Irelands self created problem:

westtip

Ireland’s Self Created Problem

It is interesting to note at the outset for comparison purposes, that Norway has amassed a sovereign wealth fund of €230 billion which is the equivalent vehicle to Ireland’s National Pension Reserve Fund. However, Norway, unlike Ireland has amassed and saved the fruits of its economy including its oil royalties into its sovereign wealth fund and did not engage in the practices of the Irish government who between 2003 and 2007 plundered and expanded the property boom by agreeing to misguided and undue benchmarking and to the creation of an additional 60,000 public service jobs into an already bloated public service. This was agreed to and fed by the unsustainable tax take created by the same unsustainable boom all financed by an under and unregulated banking system availing of cheap credit.

If Ireland, instead of creating the public service monster that it has, used the additional tax buoyancy which was in the system from 2003 to further increase the National Pension Reserve Fund this would have slowed the growth in the economy to sustainable levels and not created our current banking and public finance debacle that we are currently in. We would have instead a National Pension Reserve Fund of circa €60bn to €70bn which fund would have adequately dealt with the international credit crisis which all countries have faced.

The policy carried out between 2003 and 2007 has now created a legacy which must be reversed to the reality of 2003. We have a public service which all statistics agree is at least 20% over benchmarked in pay and conditions with the private sector.

To put our current situation in perspective the following is worth noting:


Bank Bad Debt/Refinancing Problem – Current Capital Cost €25bn to €30bn

There has been much debate and political and other blame throwing in relation to the bank deficit which we will assume is somewhere from €25bn to €30bn. This sum is a defined capital amount which can be raised/borrowed with the assistance of NAMA and other financing methods and will be paid for over time by bank shareholder loss, future bank profits and Government finance.

We are fortunate that we are being assisted in this by our membership of the Euro and the ECB in solving this problem. The amount of €25bn to €30bn represents the equivalent of 1 years current government deficit and the problem is solvable and is being solved and in some regards is comparable to the banking problems faced by other countries.


Public Service Cost – Current Capital Cost €150bn

This is the ELEPHANT in the room that until recently nobody wished to face up to and we have spent months listening to the usual bearded men diverting the issue and listening to the blame throwing to the banks, the government, etc. etc.

Our public service pay at current levels has arisen from ill conceived and ill implemented benchmarking which in the current economic situation must be reversed to bring public service pay and costs into line with the private sector (benchmarking reverse). The actual necessary is 30% of public sector pay costs i.e. €6bn saving in pay and numbers. This is the amount required to bring the public sector pay back to the sustainable 2003 levels.

The public sector pay bill at €20bn should face a 20% benchmarking cut in pay and benefits i.e. €4bn per annum and a 10% cut in numbers i.e. €2bn per annum making a total eventual saving of €6bn per annum.

The current capital cost comparable to the banking capital cost figure above to provide for this €6bn annual payment payable in perpetuity to a work force of average age say 45, allowing for employment period and pensionable period would amount to a capital sum required today of circa €150bn. This capital sum is 6 times the cost of our banking problem above which has received all the attention to date. This capital cost is based on an actuarial calculation of providing this income into the future similar to providing the banks with the replaced capital to have an effective banking system in the future.

Furthermore, it should also be noted that the state should have a pension fund in place today to provide for future public sector pensions as any private sector company must have and this fund has been actuarially costed today as being the amount of €100bn. No such fund exists as public sector pensions are paid out of current income year by year.


Social Welfare – Current Capital Cost €50bn

The State, also from 2003 to 2007 and foolishly right up to the budget of December 2008, expanded our social welfare system and rate of payment to unsustainable levels and levels incomparable with any other European state. Currently our social welfare cost per annum is €20bn. We have had negative inflation for the last year and an economy which is contracting by a minimum 10% which would suggest that Social Welfare should at least reflect this 10% reduction. Similarly to the Public Sector current capital cost figure above, to provide €2bn per annum in perpetuity would have a current capital cost of €50bn or in other words 2 times the bank problem.

