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Nama and the housing crisis

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The Taoiseach is committing a cardinal management error by planning to repurpose Nama as its primary vehicle for social and affordable house building as structure should follow strategy and role definition rather than precede it. 

A new national agency which could absorb relevant Nama resources would start with a clear focus and without any legacy baggage.. It should act as principal and directly engage contractors to build houses on public-owned land in the larger urban centres and,optionally, play a coordinating role in relation to major schemes in other areas. 

This approach would result in lower costs and more affordable houses than could be achieved by a restructured Nama which simply and expensively co-ordinates profit-seeking developers.

As previously suggested ("Addressing the housing crisis" , Letters 16rh August), it could be part funded by some of the €5.3 billion surplus cash resting within the Ireland Strategic Investment Fund alongside external investment and debt structured to surmount likely EU concerns about breaching national debt limits.

Even with funding in place, it will take time to mobilise resources, undertake design work, issue and place tenders. As the Central Bank has indicated, a major building programme could strain resources and this would further delay progress. To address this and respond appropriately to the crisis, the agency should, for major projects, actively seek participation from well-resourced, major overseas construction firms with appropriate safeguards on labour conditions, quality etc.

Finally, a clear indication from the Government to "the market" that it intends, as is its right, to directly supply large numbers of affordable homes should  cause landowners, speculators and landlords engaged in hoarding or gouging to rethink their greedy plans. And to reinforce this message, it should also signal that it will invoke Clause 2 of Article 43 of the Constitution in relation to private property where the common good, social justice and national housing emergency demand this.

Lead letter in the Irish Times on 21st September 2017.

Straight-forward Solution to Housing Crisis

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With the recent discovery of 26 percent extra economic growth in 2015 and taking account of EU restrictions on national debt, it should be possible for the State to directly fund a massive building programme for social housing  instead of relying on an expensive combination of rent subsidies, public-private partnerships, leasing, off-balance-sheet mechanisms and other devices as per the Rebuilding Ireland report.

Lead letter published in the Irish Times on 21st July 2016.

See & Hear No Evil

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The search for the Anglo tapes whistleblower reminds us that the only person convicted in connection with the Beef Tribunal was a whistleblowing journalist.

The Minister of Finance has reportedly complained, in relation to the tapes, that the media should stop "mucking around in garda business".  Surely, politicians are the parties most guilty of "mucking around" for having failed to set up a robust and comprehensive public inquiry into the most damaging event in the State's history.

They also appear to have failed to provide adequate resources to the Fraud Squad, Director of Public Prosecutions and Office of Corporate Enforcement to complete rapid and extensive investigations into events that have left citizens footing a bill for at least €64 billion.

Lead letter in the Sunday Business Post on 14th July 2013.

Pension Fund Theft?

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There is nothing extraordinary about the proposed Cypriot levy on apparently untouchable deposits. The Irish Government led the way by imposing a 0.6 percent annual levy on similarly untouchable private pension funds. It expects to gather €1.8 billion from this underhand action which provoked minimal opposition or protests unlike developments in Cyprus.

Of course, no similar penalty applied to public sector pensions amidst recent ministerial claims that constitutional property rights preclude the slashing of outrageous pensions being paid to former politicians, mandarins and bankers.

Lead letter published in the Irish Times on 21st March 2013. This follow up letter was published on 27th March 2013.

William J XXX (26th March) stated that I was factually incorrect when quoting me as saying  (21st March) that "no penalty applied to public sector pensions". I actually wrote "no similar penalty" in the context of the Government's raid on private sector pension funds. This is factually correct. 

He goes on to write about public sector pensions being  dependent on employee contributions but ignores the fact that these pensions, particularly at higher levels, are largely financed by private sector taxpayers who could never aspire to secure such attractive pension benefits for themselves.

Don't Pay the Promissory Notes

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Professor Morgan Kelly, writing about the Anglo bailout in 2008, suggested that "the money might as well be piled up in St Stephen's Green and incinerated". Well, unless a write-off deal on the promissory notes is struck, that is exactly what will start happening in March, albeit at a different location, when €3.1 billion of "real cash" is passed to the Central Bank where it will disappear in a puff of electronic smoke.

