But Brian Lenihan is ranked 18th out of 19 European finance ministers covered in the Financial Times’ latest ranking of their job performance.  Of course Lenihan is mainly being penalised by things that happened before him, but the “political ranking” will tend to reflect the recent impressions of the economists who voted on that component and clearly he didn’t make much of an impression over the last few months.  Note the counterexample of Alistair Darling who although faced with bleak economic statistics, has managed to seem like a man of action on the political side.

Were things good, Joan Burton would be roundly accused of talking down the economy. However, things aren’t good and so the answer to her Parliamentary Question on tax reliefs for construction holds some pretty grim reading. In the financial year 2006, the government waved of €464.4m in 19 property based tax exemption schemes. This included €64m for student accomodation and €140m in urban renewal.

The government over the same period the tax foregone on the Business Expansion Scheme and the Seed Capital Scheme was just €21.4m and €1.2m respectively. Granted this is not all the money available to business and via a variety of bodies like the IDA, FAS and others subsidies are given to development and skills. However the stark contrast in figures chimes with the sense that we all have now of a party in government which prioritised those who lobbied hardest - our friendly developers - over the much vaunted knowledge economy.

As others have written on this topic, the support for tech startups and small business is negligible and something that other opposition parties can make hay out of. Indigenous enterprise will be required to dig us out of this hole, if we are to use tax breaks to incentivise economic benefit it should go to those business who can provide sustainable long term jobs.

The PQ is below the fold.

DÁIL QUESTION

NO  232

To ask the Minister for Finance the amount of tax that was foregone under each of every property tax based scheme in 2006 and 2007; and if he will make a statement on the matter.

*    For WRITTEN answer on Tuesday, 11th November, 2008.
Ref No: 39627/08

Minister for Finance ( Mr Lenihan) :

I am informed by the Revenue Commissioners that the amount of tax foregone under each property-based scheme in 2006 is as follows:-

I am advised by the Revenue Commissioners that data for the tax year 2007 is not yet available as the appropriate income tax and corporation tax returns for that year are either not yet due for filing (by 17th November 2008 in the case of returns filed via ROS) or have only recently been filed but have not yet been processed.

DÁIL QUESTION

NO   233

To ask the Minister for Finance the amount of tax that was foregone under the business expansion scheme and the seed capital scheme respectively in 2006 and 2007; and if he will make a statement on the matter.

*    For WRITTEN answer on Tuesday, 11th November, 2008.
Ref No: 39628/08

Minister for Finance (Mr Lenihan):

I am informed by the Revenue Commissioners that the estimated tax foregone in respect of the Business Expansion Scheme and the Seed Capital Scheme for the years 2006 and 2007 is as set out in the following table:

Ireland now sticks out like a sore thumb among countries whose banks are heavily exposed to property.  While the guarantee scheme made a huge splash when it was announced, other countries have since moved onto banking system capital as a major focus of their efforts — providing banks with enough of an additional buffer to withstand serious losses on their loan books.  The guarantee scheme only helps indirectly with this, since it helps with the raising of new debt (or deposits) but not equity — and does so by transferring risk to the government.   But here’s an interesting idea from Korea: a special fund set up with resources from domestic public and private institutions to invest in banks.  Ireland has one obvious candidate to back such an entity: the National Pension Reserve Fund.  It’s currently getting over a billion euro from the exchequer each year while the value of its overseas portfolio tumbles with the global market crash.  So how could it do any worse as a shareholder in Irish banks — if the government truly has confidence in them?

Finally, a slim ray of light.

‘The problem we have in the public finances is as a result of the fact that the economy is in a recession . . . we have a problem in the economy which has created difficulties in the public finances. It’s not the other way around.’

So said Eamon Gilmore on RTE yesterday. This is the first breach in the consensus dominating the debate – the consensus that prioritises the fiscal imbalance as if it were the cause, and not the result, of our economic decline.