Referring to the budget of 2008 where Social Welfare was foolishly increased by 3% despite the whole world knowing where the world economy was headed, this increase cost the exchequer €600 million per annum which is now built into the system in perpetuity. The current capital cost of this idiocy alone is €15bn which again represents 60% of the bank capital cost problem above.


Exchequer/Taxpayer

All references are usually made in all these discussions as above to these costs being costs to the exchequer. It is time that this word was clarified in that the exchequer is the taxpayer and the working population of Ireland and it is time that the silent majority in this group stood up for and were given their due rights. We cannot and will not get our public finances back into order unless cuts of the magnitude above are brought to bear and fairness is returned to our system.


Recovery

We will achieve economic recovery in Ireland as the world economy itself recovers and to achieve this we require the recreation of 100,000 jobs in the private sector which jobs can be housed in the accommodation already available particularly in the 5 million sq ft of vacant office space in Dublin and around the country. However, the tax take from the creation of these 100,000 jobs will not be sufficient in their own right to close the gap in our public finances which currently stands at circa €26bn per annum.

A combination of tax take revenue from such recovery as mentioned above which may generate up to €10 bn in tax revenue between income taxes and direct taxes i.e. VAT spend and the necessary reductions in public service cost and social welfare cost of at least the €8bn mentioned above, will in some way go to help balance our current deficit while still leaving us with an annual borrowing requirement.

Thoughts please

leninbenjamin

westtip wrote: »

Thoughts please

Utterly daft. Tbh, i didn't read past the Norway bit, but Ireland doesn't have half the natural resources they do so it's complete folly to attempt to draw any comparison between the two countries.

Dannyboy83

leninbenjamin wrote: »

Utterly daft. Tbh, i didn't read past the Norway bit, but Ireland doesn't have half the natural resources they do so it's complete folly to attempt to draw any comparison between the two countries.

On the contrary, its a very sensible and well laid out post.

The Norwegian comparison was simply just to show the difference between our chaotically mismanaged country, and a rather well managed country.

You should read on.

#15

Interesting. Is it a media article or did you write it yourself?

Princess Consuela Bananahammock

leninbenjamin wrote: »

Utterly daft. Tbh, i didn't read past the Norway bit, but Ireland doesn't have half the natural resources they do so it's complete folly to attempt to draw any comparison between the two countries.

He could have quoted any Scandanavian country (bar Iceland) and made an equal conparison. I've lived in two of them - they have this weird idea of putting qulaity of public serivces before corporate profit and it works.

leninbenjamin

Ikky Poo2 wrote: »

He could have quoted any Scandanavian country (bar Iceland) and made an equal conparison. I've lived in two of them - they have this weird idea of putting qulaity of public serivces before corporate profit and it works.

Equally daft statement tbh. How can you prioritise a public service if you don't have anything to fund it? Seriously, how can a nation like Ireland pay for a public service like in Norway without prioritising exports and economic activity?

irish_bob

Ikky Poo2 wrote: »

He could have quoted any Scandanavian country (bar Iceland) and made an equal conparison. I've lived in two of them - they have this weird idea of putting qulaity of public serivces before corporate profit and it works.

quality of public service and high wage public servants are not the same thing

Princess Consuela Bananahammock

leninbenjamin wrote: »

Equally daft statement tbh. How can you prioritise a public service if you don't have anything to fund it? Seriously, how can a nation like Ireland pay for a public service like in Norway without prioritising exports and economic activity?

They have high taxes. Not ideal, I know, but the point is the money is put back into the commnuity and not into the hands of short-term industries.

Princess Consuela Bananahammock

leninbenjamin wrote: »

Equally daft statement tbh. How can you prioritise a public service if you don't have anything to fund it? Seriously, how can a nation like Ireland pay for a public service like in Norway without prioritising exports and economic activity?

High taxes. Not ideal, I know, but irrespective of where the money comes from, my point is where it's going.

irish_bob wrote: »

quality of public service and high wage public servants are not the same thing

Exactly.

leninbenjamin

Ikky Poo2 wrote: »

They have high taxes. Not ideal, I know, but the point is the money is put back into the commnuity and not into the hands of short-term industries.

if we paid 80% income tax it still wouldn't cover the budget deficit. And you want us to spend more on the public service?