Any deal that replaces notes with bonds is unacceptable as it simply pushes this senseless burning of Irish taxpayers onto another generation. Instead, a full write off must be sought and secured on the grounds that the cost of the bailout of Anglo should not be foisted on blameless Iriish taxpayers,

A write off is entirely within the gift of EU central bankers and, while it might result in a temporary loss of face, no loss of cash would be incurred. In fact, the full €30 billion will be effectively written off irrespective as to whether notes are paid or not.

The Government should stop spinning and whining about unfairness. Instead, it should start playing hardball and show more backbone even at this late stage.

Burning €30,000,000,000 of taxpayers money for no return whatsoever makes no sense and is extortion given that the State is bankrupt.

What exactly would the ECB do if the notes are not paid? Pull the rug from under the Irish economy or just make the "best boy in the class" sit on the bold step for a while?

Lead letter in the Sunday Business Post on 3rd February 2013.

How to Resolve the Crisis

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The Government should invoke force majeure and immediately introduce legislation to halve the salaries and pensions of all highly-paid people in the public sector and dispense with all special entitlements.

It should signal that it will aggressively contest any attempts to frustrate these actions. They must be fully implemented before the budget to ensure that, unlike previous budget announcements on pay and pension cuts for ministers and senior civil servants, they will not be watered down or reneged on. Such a move, backed by the Opposition, would demonstrate leadership to citizens and financial markets.

From this high moral ground, the government should then negotiate pain-sharing with bondholders alongside the introduction of a bank resolution scheme; nationalise both main banks; pull back on Croke Park Agreement; finalise the four-year plan; secure support for the 2011 budget; and hold a general election. All these things could be done by next spring when Ireland could re-enter the bond market with a much stronger investment case and brighter future.

Lead letter published in the Sunday Business Post on 14th November 2010.

Moral Hazard

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The Honohan Report said there was a ''moral hazard'' involved in the blanket bank guarantee, ''though this argument does not appear to have been made''.

The chairman of Nama and the Financial Regulator have recently suggested that it would not be possible to assist people with distressed mortgages, due to ''moral hazard''.

So where is the moral hazard for the politicians, administrators, bankers, developers and related professionals who created the financial crisis, but continue to hold positions of power, draw huge pensions, operate insolvent businesses and get massive bailouts, courtesy of taxpayers?

Letter published in the Sunday Business Post on 27th June 2010.

Nama and the Banking Crisis

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These three letters from me about Nama and the banking crisis were published in the Sunday Business Post over the three Sundays commencing 18th April 2010:

Updated Cost of Crisis

On 22nd March you published a letter from me indicating that the banking crisis could cost taxpayers up to €35 billion. In the light of recent revelations, my "worst" case estimate has been upped to €47 billion. This is additional to related interest payments, social and economic costs and forfeiture of future investment opportunities.

How is this going to be paid for? Surely, it would be unrealistic to expect the cost to be shouldered by the lower paid who, by definition, are having trouble making ends meet. On this basis, the only realistic answer is a new levy on high earners on the grounds that they can still enjoy boom-time lifestyles and probably don't pay full taxes thanks to untaxed pension contributions and tax allowances arising from the ill-fated building binge. I can think of several memorable names for such a levy!

Lead letter published on 18th April 2010.

Haircuts and Scalping

Much attention has focused on the larger than expected haircut on the €81 billion of bank loans going into Nama. However, this haircut amounts to a scalping for taxpayers as it means that developers will walk away from residual debts of €36 billion if Nama merely breaks even over the next decade.

Accordingly, Nama's mission must be to collect as much of the haircut as possible - every unpaid billion euro is in effect a donation by taxpayers to developers' gambling debts and their incompetent banking pals. This means no sweetheart deals or fire sales, and maximum enforcement no matter how long it takes or difficult it proves.

Lead letter published on 25th April 2010.

