The true cost of subvention

Constantin Gurdgiev tackles the annual subvention over at True Economics. you have to skip past the first section on yesterdays UK budget first. Apparently, the productive regions of the country contribute an average 2,000 per person to the subsidy receiving regions. Constantin argues these subsidies are bad economics


Put in real terms, this means that few productive parts of the country are subsidising numerous less productive ones. Is this a good thing? Well, no.

First, such subsidies distort returns to personal capital (physical and human) of those who receive them. In other words, people living in the parts of the country that are the ‘gateways to excellence’ are ripping off their productive compatriots while being deluded into believing their work actually adds value. It does not, at least not in a competitive way.

Second, the transfers diminish the productive capacity of those who live where real jobs are located.

Third, the subsidies continue to perpetuate the already extensive destruction of the country-side as extensive means of production are being subsidised over intensive economy.

In 2004 the subsidy amounted to €3bn, and there was no bias towards the productive regions in terms of capital spending.


Yes, folks, the reason we are forced to accept gang crime in Limerick and parts of Dublin, roads gridlock in the capital, lack of proper public transport, poor broadband services, horrific quality of landline phone services, overstretched schools and universities infrastructure in Dublin and the rest of the mess we call urban living in the Capital City is because we want ‘equity’ and ‘equality’ between those parts of the country that work and those that collect subsidies. Regional policy indeed…

Nope, he wan’t talking about that subvention..

  • slug

    You should clarify that you are talking about the Irish Republic’s internal transfers, not internal UK transfers from London to other parts of the UK.

    I don’t agree with the premise that these transfers are bad economics. Wealth generation tends to be concentrated while human needs are spread out. A fair society takes from those who have the most to help those in need. I am an economist and I recognise that ‘good economics’ is the servant of good values.

  • Mack

    Slug, aside from one or two snippets of information what he says could be applied to subventions generally.

    I was playing games with the subvention idea. Most people will associate the word with the subvention from London to NI. So I was kind of hoping readers would be surprised when they got to the end and realised he was talking about transfers within Ireland (Republic).

    You make good points. On the flipside, I don’t think it’s desirable that any region (or household) remain permanently dependent on transfers from other regions. The transfers boost wages (and hence reduce competitiveness) and may crowd out private investments that would otherwise be profitable – thus trapping the region in subvention dependency. That said, a good standard of living for all citizens is desirable.

  • fin

    Probably not fair to single NI out as London taxes contributes to pretty much all of the UK – even though areas of London are bordering on the 3rd world.

    Speaking of 3rd world, the alternatives can be seen in those very countries. Wealth is not distributed outside of the money making centres so outside those centres the country is a slum, quite often a dangerous lawless one.

    India is a good example, a 15-20 million dollar house in Mumbai is not uncommon, yet half the country is under threat from Maoists due ti the abject poverty in the countryside.

    Its not always about money, ok can’t really think of anything that NI contributes to the UK in return for handouts, but take other parts of the UK suchas Cornwall, tourism is the main moneymaking industry, it can’t support the area without extra cash from London taxes, so do you turnoff the handouts and get them to distroy the countryside with intensive farming or openpit mines.

    Finally, the govt is going to take the cash and spend it anyway, if not on providing a better living standard for its people in poorer areas than it will be on £2k a day management consultants or to buy bombs to drop on people elsewhere

  • Mack

    Fin, fair points – I think what separates NI from say Middlesborough is the size of the per-capita subvention it receives. As a consequence, NI doesn’t seem as poor. Without the same level of subvention things may appear differently (which highlights that lower subventions don’t automatically lead to better private sector investment to take advantage of lower costs). The other argument you could make (for the UK) is that monetary and fiscal policy is set to suit the encumbant centres of wealth creation to the disadvantage of the poorer areas. Had NI (or Middlesborough) it’s own currency it could competitively devalue it to boost it’s exporters – it would be free to take fiscal initiatives like the low Corpo regime that worked so well in the south.