Princess Consuela Bananahammock

leninbenjamin wrote: »

if we paid 80% income tax it still wouldn't cover the budget deficit. And you want us to spend more on the public service?

You're not listening. The point being made is what the differet countries did with their wealth. Scandavian countries didn't create budget deficits and therefore don't have problems. Ireland did; hence the title of the thread.

ei.sdraob

westtip wrote: »

Thoughts please

nail meet hammer

well done, agree on all counts
especially the deflation bit

westtip

#15 wrote: »

Interesting. Is it a media article or did you write it yourself?

Myself and an accountant friend of mine cobbled it together

ashleey

And for those who say 'Norway has oil resources to pay for good services', what about Denmark or Sweden? They aren't driving around on bumpy farm tracks, sorry I mean 'National' routes and buying deserted estates in the middle of fields. Check out their top rate of tax, it isn't a million miles away from that here with all the levies and lowish starting point. The problem here is that average tax rates are low due to the various tax breaks and the high starting point to enter the system. You can't get away from having to tax more people more consistently to create a foundation for stable revenue to plan a proper society. It doesn't have to be penal, just fair. The days of everyone 'seeing what they can get away with' at all levels created this mess. The Scandinavians amongst others just don't think like that. Discuss trying not to pay your train fare and they would look at you in horror as they would see that as stealing from your neighbour and causing the delapidation of the network. Compare and contrast that with here? I think you'll find people wouldn't have a problem with proper tax if it was used properly, but for example paying for 6 blokes to go around scattering gravel into holes in roads is just laughable.

Liam Byrne

westtip wrote: »

Myself and an accountant friend of mine cobbled it together

Pity you didn't do it 6 years ago; then again, Ahern & Co probably wouldn't have listened to you.

And for those who commented about natural resources.......while I don't agree with "Shell to Sea" (tactics or those behind it) there's just one example; add in wind and wave power and we COULD have invested to at least set ourselves up for a decent future.

No, "we" (ahem! :rolleyes: ) invested in eVoting machines, Bertie Bowls, boxes stacked in fields alongside supposed "ring" roads and bypasses, etc, etc.

I've all but given up reading or posting in politics because I almost get depressed; it's almost as if Ahern's famous statement has come full circle....only now, people who say the same thing re the country heading to the ****ter because of FF policies and lack of regulation/complicitness, are CORRECT, and no-one's doing anything to stop it.

Assholes who landed us in the **** are still getting €200K + trips, or €600K payoffs, or driven to book launches in state cars, etc.......while we get hammered with extra taxes and levies despite just trying to survive....

Oh, to be a Swede.....or from ANY country with ethics and a sense of social fairness.....

rugbyman

Liam

i echo your comment on almost being too fed up to read on politics(my words).

i am not a FF supporter, but i get the feeling that Brian Lenihan is on the nearest thing to a right track as there is.

i feel that Brian Cowan ,who was befuddled by it all for a while, now is intent on bringing about the cuts that are required.
Political reaction ( from those whose votes his party virtually bought) will have to be overlooked for the greater good. The ECB money was not a gift, the 4 bn savings have to be cut,followed by twice more.

Curiously enough , these cuts, may be the saving of us. In time those who are paid too much will be gone, those who remain /replace them will work for less.
All will be able to live on this new money(without the over the top frills to which we have become accustomed), buy a house at a reasonable price, and more people will be unable to buy even at that price because the day of easily gettable mortgages will be over.

this was to be a Brian Cowan at last has B*lls comment but meandered

Rugbyman

Liam Byrne

rugbyman wrote: »

i echo your comment on almost being too fed up to read on politics(my words).

Then at least we agree on one thing, because Brian "I didn't read that, and I'm not putting in ANY social guarantees" Lenihan is an absolute walking disaster, and Brian "I was Minister for Finance and created this mess" shouldn't have been "befuddled".

I'll take your post about not being an FF supporter in good faith, but posting "the cuts that are required" does seem odd, as you're trusting the guy who blindly led us into this mess as Minister for Finance to get us out.

rugbyman wrote: »

Political reaction ( from those whose votes his party virtually bought) will have to be overlooked for the greater good.