Up to now the Left has been content to oppose the cutbacks and general tax increases contained in the budget. However, it was in danger of being caught in a two-fold trap, best summarised by Shane Coleman. He first, demanded that Labour say what it would do rather than what it opposed (fair enough – if the Left is to go beyond simple oppositionism and, instead, lead a debate, this is exactly what it has to do). But, secondly, Shane demanded to know:

This is the Right’s fiscal trap – you can decide which course to take as along as it’s a course we approve of. Any other options are off the table, any other way of looking at the problem is taboo, extremist, a non-starter.

Gilmore opened up a new front. He talked of pump-priming the economy. When asked whether this could be done given our budgetary state, Gilmore replied:

‘The Labour Party has consistently argued that it is legitimate to borrow for capital purposes . . . and, secondly, we should be using the National Pension Reserve Fund to get money invested into our own economy and in our own infrastructure to get things moving.’

So, borrowing and raiding the Pension Fund can now be put on the table –a third option. And if some think this third option is an easy way out of the ‘hard choices’ – as the Right put it such a macho way – Gilmore opened another door which Labour left closed: increased taxes on the wealthy:

‘ . . If the Labour Party were in Government and we were faced with that levy situation (i.e. Fianna Fail’s 1% levy) we would have skewed that much more on higher incomes than on low and middle incomes . . . you would have seen a higher level on those over €100,000 per year certainly and much less on those on low to middle incomes.’

And just to drive this point home, Eamon unequivocally renounced Labour’s general election policy of cutting the standard income tax rate by 2% (it actually wasn’t a party proposal – rather, something thought up at the last minute by Pat Rabbitte’s speechwriters to make a headline for his pre-election conference speech).

So, are we there yet? Have we the weapons to take the fight to the Right? No, not by a long shot. While it would be unrealistic to expect anyone to elaborate a comprehensive alternative in a seven minute interview, it is clear there is much work to do.

First, there is a real danger that Eamon will be isolated. He is the first Left politician to open up this new fiscal option (new for Ireland, anyway). But he needs support, not just from his parliamentary colleagues, but from the broader progressive field: trade unions, Left commentators and bloggers, social organisations, etc. If he’s left on his own making this argument, he will be easily overwhelmed by the Right. A once-off interview is no match for the deluge of fiscal conservative nonsense we get subjected to everyday.

Second, Eamon’s position is still not fully formed. His claim that Labour supports investment for capital borrowing is neither here nor there; parties across the ideological spectrum support this. His proposal to tap into the Pension Reserve Fund begs questions: for what projects, to what extent, on what commercial terms. The fiscal issue goes beyond capital borrowing or using Pension fund for capital projects – it is about borrowing over the length of the downside business cycle for both current and capital expenditure; a necessary breathing space while other policies are put in place to get us on the right path.

In addition, Labour still remains stuck in the ‘bricks and mortar’ argument. No doubt, putting unemployed builders back to work on school and social housing construction, can be helpful but it is by no means anywhere near sufficient. We must ‘pump prime’ the entire economy – in the manufacturing and private and public service areas – not just construction. What does this mean? What are the instruments available to us? Where do we focus our resources to maximum medium-term benefit? How much will this cost (i.e. borrowing cost)? Will we need supplementary tax revenue – not just from the incomes of the wealthy (which, at the end of the day, won’t get us too far), but from their capital assets as well? Is there something profoundly amiss in our enterprise and financial base that will have to be addressed at the same time as we reflate?

A radical rethink of the economic crisis is now on the cards. Internationally, there is a decisive shift to more progressive solutions: China’s economic stimulus package, President-elect Obama’s imminent ‘big bang’, the EU’s 100-day deadline to put financial capital to heel. The Irish economy needs its own radical home-grown package.

But, at root, this is not just an issue of economic policy – it is about an essential reconfiguration of our political choices. Eamon referred to this:

‘There’s a fundamental difference of approach between the Labour Party’s view of this and the view of the conservative parties and of some conservative commentators.’

