Cowen offers foul medicine AND high taxes?

So Slugger’s live blogging experiment ran last weekend with the biggest (and arguable the most important) party conference on the island: the Fianna Fail Ard Fheis in Dublin. (We’re doing the Greens next weekend so let us know if you are up for Twittering or live blogging). My favourite headline arising is one drawn directly from the words of Transport Minister Noel DemspeyDamage by bankers ‘comparable only to Cromwell’… Deaglan was the first I saw pick up the reference to history… For those unfamiliar with Fianna Fail’s version of Irish Republicanism, it’s not a bad taster:

Someone asked me what the Fianna Fáil ardfheis was like. “It was like a very large country wedding,” I replied. And it’s true. The kind of people one meets at such occasions – and this is a factual observation, not a derogatory remark – are like distant, dimly-recalled relatives from somwhere down the country who come to life from the pages of a photograph album at a family wedding or funeral.

Dempsey was the warm up act for the warm up act. The reference to Cromwell had the crowd whooping like he was some ballsy bishop rousing a bunch of cowed and ‘put upon’ priests from their penitent stupor. It had more of a feel of a variety act than a serious political speech. Keeping the spirits of the troops up.

Afterwards came the real warm up act: the Three Irish Tenors. But after a full seven minutes of The Town I Loved So Well (no doubt lobbied for by Derry Fianna Fail!) the whole thign resumed it’s previous funereal pace, before a robotic Tainiste introduced the main act.

Cowen’s speech added up to just one thing. And one thing we already know. ‘We’re all stuffed; and I am going have to sting you for a shedload of taxes!’ He was almost poetic at times: “the pain of losing something is more intense than the joy of gaining it”. Not quite Wordsworth’s ‘The world is too much with us’, but enough to give us a hint of the existential shock awaiting the electorate.

It was a gentle introdcution to a soft sounding Irish word with potentially ominous connotations: meitheal.

It’s a word that these days has a formal meaning mostly attached to working groups, or sub committees convened to perform specific tasks. But its older meaning, describes the way in which old rural communities would rally round a neighbour when in trouble. The year my grandfather died, a storm blew the roof off my widowed grandmother’s house. A large group of neighbours got together and put up a new one for her.

In modern terms it implies the State as a provider is leaving the building and ‘communities’ will be expected to help themselves through the coming, possibly very prolonged crisis. There is no indication of how that might happen; for now he is just warning that it will happen.

This would (when its concrete proposals appears at the moment most convenient to the party, rather than the country) the equivalent of throwing everything out of the balloon in order to gain height. Which suggests Cowen’s focus is not on what cannot be won (ie, the Euro and local elections). Everything this party does is calculated with Leinster House in mind. Even if Fianna Fail people have to bleed at the polls, then so be it.

In the meantime, the Opposition parties should be cognisant of the fact that they may be placing rather too much confidence on the depths of Fianna Fail’s predicament, and paying too little attention to what their own policy answers are to be to the questions that voters will be asking in three years time.

Namely; do I have a future?

  • Jer

    Mick, hmm a taste of fianna fail republicanism?

    Anyway I noted that the FFeckers seem to have elected an Armagh man to their officer board – a Mark Hammond I think, but might be out with the name.

  • Jer

    Mark Hughes rather.

  • Good stuff Mick. I think anyone who feels FF is on the verge of collapse is kidding themselves. They will be hit hard at the forthcoming elections, but the general election is a long time away, and southern voters tend to stick with what they know. Not only that, but FF is stitched into the fabric of Irish society in a way that will be very hard to break. Much as some of us might hate that fact.

    I laughed at the Cromwell reference too. Of course, the other difference being Cromwell wasn’t facilitated by the existing elite to anything like the same extent that FF facilitated the bankers – effectively the state was run in their interests, and in the interests of the construction companies they lent to, as well as the multinationals.

    The rise of the meitheal concept as you point out has disturbing implications for a country that already has very inadequate public services in areas like health. At this rate public sector workers will be asked to work for free. Except of course for the politicians.

    Deaglán’s report of the speech was a much more sober one than some of the nonsense being talked in the Sunday Independent. The only words missing from their reports were Lincoln and Gettsyburg Address. And maybe Cicero, though I doubt the most of them would get that reference.

