Ireland is sliding into depression - economic conference told

Amhran Nua

From the Irish Times:

Ireland is sliding into depression and small pockets of economic growth at this stage are "meaningless", it was said at an economic conference in Dublin City University today.

Alternative approaches to economic thinking must be used to solve problems in the Irish economy and society, according to speakers at the conference, which was organised by the thinktank TASC.

Terrence McDonough, a professor at NUI Galway's Department of Economics, said mainstream economics was "broken" and disconnected from the real world, with economists hiding behind massaged mathematical models that claimed to tell the future but failed to predict or prevent the current crisis.

"The notion of a recovery from recession is meaningless in this context... Small amounts of growth at the bottom of the recession mean nothing," he said.

By standard measures of economic growth, the US emerged from the Great Depression in 1933, he added. However, conditions remained extremely difficult for people throughout the decade.

The glorification of individual consumption in Ireland led to policy mistakes such as a low-tax regime that in turn created the fiscal crisis and allowed the banking sector to "hold the country to ransom", Prof McDonough said.

Opening the event, TASC director Paula Clancy called for the establishment of a National Recovery Forum to debate how the Irish economy could achieve what she termed "recovery with equality".

So you mean you can't borrow the running costs of an entire country?

SLUSK

The problem with the entire western world is debt, that is why Asia are overtaking us. We here are debtor nations, and they are creditor nations.

I said it before and I say it again, this model of over borrowing and over spending in all levels of society is unsustainable.

leninbenjamin

Terrence McDonough is actually someone I really respect. He's an unorthodox thinker but he has some really clear ideas on the nature of the flaws in the current economic system. His views seem to be heavily influenced by one of the newer schools of thought, 'Social Structures of Accumulation'. Well worth a look if you're not familiar with it.

PEPPI

SLUSK wrote: »

The problem with the entire western world is debt, that is why Asia are overtaking us. We here are debtor nations, and they are creditor nations.

I said it before and I say it again, this model of over borrowing and over spending in all levels of society is unsustainable.

You and millions more agree with you...... but was it not great while we were spending away to our hearts content.

Now the piper must be paid - did any of us really believe it was going to last forever

Diarmuid

The glorification of individual consumption in Ireland led to policy mistakes such as a low-tax regime that in turn created the fiscal crisis and allowed the banking sector to "hold the country to ransom", Prof McDonough said.

That's a bit sweeping and to be honest, wrong. Ireland's low corporate tax reigime is about the one right thing Ireland has done in the past 20 years. Without the large multinationals around now (thank you 12% corporate tax) we would be totally screwed as opposed to partially screwed.

ei.sdraob

Ireland is already in depression

more than 10% contraction is considered a depression not a recession

we just scrapped 10% earlier this year

PEPPI

And we all are waiting for the RAMPANT consumerism to start ( in US ) to rectify this dilemma.

SLUSK

PEPPI wrote: »

And we all are waiting for the RAMPANT consumerism to start ( in US ) to rectify this dilemma.

Yes more overborrowing and overspending to solve the previous problem of overborrowing and overspending. I cannot see anything that can go wrong here.

Please give us another bubble to invest in.

ei.sdraob

SLUSK wrote: »

Yes more overborrowing and overspending to solve the previous problem of overborrowing and overspending. I cannot see anything that can go wrong here.

Please give us another bubble to invest in.

green technologies is next bubble

watch my word

sceptre

ei.sdraob wrote: »

Ireland is already in depression

more than 10% contraction is considered a depression not a recession

we just scrapped 10% earlier this year

The "rule" you're quoting has two parts and you've only considered one (and that's assuming you're correct about the one you've considered).

Greater than 10% decline in real GDP and a recession lasting 3 or more years.

You might be able to make a case for the Irish economy being in a depression based on the generalised principles but if you're going to use the formulaic rule, both of the above conditions would need to be satisfied and they're not.

jmayo

SLUSK wrote: »

The problem with the entire western world is debt, that is why Asia are overtaking us. We here are debtor nations, and they are creditor nations.

I said it before and I say it again, this model of over borrowing and over spending in all levels of society is unsustainable.

Yes if China wanted they could sink the western world, only problem is their markets would also disappear. As it is the recession has resulted in big job losses in China.
As most would agree, this century is the century when the Far East comes of age economically so to speak.

Diarmuid wrote: »

That's a bit sweeping and to be honest, wrong. Ireland's low corporate tax reigime is about the one right thing Ireland has done in the past 20 years. Without the large multinationals around now (thank you 12% corporate tax) we would be totally screwed as opposed to partially screwed.

I think he means low income tax rather than corporation tax.
Rather than give pay increases the original deal in social partnership was to give tax cuts, ala the ideals of Harney & McCreevey.
Our income tax rates were dropped and many people fell out of the tax net.

