Some Good News and Bad News (Live Register and Tax Returns)

RealityCheck

This evening the Live Register figures and the October tax returns have been released.

http://www.rte.ie/news/2009/1103/economy1.html

The good news is the live register figure has reduced by 11,500. This most likely reflect many people leaving the country to find employment elsewhere and many immigrants returning home.

The bad news is that the October tax returns are absolutely dismal. It now looks increasingly likely that the budget prepared in April will be out by 2 Billion odd. The tax returns are now at 2003 levels proving that increases in taxes dont necessarily mean increases in tax revenue. This surely fuels the calls for the 4 Billion in Budget savings to come from the expenditure side as it is clear we are taxed as far as possible.

NewDubliner

RealityCheck wrote: »

This surely fuels the calls for the 4 Billion in Budget savings to come from the expenditure side as it is clear we are taxed as far as possible.

If you cut the pay bill by 1.3bn. The tax receipts will go down by another 1bn.

nesf

NewDubliner wrote: »

If you cut the pay bill by 1.3bn. The tax receipts will go down by another 1bn.

Eh, where are you getting that number from? It looks very very high.

RealityCheck

NewDubliner wrote: »

If you cut the pay bill by 1.3bn. The tax receipts will go down by another 1bn.

Its hardly going to be that high ? worst case scenario ?

In the relative scheme of things, 1.3 billion is barely a drop in the ocean in comparison to what we need to cut back in future.

nesf

RealityCheck wrote: »

Its hardly going to be that high ? worst case scenario ?

In the relative scheme of things, 1.3 billion is barely a drop in the ocean in comparison to what we need to cut back in future.

Well the real issue is that 1.3 billion is funded by borrowings so the real cost is a fair bit higher.

The_Conductor

Slightly OT- but did anyone hear Brian Lenihan being interviewed on RTE? He blamed the reduction in tax receipts on unexpected lower salaries in both the public and private sectors. Apparently- he didn't cop that everyone is getting paid less.........

NewDubliner

nesf wrote: »

Eh, where are you getting that number from? It looks very very high.

Tax, PRSI, levies and Public Service levy give a marginal rate of about 60%. The VAT lost on the balance (when it's not spent) mean that of every 100 euro cut in public sector pay, about 72 will be lost in tax receipts. This does not take account of the loss of income to businesses where the money will no longer be spent, and the loss of revenue from their staff's tax and PRSI. So, my 72% estimate may be a bit conservative.

It's not a total rebuttal of the logic of cuts, but it does demonstrate the deflationary effect.

lmimmfn

Im sure im not the only one to took the total of the tax increase in April on my weekly expenditure.

The more we are taxed the less we will spend. Of course there's a point whereby we can't cut any more corners but at that point you'd nearly be as well off on the dole( with the current welfare rates ).

Its great that the live register is down though and i have noticed we're not listening to 200 jobs going every day or two on the news.

nesf

NewDubliner wrote: »

Tax, PRSI, levies and Public Service levy give a marginal rate of about 60%. The VAT lost on the balance (when it's not spent) mean that of every 100 euro cut in public sector pay, about 72 will be lost in tax receipts. This does not take account of the loss of income to businesses where the money will no longer be spent, and the loss of revenue from their staff's tax and PRSI. So, my 72% estimate may be a bit conservative.

It's not a total rebuttal of the logic of cuts, but it does demonstrate the deflationary effect.

Eh, that marginal rate is only for top rate earners and changes according to which bands you are in for PRSI, income tax and so on.

The deflationary effect is there but you have to take into account the borrowing that funds the 1.3 billion in wages and that the money for these wages when it's not being borrowed is coming out of the private sector anyway so it's not new fresh money. There's a deflationary effect for paying public sector wages in the first place anyway.

thebman

smccarrick wrote: »

Slightly OT- but did anyone hear Brian Lenihan being interviewed on RTE? He blamed the reduction in tax receipts on unexpected lower salaries in both the public and private sectors. Apparently- he didn't cop that everyone is getting paid less.........

