Budget 2014Principles for a fair andprogressive approach

Tommy Broughan TD

John Halligan TD

Patrick Nulty TD

Thomas Pringle TD

Catherine Murphy TD

Principles for a fair and

progressive Budget

Seven austerity budgets have devastated Irish society: with 400,000 people

unemployed and with our public services creaking, many citizens are shell

shocked and feel they have no more to give. Citizens carrying the load of

failed bankers and failed banking policies are seeking policy alternatives to

mark a new beginning.

We come together as public representatives to endorse three principles for a

fair and progressive budget. We feel that Irish politics desperately needs

viable, workable alternatives to an austerity policy which is failing our people.

These proposals do not represent a final word: rather we invite questions,

debate and discussion about how policies can be implemented which create

employment, provide the services citizens require and build a republic of

equality and citizenship.

Here are our principles for a fair, progressive budget:

1. Fair taxationIntroduce a wealth tax.

A wealth tax is a levy on the total stock of wealth held by high net-worth

households. We argue that such a tax could be applied to the value of net

property, stocks & shares and savings of wealthy households. We believe

pensions should be exempt from the assessment.

In their recent analysis , NERI & TASC state that a Wealth Tax in Ireland would1

impact on 25,000 households with significant net wealth, with estimated

yields coming in between €100m and €750m per annum, depending on the

rate applied, with the highest rate set at 1.5%.

There is wealth in Ireland to tax: The Credit Suisse Report (2011), cited by

NERI & TASC, estimates that the top 1% of the population held 28.1% of the

household wealth and the top 5% held 46.8% of household net wealth in

2011.2

Irish concentration of wealth is one of the highest in the EU-15. 28% of all

wealth is owned by the top 1% of adults. The top 1%is made up of

approximately 36,000 adults. This group owns approximately €130.2 billion.

A wealth tax, applied similarly to the French model, would raise between

€400m - €500m, according to a parliamentary response from Minister

Noonan.3

1 McDonnell, Tom: Wealth Tax: Options for its Implementation in the Republic of Ireland, NERIWorking Paper 2013/06, NERI:20132 Credit Suisse Global Wealth Report, 2011.3 PQ 14408/11

National Debt & Banking Debt

Irish Government Debt is rising at a rate of €1,000 every 3 seconds. In the five

years from 2012 to 2016 inclusive, the Irish State will further borrow to pay

out over €40 billion towards the total cost of servicing our colossal stockpile

of debt (Fig 1).

This figure is stark. With the cost of banking rescues and recapitalisations

amounting to nearly €64 billion, it’s important when speaking of the need to

protect core services and fund productive investment projects, that the

contrast is made between just how much of our borrowing goes toward debt

servicing and the fraction of this figure that would be required to avoid

cutbacks and engage in stimulus spending.

Figure 1

The cost of servicing debt, 2012-2016 (Department of Finance, 2013)

Year Debt cost as %GDP

Debt cost as % ofTax Revenue

Annual cost ofdebt servicing

2012 3.7% 10.8% €6.13 bn

2013 4.9% 14.0% €8.23 bn

2014 4.9% 13.8% €8.54 bn

2015 4.9% 13.9% €8.90 bn

2016 4.8% 13.9% €9.01 bn

Figure 2

Composition of National Debt, 30th September 2013 (NTMA)

Government Bonds €114.85 bn

EU/IMF Programme Funding €63.82 bn

Medium & Short Term Debts €0.77 bn

State Savings Schemes €15.11 bn

Short Term Debt €5.32 bn

Cash & other Financial Assets (€30.32 bn)

National Debt €169.55 bn

In response to a parliamentary question from Deputy Thomas Pringle on 4

September 25th, Finance Minister Michael Noonan noted that if government

expenditure was maintained at existing levels coupled with 0.5% real GDP

growth in 2014 that the general government deficit in 2014 would be -5.8%.

The policy menu proposed in this document on the taxation side would

ensure that we meet the -5.1% target agreed with the Troika. It is also worth

noting that the Department of Finance is estimating at present a 1.8%

increase in GDP for 2014.