    India is coming from a very low base, I don’t what the best solution there is. Transfers that build up infrastructure (roads, schools, telecomms, sanition, water etc) and keep kids in school & get them to college might be more useful than other types of transfers (wages or welfare based on the Mumbai cost of living for example).

  • Oiliféar

    Mack,

    [FIRST THE LONG PART]

    How fine a grain do you take this to? What’s it logical conclusion?

    I mean, the CSO looks at “Dublin”, the “Mid-East”, the “West” and so forth. They see that the South-West subvents the Midlands … but they could just as logically look at subvention on a country-by-county level. If they did, they might see that Cork subvents Longford (as well as their fellow “South-West”-ers, Kerry!).

    But why stop there? We could look at subvention on a town-by-town level and see how Mallow, Co. Cork subvents Edgeworthstown, Co. Longford (and maybe Macroom, Co. Cork too!). But why stop there? It would seem rather arbitrary to stop just at a the level of a “town” (whatever that is). We should look and see how Springwood Estate, Mallow subvents St. Patrick’s Terrace, Edgeworthstown (not to mention Davis Street, Mallow to boot!). Looking closer (because why stop there?) we could see how 12 Springwood Estate, Mallow subvents 8 St. Patrick’s Terrace, Edgeworthstown (and indeed even 13 Springwood Estate as well!).

    But why stop there?? These population samples, no matter what we choose, are just arbitrary, surely? The only logical conclusion is that I subvent you.

    Of course, I can already see a problem with my analysis. I took the analysis of who-subvents-who to its “logical” conclusion … but I took it in the wrong direction! (Silly!)

    You see, the CSO might take “Dublin”, the “Mid-East”, the “West” and so forth as “logical” grouping … but why not look at “North” (or maybe not!), “South”, “East” and “West”? But why stop there? Why not compare “East” and “West”? Or let’s just take this to it’s logical conclusion … and just look at “Ireland” (maybe we should take it further and compare EU member states, or continents, and have the “logical” conclusion as being the world).

    If we do so then (presto!) the logical conclusion is that nobody subvents anybody!

    How could I come to two so drastically different, yet both “logical”, conclusions? I suppose that’s the difference between being an individual and being a member of a community (or “country”, or “state”, or “society” or “economy”, or call it what you will).

    [NOW THE SHORT PART]

    But, I’ve been a bit dismissive of these kind of studies. In fact, I do think that they have a useful purpose.

    First, it is important to remember what variables are being compared. The variables are not “subvention vs. population” but “subvention vs. location”. And it is not a longitudinal study, but a sample of the picture as it stands today.

    In this case, we see that the geographic areas that most subvent the rest of the country are “Dublin”, “South West” and “Mid West”.

    Remember, this is just a snapshot today. The latter two of those regions were once written off. People were told they should just give up on them a all move to the first. We were told that they were unsustainable. Subventions to one of them (“Mid West” viz. Limerick/Shannon) have been enormous.

    Now look at them. Emigration has stopped. Jobs have gown. I guess that’s what they call being a member of a community (or “society” or “economy” …).

  • 0b101010

    A fair society takes from those who have the most to help those in need. I am an economist and I recognise that ‘good economics’ is the servant of good values.

    How is that model of society fair to the productive? To steal from their pockets to give to the unproductive, the inefficient, the incompetent, the lazy, the unmotivated — all based on a third party’s definition of “need”, all without effort by the recipient.

    I, too, am an economist and I recognise the ultimate horror in the belief that it is just that we are compelled by force to be our brother’s keeper.

    Your society relies on those who “have the most” to be willing to chain themselves to rocks and let vultures peck their livers out day after day after day. What if they don’t? What if they just refuse, or leave, or stop? What then for “those in need”?

    take other parts of the UK suchas Cornwall, tourism is the main moneymaking industry

    An industry that, at its core, relies on money walking into your pocket.

    it can’t support the area without extra cash from London taxes, so do you turnoff the handouts and get them to distroy the countryside with intensive farming or openpit mines

    Does London have intensive farming or openpit mines? Why, then, would Cornwall? Are you saying that tourism, farming and mining is the sum total of the ability of the people of Cornwall?