My worry would be that they will reduce the entry level for people paying tax.

That wouldn't be a new tax like they've been saying. I think that is very likely TBH.

NewDubliner

nesf wrote: »

Eh, that marginal rate is only for top rate earners and changes according to which bands you are in for PRSI, income tax and so on.

Seems reasonable to assume that public sector workers are on top rate tax, or that the cuts will be directed at those who are.

nesf wrote: »

There's a deflationary effect for paying public sector wages in the first place anyway.

Only if you think that the public-sector adds no value at all to the economy. And, not all public sector wages are funded from taxes.

gurramok

What are the income tax receipts month by month to get a truer picture of the live register so we can rule out emigration and the return to education(plus Fas) factors.

The_Conductor

nesf wrote: »

Eh, that marginal rate is only for top rate earners and changes according to which bands you are in for PRSI, income tax and so on.

The deflationary effect is there but you have to take into account the borrowing that funds the 1.3 billion in wages and that the money for these wages when it's not being borrowed is coming out of the private sector anyway so it's not new fresh money. There's a deflationary effect for paying public sector wages in the first place anyway.

Remember you hit the marginal rate @ ~36k, which is not very high at all, when you factor a mortgage, no medical card, and the probability that your 2 income household will be a 1 income household for the foreseeable future.

In the public sector- for post 1995 employees, when you factor in the income and pension levies into the equation- the marginal rate is now ~59.6% for those just over the threshold (its lower once you hit the PRSI ceiling obviously).

With respect of the multiplier effect- obviously the deflationary impact of it is open to interpretation. For a small open economy- when I was doing my BBS- we used a multiplier of 2.8. Perhaps thinking has moved on since I graduated?

lmimmfn

Private Sector=Tax producer
Public Sector=Tax consumer

Simple as that

smccarrick wrote: »

In the public sector- for post 1995 employees, when you factor in the income and pension levies into the equation- the marginal rate is now ~59.6% for those just over the threshold (its lower once you hit the PRSI ceiling obviously).

So for private sector workers who get no employer pension contribution and have to fund 10% or so themselves before tax, that that should be considered a tax contribution for them likewise?

You could just get rid of the pension levy and PS pensions entirely and allow them to take private pensions like a lot of the private sector have to, surely this would save the state a fortune? and the PS would no longer have that levy.

NewDubliner

lmimmfn wrote: »

Private Sector=Tax producer
Public Sector=Tax consumer
Simple as that

No it's not.
Public sector provides services that help and enable people to be productive.

The_Conductor

gurramok wrote: »

What are the income tax receipts month by month to get a truer picture of the live register so we can rule out emigration and the return to education(plus Fas) factors.

CSO figures are showing a net migration- its a reasonable assumption that a large portion of these people are social welfare recipients, but obviously this is pure hypothesis. We can show a slowdown in the number of redundancies advised to the Department of Enterprise, Trade and Employment- however, the number of new jobs announced (which is speculative at best), continues to run below even these lowered figures.

So- in short- we're continuing to loose jobs, but at a slower pace than hitherto. Meanwhile the fall in the live register can only be accounted for- by our startling increase in net migration- which is once again at levels last seen in the late 1980s.

The big anamoly in all of this- is the massive increase in the Irish birthrate? Is it that people can't afford to go out and are staying at home and partaking of (ahem) other activities instead? It does seem counter intuitive in many respects........

Économiste Monétaire

smccarrick wrote: »

With respect of the multiplier effect- obviously the deflationary impact of it is open to interpretation. For a small open economy- when I was doing my BBS- we used a multiplier of 2.8. Perhaps thinking has moved on since I graduated?

A 2.8 government consumption multiplier?

lmimmfn

NewDubliner wrote: »

No it's not.
Public sector provides services that help and enable people to be productive.

i didnt say anything about services or all the good work done, i said the public sector's wages are either paid by tax intake from the private sector or by borrowings.