  • Jer

    Garibaldy, the meitheal was not about working for free. It was not some time of french corvee but a sharing of resources with an expectation that the time invested would be returned at a later date.
    As such it required two things that are difficult for a govt. like FF to do.
    (1) that their be trust
    (2) a realisation that at a later date the labour is returned.

    it aint no free meal. I wonder does Cowen realise that part. I fear not.

  • Grassroots

    Mark Hughes elected to Committee of 20, FF Ard Comhairle. Shows that FF are slowly building their northern organisation and grassroots

  • It was Sammy Mc Nally what done it

    FG and Labours reluctance to put forward policies that would make them unpopular will save FFs neck for the time being and the plain people of Ireland will probably be content to let FF put right what they helped to feck up in the first place. FF presumably know that their only chance of long term survival is to be seen to be doing the right thing ie higher taxes fairly administred and cut backs in expenditure.

    But I believe, just like with the Catholic church, trust has been broken with FF and their days as the biggest most powerful party are numbered.

  • Mack

    Ireland is a rich country, if we pull together we can get through the fiscal crises in one piece. Pat McArdle Cheif Economist at Ulster Bank details a few mechanisms for brining that €20 Billion deficit under control here –

    http://www.finfacts.ie/irishfinancenews/article_1016014.shtml

    An Bord Snip – €5bn in cuts
    10% Welfare cuts – €1bn (dole 5 times dole in the UK, housing benefit props up landlords at current levels)
    Another 10% cut in public sector salaries – €1.75bn (PS workers paid 25-30%)
    A property tax another €1.5bn
    Income tax rises – €2.5bn

    He reckons the public capital programme would have to be cut to make up the short fall, I disagree with him there. Cutting that would lead to higher unemployment and many projects will give a long term return, I think Fine Gael’s proposal of front loading labour intenseive projects is sound. Contracts for each project should be renegogiated to ensure value for money.

    Ireland has a low national debt at this stage, I don’t think markets will balk at lending money for one-off capital projects (after all once we don’t need to invest at the same rate ad infinitum). They are balking at lending us crazy money to merely pay for unsustainably high salaries. Borrowing were we expect to see a future return, is a different ball game, and really does make sense.

    If Fianna Fail take on board his advice (but only rejig rather than scrap the National Development Plan), and make the cuts and tax raises ASAP then they’ll be in a position to start highlighting positives. The spreads on Irish CDS’s and Bonds should begin to diminish and the threat of outright bankruptcy for the state should fade (if the banking crises can also be properly manage). FF could also highlight new and improved banking regulation, as well as reduced price levels in the economy (despite lower net take home pay). Come election time FF would be able to demonstrate they weren’t afraid to make the hard decisions to steer Ireland through the crises. Their handling of the property bubble was poor, and as things stand Fine Gael will get my next vote. If they FF make the right decisions now though, I’d certainly consider voting for them come the next election. Expecially as I know these are very tough choices.

    Time for real leadership Mr. Cowen. Take the difficult path to national redemption, explain to the nation why we need to make these sacrifices, tell the unions, the bankers and the developers to go to hell as Ireland needs internal unity not vested interest feathering their nests!

  • Mack

    Truncated sentence above, should have read –

    Another 10% cut in public sector salaries – €1.75bn (PS workers paid 25-30% above private sector workers).

    Note it’s only the average that needs to be brought down, and as salaries are zero bound at the lower range it’s the high earners who skew the average up (Mr. Cowen earns more than Mr. Obama for example).

  • Mack

    Sammy McNally

    But I believe, just like with the Catholic church, trust has been broken with FF and their days as the biggest most powerful party are numbered.

    I disagree with you there. Fianna Fail played a critical role in transforming Ireland from an economic backwater into one of the richest countries in the world.

    There were huge mistakes, recently. Most of which can be put down to beleiving their own guff. The IFSC thrived at least in part because it was “a financial wild west”, i.e. unregulated. This light touch regulation was a disaster for the Irish economy as a whole and ultimately led to the property / credit/ construction & public sector bubbles – the fall out we are now dealing with.

