if only in footnotes. For example, the projected exchequer deficit for 2009 is 10.8 percent of GDP and extraordinarily high by international standards. If based on GNI, it rises to 12.7 percent and points to an even more serious position.

Letter published in the Sunday Business Post on 13th September 2009. The five examples were edited out for space reasons. 

Calls for a review of the minimum wage should be placed in context.

According to the 2007 National Employment Survey 14 percent of all employees in the State had hourly earnings below €10 while a similar percentage had earnings above €40 per hour.

When account is taken of hours worked, employees earning less than €250 a week account for only 4 percent of the national wage bill as compared with a 13.5 percent share for those earning over €1,500 a week. A ten percent reduction in wages for all 233,000 employees earning less than €250 a week would reduce the national payroll by 0.4 percent whereas a similar reduction for the 233,000 highest paid employees would reduce the national payroll by eight times as much.

For maximum impact, any campaign to improve national wage competitiveness should start with high-paid employees, directors and self-employed rather than the lowest paid. To show leadership, our politicians should take substantial reductions in salaries which, even after minor tweaking, are still amongst the highest in the world.

Letter published in the Sunday Business Post on 16th August 2009. 

The Minister for Finance told the Dail on Wednesday last that the unemployment rate will hit 15.5 percent next year. This compares with 11.4 per cent last month and just 5.4 percent for April 2008. Unemployment is expected to reach 366,000 during 2010. This is almost 60% higher than the highest level encountered during the dark eighties - it can be no consolation to the unemployed that the labour force has increased substantially in the interval.

If public sector employment remains steady at 360,000 then private sector will continue to bear the brunt of unemployment. This will bring the sector's unemployment rate to almost 19% notwithstanding across-the-board wage freezes and reductions, impaired pensions and substantial rationalisation.

It begs the question as to why, in this unprecedented crisis, the public sector continues to enjoy a substantial like-for-like wage premium, excellent pension arrangements (notwithstanding the recent levy) and near absolute job security. Surely, it is time for the entire public sector to engage, without preconditions, in a major programme of reform and productivity improvement to align itself more closely with the private sector.

For its part, the Government and opposition should set aside their petty party differences and lead an immediate action plan to contain unemployment, reduce public expenditure, unblock the banking system, protect the least well-off and restore medium-term confidence and competitiveness.

In parallel, the social partners parties must get off their ideological high horses; accept that a substantial across-the-board decline in living standards is inevitable; and start working with the Government to ensure that the major surgery needed to restore the economy's health is executed as fairly as possible. The quicker this is done the sooner the recovery can start.

This Government is quite clever in the way that it periodically creates smoke screens to distract from underlying issues. The latest example is reshuffling junior ministers to hide gross excesses in the remuneration and expenses of politicians. Clearly, the Government has used a feather duster instead of a chain saw notwithstanding that it promised in the last budget to "lead by example".

Of course, this is not surprising given that, apart from a few sacrificial lambs, none of the hundred or so individuals in the public and private sectors who led the economy over a cliff have suffered meaningful sanctions or even offered unqualified apologies.

All the signs are that the economy will decline by about 14% between mid-2008 and 2010 and that only about one-third of this decline may have already occurred. This is confirmed by the expectation that the tax increases announced in April will have to be repeated, in one form or another, in budgets for 2010 and 2011.

On this basis the worst has yet to come. The Government's most recent initiative has been to scuffle a few meaningless jobs instead of showing real leadership to drive through root-and-branch changes to reduce public expenditure, sort out the banking system and restore medium-term confidence and competitiveness. When those fortunates with jobs see the impact of higher levies on their pay slips at end May, they will be in no mood to tolerate a Government that pussy foots around the excesses of the Celtic tiger and fails to "lead by example".

A rout of the governing parties in the local and European elections could easily provoke a crisis of confidence within the Dail and lead, for better or worse, to an early general election. This time around, the electorate should ensure that it votes for a government that leads from the front and is both firm and fair.

Last year the Minister for Finance advanced the 2009 budget by three months as the Government's main response to the emerging economic crisis. He indicated in his budget speech that the economy would decline by less than one per cent and unemployment would average 7.3 per cent in 2009.

If these figures justified an early budget, surely the expected 6+ per cent decline in the economy for 2009 and an actual unemployment rate of 7.7 per cent for last December justify immediate budgetary action rather than a fifteen month gap to the next budget.