4 PQ 39966/13

2. Preserve Primary Spending

Spending cuts introduced over the past seven austerity budgets have not

only made Ireland a vastly more unfair society, they have led to further

economic stagnation.

Our approach is for a budget based on increased taxation of the wealthy and

high income groups and a better economic performance through

kick-starting investment, rather than further spending cuts. We also favour

using the gain of the promissory note savings in full for the benefit of citizens.

The Nevin Economic Research Institute have modelled the effect of a € 3

billion fiscal adjustment, broken into € 1.9 billion in spending cuts and €1.1

billion in revenue raising measures. They show that such an adjustment

would reduce total employment by 22,000 in 2014 and by 39,000 in 2015.5

The last two budgets introduced by the Fine Gael-Labour coalition have been

regressive. There is an opportunity to introduce a budget this year that is

progressive and it is that type of people centred approach to our economy

and society that is required.

Therefore we are totally opposed to any further cuts in social welfare and

frontline services in health, education and public transport. In addition, a

lifting of the moratorium on public sector recruitment to enhance frontline

staffing provision would also be logical. Additional recruitment in areas like

speech and language therapy, nursing and special needs assistants are some

obvious examples.

5 Irish Congress of Trade Unions Pre Budget Submissionhttp://www.ictu.ie/download/pdf/jit16_prebudget_submission_fiscaladjustment_web.pdf

3. Address the Investment

CrisisTarget the critical sectors of Education,Communications, Energy & Water infrastructure in aprogramme of Productive Investment.

Ireland is enduring an investment crisis, with investment levels persistently

at historically low levels. Our recovery depends not solely on trade, but also6

very much on our capacity to domestically generate real employment

opportunities today while also ensuring tomorrow’s businesses will continue

to want to locate here. We believe that a targeted approach in certain key

sectors will help achieve this.

Education & Training

The best investment we can make is in people. Investing in pre-primary

education, re-skilling people who are unemployed, investing in literacy and

numeracy programmes; all these create the basis for prosperity, not only for

the economy but for people themselves and their communities. If we do not

invest in our economic capacity and in our citizens, we will not grow our way

out of the current stagnation.

If we are to enhance the innovative capacity of the Irish economy it is

necessary to invest in human capital in various ways, and in particular,

Education and Training (from pre-primary to tertiary levels). Investment

cannot be random, for it to be productive it must be targeted and focused on

reducing the levels of structural unemployment in the long term.

6 O’Farrel, Rory, An Examination of the Effects of an Investment Stimulus, Nevin Economic ResearchInstitute Working Paper 2012/4, NERI, July 2012

Projects targeted must be those that can increase the skills and employability

of the unemployed. The areas targeted for investment must directly

correlate to the skills and other attributes of those who are unemployed in

the labour force in order to provide new skills that will fit with future

employment and growth opportunities.

Housing

Numbers on local authority housing waiting lists are at crisis levels. Huge

amounts of public funds (in 2013, €403m was budgeted for Rent Supplement

alone) are being directed towards housing support schemes that were7

originally designed for the short-term only. This system is creaking under the

strain of the numbers making demands upon it, while at the same time rents

are rising and cut-offs and qualification limits are being reduced.

Considering the 60% rise in the numbers living in private rented

accommodation since 2006, and the decline in incomes over that period, we

cannot continue with a system that can force large sectors of society into

long term poverty traps and, in some cases, homelessness. As a priority, we

must look at creative ways of accessing the vast amount of vacant properties

throughout the country to bolster the stock of social housing units available,

and where this isn’t possible, look to financing new units with joint assistance

from the European Investment Bank.

At the same time, external funding sources to add to the available housing

stock remain untapped. We must also look to improving the regulatory

framework surrounding private housing associations. Many housing

associations lack the capacity to access funding from the EIB - up to 80% of

7 Department of Social Protection

an available pool of €500m cannot be accessed - due to the lack of a formal8

independent regulatory regime and a lack of capacity amongst the housing

association sector. This policy failure is being addressed, although much

swifter progress is essential if we are to unlock an available funding source

and help create valuable new construction jobs.