Phantom Funds

Your front page headline "Phantom funds make up to 66% of INBS income" (25th April) could just as easily refer to Nama. Buried in the financial projections of Nama's draft business plan is evidence that it expects to roll up about €5 billion of interest in its initial three years and there is no indication that any of these phantom funds or "unrealised interest" will ever be paid. Indeed, I estimate that they could amount to €11 billion over ten years to 2020 and would almost equal the projected interest actually paid by borrowers. The Nama plan is silent on this possible write off.

It is interesting to see how the plan, issued with great flourish and used to justify Nama to the electorate and secure Eurostat approval for off-balance sheet borrowing, has been suddenly downgraded to "illustrative"  before a Joint Oireachtas Committee. Of course, the best approach would be to include Nama in the Freedom of Information Act to facilitate access to details of Nama's plans and operations.

Letter published on 2nd May 2010.

Cost of Banking Crisis

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Rough calculations suggest that, in the "worst" case, the banking crisis could ultimately cost taxpayers about €35 billion based on €10.8 billion expended to date, €14 billion for further bail outs and partial nationalisations, and a provision of €10 billion to cover Nama losses.

This is equivalent to about three years' income tax receipts, or €17,000 - or six months' average earnings - per taxpayer. Related borrowings would peak at about €79 billion with annual interest of about €3.5 billion either borrowed or paid by taxpayers. It takes no account of broader economic and social consequences.

Given the magnitude of the likely losses, it is truly extraordinary that a full public enquiry is not already well underway. Maybe, this because most of those who created, or failed to prevent, the crisis are still in charge.

Lead letter published in the Sunday Business Post on 22nd March 2010.

Some additional comments:

      1. In a "best" case scenario, triggered by a miraculous resumption of growth, the foregoing cost (€35 billion) might be reduced by two-thirds thanks to Nama achieving better than break even, repayments by some banks and proceeds of bank share sales.

      2. Based on the average of "best" and "worst" cases, the "most likely" direct cost of the banking crisis could be about €24 billion.

For the record, the key assumptions were as follows:

  • €10.8 billion already expended: €3.5 billion to Bank of Ireland and AIB; €3.8 billion to Anglo Irish Bank.
  • €13.4 billion for further bale outs etc.: €6 billion for Anglo; €2 billion for Irish Nationwide and €0.4 billion for EBS; €5 billion in new equity to be shared between Bank of Ireland and AIB.
  • Provision for Nama losses: €10 billion based on 20% of the €54 billion to be paid for loans from the covered institutions.
  • "Best" case provision assumed that all funds (€12.2 billion) to Anglo, Irish Nationwide and EBS are written off; that Nama breaks-even; and that preference and ordinary share investments in AIB and Bank of Ireland are recovered at cost,
  • Peak borrowings comprise cash provided to the covered institutions (€24.2 billion) plus the Nama bonds (€54 billion). This takes account of the fact that any share investments made by the National Pension Reserve Fund are effectively funded by borrowings via the NTMA.
  • Assumed interest rate on these borrowings is 4.5% (current yield on 10-year Government bonds).

The foregoing estimates exclude any possible losses linked to €10 billion provided by the Central Bank to Anglo Irish Bank under Master Loan Repurchase Agreements last March. This is secured against collateral of €14.5 billion provided by Anglo. For more information, see Outsiders Pay for Insiders Greed by David McWilliams in the Sunday Business Post and Anglo's latest fun in the sun by Dr. Constantin Gurdgiev.

 

Nama and Rolled Up Interest

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According to Nama's plan, budgeted interest income for 2010-12 will total €9.5 billion but its cashflow projections only show interest income of €4.5 billion for this period. Presumably, the difference of €5 billion is rolled up. I reckon that rolled up interest could total €10.9 billion over the ten years to 2020. If this is included in the €62 billion of principal repaid by borrowers then the "real" default rate on loans would be 34% rather than 20% indicated in the plan. This would transform Nama's projected surplus into a trading deficit of at least €5 billion and signify that the bank/building crisis is far more serious than implied by Nama's plan.

