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.
Ministers are fond of telling us that we are 80 percent through the dark austerity forest. Soon, maybe within a couple of years, we will enter into the light where all will be well and normal fiscal policy can be resumed. Just one more push and austerity will be no more. Should we put a lot of faith in this? I would recommend caution – extreme caution.
The Government has published a long-term scenario – stretching out to 2019. This builds on the projections up to 2016 in the recent Stability Programme Update. The Government is at pains to state that this is an illustration:
‘Again it must be stressed that this is purely an illustrative scenario.’
They even underlined it. Yet, it is consistent with the Government’s SPU projections and it is certainly consistent with reports of a new plan being developed by the Minister for Finance.
‘The State’s anticipated exit from the bailout this year will not mean a relaxing of austerity targets as Mr Noonan hopes Government will approve a fresh regime with firm timelines similar to the EU-IMF-ECB programme.’
Minister Richard Bruton was also giving a warning
‘Mr Bruton rejected the accusation that the public had expected the end of the bailout term would signal an easing of austerity by saying no “crock of gold” was available to the Government.’
Mr Bruton suggested that this situation would continue for some time.
So it is worthwhile to look at the Government’s ‘purely illustrative scenario’ as there is a very good chance it will morph into the ‘only scenario’ (TINA will become TIOOS – There is Only One Scenario). Let’s look at primary public expenditure – that is, public expenditure excluding interest. This identifies how much money will be spent on public services, social protection and investment. I have used ‘real’ expenditure – that is, expenditure after inflation using the GDP deflator (the economy wide inflation indicator).
As seen, primary expenditure is expected to fall by nearly 9 percent over the next two years. From 2015 on, primary spending still continues to fall – by 2.6 percent in real terms up to 2019 despite the Government pencilling in GDP growth of approximately 12 percent during this same period.
But it gets worse. In many areas public spending will rise automatically due to demographic pressures. For instance, the number of pensioners will increase so that even if pension payments remain frozen, expenditure will rise. We should also allow for a rise in demand on health services with this aging demographic. And in education, we will have to spend more just to accommodate the continuing rise in our student numbers.
In other words, we will have to spend more on pensions, health and education just to stand still. When this is factored in, there will need to be additional cuts in other expenditure – in other public services, social protection programmes and investment projects.
We are heading into a period of semi-permanent austerity. Why, if by 2015 we have reached the Maastricht target and when employment and economic growth will continue to reduce deficit and debt levels? The Government gives two clues. First:
‘Ireland is on track to correct its excessive deficit by 2015. Thereafter, the public finances in Ireland will no longer be subject to the corrective arm of the Stability and Growth Pact (i.e. the Maastricht guidelines) but subject to the requirements of the preventive arm and the Treaty on Stability, Co-ordination and Governance (the ‘fiscal compact’).’
Ah, the Fiscal Treaty; remember those debates – how Government ministers insisted that compliance with the pact would not necessitate further austerity? We climb one hill only to find there are more hills to climb.
Second, the Government seems determined to drive the budget balance down to zero and then into surplus. In other words, we will be taking in more money than we are spending by 2019. Now there’s nothing wrong with a balanced budget at the appropriate time. But the Government’s scenario estimates (and to be clear, this is not a projection) that unemployment will be 11 percent. How could anyone imagine any scenario where you run a budget surplus with double-digit unemployment?
Is a balanced budget necessary to reduce debt per the fiscal treaty? No – this is an issue we will revisit in a subsequent post.
This is the future that some Government Ministers are planning. After destroying our social and economic infrastructure with irrational austerity policies, what is next? Continuing austerity amidst the ruins.
That’s the current scenario – unless we work for something different; different than what has happened in the past, and different than what is being planned for us in the future.
A new milk processing plant could give a huge boost to the south-east of the country creating over 2,000 jobs in spin-off industries.
And now the rub
the plant will only employ 76 people when it opens in two years’ time,
And now a bit of pure speculation
both the Government and the company claim it could spur about 1,000 extra farm jobs and another 600 local jobs as a knock-on effect of its construction.
There will also be 450 construction roles as the factory is built.
Glanbia said the plant will contribute around €400m a year to the local economy.