Communications & eGovernance

Ireland’s communications infrastructure risks falling far behind that of our

main competitors. The McKinsey Global Institute estimates that internet

activity accounts for up to 6% of total GDP in developed economies. In recent

years, the internet has accounted for as much as 21% of GDP growth in some

economies. Our recovery depends upon having advanced IC technology and9

that requires Government investment. We have to aim for universal provision

of broadband of at least 100Mbps.

Furthermore, we should in tandem be looking to achieve savings and

improve public services by switching in as far as practicable to an advanced

e-governance model of service delivery to the citizen. Countries like Norway

have led the way in recent years - their Altinn e-governance facility has

saved the Norwegian state over US$7bn since its introduction, with a 17%

reduction in hours spent on administration at the participating agencies.10

This kind of efficiency saving should be the goal if we are to seek to redirect

revenues towards preserving frontline spending. We should be expanding

workable Irish examples such as revenue online to cover all citizen

interactions with the State.

8 Joint Oireachtas Committee on the Environment, Culture and the Gaeltacht, 1st October 2013,debate on Management and Operation Housing Associations (Accessed 7th Oct 2013)http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ2013100100001?opendocument

9 Internet Matters: The Net’s Sweeping impact on Growth, Jobs & Prosperity, McKinsey GlobalInstitute, 2011

10 The Government of Norway: Innovative e-Government Capabilities; Accenture, 2009

Renewable Energy and the Green Economy

Traditional non-renewable energy sources are trending towards being scarce

and expensive. Ireland is dangerously exposed to a very high dependence on

imported fossil fuels. The SEAI estimates that Ireland’s import dependency

increased from 67% in 1994 to 89% in 2001 and has remained at an extremely

high level since, coming to 88% as recently as 2009. While progress has been

made in developing renewables, particularly in installed wind capacity,

Ireland compares far less favourably with the EU average import dependency

figure of 55% (2008).11

The price of oil, gas and electricity from non-renewable sources have all

remained at very high levels since the mid-point of the last decade. By far,

fluctuations in the price of crude oil has had the most dramatic effect on the

Irish economy and we remain critically exposed to another ‘oil shock’ that the

economy would struggle to weather given that the severe after-effects of

the housing crash, banking crisis and fiscal crisis have not yet abated.

Both large multinationals and indigenous SME’s suffer very high overheads as

a result of energy prices, and given the restrained access to credit, find it

doubly difficult to pay recurring operating charges. Government policy

officially recognises this critical exposure, however presently measures

designed to enhance energy independence are weak, primarily restrained by

the domestic fiscal crisis and the lack of access to international debt markets

for specific infrastructural development.

11 Energy Security in Ireland: A Statistical Overview, Sustainable Energy Authority of Ireland, 2011

Ireland is globally acknowledged as one of the prime sites in the world for

the development of renewable energy capability, particularly in the State’s

wind and marine energy potential. Wind speeds offshore and at coastal areas

from Galway to Malin consistently register at an average of 10.3m/s or

greater, while other areas of the country register average speeds almost as

strong. Ireland has made progress in harnessing this potential and is now

ranked 4th in the EU for the percentage of total electricity consumption

coming from wind on a per capita basis.12

However, even other countries in the EU who generate energy domestically

from fossil fuel resources emerge with a distinct competitive advantage

taking into account Ireland’s very high dependence on imported fossil fuels.

Ireland, if it is to remain competitive, must enhance its domestic renewable

capability. There are a number of specific areas which specific investment

could be directed: Offshore and onshore Wind; Ocean Energy; High Capacity

transmission lines, building the ‘smart grid’ and developing more undersea

interconnectors; Hydroelectricity; Biomass and Waste-to-Energy; Smart

Metering; and Corporate, Community and Domestic Microgeneration

projects.