I presume you're talking about the public sector ? Personally, I'd apply the above phrase to the bankers and developers.

rugbyman wrote: »

Curiously enough , these cuts, may be the saving of us. In time those who are paid too much will be gone, those who remain /replace them will work for less.

Those who are paid too much are not gone; they're still in Leinster House and the bank HQs and quango offices. And those who ARE gone were paid fortunes to go, instead of being turfed out on their ear, fined and / or jailed.

rugbyman wrote: »

All will be able to live on this new money(without the over the top frills to which we have become accustomed), buy a house at a reasonable price, and more people will be unable to buy even at that price because the day of easily gettable mortgages will be over.

We won't be able to "live on this new money", because we are paying too much in "levies" and to bail out the bank.

In addition, "we" did not become accustomed to over the top frills; some people did, some of us didn't. And those of us who were happy to tip away and not make fortunes and provide value for money and be happy to make an OK living are now being shafted so that the FF buddies and appointees on €500K a year don't get fired or fined or whatever.

this was to be a Brian Cowan at last has is a B*lls comment

The day that he calls down to the former Anglo bosses and gets OUR money back off them, instead of coming after me for €500 extra a year that I don't have, THEN I'll start to respect him.....

The day there's no tribunal associated with an FF member, I'll start to respect them.....

The day I see Cowen not overlooking the disrepute of Ahern and O'Donoghue, and the incompetence of Coughlan and Harney, and €200,000 refurbishments for offices for former Taoisigh who aren't even in them because they're travelling in a state car to flog a book, and €600,000 "handshakes" to people who should have been fired, THEN I'll start to think that our so called "leader" has ethics.....

The day I see the "Golden Circle" named and shamed, and signing a cheque for EVERYTHING they own - plane, yacht, mansion, holiday home.....right down to the coffee pot and salt shaker - EVERY SINGLE CENT, before they're marched in the doors of a cold, damp, maximum-security prison with four bare walls (ABSOLUTELY NO LUXURY ITEMS LIKE TVs AND SNOOKER TABLES), THEN I'll believe that this country has ethics, and that our so-called "leader" has "balls".

Until then, they're - at least - facilitating corrupt white-collar scum. Same ****, different day.

ei.sdraob

^^

did you read the OP

the PS and welfare problems are an order of magnitude larger than the banking problems

tho i dont agree with giving money to banks in first place

Liam Byrne

^^

Yes; I was replying to Rugbyman's comment about B&B being the "men" to bring us out of it, and the reasons why politics is so depressing.

But yes, I agree completely "ei"; if we weren't landed in it and were led with foresight like the Scandinavian countries, there would be no need to "bring us out of" anything....

ashleey

Which brings us back to the point...if they had swung the axe to the salaries at the top first they would have gained the authority to spread 'the pain' as they see it. I wonder what the golden circle and their type know that the leaders continue to protect them?

Dannyboy83

I completely agree with Rugbyman.

We've moaned and cribbed about Fianna Fail for neigh on an eternity.
They are now doing the right thing, or trying to.
If we don't get behind them now, we are nothing but hypocrites.

That's not to excuse everything else they've done, but we need to be realistic about what can be achieved now and in the long term.
Nobody says we have to like them, or vote for them in the future.

ashleey

Unfortunately you are right if you believe they are taking the right actions. Cut spending; no choice. Where to cut? Loads of choice.
Expose the shysters now and everyone will support the difficult (for some)choices.

murphaph

Dannyboy83 wrote: »

I completely agree with Rugbyman.

We've moaned and cribbed about Fianna Fail for neigh on an eternity.
They are now doing the right thing, or trying to.
If we don't get behind them now, we are nothing but hypocrites.

That's not to excuse everything else they've done, but we need to be realistic about what can be achieved now and in the long term.
Nobody says we have to like them, or vote for them in the future.

Agreed but they should start at home and cut TD and in particular ministers base pay and expenses right back. I want drastic cuts in public sector pay and social welfare as I believe in my heart it's the ONLY way to drive costs back down. Private sector wages will fall naturally or they'll go bust trying.