  • skibbereen eagle

    How they do it in Chile from Bloomberg

    Polls show that Velasco is President Michelle Bachelet’s most popular minister. During a three-year copper boom he and central bank President Jose De Gregorio set aside $48.6 billion, more than 30 percent of the country’s gross domestic product, that he is now using for tax cuts, subsidies and cash handouts to poor families.

    The Chilean peso has risen almost 10 percent against the dollar this year to become the best-performing currency among emerging markets. The country’s economy is expected to grow 0.1 percent in 2009, as the region contracts 1.5 percent, according to the International Monetary Fund. While Chile stashed away copper profits, neighboring Argentina boosted spending when revenue from soybean exports rose, leaving it short on cash to stimulate the economy this year.
    Chile had about $5.9 billion in treasury holdings when Velasco took a leave from Harvard to become minister in March 2006. By the end of last year, he and the central bank had $48.6 billion to ease the impact of the slump on Chile’s 17 million people. The economy shrank in February by the most since 1999 as industrial production tumbled 11.5 percent.

    Commodity-driven swings of boom and bust have defined Latin America’s economic history for the past 100 years.

    “That is a cycle that needs to be ended,” Velasco said. “We have been out to show that a Latin American country can manage properly, and not mismanage, a commodity cycle. You save in times of abundance, and you invest in lean times.”

    Andean Counterpoint

    Across the Andes in Argentina, President Cristina Fernandez de Kirchner’s popularity plummeted after she tried to increase taxes on soybean exports. Unresolved lawsuits with investors closed access to international credit markets since the country defaulted in 2001. Middle-class and wealthy families stash thousands of U.S. dollars in home safes in case there is another economic crisis like the one eight years ago.

    When Velasco joined Bachelet’s new cabinet in March 2006, the price of copper had risen by more than half in 12 months to $2.25 a pound. Taxes and profits from state-owned Codelco, the world’s largest copper producer, provide about 15 percent of government revenue. Bachelet, 57, Chile’s second consecutive socialist president, came under almost immediate pressure to start spending the revenue.

    Students went on strike in May of that year, demanding more money for education. More than 800,000 people protested at high schools and universities, and police with water cannons and tear gas arrested more than 1,000. Velasco reiterated his commitment to “prudent fiscal policies” as politicians from the governing coalition demanded he resign.

    Velasco set up funds to invest the copper windfall abroad, mostly in government bonds. He announced plans to spend the interest from savings on scholarships and helped Bachelet extend social security to 1.3 million people.

    In his first three years in office, Velasco posted the biggest budget surpluses since the country returned to democracy in 1990. In 2007, Chile became a net creditor for the first time since independence from Spain in 1810.

    Last July, copper reached a record of $4.08 a pound. By year-end, the central bank had built $23.2 billion of reserves. The government had $22.7 billion in offshore funds and about $2.8 billion in its own holdings.

    Copper Price Decline

    After Lehman Brothers Holdings Inc.’s Sept. 15 bankruptcy sparked a global credit freeze, Velasco and De Gregorio had the equivalent of more than 30 percent of GDP available if needed to shore up Chile’s banks and defend the peso.

    The price of copper plummeted 52 percent from Sept. 30 to year-end, and Velasco dusted off his checkbook. In the first week of January, he and Bachelet unveiled a $4 billion package of tax cuts and subsidies.

    Velasco’s stimulus spending, including 40,000-peso ($68.41) handouts to 1.7 million poor families, has paid off politically. His approval rating almost doubled to 57 percent in March from a low of 31 percent in August, according to Adimark GfK, a Santiago-based polling company. He is now the most well-liked member of the government, second only to the president at 62 percent.

    “People finally understood what was behind his ‘stinginess’ of early years,” said Sebastian Edwards, a Chilean economist at the University of California, Los Angeles. “That explains the rise in his popularity.”