    The played a big role in getting us, as did Fine Gael (and, well, even Labour), they’ve made big mistakes. But let’s see how they go about getting us out of this mess. I’m not impressed yet, but nothing is permanent. I live in hope of seeing some real leadership, soon.

  • Thanks Jer. I understand the meitheal was an agreement to aid each other and share labour. The point I was trying to make was that the government is seeking to use a traditional word to hide the fact that an attempt to apply it using the government introduces an unequal power dynamic that was not present in the past. Such as trying to dress up public sector cuts in communitarian language.

  • It was Sammy Mc Nally what done it

    Mack,

    The emergence of the Celtic Tiger is matter of serious conjecture – leaving aside party politics there a number of factors converging conviently – Structural Funds, Englezes staying out of the Euro, Yankie Multinational tax policy, PD influence on Tax Policy, and the usual chestnut of the young educated work force.

    If the last few months has confirmed anything it is that Economics does not provide the theroetical framework to understand what the feck is going on and has far more of an ideological rather than a scientific foundation.

    But I dont think FF will be fecked because of Economics but rather because they have taken the Plain-People-of-Ireland for complete and utter fools. As it was with the church who were entrusted to look after the chidren of the country and will never be trusted in the same way again – so it will go for FF.

    People could accept that FF were economical with the integrity and character that would be expected from politicians and could endure the grotesque spectacle of their own prime minister prostrating himself before the nation and begging for mercy whilst ridiculously claiming that he never had a bank account but only as long as they could deliver more of the same.

    For the Plain-People-of-Ireland to take one up the political jacksie from less-than-honest-cute-hoors was one thing – but to find out that you were being screwed by complete idiots who almost bankrupted the country through a combination of self-interest and neglience surely condemn them to at best supporting-act status from here on.

  • Mack

    Sammy McNally

    If the last few months has confirmed anything it is that Economics does not provide the theroetical framework to understand what the feck is going on and has far more of an ideological rather than a scientific foundation.

    I respectfully disagree. I think it’s pretty self-evident that if you borrow money you can’t repay you go bankrupt (and if you lend to people you who can’t repay you go bankrupt too). That’s the crux of the matter, how otherwise intelligent people were seduced into believing this fundamental law no longer applied in Ireland, the USA, the UK and across the globe is a question I can’t really answer.

    —–

    European subsidies played little part in the Celtic Tiger boom, enlightened tax policies played a huge part. The Tallaght strategy that brought government spending under control played a huge part. The opening up of the European common market played a huge part. The expansion of the Irish education system played it’s part. The creation of the excellent Industrial Development Agency (IDA), played a huge part. Connections with Irish America also played a part.

    Ultimately, would the export led boom that in the 1990’s saw Irish exports rise to over $100 bn p.a. (almost 25% of the total exports for the UK) without getting public spending under control and massively reduced taxes?

    I think it would not have occured, even with the other benign factors in place. I think the right-wing parties in Ireland deserve a whole dose of credit for implementing policies that created genuine wealth in the country.

    FF did their best to redistribute too. It turns out they were overly generous in that regard as they didn’t see the bubble for what it was.

  • It was Sammy Mc Nally what done it

    Mack,

    re. “That’s the crux of the matter, how otherwise intelligent people were seduced into believing this fundamental law no longer applied in Ireland, the USA, the UK and across the globe is a question I can’t really answer.”

    Thats quite simple – its just that you are looking in the wrong place – the simple answer is confidence – markets just like witchdoctoring run on confidence and that has feck all to do with the economics that is trying to explain it.

    But this really is not about economics it is about trust – if you let a self-confessed thief to be caretaker and security man of your business and you come back to find that not only did he line his own pockets (as tribunal after tribunal strecthing back decades have proved) but that he allowed the place to fall apart without bothering to do anything other than to tell you that all is fine even the Plain-People-of-Ireland renowned for their trust and love of ‘local’ poliitcs wont fall for that one again.

  • Dave

    “Damage by bankers ‘comparable only to Cromwell’”

    Yes, hang the bankers and eat the rich. Deflect and avoid blame. And who regulated the banking industry, not merely allowing them to lend all that money but actively encouraging them to? That would be the European Commission, the ECB, and the Irish government.