AARRRGH

PEPPI wrote: »

And we all are waiting for the RAMPANT consumerism to start ( in US ) to rectify this dilemma.

Yeah, I find this amazing. It seems our entire society is now based upon creating more and more debt. It's a pyramid scheme.

What's the best way to protect ourselves for when the scheme eventually comes crashing down?

Fat_Fingers

AARRRGH wrote: »

What's the best way to protect ourselves for when the scheme eventually comes crashing down?

Pay off your mortgage, don't have any loans , then when you lose your job you can survive on government handouts. Or get a job in public service.

optocynic

We are on the verge of a depression.

The final straw will be if the gutless government blink in their game of chicken with the deluded unions!

Blink, and we are screwed!

Scofflaw

Diarmuid wrote: »

The glorification of individual consumption in Ireland led to policy mistakes such as a low-tax regime that in turn created the fiscal crisis and allowed the banking sector to "hold the country to ransom", Prof McDonough said.

That's a bit sweeping and to be honest, wrong. Ireland's low corporate tax reigime is about the one right thing Ireland has done in the past 20 years. Without the large multinationals around now (thank you 12% corporate tax) we would be totally screwed as opposed to partially screwed.

I don't think that's what he's referring to - he's referring to the very low income tax regime we have. In Ireland, the top 20% of taxpayers pay 77% of income tax (ESRI), the top 6.5% of taxpayers pay 50% of income tax, and a very large proportion of the population pay virtually no income tax - the median Irish earner (on €25k) pays 4% income tax.

All of that has been quite deliberately engineered to support a consumption-driven economic boom - which might even have worked had it not been for the distorting effect of property.

cordially,
Scofflaw

Diarmuid

jmayo wrote: »

I think he means low income tax rather than corporation tax..

"What's good for the goose is good for the gander". If low corporation tax is a good idea by the same principles low income tax should be a good thing. However I do realise that labour mobility is lower than corporation mobility (if that's the term?)

P. Breathnach

Scofflaw wrote: »

I don't think that's what he's referring to - he's referring to the very low income tax regime we have. In Ireland, the top 20% of taxpayers pay 77% of income tax (ESRI), the top 6.5% of taxpayers pay 50% of income tax, and a very large proportion of the population pay virtually no income tax - the median Irish earner (on €25k) pays 4% income tax.

All of that has been quite deliberately engineered to support a consumption-driven economic boom - which might even have worked had it not been for the distorting effect of property.

I'll start with an aside, if you will tolerate it: the low rate of tax on median incomes seems to be a phenomenon outside the ken of may posters here, even though many suggest that they are earning modest amounts, and are paying extortionate taxes.

The more serious points that strike me are
- This might be described as "trickle-up" theory; ensure that those lower down the income scales have spending power so that there is a market for business to exploit. Given that, in general, lower-income people spend more of their income and (unless things have changed) spend proportionately more on goods and services produced in the home market, there is a case to be made in its favour.
- There might be a chicken-and-egg element in the property market distortion. People who, under the conditions of twenty years ago, would not have expected to own a house, saw themselves with sufficient net income to fund the acquisition of at least one property. Of course, it's not the whole story, but I think it is part of it.

namenotavailablE

The median Irish earner (on €25k) pays 4% income tax.

That % appears to exclude levies and PRSI. Once these are included, the % is higher, as is evident from the following calculation:

• Single person earning €25000 pa
• Annual tax credits and cut-off point: €3660 / €25000 ( cut-off is restricted to income amount)

Results:

• PAYE paid: €1340 (5.36% of gross)
• PRSI paid: €736 (using rules applying since mini-budget)
• Health contribution paid: Nil
• Income levy paid:€500 (2% of gross)

Conclusion: Tax, PRSI and levies amount to €2576 or approx 10.3% of gross pay.

nesf

namenotavailabl wrote: »

That % appears to exclude levies and PRSI. Once these are included, the % is higher, as is evident from the following calculation:

• Single person earning €25000 pa
• Annual tax credits and cut-off point: €3660 / €25000 ( cut-off is restricted to income amount)

Results:

• PAYE paid: €1340 (5.36% of gross)
• PRSI paid: €736 (using rules applying since mini-budget)
• Health contribution paid: Nil
• Income levy paid:€500 (2% of gross)

Conclusion: Tax, PRSI and levies amount to €2576 or approx 10.3% of gross pay.

Income tax wouldn't include levies and PRSI! Personally I'd like to see such levies worked into a single Income tax purely to make it easier for people to work out their tax but strictly speaking they aren't income tax.