    To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net.
    Last Updated: April 23, 2009 15:09 EDT

  • Oiliféar

    0b101010,

    “Your society relies on those who ‘have the most’ to be willing to chain themselves to rocks and let vultures peck their livers out day after day after day. What if they don’t? What if they just refuse, or leave, or stop? What then for ‘those in need’?”

    Never heard of proportional taxation? (Or even – heavens forbid! – progressive taxation?)

    Simple example:

    * Person A earns $100,000 p/a, person B earns $20,000.
    * Income tax is set at 20% => A pays $20,000 tax p/a, B pays $4,000 tax p/a.

    Consider these statements:

    * Person A, as evidenced by their income, is five more productive than person B.
    * Because of their higher income person A pays five times more moneys into the Revenue’s kitty.

    Question: Do you think that person A receives five times more back from the kitty by way of public services compared to person B?

    “I, too, am an economist…”

    LOL.

  • Dave

    It’s nonsense, of course, since Gurdgiev’s logic is predicated on the undeclared premise that a state is a collection of individuals and not a collective. If you followed his logic, independent republics would be sprouting all over the island like mushrooms. It’s one nation, one state, and one claim to self-determination. If we didn’t have such poor infrastructure, decentralisation might be possible so we could spread the means of generating wealth around rather than just spreading the generated wealth, but not to alleviate Gurdgiev’s flawed thinking – just for fairness. In the UK, I wouldn’t like, if I was English, to distributing wealth to another nation (Welsh, Cornish, whatever), but that’s not applicable in Ireland.

  • kensei

    Olifar

    Proprotional income is not enough. You need to consider marginal impact.

  • joeCanuck

    Economists? Spit.
    A science? Double spit.
    Wanna make one part of a country stinking rich while the rest wallow in misery? Just make sure the poor don’t have a few smithies where they can make pikes or whatever.

  • 0b101010

    Question: Do you think that person A receives five times more back from the kitty by way of public services compared to person B?

    I really don’t know what argument you think you’re making, but you’ve done a good job of proving my point.

    Person A pays five times more than Person B in taxes but is unlikely to consume five times the public services. Indeed, it’s likely that Person A would consume significantly less in public services — if at all! — than any other individual earning less than them. The reward for being productive is to be cannibalised by their neighbours.

    Each Person A takes five People B to replace in taxes! No amount of People C — producing nothing, earning nothing and paying no taxes — will make up for the loss of any one Person A or B in taxes.

    Force enough People A to flee, or tax them into becoming People B, and People B will be the only ones left to be cannibalised by People C. Force enough People B away, or tax them all into becoming People C… then what are you left with?

    Wanna make one part of a country stinking rich while the rest wallow in misery?

    You don’t know how well you hit it on the head: “wallowing” in misery is exactly the reason large swathes of people will never make anything of themselves. They love suffering; they think it’s virtuous; and they want to inflict it on others by threat of force.

  • Dave

    0b101010, isn’t that essentially an argument for federalism? It would certainly turn into one if regions were government by a national government that didn’t act in the national interest but, by retaining the power, prevented those who were left to fend for themselves from having the power to act in their own regional interest.

    Drive through the Irish countryside and what will you see? What you won’t see is a field with anything growing in it but what you will see is a field with a couple of lonely sheep or cattle wandering a vast expanse of unproductive land. They’ve been utterly decimated by EU subsidies and they are kept that way by Europhiles. Likewise, look out from an island nation to the sea and try to spot a fishing boat. None of these things can change by regions acting alone because they don’t have the power to act.

  • Dave

    Typo: “… if regions were [i]governed[/i] by a national government that didn’t act in the national interest…”

  • Oiliféar

    kensei,

    Yes, it was just a simple example to demonstrate to 0b101010 that the kind of stuff left him/her so aghast @ 09:03 PM is in fact run-of-the-mill stuff.

    Yes, marginal impacts are important. In fact the kind of horror expressed by 0b101010 at the thought that the good people of the “Midlands” might be living his “Dublin” (assumed) fat is a marginal impact of proportional taxation/redistribution/subvention.

