Presentation by Michael Taft, SIPTU re Budget 2019

1. ANALYSIS of BUDGET 2019
Michael Taft, Research
October 2018

2. 1. Farewell, Fiscal Rules
We Hardly Knew Ye
• The Fiscal Rules have been dispensed with.
Remember the Fiscal Treaty Referendum – how we
needed these rules to protect ourselves from fiscal
selves.
• Then the Summer Economic Statement:
‘The fiscal rules are currently unhelpful . . . A full and literal
application of the fiscal rules would involve the adoption of pro-
cyclical policies not remotely appropriate to our position in the
economic cycle. That is why fiscal space is increasingly an
inappropriate concept. . . . the fiscal rules would damage our
economy; that is why policy will no longer be formulated on the basis
of ‘fiscal space’.

3. Not Spending What We Can Spend
990
2,400
700
2019 2020 2021
Additional Fiscal Space the Government doesn't intend to use (€ million)

4. 2. Budget Summarised in 3 Charts
148.7
80
90
100
110
120
130
140
150
160
2017 2018 2019 2020 2021 2022 2023
Real Public Investment per capita: 2017 - 2023
(2017 = 100)

5. Squeezing Public Services
92.2
82
84
86
88
90
92
94
96
98
100
102
104
2017 2018 2019 2020 2021 2022 2023
Real Spending on Public Services per capita: 2017 - 2023
(2017 = 100)

6. Below Average
• It’s not that Irish public
spending on public services is
high by the standards of our EU
Peer-Group.
• Last year would have had to
spend an additional €5.6
billion to reach our peer-group.
With inflation factored in, we
would have to spend an
additional €10 billion.
• If we use an output
measurement (spending as a
proportion of GDP / GNI*),
Ireland would have to spend an
additional €9.7 billion.
Per Capita (€) Real Per Capita
(PPP)
Denmark 12,492 Denmark 9,782
Sweden 12,345 Sweden 9,324
Netherlands 10,382 Netherlands 9,196
Finland 9,351 Finland 8,364
Belgium 9,025 France 8,230
EU Peer Group 8,538 EU Peer Group 8,222
Austria 8,197 Belgium 8,175
France 8,057 Germany 7,855
Germany 7,721 Austria 7,392
IRELAND 7,371 IRELAND 6,410
UK 6,448 UK 6,278

7. Squeezing Social Protection
90.8
86
88
90
92
94
96
98
100
102
2017 2018 2019 2020 2021 2022 2023
Real Spending on Social Protection per capita:
2017 - 2023 (2017 = 100)

8. 3. Privatising the Future
• It’s not enough that the Government intends to squeeze the
social state; it will be pursuing a privatisation agenda in
major sectors of the economy.
• Finance: the proposed privatisation of AIB is proceeding
without even a debate. So much for learning the lessons of
the past – handing back valuable financial assets to the
same class that landed us in the crash.
• Property: the Land Development Agency has the potential
of handing over land to the developer class in a
dysfunctional market in exchange for a small amount of
public housing (which may be bought at high market
prices).

9. More Mood Music
• Pensions: the Government’s proposed framework is
based on a Defined Contribution scheme reliant on the
private pension industry which puts the risk on the
employee and the state (through its Exchequer top-up).
• Rural Broadband: still suffering from the fall-out of the
Eircom privatisation we are now descending into an
absurd situation with only one bidder with no utility-
provision experience and a contaminated process.

10. 4. Macro-Economic Risks
• In their macro-economic risk assessment matrix the
Government identified 21 external and domestic risks. Of
these, three are categorised as ‘highly likely’:
• Corporate tax concentration: difficult to resolve (if MNCs
continue to use Ireland as a tax haven-conduit and the state
accommodates) – but degrading efficient taxes such as USC
and property tax doesn’t help.
• EU climate change targets: the budget failed on carbon
taxes and diesel tax.
• Housing supply issues: Government in denial (claims policy
is working despite rising rents, house prices and
homelessness).

11. Assessment
1) Fiscal rules are thrown out at the very moment
the rules allow for higher investment.
2) Spending on public services and social protection
is being cut to pay for capital investment.
3) The privatisation train keeps on rolling.
4) And the Government flunks their own risk
assessment.