Much play has been made by the Government that top earners pay the most tax and that huge numbers don't pay any tax. According to Revenue's Statistical Report for 2007, 661,000 tax cases had gross incomes of less than €15,000 a year and, as might be expected, paid minimal taxes totalling €14 million on gross incomes of €4,744 million.

If, ignoring the social consequences, their effective tax rate of 0.3% could be increased by 10% to 10.3%, an additional €474 million would be raised. At the other end of the spectrum, 81,000 people had gross incomes in excess of €100,000 a year and paid taxes totalling €4,353 million on gross incomes of €16,065 million. If their effective tax rate of 27% increased by the same 10% to 37%, a total of €1,606 million could be raised.

Surely, it is unnecessary to wait for the Commission on Taxation's report to see that, in this time of crisis, tax rates should be increased as soon as possible for those with the highest after-tax incomes.

Letter published in the Irish Times on 4th March 2009.

The following proposals are aimed at those in leadership positions and the higher paid. While small in number, they are hugely important for setting example, restoring fairness to the tax system and contributing to the national finances and competitiveness.

1. Salaries, pensions and expenses of ministers, TDs and senators should be reduced by, at least, one-third and instead of being pegged to overblown civil service scales, their salaries should be linked to those of politicians in other states of comparable size and status, and having similar parliamentary sitting days.
   
   
2. Salary scales of senior administers and professionals across the public sector should also be benchmarked against opposite numbers in other comparable countries and linked to the average industrial wage. In the interests of fairness, the proposed pension levy should be restructured as was done for the income levy.
   
   
3. As applies in the US, exceptional salaries in the private sector should be funded by shareholders rather than subsidised by taxpayers. Accordingly, any elements of total salary, bonus and pension contribution exceeding €200,000 should cease to be deductable for corporation tax purposes.
   
   
4. The conditions applicable to non-residency for tax purposes should be reviewed so that non-residency means exactly what it says or tax exiles pay up like every other citizen. For starters, tax should be changed on worldwide incomes of tax exiles pro-rate to days (or part of) spent in the state.
   
   
5. Having been introduced to encourage greater participation in the work force, tax individualisation should be phased out to help distribute scarce jobs across more households. Dual-income households with high mortgages that voluntarily become single-income should get special tax credits or be able to extend the term of their mortgages.
   
   
6. A new tax rate of 48% should be applied to the 60,000 tax payers with incomes above €100,000 a year. The annual yield would be about €800 million, and could be higher if allowances for "top-hat" pensions, investments etc. are reduced. If applied immediately for the next five years, these changes could cover about a quarter of the projected €16 billion shortfall.

Letter published in the Irish Times on 10th February 2009.

Nothing illustrates the Government's weak-kneed approach to the crisis more clearly than the fact that on the same day that President Obama demanded that US companies receiving bailouts should limit executive salaries to US$500,000, our Taoiseach who earns more than President Obama merely urged top executives in banks covered by tax payers' guarantees to take 25 per cent salary cuts. Arguably, a maximum salary of about €200,000 would be appropriate for Irish bank executives when account is taken of their size relative to their US counterparts

Here are some suggestions for the Minister for Finance to consider when he is obliged by circumstances to present a supplementary budget early in the new year in response to the disastrous economic downturn which is still gathering momentum.

They should be implemented in the context of a realistic, attainable five-year plan for which the support of the social partners and opposition should be sought. Given that these are unlikely to acquiesce even though they offer no alternatives other than to strut, whine and oppose, the government should, for once, show real leadership and forge ahead on the grounds that there is no alternative and early action is crucial. Most people will accept pain provided it is seen to be fairly distributed and there is hope at the end of the tunnel. The alternative is much higher unemployment, cutbacks, emigration and extreme hardship which will take a decade to unwind.

As those who gained most from the Celtic Tiger should pay the most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the highest incomes. Alternatively, a new higher tax rate should be introduced for those earning more than, say, double the average industrial wage.

Given that payroll costs account for half of all public sector expenditure where salary rates are well ahead of equivalents in the private sector and internationally, the Government should roll back the first benchmarking exercise and plead "inability to pay" other than to the lowest earners under the new national wage agreement. It should only recommence payment of increases once major reforms have been confirmed by An Bord Slash.