Given that Nama will be taking over loans amounting to almost half of Ireland's GDP, its business plan should, at a minimum, have included "scenario-based" P&L statements and balance sheet projections as well as cashflow forecasts for the ten years. These would have given a fuller picture and facilitated analyses which might have helped anticipate problems identical to those being experienced by the banks that Nama is seeking to rescue.

Letter to the Editor published in the Sunday Business Post on 22nd November 2009.

Questions about Nama

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Four questions about Nama:

  1. Why is the onus on Irish taxpayers to recapitalise the main banks via Nama? These banks could raise substantial capital by selling off non-core investment and insurance activities and holdings in banks in the UK, Poland and the US. 

  2. Why is the Minister preoccupied with the capital requirements of the banks when determining the haircut on loans being transferred to Nama? Surely, this amounts to match-fixing with taxpayers on the losing team.

  3. Will the Minister accept that property values could continue falling for the next few years and might not rise for several years thereafter? This would be a consequence of the overhang created by Nama's portfolio, rising interest rates and ultra-conservative bank lending.

  4. Why doesn't the Government direct the banks to grant share options to mortgage holders experiencing negative equity? This would help compensate them for the failures by the Government, Regulator and banks to exercise judgement and prudential control during the boom which they provoked.

Lead letter published in the Irish Times on 17th September 2009.

Role of Nama

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Why is the Government proposing to use Nama to prevent a decline in property prices at a time when Ireland has the second highest cost of living in the EU?

Surely, it should be encouraging lower prices as these would result in cheaper houses, lower shop prices and more competitive commercial and industrial rents. Instead, taxpayers are expected to underwrite a multi-billion punt on Nama to ensure that property prices don't fall and that the country remains uncompetitive.

Lead letter published in the Irish Times on 26th August 2009.

Supplementary Budget

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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.

Guarantees for Banks

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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.

Pension Fund Strategies

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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.

Responding to Recession

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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.

Next National Wage Agreement

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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.

Benchmarking II

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The recent reports on benchmarking and higher remuneration in the public sector have raised basic issues about equity and fairness.

First, the Benchmarking Body used a 12% provision while the Higher Remuneration Body used 15% when assessing the value of pensions. These averages have greatly distorted assessments. For example, the percentage applicable to a lowly paid clerical officer would be very different to that for a Garda who can retire at 50 on full pension, or to the Director General of a government department.

Second, Benchmarking II produced evidence that public sector employees were paid a salary premium (averaging 8-10%) on a comparable basis to private sector employees while working fewer hours back in 2003. This was prior to Benchmarking I payments. If account is taken of the resultant benchmark payments (averaging 9%), the additional value of pensions (12%+) and shorter hours worked and longer holidays (say, 10% difference), then the current pay premium for public sector employees could be as high as 40%. The benchmarking report was silent on this and only said that "public sector salaries compare well with the private sector". It would have been useful to have indicated 'how well'.

Third, the cost of Benchmarking I is often quoted in terms of a cost per year. It should be borne in mind that this cost recurs and increases each year and that the cost of Benchmarking I could exceed �6 billion to date. As indicated above, it is doubtful whether Benchmarking I should have been paid in the first instance and there is little to suggest it resulted in any worthwhile improvements in services.

Fourth, it was erroneous for the Higher Remuneration and Benchmarking bodies to confine themselves to comparisons between the domestic private and public sectors. Account should also have been taken of public sector pay patterns in other similar countries where it would be easy to make directly relevant comparisons. This might have helped ensure that, in the interests of international competitiveness, our Taoiseach, TDs and top managers and professionals in the public sector are paid salaries appropriate to a country with a population of four million people.

Subject to the foregoing, Benchmarking II comes across as a far more transparent assessment than it predecessor. It would be a pity if its approach to establishing relativities and comparisons was rejected simply because it did not deliver for the public sector on this occasion.

Lead letter published in the Sunday Business Post on 27th January 2008.