Private sector makes the money in a country, the public sector doesnt make the government money.

nesf

NewDubliner wrote: »

Only if you think that the public-sector adds no value at all to the economy. And, not all public sector wages are funded from taxes.

The public sector doesn't add value in financial terms. It's absolutely essential for social reasons apart from this but it's not a revenue generating enterprise in general. The public sector spends tax receipts it doesn't generate new ones, this is fine it's how it works and we need a public sector so really it's a bit of a non-issue.

NewDubliner

lmimmfn wrote: »

i didnt say anything about services or all the good work done, i said the public sector's wages are either paid by tax intake from the private sector or by borrowings.

Private sector makes the money in a country, the public sector doesnt make the government money.

Yes it does, people pay for essential services through their taxes.

nesf

smccarrick wrote: »

Remember you hit the marginal rate @ ~36k, which is not very high at all, when you factor a mortgage, no medical card, and the probability that your 2 income household will be a 1 income household for the foreseeable future.

You don't hit the maximum income, pension and PRSI levy levels at 36K.

smccarrick wrote: »

With respect of the multiplier effect- obviously the deflationary impact of it is open to interpretation. For a small open economy- when I was doing my BBS- we used a multiplier of 2.8. Perhaps thinking has moved on since I graduated?

Depends on how you model it. The multiplier effect of public spending has been subject to some very serious questioning over the past decade, it doesn't look like from the evidence that it is substantially greater than 1 (some studies found it to be less than 1!). In an undergrad course they wouldn't deal with such research and just post the theory which has it much greater than 1.

Edit: I should note that it's incredibly difficult to estimate the multiplier and all studies on it are open to criticism. If you step back and think about it though it's not that surprising that it'd be low. It's incredibly difficult for a central planner to know where's the best place to invest public funds for the purpose of generating economic growth and political pressures will ensure it is not spent with this as the guiding principle anyway!

NewDubliner

nesf wrote: »

You don't hit the maximum income, pension and PRSI levy levels at 36K.

Isn't average pay in the PS 50k?

Perversely, the government can make a great net gain by cutting pay of lower paid PS workers than by cutting pay from higher paid ones.

lmimmfn

NewDubliner wrote: »

Yes it does, people pay for essential services through their taxes.

nah, i just think you're taking the piss with this now.

The_Conductor

lmimmfn wrote: »

Private Sector=Tax producer
Public Sector=Tax consumer

Simple as that

You've obviously never studied economics. Its not as simple as that- despite what the gutter press would have you believe. Ireland has moved away to a large extent from an industrial base- towards a service sector. It is now the largest sector of the economy- and both the public and private sectors are significant contributors to it. Your argument is- unless you produce a tangible good- you don't produce? Yes? Well- if so- you are quite simply incorrect.

lmimmfn wrote: »

So for private sector workers who get no employer pension contribution and have to fund 10% or so themselves before tax, that that should be considered a tax contribution for them likewise?

I've worked for significant periods in both the public and private sectors. For the average public sector employee- the bulk of their pension is comprised of the contributory OAP. This is in common with the private sector. In the public sector- you do not get a public sector pension until you earn over 26k. It is only on the gross salary over this amount that you are entitled to a pension. In the private sector- you have both your contributory pension based on either defined benefit (largely closed) or defined contribution schemes. It is normal for employers to match employee contributions (this occurs in over 74% of companies- for tax purposes). This pension is in addition to the contributory OAP paid through PRSI contributions- unlike in the public sector- where your gross pension is reduced by it........ I've seen both sides of the coin- and the grass being greener on the other side of the fence is very much a myth.

lmimmfn wrote: »

You could just get rid of the pension levy and PS pensions entirely and allow them to take private pensions like a lot of the private sector have to, surely this would save the state a fortune? and the PS would no longer have that levy.