Taxpayers can no longer be asked to subside "gold plated" pensions for politicians and public servants when the value of their own pensions (if they have one) is dropping through the floor. The Government should establish a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement. As a stop gap, full PRSI should be applied across the public sector and, in recognition that PRSI is income tax in all but name, earnings limits should be removed for all workers in the private sector.

The foregoing measures will arrest the catastrophic deterioration in public finances and enable the new standard VAT rate of 21.5% to be reduced substantially. This will help the lower paid as well as assisting tourism and curtailing cross-border shopping.

Finally, the Dail should immediately start sitting for four full days every week for at least forty weeks a year. To ensure genuine debate and better decision making, backbenchers should be pressurised by constituents to exercise greater freedom of expression in Dail debates, and voting linked to constituents' needs rather than party loyalties should become the norm rather than the exception.

Lead letter published by Irish Times on 8th December 2008.

The value of the proposed bale out in the US is equivalent to US$2,000 per US citizen. The Irish bale out could be worth up to €125,000 per man, woman and child. If US citizens won't accept their bale out, why should we accept something a hundred times larger?

The Government's action is nothing more or less than a huge reward, underwritten by taxpayers, to banks for foolish lending, to the Regulator for failing to regulate, and to its beloved construction industry.

It does absolutely nothing to address the underling problems which the banks, government and construction industry jointly created over the last five years by building, selling and financing grossly over-priced houses and commercial property.

This is the AIB and ICI rescue repeating itself. Where are the restrictions on bankers remuneration? Where are the equity stakes? Why should Irish taxpayers guarantee to bale out a bank that stupidly financed an overpriced property development in Dublin, London or Germany or made billions by conspiring with house builders to lock hundreds of thousands of young purchasers in huge mortgages for the rest of their working lives?

Irish households are amongst the most heavily borrowed in the world and, instead of helping them, the Government gives guarantees worth a multiple of the Irish economy's annual output to the Irish banks.  This, on top of the hammering that households can expect in the forthcoming budget.

Lead letter published in the Irish Times on 1st October 2008.

The proposed new national wage agreement continues the practice of awarding percentage increases "across the board" with only a token nod to the lowest paid. This has helped make our ministers, TDs, and highest earning public sector managers and professionals amongst the best paid in the world and has progressively widened the income gap between low and high paid.

Using data from the CSO's National Employment Survey for 2006, the proposed agreement's impact on employees who account for 82% of the work force can be assessed as follows:

• Gross earnings of 1.7 million employees amounted to €63 billion and the proposed agreement would increase this by €3.8 billion (6.1%) if applied to all employees. 
• Because the proposed increases are percentages, lower paid employees would receive much smaller monetary gains. This means that about 233,000 workers earning less than €13,000 a year would share an increase of €173 million whereas the 75,000 employees earning over €75,000 a year would share about €466 million. Put another way, the lowest paid workers (14% of all employees) would get 5% of the cake while the much less numerous highest paid (4% of total) would get a 12% slice.
• The 0.5% "bonus" for the low-paid employees would be worth less €2 a week per worker. It would apply to about 500,000 workers but account for a mere 1% of the total proposed increase.

Aside from being inequitable, the proposed agreement ignores the fact that world economies are facing a possible serious recession and that, thanks to the excesses of the Celtic Tiger, our open economy has become completely uncompetitive. Given that the global credit crisis has yet to reach our real economy, a much more radical agreement is needed. For example, to restore competitiveness and social equity, the proposed percentages could be reassigned so that the lowest paid get the 6% and the highest get the 0.5% over the agreement's life. If applied on a sliding scale to all workers, the cost would be about €2 billion, just over half that of the proposed agreement.

Five years ago you published a letter from me about house prices (28th October 2003) which stated that "rising interest rates could move many recent and future buyers with large mortgages into negative equity and expose their lenders to defaulting loans. It could also mean that many houses acquired as investments might be offered for sale to lock in gains or to cut losses. This would further depress prices. Can nothing be done to prevent this calamitous event from happening?".

Clearly, very little was done. If a mere letter writer could foresee this crisis, why didn't the Government?

The best thing the Government can do now to assist the beleaguered building industry is absolutely nothing! House prices should be allowed continue their rapid descent to a point where people and lenders become confident that they have finally reached a reasonable and sustainable level.

There should be no dig outs or artificial schemes as these will merely defer decisions by those who would wish to purchase a quarter of a million houses over the next five years. The return of affordable housing for all would be real shot in the arm for society and the economy.