    The point I was making @ 07:44 PM is that subventions of this sort are:

    a) the cost of belonging to a defined economy/society (e.g. if someone wants to break off and declare a Republic of Dublin then let them but, if successful, they will run into the same “problem” in future when they see Phibsboro living of the fat of Rathmines).

    b) not set in stone (e.g. the entire west of Ireland was once written of as unsustainable, for that reason in the ’80 there was talk of “shutting the west down”, yet in the study linked to above we see that today two out of three west of Ireland regions are among the top three net “subvent-makers”.)

    On the latter point, does anyone have data for the “West” region? I would be interested to know if is is a net “subvent-taker” or “subvent-maker” or “subvent-neutral”.

  • Oiliféar

    BTW – before anyone does start thinking of declaring a “Republic of Dublin” with the intention of increasing their prosperity (by shedding “Midland” scabs that live of their wealth), they could do worse than looking up what is meant by the phrase “regression to the mean“.

  • Empire-home

    My first post on slugger!

    Have always wondered on the issue of subvention is any allowance made for the Captial / HQ factor, using the Irish example still, I persume Dunnes Store, AIB, eircom, etc. are all HQed in Dublin and their profits (when they make them)when taxed are counted as part of that region, how ever in reality they are earned across the whole country, is this accounted for in the figures?

  • Paul

    How would a country as small as Ireland even notice a subvention?

  • jaffar

    “Empire-home”

    I’ve a feeling all this nonsense is just based on the addresses of tax offices. If someone is born under the care of the NHS in Belfast, educated in Derry, goes to university in Edinburgh, moves to Cardiff and while there works for a multinational with a payroll department in Farnham does that make the people of Surrey the most productive? Is the “productivity” of the British Army entirely claimed by Aldershot?

    If these figures are based on Tax offices, they’re rubbish. If they’re based on the home addresses of individuals how do they account for corporate taxes? If they’re based on firms’ statistical returns then (as someone who’s filled the things out) they’re a joke.

    PS There is an entire body of managerial theory devoted to the lack of parenting advantage provided by headquarters operations in large corporations. Looking after shareholders’ capital may attract good wages but very often it can be seen to be destructive of real productivity.

  • John East Belfast

    Empire-home

    That is a very good point.

    The same for VAT receipts which are probably accounted for on a Group HQ Return.

    In the UK we have M&S, Debanhams, Tesco etc – the £400m of ROI “Exports” provided to NI Food Retailers is probably being accounted for in London HQ tax returns and tehn when it comes back here there is a lot of huffing and puffing.

    Also the regions provide a market for goods from the other regions as such subventions flow around.

  • Rory Carr

    “* Person A earns $100,000 p/a, person B earns $20,000.

    * Person A, as evidenced by their income, is five more productive than person B.” (My emphasis)

    I should certainly like to see the evidence that supports the contention that there is a necessary link between productivity and income. Indeed much social discontent is based upon the sneaking realisation that there is no such link whatsoever and I should like to see some sharp economist persuade a financially devestated, hard working Joe Public that a certain hedge-fund manager or investment broker whose income was perhaps 100 times his own, that that was due to their productivity being 100 times greater than his own. It would be easier to convince them of the equitability of the productivity/income ratio of the Great Train Robbers. At least they put some effort into it.

  • Mack

    Rory, there is some link between dollar / monetary productivity and income. The hedge fund manager may generate significant Dollar revenues for the fund (often taking huge risks of significant losses with other people’s money, but that Moral Hazard is another story). They’re not necessarily generating any real wealth, so what we’re witnessing there is the break down of the relationship between money and wealth. That relationship is highly imperfect anyway, and is a the core of the current crisis (imo anyway). There’s certainly a lot of debate around what money should be & how it should be managed, some of the ideas out there a pretty radical (e.g. Von Mises). There’s no doubt we haven’t got this right yet, I’m sceptical if it is possible to model the real relationship accurately in the abstract.