Stamp Duty and Building Profits

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Instead of tinkering with stamp duty, the Government, as advocated by your correspondent Mr X (3rd December 2007 and July 2006), should immediately implement the Kenny report to limit profits on building land. It should also dig up the All Party Committee on the Constitution's progress report on private property which, no doubt, it will find buried under a tent in Galway.

The magnitude of profits made by the building industry are mind blowing. Over the ten years to end 2006, 608,000 new houses were completed and average annual prices increased by 199% from €102,000 to €306,000. On this basis, the cumulative value of new house sales over the decade was €131 billion.

During this same period, building costs increased by 61%. If land and other costs and profits had only risen in line with building costs over the decade then the average price of a house would have hit €164,000 in 2006 and the cumulative value of sales over the ten years would have been just €86 billion, a difference of €45 billion. After allowing for VAT of €8 billion, the residual difference of €37 billion is largely attributable to profits for land owners and builders.

On this basis, about one-third of future mortgage repayments by house buyers will be used to pay for these extraordinary profits. It should not be ignored that financial institutions have also profited as they have lent far more than strictly necessary. Likewise, the exchequer, through stamp duty, and a raft of service providers including brokers, insurance companies, solicitors and auctioneers have benefited from this windfall.

In addition to being burdened by excessive borrowings, many recent purchasers have had to purchase lower grade accommodation, live in less accessible locations, work harder and longer, and demand higher earning to pay their inflated mortgages. This has disrupted communities, reduced leisure time and living standards, and impacted on national competitiveness and long term growth prospects.

It is ironic that having sought a reduction in stamp duty on the grounds that it would stimulate the market, builders have ignored the fact that dropping overblown prices would have a much more significant impact on demand.

Lead letter published in the Irish Times on 7th December 2007.

Review Body and Public Pay

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It is clear from the reaction to the recent Report by the Review Body on Higher Remuneration that its approach of comparing public sector salaries with the private sector is inadequate. Why should Irish Secretaries General be paid more than their equivalents in almost every other country? If TD salaries are very high by international standards and linked to those of Principal Officers, what does this say about salaries at middle levels in the Irish public sector?  Buried in the Review Body's report is mention of a recent survey, covering 13 countries, that indicated that the remuneration of office holders in all the countries is WELL BELOW (my emphasis) below that of jobs of comparable weight in the private sector. Why should Ireland be so different?

It will be interesting to see if the current review by the OECD of the Irish public sector will include salary comparisons when it benchmarks the Irish public sector against other comparable countries. If it doesn't do this, how can it hope to assess effectiveness and performance given that pay and pensions account for the bulk of public expenditure.

Aside from Review Body awards and benchmarking, the main driver of politician and public sector pay has been the various national agreements which appear to mainly benefit the public sector. Because these agreements provide percentage increases across the board, workers at the lower end of the scale only receive small monetary increases and the gap between top and bottom salaries gets wider on an exponential basis. Is it any wonder that, notwithstanding the smallness of the State, our political and administrative leaders are, thanks to these percentage increases, amongst the best paid in the world?

For the future, the Review Body must be instructed by the Government to take account of comparable public sector salaries in other EU countries and national agreements should make provision for percentage increases to be applied on a sliding scale so that the lowest paid get the largest percentage increases.

Lead letter published in the Irish Times on 7th November 2008.

Reducing the Top Tax Rate

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Three questions for Budget week:

  1. Why should someone earning €50,000 pay tax at 42% on incremental income while an earner of €250,000 might pay only 20% on all income and personal capital gains? 

  2. Why give investment tax breaks directly to individuals when companies are the natural vehicles for making investments?

  3. Why tinker with tax credits for PAYE workers when those with the highest earnings, and therefore the greatest capacity to pay tax, can avail of massive allowances to escape taxes?

The logical answer is to reduce the current top rate and apply it without exception. A new top rate of, say, 35% on income and personal capital gains could give same return to the Exchequer as the present inequitable regime. If people wish to make investments, let them make them through companies where they can avail of allowances and a tax rate of 12.5 per cent. Done this way, all distributions and gains from companies could then be taxed in the normal way, without further relief, at a reduced top rate.