To consolidate this, the Government must introduce much-discussed controls on the price of building land and, in conjunction with the Central Bank, implement measures which curtail inflationary lending for house purchases.

Letter published in the Irish Times on 10th September 2008.

The National Pension Reserve Fund has lost about €3 billion (15% of value) over the past four quarters as a consequence of the international credit crisis.

In these circumstances, it makes no sense for the Exchequer to continue borrowing about €1.6 billion a year from abroad for the Fund to continue to making risky overseas investments while cutting back on domestic investment and turning to expensive Private-Public Partnerships and massive tax breaks to progress critical national projects.

This nonsense is compounded by the fact that the Fund must achieve a return on its investments in excess of the cost of borrowing "to wash its face". It is noteworthy that the NPRF is one of the few funds in the world not financed by oil and commodity revenue surpluses. Has the government forgotten the rules about never borrowing money to buy shares or investing what you cannot afford?

Surely it makes more sense for borrowings earmarked for the Fund to be redirected immediately to finance much-needed, major infrastructural projects now instead of being used to make overseas investments for pensions payable decades hence. This could be done simply by legislating a "contributions holiday", say, for three-years to free up about €5 billion.

This would enable critical projects to be progressed more quickly and kept in public ownership. For example, the eight co-located hospitals which will cost the taxpayer a fortune and further fragment our two-tier health service could be progressed in public ownership using a fraction of these liberated funds.

By 2025, the NPRF could be valued €80 billion at current prices (€150 billion at 2025 prices). Given that every taxpayer and consumer will have contributed to the Fund, what guarantees can be offered that payments out of the Fund after 2025 will be equitably distributed and not skewed towards increasingly unsustainable, unfunded "gold-plated" pensions for politicians and the public sector at the expense of much more numerous, poorly pensioned citizens in the private sector?

For example, the NPRF has indicated that public service pension costs will reach 3.7% of GDP by mid-century while social welfare pensions for a far larger number of people will only rise to 10.1%. 

As contributors to the Fund, we should be given absolute assurances that future governments will not treat the Fund as a massive "slush fund" to support vested interests as done with decentralisation, benchmarking etc.

Lead letter published in Irish Times on 26th July 2008.

Here are three proposals which could help negotiations on a new national wage agreement, claw back some of the excesses of the Celtic Tiger, improve equity within society, generate additional funds for the Exchequer, and enhance national competitiveness:

1. Apply wage increases under the next agreement on a sliding scale, for example, 3% p.a. on the first €30,000, 2% on the next thirty and 1% on the balance. As wage increases, in the absence of growth, are mainly intended to compensate for basic cost increases, there is no case for automatically offering the same proportional increases to those already enjoying high incomes. 
2. Either introduce an additional tax rate (say 45%) for those earning over, say, €100,000 or ensure that those on the 41% rate actually pay tax at that rate on their incremental earnings by scaling back allowances for "top-hat" pensions, investments etc. It is inequitable that someone earning €60,000 a year pays tax at 41% while a person earning five times more can pay tax at a lower effective rate.
3. Drop the standard VAT rate to, say, 18%. This would reduce the cost of living and help redress the imbalance between low direct taxes (which benefit the better off) and indirect taxes which fall most heavily on the less well off.

The figures are illustrative but basic analysis would identify the ideal combination to achieve all the aforementioned objectives.

Lead letter published in the Irish Times on 28th June 2008.

Dr X's call for a pay freeze (4th May7 2008) is unlikely to secure much support in the talks on a new national wage agreement on account of our high inflation etc. However, here are three proposals which taken together could enhance national competitiveness, protect living standards, claw back some excesses of the Celtic Tiger, improve equity within society and generate additional funds for the Exchequer:

1. Wage increases under the next wage agreement should be applied on a sliding scale e.g. 3% p.a. on the first €30,000, 2% on the next thirty and 1% on the balance. As wage increases are mainly intended to compensate for basic cost increases, there is no case for automatically offering the same proportional increases to those already enjoying high incomes. 
   
   
2. Either introduce an additional higher tax rate (say 45%) for those earning over, say, €100,000 or ensure that those on the 41% rate actually pay tax at that rate on their incremental earnings by scaling back allowances for "top-hat" pensions, investments etc. It is anomalous that someone earning €60,000 a year pays tax at 41% while a person earning five times more can pay tax at a much lower effective rate.
   