There’s still a mountain range of work to do to fully elaborate on this ‘fundamental difference’ – not just in terms of fiscal policy but in raising domestic demand and creating new enterprise strategies. But knowing there is a cleavage between the Left and the Right (and not just with the Government), puts another conservative trap in perspective.

For just as Eamon has started to rejected the notion that fiscal policy is limited to ‘cutting spending’ or ‘increasing general taxes’, we can take this consensus-busting to the next level – by rejecting the political consensus that the only choice of government is between one led by Fianna Fail or Fine Gael.

Break that trap and the uphill climb will still be hard and arduous – but at least we can dare to hope to reach the top.

It is a long running line ‘tax revenues were off predictions’. For good or bad tax revenues repeatedly failed to conform to targets and expectations. On the way up property inflation yielded a massive boon to the exchequer and fuelled increases in state spending and shrinking of the tax base. On the way down - all hell broke loose. Fall off in the bubbles like property and CGT had knock on effects on jobs and income tax.

I am surprised there isn’t a book open on the spread between prediction and actuality to be honest. Today was another one for the marker, tax revenue is now €4.3bn behind target. It is baffling how out of kilter some of the assumptions can be.

Those who were left with the fallout from Bertie Ahern’s ten years in office, namely Cowen and Lenihan, were probably impressed by the production value of the Bertie documentary series last night - if nothing else. The programme was exceptionally well put together and surpassed what I had expected it to be. It wasn’t reliant on journalists to tell the story, it had all the main players bar Celia Larkin. The interviews were even combative in parts. I thoroughly enjoyed it, as it is the first draft of historical perspectives on Bertie part drafted by himself.

Yet to what extent it analyses our current situation in light of the past ten years is an interesting point. Ahern presided over a government that couldn’t or wouldn’t say no. Money being spent was, and remains, vital for the health of this country, economy and society. The manner in which some was spent, shrinking the tax base and ramping up spending was on the whole unsustainable. The inflated property bubble allowed the numbers to add up but it was not for long.

Now Brain Brian Lenihan is forced into admitting embarrasingly that we may have another mini-budget again soon to rectify our budgetary shortfall. The EU is annoyed with us and P O Neill has raised the point that we may be wearing out our welcome in Brussles with our behaviour. They are starting proceedings against us for our deficit of 6.5% breaching the EU max by some way. At this rate, we are moving toward quarterly budgets to coincide with the horror statement of public finances.

There is a set of very interesting charts with this Wall Street Journal article (should be free access via Google News) about investor expectations of the likelihood that EU countries could default on their debt.  The shocker: for Ireland, the probability is 10%.  That’s huge for a rich country.  We’re joined at that level by Greece, with Italy, Spain, and Austria in the chasing pack.  So despite our surge to the top of the EU per capita income tables that seemed to have us on a par with Germany, France, and the UK, the debt markets look now and see a fragile economy sitting outside the safety of the EU core.   The good news is that it’s not yet reflected in public sector funding costs (see the chart on the left).  Instead, the default expectation reflects the banking system liability guarantee.    Sarah Carey has an interesting quote from Brendan Keenan in which, amongst other things, he expresses amazement that the guarantee has kept the banking show on the road as long as it has.   Hopefully our luck has some time to go.

Where is the radical reform in the civil service ? Sunday Times figures show that almost every civil servant in the country has received a pay increase. The Government seemed happy to let the civil servants write the budget and now we find that the oversight process for employees in the civil service, the Performance Management and Development System (PMDS) has standards so low that in essence the civil servants are writing their own pay rises. According to the Department of Finance, the pay bill for 2008 will be €2.1 billion up 6.7% from 2007 (€1.9 billion). This sparks the questions about pay freezes, reform, and job security of civil servants. Its worse in the wider public sector where the average wage increase is around 8.9% or so and adds €1.5 billion to the wage bill per year.