Surely, the top tax rate should apply equally to all taxpayers.

Lead letter was published in the Irish Times on 5th December 2006.

Tax, Property & Tribunals

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A few themes have emerged in recent days.

Firstly, the failure of the Government to address findings of the Oireachas report on private property and land prices as eloquently explained by James Pike (27th June). In effect, the Government has presided over a housing land grab by speculators which has contributed hugely to the surge in house prices and has resulted in an additional debt burden on hundreds of thousands of voters for decades to come. It is not too late for the Government to take concrete action on this before the next election. However, if it only becomes an election promise, nobody will believe it.

Secondly, the axiom that the more people earn the more taxes they pay clearly does not apply to Ireland. Instead, millionaire earners can hide behind Government-inspired tax shelters and avoid tax while Sean Citizen pays the full whack. To add insult to injury, Sean has to compete in the housing market with investors whose purchases are being part-funded by his taxes. From a national viewpoint, this  taxpayer-subsidised property bonanza has enabled many investors to use their tax-relieved gains to leverage massive investments abroad which bring absolutely no benefit back to the nation. Why should someone earning €50,000 pay tax at 42% while an earner of €250,000 might only pay at 20% on income and capital gains? Surely, a top rate of tax should do what it says on the tin. If all personal tax allowances are eliminated, a new top rate of, say, 35% on income and capital might give the same return to the Exchequer as the present inequitable regime. If individuals wish to make investments, let them do it through companies where the tax rate is only 12.5% and let the distributions be taxed at the standard rate.

Thirdly, the tribunals trundle along on a wave of perjury and forgetfulness. In any other civilised country, the full weight of the law would be thrown at these issues and instead of "slaps on the wrist" we'd see guilty people making "perp walks" and enjoying State-funded hospitality. If the authorities lack resources and expertise, they could seek support from the prosecuting teams used in recent high-profile financial trials in the US. Where is the anti-corruption agency promised years ago by the Taoiseach and where is the long overdue legislation to protect whistle blowers? Probably being dusted off as election promises (again).

What is common to these themes is a complete failure of Government to govern fairly. Instead, it has pursued a policy of making the wealthy richer and ignored the fact that, as Fianna Fail backbenchers are belatedly discovering, the rich account for few votes.

Lead letter was published in the Irish Times on 30th June 2006.

TDs are Winning Race to the Top

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The Government is continually emphasising the importance of competitiveness to the social partners as they start negotiations on a new national wage agreement. Are similar exhortations being made to the Review Body on Higher Remuneration in the Public Service which has just commenced a major review?

In the past, this Review Body made comparisons with the domestic private sector jobs but this time around it should also consider similar public sector jobs in other comparable economies.

Much of the data required for this work is published on the Internet. But there are gaps. For example, to compare current salaries of British MPs and TDs, copious material can be found on the Westminster website but the Oireachtas website contains no relevant information. For the record and to illustrate the problem, TDs now earn between 2% and 9% more than their UK counterparts notwithstanding that the Dail meets for only about 60% of the sitting time of Westminster and TDs effectively serve only a quarter the number of constituents covered by MPs. Likewise, Irish Cabinet Ministers and Ministers of State earn between 1% and 5% more than their UK counterparts notwithstanding that they preside over a country that is no larger than some counties in the UK. Is it any wonder that the Irish information is hard to find.

If broader study confirms that other top-level salaries are also completely uncompetitive, the Review Body must confront the "appalling vista" of salary reductions to maintain competitiveness. Of course, they must take account of our recent economic progress. In doing so, it should also take cognisance of the fact that many key public services - health, law and order, transport and infrastructure - has been so ineptly lead and inefficiently managed that major achievements in other areas have been negated.