   
3. Lower the standard VAT rate to, say, 19%. This would reduce the cost of living and help redress the imbalance between low direct taxes (which benefit the better off) and indirect taxes which fall most heavily on the less well off.

Figures are illustrative but basic financial modelling would identify the ideal combination to meet all the aforementioned objectives which, presumably, are reasonable and desirable.

Lead letter published in the Sunday Business Post on 11th May 2008.

I wish to link Minister Dempsey claim that the Exchequer doesn't have a "red cent" for a much needed hospital in the north east to Richard Curran's report (6th April) that the National Pension Reserve Fund is the 15th largest sovereign investment fund and one of the few funds not financed by rising oil and commodity revenues.

The National Pension Reserve Fund secures 1% of GNP each year to help fund pensions after 2025. Valued at €21.3 billion at end 2007, it lost 1.8% of its value in the final quarter of 2007 and probably lost a multiple of this in the most recent quarter. More discerningly, the Fund, as recently as December 2007, was increasing its investments in volatile emerging markets, property and overseas private equity from 7% to 21% of the Fund's overall value by end 2009.

All this begs the question as to why the Government is borrowing well over a billion euro a year specifically for the Fund to make risky overseas investments and, at the same time, deploying expensive Private-Public Partnerships and massive tax breaks to help finance critical national projects. This is analogous to a heavily-mortgaged householder borrowing further money to invest in risky overseas shares for pension purposes while using a reduced salary to pay a premium price for essential roof work on top of an ongoing annual toll to the contractor.

This makes absolutely no financial or economic sense. Surely it would be better to legislate a "contributions holiday" for the Fund and divert future payments €1.6 billion a year of "red cents") towards much-needed, major infrastructural projects that could be progressed more quickly and kept in public ownership where they ultimately belong.

This letter was published in the Sunday Business Post on 13th April 2008.

How can a prospective salary of €310,000 for the Taoiseach be justified when the UK's Prime Minister only earns €270,000 (€187,611) and the US President gets €281,700 ($400,000) ? Is it any wonder that Ireland is losing its competitiveness and public sector costs are surging when people at the top so blatantly ignore the need for pay restraint.

Letter published in the Irish Times on 30th October 2007.

Does projected economic growth of 5% a year mean, for example, that we'll have:

• 5% more cars on the road each year for the foreseeable future?
• 5% more children trying to get into schools every year?
• 5% more people crowding each year into our hospitals?

Will this growth continue to undermine our national competitiveness as has happened during the recent years? If so, the net result will be that cars will be barely usable due to congestion, more children won't get places in schools, the health service will implode and no one will want our overpriced exports. Surely this is a Celtic nightmare and absolutely unsustainable or undesirable.

Will some politician please stand up and articulate a vision of Ireland which allows the country to consolidate and draw economic breath.

Two major Irish banks have recently suggested that interest rates in the euro zone could peak before the end of this year at 4.25%. How much credence can be given to this when no one can possibly foretell what will happen to Iraq, German economy, oil prices, US dollar, Russian gas supplies and so on? Furthermore, interest rate trends does not suggest any peaking of euro rates as might be the case for US rates. Do these banks know something the rest of us don't know or do they just have thicker brass necks or bigger crystal balls?

Letter published in the Sunday Business Post on 29th July 2007. 

Only weeks after stuffing the electorate with promises of lower taxes and better services, the Taoiseach tells us (7th June) that we are entering a period of challenging economic conditions and that it is important to focus on restoring and renewing competitiveness across all dimensions. Isn't it really strange that this is the second occasion that conditions have deteriorated immediately following an election?

In fact, absolutely nothing has altered during the past month to justify this about face. However, if the Taoiseach believes what he says then he could lead by example and slash the inflated salaries of ministers/TDs who are amongst the best paid in the World. He should then shake up the public sector to bring it into line with performance and pay norms in the private sector and ensure that lump sum wage increases rather than socially-device percentage increases are applied in future national wage agreements.

Unless measures along these lines are taken to restore our increasingly unbalanced, uncompetitiveness, overpriced and overborrowed economy, we will see a continuing deterioration. Action now would be less painful than the appalling prospect of having to abandon the euro for a floating Irish pound in order to recover the levers of economic management. This would improve competitiveness but at the expense of even higher prices and interest rates.

Letter published in the Irish Times on 13th June 2007. 