This slight of hand is how people get away with such statements! And this is why I don't pay much attention to such quotes!

brianthebard

I think this is TASC's website; http://www.progressive-economy.ie/ (sorry maybe that's the blog, this is the homepage I think; http://www.tascnet.ie/showPage.php )

I like reading what they have to say, I came across it from another blog by Michael Taft I think. A lot of is left leaning (teh horror!) but I think most of the arguments will appeal to centrists and are reasonable comments on Irish society/economy.

namenotavailablE

Income tax wouldn't include levies and PRSI!

Yes- you are correct in that distinction (although I suspect a majority of tax payers would include their PRSI / levy payments as part of their 'tax bill'). I posted my comment so that others could be clear that the 4% rate does not fully portray the extent of a person's 'compulsory pay deduction'.

I'd like to see such levies worked into a single Income tax

This would be a very desirable change in the tax system- currently, the calculations are not transparent nor easily understood due to the plethora of rates/thresholds/exemptions etc which you need to work through when computing net.
I think if this change was effected, the PAYE employee on €25000 would be seen to be paying an average "contribution to government finances amount" (or tax, if you prefer ) of approx 10.3% of gross pay.

Scofflaw

namenotavailabl wrote: »

Yes- you are correct in that distinction (although I suspect a majority of tax payers would include their PRSI / levy payments as part of their 'tax bill'). I posted my comment so that others could be clear that the 4% rate does not fully portray the extent of a person's 'compulsory pay deduction'.



This would be a very desirable change in the tax system- currently, the calculations are not transparent nor easily understood due to the plethora of rates/thresholds/exemptions etc which you need to work through when computing net.
I think if this change was effected, the PAYE employee on €25000 would be seen to be paying an average "contribution to government finances amount" (or tax, if you prefer ) of approx 10.3% of gross pay.

Adding in PRSI and levies certainly makes the picture clearer, and I presume is correct. One minor correction - the income levy rate is only 1% up to 100K:

Results:

* PAYE paid: €1340 (5.36% of gross)
* PRSI paid: €736 (using rules applying since mini-budget)
* Health contribution paid: Nil
* Income levy paid:€250 (1% of gross)

Conclusion: Tax, PRSI and levies amount to €2326 or approx 9.3% of gross pay.

Now, 9.3% of gross pay as the income contribution for the median earner is still extremely small, and therefore this doesn't change the basic point - instead it clarifies and emphasises it. The government over the last dozen years has run down income taxes (and levies) to sustain consumer spending - transferring the burden to property taxation on a housing bubble which was in turn supported by those low income taxes.

cordially,
Scofflaw

namenotavailablE

One minor correction - the income levy rate is only 1% up to 100K:

That was the old rate (pre May 2009)- 1% up to €100,100!
The supplementary budget changed it to 2% on income up to €75036.

I agree however, that it is a small %, whether 9.3% or 10.3% and that the reliance on property hyperactivity was utter craziness.

(Q: is the median income only €25000 in Ireland? It sounds like a very low figure but I have no statistics to hand.)

nesf

namenotavailabl wrote: »

Yes- you are correct in that distinction (although I suspect a majority of tax payers would include their PRSI / levy payments as part of their 'tax bill'). I posted my comment so that others could be clear that the 4% rate does not fully portray the extent of a person's 'compulsory pay deduction'.

Yeah I prefer a term like total tax levied on income. Makes things far simpler and clearer. Compulsory isn't necessary, all taxes by definition are compulsory.

Death and Taxes and all that.

P. Breathnach

nesf wrote: »

... all taxes by definition are compulsory...

I know a few people who think otherwise.

nesf

P. Breathnach wrote: »

I know a few people who think otherwise.

Yup, and most of the time the Revenue catch them thankfully.

srvhead

nesf wrote: »

Yup, and most of the time the Revenue catch them thankfully.

Dont think so.
Black hole in taxes from black and grey economies unquantifiable but i'd say quite large.

nesf

srvhead wrote: »

Dont think so.
Black hole in taxes from black and grey economies unquantifiable but i'd say quite large.

The black economy is large and it'll get larger as taxes are forced to come up over the next 5-10 years. However, the reason it's large is that it's easy to evade small amounts of tax and there are no real penalties because the Revenue won't chase you over them. Large evasions of tax are far far trickier and avoiding the Revenue then is very difficult.

i.e. 60 quid into your pocket for a nixer job isn't hard to hide, it's actually impressively difficult to get caught. 30K in a year in cash from nixers on the other hand is very hard to hide effectively.

Scofflaw

srvhead wrote: »

Dont think so.
Black hole in taxes from black and grey economies unquantifiable but i'd say quite large.

About 13.7% of GDP, apparently, averaged from 1990-2003 - with caveats, obviously.

Source.

cordially,
Scofflaw

NewDubliner

nesf wrote: »

Yup, and most of the time the Revenue catch them thankfully.

They're cutting 5% of their staff, mostly the most experienced ones.

mathie

"Ireland is sliding into depression - economic conference told" ... by left-wing anti-capitalists.