December 2009 Archives

Ministerial Pay

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Having sat on it for three months, the Government slipped out the latest report by the Review Body on Higher Remuneration in the Public Sector in the wake of the budget. Its approach was to compare Irish salaries with those in Germany, UK, Austria, Netherlands, Belgium and Finland.

It found that the Taoiseach's and ministers' salaries were the second highest and that salaries of Secretary Generals were the highest. Even after adjusting for pensions, tax and purchasing power, Irish salaries were still well ahead for most countries. In comparison with Finland (population 5.4 million), the Taoiseach's salary was 33% higher than his opposite number, ministers were 20% ahead and secretary generals were 52% higher. On this basis, Ireland's administration has a long way to go to become competitive and the cuts announced in the budget were merely a first step.

With the Dail in hibernation, ou highly-paid Government should note that the Finnish Parliament sits in non-election years for about 150 days a year as compared with just 90+ for the Dail.

Letter published in the Irish Times on 29th December 2009.

Management of Nama

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The Board of Nama has been announced but I'm uneasy about its breadth of expertise and experience for several reasons.

Firstly, too many locals (8 out of 9) are members and too many of these previously worked for the establishment (4 out of 8) raising the possibiliy of "board capture". Presumably, they were selected because they "understand" the Irish business culture and political agenda, as well as for their undoubted experience and expertise. I would like to have seen the board include "real outsiders" with direct experience of very large-scale asset management, well-known views on protecting taxpayers and track records of aggressively pursuing large-scale, delinquent loans. These would include some really tough, nasty lawyer-types who cut their teeth on Wall Street and would be more than a match for any of the "locals". Of course, appointments of this type could put the "cat amongst the pigeons" and this isn't what the Minister for Finance is seeking at board level given his role in shaping and running Nama.

Secondly, bearing in mind that Nama will be one of the largest property companies in the world, I would have thought that its board and management should also be world-class. Anything less is equivalent to sending a boy on a man's errant. Bear mind that the three most important factors determining the success of a venture are management, management and management. The equivalents for property are location, location and location - these factors were often ignored during the boom and contributed to the crisis which Nama seeks to address.

Thirdly, the proposed staffing of Nama is only a fraction of that used by the Swedish "bad" bank operation which dealt exclusively with nationalised banks (this may still happen in Ireland) and had a loan portfolio far smaller than Nama's. It appears that Nama's in-house staff of about 100 people will be managing a highly fragmented, complex portfolio worth €77 billion covering 20,000 loans linked to almost 2,000 developers' business plans. As a consequence, Nama will be over dependant on expensive external advisers and will be obliged to over-delegate back to the covered institutions. Such an approach is penny wise and pounds foolish and a clear recipe for cock ups.

Overall, I'd have liked to have seen more people with substantial, relevant, international experience at board level and clearer indications that the management team will be appropriate to the task. Bear in mind that Nama exists because of massive managerial failures at government, regulation, administration, banking and developer levels. We don't want Nama to repeat these errors due to insufficient experience or expertise.

Budget 2010

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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.

Tax Cases vs Earners

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Oft quoted statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers notwithstanding an established trend towards tax individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third.

Dual-income married couples are highly significant as their average income, based on Revenue data for 2005, was €70,000 as compared with €27,000 for all other tax cases. They accounted for about 36% of all income and 41% of all income tax notwithstanding that they represented only 17% of tax cases.
If the incomes of dual-income married couples are divided in the ratio 65/35 then the overall distribution of incomes is radically altered. By my reckoning, the number with gross incomes under €40,000 in 2008 would increase from 1.48 million tax cases to 2.25 million earners, a jump of 52%, and the number with gross incomes above €40,000 would decline from 0.89 million tax cases to 0.52 million earners.

This redistribution has huge implications for any proposals to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported in Revenue statistics.

My 11-page report with tables and charts can be downloaded at revenue_tax_cases.pdf  

Mental Reservations and Mature Reflection

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Is it too much to expect people in public positions to answer questions truthfully without recourse to mental reservations, mature reflection or overnight consideration?

Letter to editor published in the Sunday Business Post on 6th December 2009.

Marginal and Effective Tax Rates

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This chart analyses the progressiveness of the Irish income tax system based on 2009 rates. It shows the effective and marginal tax rates (combining income tax, the health and income levies and PRSI) for taxable incomes from zero to €1 million in €10k jumps for 2009. The only credits taken into account related to marital status so the rates depicted at each income level are maximums. Note that the overall rates takes account of the mix of single and married income tax payers at each income step based on Revenue data for 2005 - this wouldn't have changed much since then.

Notable features include:

  • the slope of the red line signifies the progressiveness of the tax system - very progressive up to about €60,000, moderately progressive up to €200,000 and much less progressive thereafter.

  • the rapidity of the increase in overall effective rate from €20k up to €80k. The overall rate tapers off thereafter and effectively flatlines at about €500k.

  • the erratic growth in the overall marginal rate at quite low incomes before it settles down at 52%. The saw tooth jumps are attributable to interactions between the different bands and rates. What the marginal rate graph does NOT show is the way in which marginal rates rise extremely rapidly for singles and one-income married.

  • top marginal rates can be hit very early with a single earning €60,000 paying at 51% in contrast to a dual earning married couple earning €1 million and paying tax at 52%.

  • the huge differences in effective tax rates for singles, married (one income) and married (dual income) particularly at low incomes.

This analysis takes no account of the fact that high earners, by virtue of having discretionary income, can reduce their effective tax rates very substantially by tax planning and availing of tax breaks with the result that people earning between €60,000 to €120,000 (my guesses) could be paying the highest "real" effective rates. I intend to discuss this issue in more detail in a future post.

We will update the chart late next week to take account of the budget for 2010 so bookmark us, subscribe to our RSS feed or follow us on Twitter.

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This page is an archive of entries from December 2009 listed from newest to oldest.

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