When establishment figures speak of international competitiveness, they should practice it. For starters, the Review Body on Higher Remuneration should be instructed to take account of and publish international comparisons when it devises new salary levels. This approach should also apply to the forthcoming benchmarking review. Additionally, the negotiators of the next national wage agreement should review the practice of setting percentage rather than absolute wage increases. This only widens the gap between the top and bottom grades and can result in senior officeholders receiving wage increases as large as average wages earned at the bottom.

A race to the top can be just as destructive for the national interest as the race to the bottom.

Note to Editor: The Irish salary levels were secured from the Oireachtas PR Office. A TD earns between €88,556 and €94,205. Ministers earn €199,044 and Junior Ministers get  €136,771. MPs earn the equivalent of €86,636. UK Cabinet Ministers and Minsters of State get €196,447 and €129,872 respectively (Source: House of Commons Fact Sheets M5 and M6).

Lead letter published in the Irish Times on the 13th February 2006.

House Prices: The Real Financial Scandal

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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.

TDs and Benchmarking

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Now that the Dail has resumed sittings, let us have some real performance improvements from the Dail and politicians to justify benchmarking. Some suggestions in no particular order of importance:

1. No double jobbing as TDs are paid to do full-time jobs. Earnings from nixers and consultancy work should be used to reduce Dail salaries.
2. The Dail's annual holidays should be only 4-6 weeks. Normal office hours should apply from Monday to Thursday with Fridays reserved for constituency work and clinics.
3. The number of TDs should be rationalised - one TD per constituency is adequate.
4. All expenses and allowances paid to TDs should be accounted for in the same way as applies to the self-employed.
5. TDs should have the same tax allowances as all other workers or self-employed persons. Tax certificates should be supplied before taking a seat in Dail and every year thereafter. No cert, no seat.
6. Official transport should only be used for official business. Unofficial or party use should be reimbursed to the State.
7. TDs should have the same pension entitlements as most working people and should be eligible for redundancy payments when they lose their seats.
8. The productivity of TDs should be tracked by the quarterly publication of their attendances and speaking records in the Dail and at committees.
9. The Dail's effectiveness should be monitored in terms of sitting days, bills proposed & passed and output of committees.
10. Backbenchers should have greater flexibility in respect of Dail contributions and votes. Free votes should become the norm rather than the exception.
11. If backbenchers cannot become more active and productive in the Dail, their hours of work and pay should be scaled back.
12. There should be greater public accountability of TDs' performances via annual public meetings with constituents.
13. To ensure that TDs have real mandates, elections should be rerun if fewer than 50% of the electorate in their constituencies cast votes.

In return for these implementing changes, the salaries of the remaining TDs should be substantially increased to reflect their enhanced roles. As is often said, change and good example must start at the top!

Lead letter published in the Irish Times on 2nd October 2003. It was also read out on RTE's Morning Ireland and discussed with Joe Duffy on RTE's Liveline.

Dublin's Traffic

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Congratulations to Dublin City Council on their tactic of creating the controversial new road signs. This has been an excellent smoke screen and distraction from the underlying issue, namely, that traffic in Dublin is atrocious and can only deteriorate further as time passes. Like jam tomorrow, it will never get better as we are playing catch up for too many years of neglect. Forcing extra traffic onto the canal roads or into Gardner Street is like re-arranging deck chairs on the proverbial Titanic.

Where is the grand plan for Dublin's traffic?  The two major projects underway at the moment, the Port Tunnel and Luas, have a combined capital cost of about €1,000,000,000 (yes, nine noughts) before taking account of their ongoing operating costs. At best, they will be useful localised solutions notwithstanding that some observers suggest that  the Tunnel may be too low and Luas may be only as effective as a few  additional Quality Bus Corridors. One way or another, this massive expenditure fails to address the wider traffic problems in Dublin.

Where are the real solutions that have been talked about for years - park and ride, integrated ticketing, liberalised bus system, decentralisation, interchanges, flexible rolling stock and so on?  Above all, where is the central and accountable authority to take on all the vested interests and to plan and manage ALL aspects of Greater Dublin's traffic on an integrated basis?

Lead letter in the Irish Independent on 29th August 2002.

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