No- it wouldn't. You are assuming that the pension levy is ringfenced for future pension disbursements. Its not. Its going into the general kitty- and the perception is that its an income generating exercise, to service the additional debt taken on for the bank bail outs........

If the pension levy was ringfenced, and a true actuarial cost put on public sector pensions- using the COPC calculations- if you wanted a truely level playing field- you'd have to abolish the PRSI contributory pension for both public and private sectors, and start off with a blank slate.

The economic cost of providing a defined benefit pension for the public sector- would be seen to be quite high- when compared to a comparable private sector scheme- but only because the average age in the public sector, at 55.4, is almost 14 years older than in the private sector. This increase in age is worth almost 6% in additional costs on an actuarial basis. If you take a 25 year old in both the public and private sectors- the difference from an actuarial perspective, is minimal. The problem is you are not comparing like with like......

thebman

NewDubliner wrote: »

Yes it does, people pay for essential services through their taxes.

People don't pay for the services as they use them in many cases. It isn't comparable to payments for services in the private sector. Also it isn't voluntary so calling it pay is a bit much.

People fund services through taxes and use them if they need to but regardless of whether they need them or not they fund them through taxes assuming they pay taxes of course. People that pay tax also have to fund the services for people that don't pay tax since they don't contribute.

Seems a little more accurate to me.

The_Conductor

lmimmfn wrote: »

nah, i just think you're taking the piss with this now.

How is this taking the piss?
I'm perfectly happy for my taxes to pay for doctors, nurses, gardai, teachers and many other public sector employees- who perform very worthwhile tasks that the private sector either have no interest in supplying, the public at large do not wish the private sector to supply, or the private sector cannot supply on an economic basis (particularly the health sector).

You have to accept that the provision of services is a valid economic activity- the measure of a persons worth is not measured by units of tenable goods produced. We are not a manufacturing economy- we are a services economy- and of those manufacturing industries present in Ireland- their importance to the Irish economy is diminishing as a percentage of economic activity, year on year.

nesf

NewDubliner wrote: »

Isn't average pay in the PS 50k?

It depends on what areas you exclude or not. You can paint it as higher and/or lower depending on how you pick your sample. It doesn't matter really.

NewDubliner wrote: »

Perversely, the government can make a great net gain by cutting pay of lower paid PS workers than by cutting pay from higher paid ones.

Yup, crazy isn't it? There needs to be an across the board cut unfortunately. Just cutting the upper rates of pay won't do. We won't get a euro saved for every euro cut but that just reinforces why we need to make a substantial cut in public sector pay to achieve substantial savings.

Right now though the deflation from cutting public sector salaries isn't the problem, it's the enormous amount of debt we are going to be in. Borrowing a third of current expenditure just isn't an option. Reducing this deficit is going to be painful for everyone, not just public servants.

NewDubliner

thebman wrote: »

People don't pay for the services as they use them in many cases. It isn't comparable to payments for services in the private sector. Also it isn't voluntary so calling it pay is a bit much.

I had no intention to say it was the same as private sector. Just to debunk the notion that the PS is a dead cost centre.

lmimmfn

smccarrick wrote: »

No- it wouldn't. You are assuming that the pension levy is ringfenced for future pension disbursements. Its not. Its going into the general kitty- and the perception is that its an income generating exercise, to service the additional debt taken on for the bank bail outs........

maybe i picked it up wrong when i read the constitution( and im not trying to be smart here ), but doesnt it say that all tax revenue should go into the 1 pot, i know the levy is considered a tax but thats probably the reason?

smccarrick wrote: »

If the pension levy was ringfenced, and a true actuarial cost put on public sector pensions- using the COPC calculations- if you wanted a truely level playing field- you'd have to abolish the PRSI contributory pension for both public and private sectors, and start off with a blank slate.

Im 100% for this and it should have been done all along, however a lot of the PS would be up in arms as it would no longer be a guaranteed fixed pension in the same way that private sector pensions can be completely wiped by company closures or whatever.