    The EU is responsible for setting the leverage ratio for European banks. It issued the Capital Requirements Directive (CRD) that regulates the leverage ratio. If banks are undercapitalised and overleveraged, then it is because the EU made a complete mess of the regulation. In fact, the EU Commissioner responsible for Internal Market and Services has proffered token acknowledgement that the EU is at fault:

    [i]“The root cause of our current distress was a combination of overly lax monetary policy and macroeconomic imbalances. These conditions encouraged the build-up of excess leverage in certain Western economies.

    As the De Larosière Report, published yesterday, states “Liquidity and low interest rates have been the major underlying factors behind the present crisis, but financial innovation amplified and accelerated the consequences of excess liquidity and rapid credit expansion”.

    While our regulation was not the root cause, our financial regulatory and supervisory system aided and abetted the super-bubble. It did not stem the flow of leverage through the financial system. It allowed the emergence of business models based on flimsy and highly leveraged foundations. It tolerated relaxed lending practices and the accumulation of unsustainable debt by households, individuals and companies.” – Charlie McCreevy, EU Commissioner[/i]

    So it is faulty regulation. Okay, then whose fault is that? That would be the fault of those who devised the faulty regulation, i.e. the EU.

    It was EU directives in regulation of capital requirements that allowed the EU’s banks to become the highest leveraged in the world. However, that ‘fault’ was not accidental but rather it was done by deliberate design. It was done to facilitate the expansionist monetary policy of the EU’s ECB. The role of the banks was to meet the ECB-engineered demand for cheap credit by leveraging upwards. The ECB set the policy rate too low for too long and the EU failed to cap the leverage rate, thereby allowing the expansionist monetary policy to increase the supply of money in the economy via the banks.

    Irish banks, contrary to how these Europhiliac muppets try to spin it, remain among the lower leveraged of Europe’s banks. The leverage ratio of AIB is 19 and the leverage ratio of BoI is 31, where the average leverage ratio among Germany’s banks is 52. It was the monetary policy of the ECB to supply money cheaply, and all of the Eurozone is paying the price for that. Household debt in Ireland when presented as a percentage of disposable income is now 192%, up from 90% before Ireland joined the Eurozone. That is a 300% increase. That’s massive, but it is in line with increases in household debt among other members of the Eurozone. All are victims of expansionist monetary policies that failed to create the wealth the ECB predicted and merely served to create debt.

  • Mack

    Sammy McNally

    Fair points.

    What would the same logic tell you about Sinn Fein’s prospects in the Republic?

    —>

    Ultimately I think, that’s the past, and I suspect the electorate will look to how the government performs now and the policies on offer from them and the others in the future.

    What we need now is leadership to get out of this mess, and a nice hardline against corruption in the Irish banks would be absolutely be part of it.

  • Dave

    Typo: “Household debt in Ireland when presented as a percentage of disposable income is now 192%, up from [b]60%[/b] before Ireland joined the Eurozone. That is a 300% increase.”

  • Scaramoosh

    “I disagree with you there. Fianna Fail played a critical role in transforming Ireland from an economic backwater into one of the richest countries in the world.”

    I’m sorry, but are you having a laugh. Fianna Fail made rich the stoogies; cronies; property developers and bankers that ate at its table. Everybody else has been screwed over.

  • It was Sammy Mc Nally what done it

    Mack,

    SF are bit players – what would suit them is a quick general election/National Government which includes Labour and leaving them sitting pretty on the ‘left’ free to ctiticse and free of responsiblity. Otherwise more of the same – slow growth as the ‘left’ becomes more popular and they share in the benfits of FF unpopularity.

  • Mack

    Scaramoosh

    Eh? Where have you been hiding for the last two decades?

    GDP and GNP per capita are among the highest in the world.

    We export $100 bn worth of goods and services a year (25% of what the UK with a population of 60 million export).

    The average salary in manufacturing in Ireland is €36,000. In the public sector it is €50,000. Those are good wages.

    Income taxes in Ireland are among the lowest in the world. Much lower than in the UK.

    We had full-employment for almost 2 decades.

    Our population expanded to 4.45 million.