And now a bit of PR nonsense
Agriculture Minister Simon Coveney hailed the news as “the biggest jobs announcement” of the year.
He also rejected concerns that the mooted 1,600 jobs may not end up being created.
“Anyone who questions that does not understand the agriculture sector. These numbers are based on reliable economic models and they are conservative figures. Now I just begin to wonder how much the minister really knows about agriculture. By bet is he is far more familiar with the word spin …
“These are real, Irish jobs. They cannot be moved overseas,” he claimed…. but they might well be invisible
Glanbia is building the plant to deal with a huge increase in the amount of milk its suppliers will produce when EU caps on milk production are removed in 2015.
Almost all of the milk will be exported to Asia, Africa and South America. Most of it will be sold as dry milk powder which can be used for infant milk formula, cheese and nutritional products.
What we are not told
No figures seem to emerge from this PR splurge as to how much Glanbia received in grants
After construction my bet is we will be lucky to see 200 jobs in total
The Labour party is in the midst of an internal storm. A storm the leadership is trying to control. We are not used to such events in the Labour party, associating them more with their partner FG and even more with the heyday of FF. However, heaves are not easy to organise or execute, just ask Richard Bruton and Leo Varadkar. It’s a game that requires huge political tact.
So the first thing to ask is why are Labour in this position? That’s simple, firstly they over promised at the election, the buck for that stops with the leader. Secondly, the perception is that Labour are being rolled over by FG. Eamon Gilmore has done himself no favours by being so determined to always show a united front with End Kenny. Distance and the odd falling out can destabilise governments but it is much better for your leadership.
The next question to ask is how serious are the rumours of a possible heave? They are pretty serious. I said at the start of the year that Eamon Gilmore was in a spot of bother and things have got worse since that. Labour are losing far too many personnel. The grassroots are feeling sidelined and angry. Now, we all know that in the normal course of events party grassroots don’t make the big decisions, however, once they start to get agitated they have enormous power as TDs feel the pressure and start to listen to people they are close to on the ground about the implications for their seat. All of those who have walked out of Labour parliamentary party are gone unless the leader changes. The only way to heal a rift is to move on from it and to do that, a leader must be changed. This is even true when a heave occurs. An FF leader never lost a heave vote. It’s what happed after that caused problems. Equally I have always maintained had Richard Bruton and Leo Varadkar and others not agreed to return to the FG front bench and held their nerve, Enda Kenny would not be Taoiseach today.
Labour are starting to realise that the only way they can convince people they are going to change and get tougher is if they start with a new face and perhaps also remove some others at cabinet. Pat Rabbitte and Brendan Howlin will be most certainly in the firing line.
Now, back up the horse, because all is not lost for Eamon Gilmore. He is rumoured to be talking to TDs. That’s a wise move, he needs to know what he’s dealing with then he needs a strategy. The first stage of this would be to try calm fears, and avoid an all out vote against him. Heaves are useless and get no where unless one of your front bench moves to support it. Gilmore can rest assured that he has strong support from his ‘old boys’ he has one weak link, Joan Burton. He needs to stop Joan making any attempts in the short term and just buy some time.
Joan has her own issues. She knows there are limits to what Labour can achieve. If she were to take over then she would certainly be expected to take a tougher line with FG and be far less chummy with them. That’s fine, she also knows that FG are desperate to remain in power and avoid an election so she could get a few big wins on that basis, but it would require brinkmanship and that will weaken the government. In reality such a strategy may start to halt the Labour decline, even gain them a few points but it wont be huge (a few points could be at least 10 seats saved though). However it’s unlikely the government would last full term, she would be looking at an election in 12 -18 months. Timing would be everything. She may well prefer if Gilmore could remain for another year and she could face such a strategy and timescale from next year. However, the opportunity may be presenting itself in the coming months. Timing is everything in such a strategy. This helps Gilmore as he may be able to keep Joan onside for the next while.
That’s valuable breathing space but then he needs to figure out how to use it. He needs to talk to Enda. The chummy façade needs to stop. FG need to realise that they are better off with Gilmore than whomever might replace him, therefore they need to find an issue that they can publicly disagree on, let it carry on, argue, and then allow Eamon a decisive victory that will shore up his support. It may hurt FG but its better than the alternative and if FG are really smart then they can surely find an issue that they know they can afford to lose on but matters to Labour.