Mr X quoted EU statistics (Letters, 5th June) to suggest that Ireland has become more equitable since Bertie Ahern came to power. He indicated that the gap between the incomes of the top 20% of the population and bottom 20% declined from 5.1 times to 5.0 between 1995 and 2005, an improvement of 2%.

It is a pity he did not look more closely into the figures as he would have found that EU countries improved their overall score over the same period from 5.1 to 4.8, a 6% improvement; Ireland's score improved by 12% from 5.1 in 1995 to 4.5 in 2001 and deteriorated by 11% to 5.0 over the subsequent four years; and Ireland had the tenth widest gap between rich and poor out of 28 countries in 2005.

Ireland's score would need to fall to 4 to match the equalities in most Northern Europe states. At the current rate of progress, this will take a hundred years.

Letter published in the Irish Times on 7th June 2007.

The recently approved Towards 2016 agreement is, like its predecessors, unbalanced and inequitable. Based on data abstracted from the recently published National Employment Survey, total national earnings amounted to approximately €42 billion in 2003. On this basis, the 10% increase under Towards 2016 would be worth €4.2 billion and, if distributed equally, would equate to €2,900 a year per worker.

Because increases are applied on a percentage basis, workers at the lower end of the scale receive much smaller monetary increases. This means that the 233,000 workers earning less than €250 a week are likely to share about €256 million whereas the 145,000 workers earning more than €1,000 a week will share about €1,100 million. On this basis, the 10% of the highest paid workers will secure about a quarter of the total increase and the 16% of lowest paid will get just 6%. Furthermore, the extra 0.5% negotiated for low paid could cost about €25 million and amount to considerable less than one percent of the total value of the agreement.

What is so disconcerting about national agreements is the cumulative effect of awarding percentage increases across the board. This only serves to widen the gap and perpetuate inequities. Is it any wonder that, notwithstanding the size of the State, our political and administrative leaders are, thanks to these increases, amongst the best paid in the world? Towards 2016 should be viewed as a national disgrace rather than a national agreement. If the State can afford a wage increase of €4.2 billion, why can't it be distributed more fairly?

Letter published in the Sunday Business Post on 17th September 2006.

Judging by their silence, motorists don't give a hoot about the recent increases in the East and West Link tolls. If they made enough noise, I'm sure that they could force a roll-back of the recent increases along with commitments to limit future price rises and measures to ease the congestion.

This instance of highway mugging begs the question as to why the Government and NRA are pursuing plans to toll further roads notwithstanding that Public Private Partnership funding is minor in the context of the total investment in infrastructure; that toll operations represent additional cost burdens; that the State can raise finance on better terms than any private operator; and that profits must be generated to remunerate the private partner.

Surely, it is time for the Government, NRA and NTR to recognise that they are killing their "golden goose" in the same way that Eircom's floatation and subsequent history have constrained any future privatisations.

Letter published in the Sunday Business Post on 23rd January 2005.

Most international studies use Gross Domestic Product (GDP) as the basis for comparing the economic performances of countries. In Ireland's case, GDP is a poor basis for comparison as it includes profit repatriations by multi-nationals. Gross National Product (GNP) is a much better measure of income and wealth as it excludes these repatriations which exceed €20 billion a year.  In 2003, Ireland's GDP exceeded GNP by 19% while GDPs and GNPs of the other 24 EU States diverged in most cases by less than 1%.

Use of GDP as the basis for comparison leads to over- or understate Ireland's performance as the following examples illustrate:

1. The recent OECD Report on Education indicated that Ireland ranked 23rd out of 30 countries in terms of public expenditure as percentage of Gross Domestic Product (GDP). If this data is rebased to use GNP, Ireland jumps to a more respectable joint 18th place.
   
   
2. A recent Central Bank report indicated that Ireland had the sixth highest private sector credit as % GDP for euro countries. After rebasing to GNP, Ireland jumps to third position and this puts our national borrowing in a completely different and more serious context.
   
   
3. The latest UN Human Development Report indicated that public expenditure on health in Ireland was 4.9% of GDP and lowest for fifteen countries listed. When rebased using GNP, Ireland's percentage rises to 6.1% and its ranking improves to joint 8th place. This is distinctly better than being "paddy last" and begs additional questions about use of resources in this key area.

International statistics should always carry a "wealth warning" but those used to measure and compare Ireland's performance need special care. While international organisations are unlikely to revise their data to take account of Ireland's unique circumstances, data published in Ireland or used for policy development should be correctly based. A simple rule of thumb is to add a quarter to recent GDP-based statistics to rebase them to GNP and reflect Ireland's underlying performance.