Leinster house should lead by example, even if the monies involved are small, it is hard to tell the public sector and social welfare recipients "you're getting your money cut but we're not".

ashleey

You said it. Now who is going to take bets on whether it will happen or not? That's why they're so scared of the imf as it's the first thing that would be done

DanSolo

murphaph wrote: »

I want drastic cuts in public sector pay and social welfare as I believe in my heart it's the ONLY way to drive costs back down. Private sector wages will fall naturally or they'll go bust trying.

Why not just increase income tax then by the amount you'd plan to cut public sector pay? Employers can't say they had to lay anybody off as their wage outlay would be identical, plus the exchequer gets extra money from everybody.

murphaph

DanSolo wrote: »

Why not just increase income tax then by the amount you'd plan to cut public sector pay? Employers can't say they had to lay anybody off as their wage outlay would be identical, plus the exchequer gets extra money from everybody.

You need to reduce the barriers to employment during a recession, not increase them.

Edit: Employers pay income tax too! If you jack up income tax enough then the potential employer will start his business in Northern Ireland or Latvia etc.

The wage outlay needs to fall, not remain where it is. Private sector firms are simply closing up shop or reducing pay. This needs to happen as private firms have also been paying too much in comparison to our EU competition.

If core public sector pay is not reduced and we simply jack up all taxes, nobody will be encouraged to start businesses in Ireland, or even keep them there.

The national minimum wage needs about 30% lopped off it, maybe more. Welfare needs enough lopped off it to make sure that it is never more attractive to remain out of work than to have a job, even a low paid one.

Essentially, Ireland and it's people need to realise that they are actually nothing special and the standard of living is too high (from borrowed cash) for a country that actually exports little indigenous product/services. We need desperately to hold onto the dwindling FDI sources of income while we try to build that fabled 'knowledge economy'. We are a long way from it now.

DanSolo

murphaph wrote: »

If you jack up income tax enough then the potential employer will start his business in Northern Ireland or Latvia etc.

This is the old bankers cry, that if they don't get whatever million per year the "talent" will go elsewhere? If so then they were probably overpaid in the first place. If there's money to be made in business then somebody will do it, even if it won't get them a Merc any more.

murphaph

DanSolo wrote: »

This is the old bankers cry, that if they don't get whatever million per year the "talent" will go elsewhere? If so then they were probably overpaid in the first place. If there's money to be made in business then somebody will do it, even if it won't get them a Merc any more.

It may be Dan, but no country that I know of has EVER taxed itself out of a recession. What makes you think Ireland is so special, compared to say Germany? Germany designs and manufactures a whole host of stuff and exports it around the world.

Ireland manufactures stuff for (mostly) foreign owned companies. That's what they do in China for peanuts. why should the Irish get so much for it? Hint: companies are pulling out faster than you can say "high cost of doing business" so it's clearly not sustainable.

Liam Byrne

Dannyboy83 wrote: »

We've moaned and cribbed about Fianna Fail for neigh on an eternity.
They are now doing the right thing, or trying to.
If we don't get behind them now, we are nothing but hypocrites.

Socialising ridiculous gambling losses is "the right thing?" :rolleyes:

Diarmuid

Ikky Poo2 wrote: »

- they have this weird idea of putting qulaity of public serivces before corporate profit and it works.

you'd better tell Nokia and Ericsson that they are not make the profits they think they are...

Dannyboy83

Liam Byrne wrote: »

Socialising ridiculous gambling losses is "the right thing?" :rolleyes:

I don't dispute that, believe me.
And I still despise them for their cronyism and all the other points you have outlined so eloquently in your previous post.
But that is a separate issue and as I said, we don't have to like them or vote for them.

The issue here is that they are tackling the major issue - our expenditure and borrowing, which people on this board have been screaming about since I've joined. We need to make sure that Ministerial salaries and expenses are an equal part of the public pay reform, as murphaph has outlined above.

We cannot criticize them for doing nothing and then criticize them for doing something. That's hypocrisy. That makes us no better than FF themselves.

We need to be pragmatic.
What is the alternative?

With a FG/Labour coalition, FF would simply tear them a new arsehole for what FF themselves are now trying to do. Indeed as would any other political party.

I don't see any viable alternative, do you?