That would allow Eamon Gilmore escape from his current predicament, but he’s on the ropes right now and there are a lot of ‘Ifs’ in that strategy. Those in Labour hoping for change need to be far more organised and need to know who they support. No matter how you look at it, Eamon Gilmore is now only Leader at the behest of Joan Burton, she can decide to loyally follow him until its too late (a bit like Micheál Martin did with Cowen) or she can ensure he is removed now and give Labour a fighting chance of showing a new image. The question is does she want the job? Such heaves require a certain steel, an ability to stand by what you do and accept the repercussions, they can even end your career. It needs enormous conviction. All sides will be tested in the months ahead
She said that the figures were “staggering” and “pretty incredible” – as she defended her plans to get employers to contribute more to the sick pay bill.
Ms Burton said that there were now 300,000 people in total receiving either illness benefit or disability allowance – which represents 16 per cent of the working age population. And she said that this number had increased by 100,000 people over the past decade when the country was at the most prosperous point in its history.
“How did Fianna Fail manage to put an extra 100,000 people on some sort of illness or disability payment? Because these are staggering figures,” she said.
She was speaking in the Dail as Fianna Fail brought a motion calling on her to halt her “job-destroying statutory sick pay scheme”. Currently, the state pays the cost of sick leave for workers who are absent for more than three days. But Ms Burton is now planning to get employers to cover the cost of up to month’s sick leave taken by their workers to save up to €89m from the annual €847m illness bill. She told the Dail that Ireland required employers to contribute far less to sick pay than in other European countries.
Fianna Fail enterprise spokesman Dara Calleary said his party was going to warn businesses about this new “Burton Burden”.
“This new cost burden will be seen as a tax on jobs and will have most effect on smaller, more vulnerable employers, operating in low-margin businesses,” he said.
Mr Calleary said that even a member of Ms Burton’s own party, Labour Senator John Whelan, had warned that her changes could push many small and medium enterprises “over the edge”.
Ms Burton had to withdraw her plan to change the sick pay system before last year’s Budget after strong opposition from Jobs Minister Richard Bruton. Several Fine Gael TDs have again warned that it will lead to increased costs for businesses and job losses.
Reacting to a story in today’s Sunday Times which said that Minister for Public Expenditure and Reform Brendan Howlin is to seek up to 8,000 redundancies, Minister Bruton said “the numbers have been published – it’s of that order”.
He said the whole system needs to deliver costs effectively.
He also defended Cabinet colleague James Reilly over his explanation of the selection of sites for primary care centres.
Mr Bruton said Mr Reilly was a really reforming minister.
He added that Mr Reilly had set out in detail in the Dáil the criteria under which sites in his constituency were added to a list of locations.
Mr Bruton said the important challenge for Mr Reilly now was to reform the entire health service.
NEW FIGURES show no slowdown in job losses. The number of people at work in the April-June period fell by nearly 14,000, the biggest three-month fall in a year, according to the Central Statistics Office. The figures appear to dash hopes that employment growth is at hand.
They show there were 1,783,400 people employed on a seasonally adjusted basis in the second quarter, meaning there are 357,000 fewer people at work since employment peaked in 2007.
Minister for Jobs Richard Bruton last night acknowledged the continued fallout from the collapse of the “bubble economy”, but said “the sectors on which we will build the future economy are now showing signs of growth”.
The CSO’s quarterly national household survey is the most comprehensive source of data on employment across the economy. It shows the downward trajectory in job numbers remains broad-based, with most sectors continuing to shed labour.
There were 13,700 fewer people at work in the April-June period compared to three months earlier when seasonal fluctuations are stripped out. Slightly larger numbers left the labour force entirely in the second quarter. This kept the rate of unemployment stable at 14.8 per cent of the labour force.
The survey shows employment in the construction sector has fallen below 100,000 for the first time since the bursting of the property bubble. It fell by another 4,000 on three months earlier to stand at 99,300. Five years ago, 273,000 worked in the industry. The construction sector has accounted for almost half of the total job losses since 2007.
The financial, insurance and real estate sectors employed 96,100 people in the April-June period. This was a decline of almost 4,000 over the quarter is a new post-crash low.