    —>

    There was a bubble and it was mishandled. Before that there was a real, genuine boom. Doesn’t suit the socialist analyses though, does it? Perhaps you’d prefer to live in North Korea?

  • Comrade Stalin

    Income taxes in Ireland are among the lowest in the world. Much lower than in the UK.

    We’ve been here before, Mack, and we established that you were wrong. Your calculation was based on including tax credits in your assessment of Irish tax, and ignoring the British equivalents.

  • Mack

    Comrade Stalin

    No we didn’t. A poster mentioned tax credits for parents, of which there are equivalents in Ireland. No figures or information were supplied for the UK. While my figures for those without kids clearly showed much lower taxes in Ireland.

    I’m incredibly surprised, that a poster asks “did you take X into account” without providing any details, fails to answer when I ask for specifics, but yet you think he established my figures were incorrect, despite my going to great effort to demonstrate – with links – tax takes at different income levels. The Irish and British tax systems fundamentally differ, and yes there are additional tax breaks for parents in Ireland!

    By the way, 40% of earners in Ireland pay no tax.

    And finally some more evidence –

    http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg

    http://www.forbes.com/global/2008/0407/060_2.html

    Just take a look and see where Ireland and the UK lie on those graphs.

    —–>

    If you disbeleive me fine. Cognitive dissonance is a strong force, but please, for god sake, in a debate provide some evidence, as it is extremely frustrating when people attempt to dismiss facts with heresay, and I’m very disappointed that you were one of them 🙁

  • Sean Ramsey

    I can confirm that Mark Hughes did indeed get elected as I was doing tallyman for him, we do indeed see this as a step towards the growth of the party in all areas of Ireland.

  • Comrade Stalin

    Mack,

    No figures or information were supplied for the UK.

    Well, you’re the guy claiming that Irish tax rates are lower. How did you arrive at that conclusion if you’re not aware of the equivalent information in the UK ?

    While my figures for those without kids clearly showed much lower taxes in Ireland.

    Lower income taxes ? How can that be, since the 40% rate kicks in much lower in Ireland than it does in the UK ?

    And finally some more evidence –

    I’ve seen the graphs, and I don’t understand them, because if you compare the income tax rates seen on the Irish and UK Revenue sites, the upper tax band kicks in lower than it does in the UK. It’s right there in black and white.

    Don’t say things like “much lower than the UK”, say “much lower than the UK for the certain sections of the population who qualify for tax credits” if that’s what you mean. If I move to the RoI on my current salary, at the current exchange rate, I will pay more tax. Simple as that. I’ll also pay more VAT, I’ll pay VRT, higher rates of stamp duty, and I’ll have to pay for VHI. Granted, you did not claim otherwise for any of those, but I think we need to put to rest this idea that Ireland is a cheap place to live in the tax department. It isn’t. It may not be Sweden, but it’s not cheap.

  • Mack

    Comrade Stalin

    Jeebus. If you want a debate show me the figures, show me the links. I gave you actual figures with links. Do you argue with the wikipedia graph?

    And it’s not personal, some people will pay more, some people less. Total personal tax take in Ireland were less than 30% in Ireland in 2005, greater than 30% in the UK.

    You ask how is it possible when the higher rate kicks in slightly earlier and is 41 not 40%? It’s because everyone gets significant tax credits by default in Ireland. It’s because PRSI is less than national insurance.

    —-

    You mention VAT and VRT. Well, you can shop online or in the north. There is no VAT on many items. VRT is rip off, granted, but it’s an avoidable tax. There is no property tax, no student fees.

    Capital gains is about half what it is in the UK.

    —-
    Seriously, Comrade Stalin, Ireland is a low tax economy. It offends you for some reason, but it’s true. You don’t have to live there, but if you’re going to object every time I mention it – please provide evidence (links & figures), then we can have a real debate.

  • Mack

    Comrade Stalin

    Take a look at the original thread :-

    http://sluggerotoole.com/index.php/weblog/comments/cowens-approach-what-a-tory-approach-to-the-recession-would-look-like/

    Figures with links provided.

    Frustrated democrat argued that the child tax credit in the UK ‘confused’ the rates. He didn’t even rebut my lower tax assertion.