  • 0b101010

    if someone wants to break off and declare a Republic of Dublin then let them but, if successful, they will run into the same “problem” in future when they see Phibsboro living of the fat of Rathmines

    Of course! That’s because you’ve assigned the fictitious republic the same core problem: the more productive you are, the more taxes you pay and the more cannibalised you become. You’re still assuming that it’s a given that people must be their brother’s keeper.

    The ultimate, just solution is for people to pay only for the services they consume.

    The unquestioned “run-of-the-mill” belief that a “fair society takes from those who have the most to help those in need” and that this equates to “good values” is insidious.

  • Oilifear

    0b101010,

    In that case, we first need to correct the disparancy between money and productivity (as Mack very well points out). If we can do that the the world you imagine is “to each according to his ability”, which is not something too many people would find offensive in itself.

    A problem you might encounter are those that also put stock in “to each according to his need”. “Need”, remember, now, not “want”. The question is that of the sick, the unfortunate, not the lazy or incompetent.

    Productive people get sick. Productive people meet misfortune. You might also want to give thought to the idea that “money begets money”. You might also wonder what is the point of our 75 or so years in this world: to be as “productive” (whatever that is) as we can or is there something else?

  • Mack

    Oilifear, 0b101010 – I think it becomes obscured once you drill down to the level of the individual (unless you arguing for no public services at all – imho an extremely undesirable proposition).

    However at the area level 0b101010 point is valid. Ideally area should contribute fully to the cost of the services provided to that area. So, if there is a national service (e.g. the armed forces for protection of the state) that should be costed at the national level. A hospital or school should ideally be fully funded by the area to which it’s services are provided. If the area can’t fund it, I think that is indicative of a problem.

    In Ireland, if you take the example of a school or hospital – human overhead costs (wages) are often set to meet the demand of unions who have members living in areas such as Dublin where the average wage is quite high, but other members who benefit from the process living in depressed areas where the private sector wage is very low. See this teacher on politics.ie who earns €57,000 (about £51,500) but thinks he is badly paid. Undoubtedly he lives in Dublin and compares his income to his friends who work in financial services in the IFSC. He feels he should be paid more. By way of comparison the same teacher (with a degree in Religous Studies) working in depressed Lifford Co. Donegal would earn exactly the same amount. The salary of £51,500 would probably put said teacher in the top 1% of earners in nearby Strabane Co. Tyrone a couple of hundred yards away (and I would guess that most of top rural earners are public employees). Clearly it would be difficult to fund those salaries out of the local economy. Is it fair to ask Dublin private sector workers, many of whom earn substantially less & live in fear of redundancy, renting or paying mortgages many multiples of their rural compatriots for properties a fraction of the size, to subsidise their higher standard of living? Does the rural gap between pay levels achievable through private enterprise and public employment encourage workers to pursue public service rather than take a risk setting up a business?

    I’m not convinced this is an equitable arrangement, because at it’s core it provides a subsidised higher standard of living to some of the receivers of such subsidies.

  • Mack

    Skibereen Eagle – Over at Irish Liberty they argue that such moves don’t always insulate an economy from disaster.

    http://irishliberty.wordpress.com/2009/04/24/when-textbook-macro-fails/

  • Simon

    Makes the £7 billion above the line and unaccounted for NI subvention seem cheap!

  • Oiliféar

    [PART 1]

    Mack/0b101010 –

    The rub is in the selection of the region, as I wrote in my first post. As you rightly say, Mack, drilling down to the level of the individual makes a mockery of the idea of comparing subvention for *public* services. (I would not agree with your describing of this as causing the issue to become “obscured”, rather I think it brings the heart of the issue into clearer focus.) Your example of local funding for local services is only politically (and morally) possible if there is also local autonomy over these services.

    Thus, comparison of subvention is possible in the UK, where, for example, secondary education policy is decided at a sub-state level. Thus it is reasonable to say that English tax payers pay for Northern Ireland’s secondary education services. For the same reason, it is also possible to compare the burden subvention across the EU, where policy is decided at national level but funding is made at a supra-national level. In that example, Ireland is a major receiver of subvention – even while being one of the richest states in the bloc, as we are all aware.