I dont see how you would have to abolish PRSI contributory pension though? doesnt it apply to both private and public at the same rate? again i know it goes into the 1 big pot at the end currently.

smccarrick wrote: »

The economic cost of providing a defined benefit pension for the public sector- would be seen to be quite high- when compared to a comparable private sector scheme- but only because the average age in the public sector, at 55.4, is almost 14 years older than in the private sector. This increase in age is worth almost 6% in additional costs on an actuarial basis. If you take a 25 year old in both the public and private sectors- the difference from an actuarial perspective, is minimal. The problem is you are not comparing like with like......

surely this could fixed going forward( lol, Gift grub ) though? im only giving an example but where i work for recruits in the past few years get 0% pension contribution from the company and have to pay for all of it themselves.

I realise the younger fund the pensions for the older generation and those receiving pensions or about to retire, but they could take the hit now and at lease we would know where we stand.

smccarrick wrote: »

How is this taking the piss?
I'm perfectly happy for my taxes to pay for doctors, nurses, gardai, teachers and many other public sector employees- who perform very worthwhile tasks that the private sector either have no interest in supplying, the public at large do not wish the private sector to supply, or the private sector cannot supply on an economic basis (particularly the health sector).

You have to accept that the provision of services is a valid economic activity- the measure of a persons worth is not measured by units of tenable goods produced. We are not a manufacturing economy- we are a services economy- and of those manufacturing industries present in Ireland- their importance to the Irish economy is diminishing as a percentage of economic activity, year on year.

Its taking the piss because in simple economic terms the private sector pays for the salaries of the public sector. Yes the private sector cant exist without the public sector, im not on about that i said the public sector is a consumer of tax and the private sector is the producer of the tax revenue. It cant be made any simpler than that.

Put it like this, if the state was a company that cant sustain itself, you decrease expenditure, you don't increase the price of the product you sell.

NewDubliner wrote: »

I had no intention to say it was the same as private sector. Just to debunk the notion that the PS is a dead cost centre.

Nobody said it was a dead end cost centre, in fact i already said vital and important services are provided, i only put it in simple economic terms, in the private sector when things go to hell you dont kill the production line that feeds the company you have to reduce HR expenditure/building costs and what not.

Again this has turned into a public service/private sector standoff, at the end of they day with the disaster for everyone that is going to be the next few budgets nobody wins, i hear all this crap about pension levys' bloody hell everyone i know in the private sector is either on 3-4 day weeks, had their hours increased rather than reducing salaries or have been laid off, everyones taking a hit and its only the start of it, there are worse years ahead.

My wife works in the public sector so it not like things wont affect us in that respect.

The_Conductor

thebman wrote: »

People don't pay for the services as they use them in many cases. It isn't comparable to payments for services in the private sector. Also it isn't voluntary so calling it pay is a bit much.

In many cases they do. Look at the EUR120 I pay when I visit A&E, or the EUR100 a month I pay for prescriptions. Its not across the board- but would you go down the American route of putting an economic cost on all services supplied, and if you can't afford to pay- tough? This is not the European model. Ireland has been swinging between the Boston and Berlin models for years. Personally I would rather pay higher tax, and have a safety net for those less well off in society (with the exception of social welfare disbursements- which need serious reform)- than I would have a US based wild west approach........

thebman wrote: »

People fund services through taxes and use them if they need to but regardless of whether they need them or not they fund them through taxes assuming they pay taxes of course. People that pay tax also have to fund the services for people that don't pay tax since they don't contribute.

Seems a little more accurate to me.

What would you do? Make people pay for services as they use them, and abolish central funding of services? The country would fall apart.......

P. Breathnach

nesf wrote: »

The public sector doesn't add value in financial terms...

That depends on how you count things. Health and Education, for example, are two of the biggest budget expenditure heads. If they were not provided for out of the public purse, then they would be private sector activities and would be counted as transactions involving payment for value.