It is reported that the Minister Richard Bruton will propose that tax cuts are needed to keep the economy on course. Well, at least this has the virtue of consistency since this is the same Minister who proposed that high-paid company executives should pay hardly any taxes at all. Over the next few months we will get a Goldilocks debate over taxation – is it too hot, is it too cold, is it just right. But there’s an elephant in the room ready to stomp on the poor girl – and this will hardly get a mention.
For we are a low-waged, low-earning economy – and it is getting worse.
According to Eurostat Irish earnings have always been below EU averages. Even in 2008, when Irish earnings peaked, we were still well below average. Today, after four years of wage stagnation, we are falling further behind. In 2012 average earnings for:
- Other EU-15 countries was €38,525
- EU-15 countries not in bail-out: €41,963
- Other Small Open Economies: €45,123
- Ireland: €32,626
Since 2008 Irish earnings have flat-lined. In other EU-15 countries, earnings have increased by 10 percent while in other small open economies, earnings have increased by 13 percent.
To give another perspective, average Irish earnings would have to rise by 18 percent just to reach the average of other EU-15 countries. They would have to rise by 29 percent just to reach the average of core EU-15 countries. And they would have to rise by a phenomenal 38 percent just to reach the average of other small open economies.
Of course, there is that little matter of the ‘recession’. Many might argue that in a recession, what can you expect? Yes, recessions don’t help average earnings. But neither do discretionary pay cuts. To what extent that pay cuts or freezes are opportunistic on the part of the employer is difficult to assess. The rise in profits, however, is not. The EU AMECO database shows profits in Ireland rising by 24 percent since the profit trough in 2009; in other EU-15 countries the rise has been 7 percent – in line with growth in average earnings.
As always, we have to be careful when comparing data like earnings. Much depends on the composition of the workforce. For instance, if more people are working in manufacturing, the wage will be higher than in economies where the number of hospitality workers is high. So one would have to do a sectoral comparison to get more insight.
Further, if there are high levels of part-time workers, this will reduce the average.
However, there is strong support from other data coming on stream for the proposition that our wages and earnings are well below the European averages. The following is from Eurostat which measures hourly labour costs in the business economy, which is essentially the private sector.
Private sector hourly labour costs in Ireland are 14 percent below the average of other EU-15 countries. This falls to 21 percent when compared with the core EU-15 countries; and when compared to the average of other small open economies, it falls to 30 percent below average. Are we seeing a picture here?
We are a relatively low-waged economy, we are a low-earning workforce. And such economies find it hard to generate tax revenue. But you don’t get that perspective to the agenda and you certainly won’t hear it from Government ministers. They are too busy trying to drive down wages – whether it is in the public sector, the banking sector (where 40 percent of bank staff earn €30,000 or less), in the low-paid sectors where many of the protections under the Joint Labour Committee have been undermined under Government ‘reforms’. All this talk about ‘increased competitiveness’? Cut wages.
So when you hear some commentator or Minister, pretending to champion the hard-pressed workers by calling for tax cuts, just remember: the tax cut is a diversion.
The real issue is pay and earnings.
The euro zone has registered yet another record high unemployment rate of 12.2%, European statistics agency Eurostat reports on Friday.
Earlier in the day, Italy, the third-largest economy in the currency bloc, reported a first quarter jobless rate of 12.8%, the highest in the 36 years this data has been collected, Meanwhile youth unemployment rose to a staggering 40.5%, also an all-time record high, reports Il Sole 24 Ore.
Here is a breakdown of the alarming numbers:
-More than 26 million people unemployed in the 27-member European Union.
-More than 19 million unemployed in the 17-country euro zone.
-Euro zone average: 12.2%
-European Union average: 11%
Greece: 27% in February 2013
In comparison, the United States was 7.5% down from 7.6% in the previous month and 8.1% in April 2012.
-Euro zone youth unemployment: 24.4% up from 24.2% in January 2013.
-European Union under-25 unemployment: 23.5% down from 23.6% in January 2013.
Euro area inflation expected to be on the rise:
WITH CONSIDERABLE speculation about an impending deal on bank debt, with the Taoiseach and the German Chancellor jointly stating that Ireland is a ‘special case’, it is helpful to remind ourselves just how special a case we are.
Eurostat, the EU Commission’s data agency, has calculated the cost of the banking crisis in each EU country. The following focuses on the cost to general government budgets. Ireland has really taken one for Team EU.
Yes, there’s wee Ireland up at the top, just edging out Germany for the dubious title of spending the most on the banking crisis. €41 billion to date according to the Eurostat accounting data (this doesn’t count the billions ploughed into the covered banks from our National Pension Reserve Fund as this was not counted as a ‘cost’ to the General Government budget).
Of course, this doesn’t give the best picture. What happens when we look at the cost as a percentage of GDP?
Ireland may not win football’s European Championship but when it comes to banking debt we are Barcelona, Bayern Munich and Manchester United all rolled into one with Real Madrid for a bench. Germany may have run Ireland close in the nominal amount of banking debt but when it comes to a proportion of GDP, it is just pennies behind their sofa. For Ireland, it’s the entire house.
Here’s another little stat to chew on. The European banking crisis is just that – a European crisis. But as we know, this has not been addressed at European level. Rather, the cost has been delegated to individual countries regardless of their size or ability to pay. For instance:
- Ireland makes up 0.9 percent of the EU population
- The Irish economy makes up 1.2 percent of EU GDP
Ok, we’re small. So how much of the entire European banking debt have we paid?
- The Irish people have paid 42 percent of the total cost of the European banking crisis
We may be minnows when it comes to population and economic size, but when it comes to banking debt we are the whale in the pond.
One more breakdown. How much have countries paid per capita?
The European banking crisis to date has cost every individual in Ireland nearly €9,000 each. The average throughout the EU is €192 per capita. I really don’t know what you can say after that.
So, Ireland is a really, really special case. We require a really, really special solution. The Government (and we must always remember that this mess wasn’t created on their watch) has a real challenge in the negotiations over bank debt. But there is a bottom-line here.
If any deal does not qualitatively alter these dismal statistics, then it won’t be a deal worth applauding. The Government may be tempted to return to the Irish people waving a sheet of paper claiming ‘a bank debt deal for our time’.
But if are still paying nearly €9,000 each while the remainder of the EU pays only a fraction of that, then it is no deal at all; just a re-arranging of euro notes – a lot of euro notes – on the decks of a sunken ship.
Here is a breakdown of the alarming numbers:
– More than 26 million people unemployed in the 27-member European Union.
– Almost 19 million unemployed in the 17-country euro zone.
– Euro zone average: 11.9% unemployment
– European Union average: 10.8% unemployment
– Highest rates:
– Lowest rates:
Germany and Luxemburg: 5.3%
– The U.S.: 7.9% unemployment in Jan. 2013.
– Australia: 5.4%
– Japan: 4.2%
Not surprisingly, youth unemployment was also up:
– Euro zone youth unemployment: 24.2%, up from 21.9 in Jan. 2012.
– European Union under-25 unemployment: 23.6%, up from 22.4% in Jan. 2012.
The worst European countries for youths:
– Greece: 59.4% youth unemployment rate.
– Spain: 55.5% youth unemployment rate.