Mark Tighe in the Sunday Times (26/10/2008) had reported a number of shock findings in the PMDS scheme for performance rating of civil servants. It seems that if you turn up to work and sleep at your desk for the day, you’ll still get your raise while you work in the Irish civil service. It seems that those who word hard in the civil service are being hampered and the top quality of these hard workers are not being rewarded in relation to their colleagues. Whether it is a failing of training or for management needs to be discovered because this kind of carry on would last less than five minutes in any Multinational in this country so why should it be allowed to fester in our civil service ? 

Tighe got the view of Union leader’s such as Tom Geraghty who claim the scheme has improved performance but does not his surprise that were not more people in the poor performance categories as “Everyone things they are a swan but there are bound to be a few ducks”. He further conceded that management had to motivate people and that “telling them that they are useless isn’t a great way of doing that”.

The figures released to Tighe show the soft reality of the civil service. These are especially harsh when compared with the civil service-wide PMDS evaluation ( PDF ) by Mercer Human Resource Consulting which was completed in May 2004. The suggested figures for percentages in levels are vastly different, perhaps Mercer was thinking along the lines of the private sector where only true performance and merit is rewarded. The consultants report further noted that the PMDS system itself was weak at distinguishing between the different performance levels, in highlighting which staff performed well and in handling those “few ducks” who underperformed. The figures shown below highlight how the civil service is over egging the pot (on the left) by being top heavy  in the 3, 4, and 5 categories. The consultants report (on the right) showed a more private sector view with correspondingly lower numbers in the higher categories and a vast increase in comparison to the underachieving categories.

The most telling problem with this system is that the consultants found that it was not linked to decisions on promotions, pay increases, or career development. Senator Alan Kelly of Labour has recently (8th October, 2008) voiced further concerns about PMDS as it currently only being applied to the lower grades of the civil service and that its implementation in the senior manager grades has left a lot to be desired.

Even a bad scheme like PMDS is better than no scheme. Local Authority workers (~35,000) and Health Service Executive staff (~111,000) are not yet in such a ranked/rated scheme. In the case of the Local Authority, they are considering it and in the HSE they have one but it doesn’t use any kind of ranking or rating. It really is no surprise that the HSE has a bad record for its management not knowing who is currently employed but without ranking for staff, one wonders how the staff get assessed with any due consideration.

Mark Tighe has a second Sunday Times article point out that 74.2% of all public-sector workers earned more than €40,000, further break downs show that even in the higher pay categories the public sector employees are still ahead of the average private sector counterpart. Two examples, between €50,000 to €100,000 its 29.1% of public sector workers to just 13.1% of private sector worker and above €100,000 its 2.5% public sector to 1.9% private sector. These figures are basic figures and do not include any additional loading for job security or the guarantee of a pension for public sector employees. 

Tighe spoke to Jim Power, chief economist with Friends First who pointed out the reality that “in the private sector thousands of workers are being let go and salaries are being cut by 10% to 20% in some companies. It is clear the public-sector unions believe the adjustment in the economy must be borne entirely by the private sector”. Brian Lenihan has stated a reform of this area will be “messy and unpleasant” so instead he’s waiting for a task force to deal with the problem instead. I think I’d prefer the approach of Richard Bruton to sorting out the mess because regardless of politics, he at least seems to understand the problems (overview of reform approach, Reform through Recovery response to Budget).

An annual increase of €1.5 billion in the national public sector pay bill or €100 million for the over 70’s medical card, hhmmm I think I know which problem I’d be tackling if I was in government. There was an elephant in the room for this budget, it was and still is public sector reform. Tackling this one issue would provide all the funds to provide universality for health care and education and they’d still be cash for capital development. If only there was some leadership and grasp of reality in the current Government we might cushion the impending hard landing as it stands this is an avalanche gathering speed which will plunge us into a Japanese style recession without prompt and hard calls by the Government.