    In the case of the Republic, there is little regional autonomy. (The VEC might be a good exception to look at.) For that reason, saying that the South West (where I reside) unfairly subvents secondary education in the Midlands is unreasonable since the Midlands don’t decide cost or extent of their secondary education programmes alone. I, in the South West, am as much responsible for deciding the extent and cost of education in the Midlands as anyone living in the Midlands because those matters are decided at national level. It just just as equally be said that I, in the South West, unfairly demand South-West standards of public services of the Midland, which they can ill afford.

  • Oiliféar

    [PART 2]

    Because there is essentially no regional autonomy in the Republic there is no way to speak fairly of subvention within the state. (Though of course it is fair to speak about the subvention of the Irish state at an EU, both directly through subsidy and indirectly though an inequitable corporation tax regieme that awards the Republic unwarranted transfers from other jurisdictions.)

    I do agree that it is desirable that the burden of keeping public services be shared with reasonable equitably across the state. Complete equity is unreasonable, however, since income levels are not exactly equal for every region in the state, and because no two regions are likely to draw exactly the same per capita demands of public services. Thus there will be some distribution away from the mean when we calculate taxes paid over the cost of services drawn.

    The question, so, is not whether there is distribution away from the mean but wether that distribution is:

    a) within what we might call reasonable limits (however we define that);
    – OR –
    b) justified by policy.

    ***

    On (a), it is difficult to tease this out from the data in the linked article, but we can infer some indexes from the description of the min, max and mean taxes paid and the description of transfers made and received from those regions:

    * Taxes paid (p/p): State: €11,000 (mean), Dublin: €14,000 (max), Midlands: €8,500 (min)
    * Services consumed (p/p): State: €11,000 (assume all is spent), Dublin: €12,000 (€2,000 made in xfers), Midlands: €11,500 (€3,000 received in xfers)

    So on an index level, subvention can be describes as follows:

    State: 1
    Dublin: 0.86
    Midlands: 1.35

    (i.e. Dublin-based tax payers received the benefit of 86% of all taxes they pay, Midlands-based tax payers received 135% of the benefit of taxes they pay).

    Whether this is within “reasonable” limits, I don’t know. IMHO the burden on Dublin could be reduced but is not crazy at 14%. The benefit to the Midlands does seem too much at 35% though.

    Remember, however, these are the min and max limits and thus represent the extremes of distribution across Irish regions. Of note too is that they are skewed on the receiver side, and thus, even without data, we can infer that a greater number of regions are subvent-makers or at least far closer to subvent-neutral than the Midlands. (In fact, Midlands might be an outlier.)

    ***

    On (b), this is where the thorn resides.

    First, there may be good reasons why Midlands is so burdensome of Irish tax payers. Where, for example, do the parents of all those high-flying IFSC-types in Dublin, the South West and Mid West reside? Are their parents drawing pensions in Laos and Offaly? The options facing us if we want to be “fairer” to their tax-paying children may then be (a) to forcibly reside these pensioners with their Dublin, Limerick and Cork-based children or (b) to pay a lower rate of pension to their parents in Laos and Offaly … something that I think the high-flyers in the IFSC may kick up a fuss about if it were to happen to their Laos-residing mammies!

    (BTW, in that example, we could expect the subvention ratio of the Midlands to approach infinity as the populaion aged until the last IFSC mammy or daddy popped their cloggs.)

    Second, as I wrote before, subvention-rates are not a thing that are written in stone. The west, was I wrote above, was once written off as being unsustainable. Now, as the report above shows, at least two out three western regions are net subvent-makers (and I suspect the third is at least close to being subvent-neutral). This is the fruit of large-scale subvention over the past decades (witness in particular the Mid-West region).

    When looking at subventions made today, you must ask yourself, are these being made so as to increase the productivity of this region (and Ireland) into the future? Large swathes of Ireland have suffered from a lack of investment in the past. Whatever the thinking then (for good or for bad), investing in these areas today may represent good investment decisions for the future, as evidenced by South West and Mid West in the report above.