It is a pity that outrage over AIB's overcharging and NIB's transgressions is not being directed also at the fact that house buyers were obliged to borrow €17 billion last year to acquire overpriced houses. Arguably, if house prices had been, say, 10% lower, these new borrowings might have been reduced by as much as €2 billion and interest payments would have been lower for new and recent borrowers throughout the life of their mortgages.

Having ceded control over interest rates to the European Central Bank, the Government tried, and failed, to contain house prices by tinkering at the edges - mainly by encouraging the building of even greater numbers of overpriced houses. It has ducked real issues such as land prices and hoarding, excessive lending, inflationary tax incentives, profiteering, overcharging and tax gouging. As a consequence, hundreds of thousands of house buyers will be making excessive loan repayments amounting to billions of euro for decades to come.

Given that house prices have escalated to such a degree, containment of price inflation is no longer adequate. It is small consolation to see a slow down in price increase when current prices should never have been reached in the first instance. Instead, what is needed is a substantial reduction in house prices to bring them back to levels that make them sustainable when interest rates rise and economic growth moderates.

To start this process, the Government should immediately establish a Task Force to implement key suggestions in the All Party Committee on the Constitution's progress report on private property. If the Government fails to unwind the house price problem in an orderly way, then its much-beloved "market forces" will do the job with consequences that will be many orders of magnitude greater than the current financial scandals.

Lead letter in the Sunday Tribune and published in Sunday Business Post on 8th August 2004.

Things have reached a stage that we as a nation need to take stock and start facing some home truths about our State, its management and direction:

• We have a booming economy for which everyone takes credit for but which is based largely on inappropriate cheap credit rates ordained from outside the State.
• We have completely inadequate services in health, law and order and for the disadvantaged and deprived but unending promises of improvement that are rarely delivered.
• We have a strong foreign industry base thanks to transfer pricing, generous tax rates and light regulation but stagnating indigenous industry due to escalating costs and lack of development.
• We have a service sector that is manifestly over-pricing in many areas which blames everyone but its own greed for causing the high prices.
• We have a Government  that is unwilling to raise taxes to improve services but very willing to give tax breaks to wealthy tax payers and impose stealth taxes.
• We have a public sector that accepts politically-inspired benchmarking awards but offers little in return other than interest in further similar awards.
• We have an administration that expends enormous sums on capital projects but is incapable of managing them on budget and time without selling major rights to private interests.
• We have a national pension fund which sucks up 1% of national wealth every year to invest throughout the world but is unwilling to make any significant investments in Ireland.
• We have a political philosophy which seeks to impose greater use of our historic language in Ireland and the EU but fails to adequately protect our heritage, constitution and nationhood.
• We have a Cabinet that is unable to make timely decisions on key issues - airport terminal, health service reform, housing, traffic and social equality - but very fast to decide on unimportant matters like post codes, decentralisation and e-voting.
• We have politicians who transfer hundreds of millions of tax receipts to lawyers to probe corruption and wrongdoing but who are unable to accept their responsibilities and often pay scant regard to the truth and ethics.
• We have a legislature which generates noise and spin but operates for less than half the year and, even then, is very poorly attended and regularly ignored by its proponents.
• We have an "establishment" which pursues a liberal economic agenda but fails to appreciate that the economy is only one element of a strong, satisfied State.

The likelihood that the Bank of England may increase interest rates for the first time in three years should be a salutary warning to the overheated Irish housing market. Where the "Old Lady of Threadneedle Street" goes, other Central Banks are sure to follow either sooner or later.

In the current low-interest climate, many first-time buyers are very stretched to meet mortgage repayments. In a higher rate environment, their capacity to meet larger repayments is unlikely to increase and, depending on other economic factors, may even fall. If interest rates should rise by 2% over the next three years, then repayments on a 90% thirty-year mortgage at 3.5% p.a. for a €300,000 house would increase by 23%. On this basis, house prices would need to decline by about 18% for the monthly repayments to stay at their current level.

Rising interest rates could move many recent and future buyers with large mortgages into negative equity and expose their lenders to defaulting loans. It could also mean that many houses acquired as investments might be offered for sale to lock in gains or to cut losses. This would further depress prices. Can nothing be done to prevent this calamitous event from happening?

Letter published in the Irish Times on 28th October 2003.