12. 5. A Progressive Focus
• What should progressives focus
on? The productive economy.
NERI (McDonnell) has provided
a road-map for long-term
economic growth. Key areas in
addition to capital investment:
• EDUCATION: human capital
will play the key role in driving
growth and innovation. But
Ireland is lagging it’s peer-
group. In 2015, education
spending would have had to
increase by over 20 percent, or
€1.8 billion to reach average.
10,820
10,086
9,902
9,582
9,556
9,282
9,032
8,606
8,183
7,447
Austria
Sweden
United Kingdom
Netherlands
Belgium
Germany
EU-Peer Group
Finland
France
Ireland
Real Spending per pupil: 2015 (PPP)

13. Research & Design
• If want a truly ‘competitive’
economy (and not some low-
wage ghetto), we need to drive
investment in basic research.
• Ireland is at the bottom of the
table. We would have to more
than treble expenditure – or €1
billion – to reach the peer-group
average.
• And to reach the levels of other
small open economies would
require even more investment.
658
562
434
362
313
278
214
187
102
61
3
Denmark
Sweden
Belgium
Germany
Finland
EU Peer Group
Austria
Netherlands
France
Ireland
United Kingdom
Real Spending on Basic Research:
2016 (€ per capita)

14. Early Years Investment
• We have a crisis in childcare
(affordability and working
conditions); we have a crisis in
early years investment. No one
disputes this.
• What we don’t have is a roadmap
to a high-quality, affordable,
professionalised pay sector.
• Irish expenditure has – as a
proportion of GNI* - not increased
significantly. We could need up to
an additional €1 billion.
1.6
1.4
1.3
1.1
0.8
0.8
0.7
0.7
0.6
0.5
0.25
0.2
Sweden
Denmark
France
Finland
Belgium
UK
EU average
Netherlands
Germany
Austria
Ireland (GNI* 2018)
Ireland (GNI*)
Expenditure on Early Years Sector:
% of GDP (2013)

15. 6. Privilege Collective Consumption
• Prioritise collective over
individual consumption to
increase living standards and
social security
• In other EU countries this is
done through the Social Wage
– employers’ social insurance.
• Employers’ PRSI is not a tax –
it is part of employees’
compensation and can be
integrated into collective
bargaining.
• Pay-related unemployment
and sick benefit
• Pay-related maternity benefit
and paternity leave
• Free / low-cost healthcare and
subsidised prescription
medicine
• A second-tier pension system
that provides pay-related and
certain retirement income.

16. Ireland’s Low Social Wage
• Though comparisons between
countries’ social insurance
systems can be difficult, a
broad indicative measurement
can be produced.
• The Irish Social Wage is well
below that of our peer-group
(€9 billion less). While
account must be taken of
demographics (e.g. old age
pensions), if we want a
European level of in-work
benefits we will have to
increase the social wage.
34.5
30.5
24.3
23.0
22.8
22.3
15.8
13.7
10.0
9.1
France
Sweden
Austria
Belgium
EU-Peer Group
Finland
Germany
Netherlands
Ireland
UK
Employers' Social Insurance (Social Wage):
% of Total Wages 2016

17. 7. Principle for Productive Taxation
• The key principle is that taxation must work for the
productive economy. Less taxes on productive forces,
more taxes on unproductive ones (property, rentier
income, passive and unearned income, degrading
environmental activities).
• Some Blue Sky suggestions:
1) Abolish income tax and substitute USC.
Substantially reduce marginal tax rates (especially
middle income) by broadening tax base and
maintaining tax revenue.

18. Rethinking How We Tax The Economy
2) Substantially reduce taxation on productive income
and increase taxation on net wealth. A 3 percent levy
on net wealth would raise as much revenue as income
tax.
3) Tax income from labour and capital the same.
Implicit tax rate on labour: 33 percent – implicit tax
rate on capital: 13 percent.
• These are intended to provoke discussion about how to
shift taxation away from the productive to the
unproductive sector and re-think how we tax the
economy.

19. 8. The Ultimate Budgetary Reform
Is there a way to
 increase tax revenue,
 reduce expenditure (specifically, social protection subsidies to low-
wage employers and sectors),
 reduce wage inequality,
 shrink the share of the top 1 percent,
 squeeze precariousness (rather than public services)
 boost social benefits,
 reduce gender pay gaps
 increase social security
 Boost productivity
and do so without any tax or spending measure? Yes.

20. Give Workers the Tools
• Give workers the tools to begin transforming the economy in their
workplace.
 Vindicate their right to bargain together, to bargain collectively in
the workplace and across sectors
• Workers bargaining together have been shown to boost low and
average incomes, reduce low-pay subsidies, promote equality wage and
gender quality, boost enterprise performance and undermine
precariousness.
• We can start doing that now – with our fellow workers. And as we gain
strength we can campaign more effectively for the statutory
instruments to provide us even more tools.
• To paraphrase John Maynard Keynes – if you look after workers’ rights,
the workers will look after the economy.

21. www.siptu.ie