12 Wind in Power: 2012 European Statistics, European Wind Energy Association, 2012

Water Infrastructure

Ireland’s water infrastructure is aged and unfit for purpose. The leakage rate

from pipes in some counties approaches 66% of treated water. Nationally, the

average figure is 42% lost - which is far worse than many developing

countries. A much needed programme of investment in upgrading towards a

state-of-the-art water treatment and delivery system will put thousands of

people to work in the short-term and increase our capacity to grow in the

future.

The Multiplier Effect ofTargeted ProductiveInvestment

Measuring the broad aggregate benefit of these individual investment

opportunities in an open economy like Ireland is difficult, but some general

observations can be made based on the experience in similar jurisdictions.

A report prepared by TASC in July 2012, using a methodology prepared by

Nakamura and Steinsson (2011), highlighted a fiscal multiplier of 1.5 in

individual US states on economic inputs versus outputs. Medium sized US

states offer similarities to Ireland in that they are small, open,

trade-dependent economies within a currency union (albeit at a much

greater level of openness). 13

A report from NERI in 2012 explored the effect that targeted investment

would have on unemployment using the HERMIN model originally developed

to measure the economic impact of EU cohesion funding. It found that for

every billion euro spent in one year on direct productive investment

opportunities, approximately 16,750 short term jobs and between 675 and

850 sustainable jobs were created. Of course these figures would vary quite a

bit when considering the focused specific remit of enhancing education &

training and investing in renewables infrastructure etc.; nevertheless it’s

clear that there would be a substantial economic benefit as a secondary

effect of increased investment. 14

13 Prospects for Job Creation, TASC Report for Catherine Murphy TD, 2012

14 O’Farrel, Rory, An Examination of the Effects of an Investment Stimulus, Nevin EconomicResearch Institute Working Paper 2012/4, NERI, July 2012

Opportunities exist. For example, several studies have been undertaken in

recent years into the possible economic gains to Ireland of enhancing our

wind energy industry. Given that the EU accounts for 48.9% of global wind

energy production the importance of this emerging industry to Ireland is very

much apparent. The large population clusters at the core of Europe

recognize the energy crisis that they face – in particular the Greater London

region, the Low Countries and the Ruhr valley. They also recognize the

potential that the periphery can play in helping to prevent this energy crisis

from becoming a catastrophe, particularly as many Governments in the area

have committed to move away from nuclear energy in the medium term.

The opportunity to create a stable domestic industry, providing long-term

employment and where the main raw material is inexhaustible and free is an

economic no-brainer, yet the country has failed to capitalise on it at the

speed one might expect for a country in such economic difficulties.

Menu of Revenue OptionsAdditional Revenue Raising Measures Yield

Increase Capital Gains and Acquisitions Tax from33% to 40%

€170m

Increase audit investigation, complianceresources by 125 qualified staff

€93m

Eliminate property based tax relief legacies likeSection 23 relief

€327m

Increase PAYE tax rate to 48% on the portion ofincomes over €100,000 per annum

€365m

Confining tax relief to a rate of 30% forindividuals who can obtain relief at the 41% ratein respect of individual contributions tooccupational pension schemes, retirementannuity contracts and personal retirementsavings

€245m

Reduce the level at which persons andcompanies may claim interest repaymentsagainst tax for residential rental properties from75% to 40%

€157m

Limit the Business and Agricultural Reliefs forCapital Acquisition Tax (CAT) by reducing thediscount on market value before tax is calculatedfrom 90% to 60%. Introduce a combined €3.0million ceiling on the qualifying amount for thesereliefs

€75m

Introduce a Financial Transactions Tax(http://taxpolicy.gov.ie/wpcontent/uploads/2012/07/FTT_Report_2012-040712.pdf).

€163m

Introduce a Wealth Tax €450m

TOTAL €2.045 billion

Source MaterialCollins, Micheál (2013) Nevin Economic Research Institute; NERI Working Paper

2013/05 “Income Taxes & Income Tax Options: A Context for Budget 2014”

http://www.nerinstitute.net/download/pdf/income_taxes_and_income_tax_options_neri_wp_sep_2013.pdf

Credit Suisse Global Wealth Report 2011.

http://www.corkeconomics.com/wp-content/uploads/2011/12/71154576-2011-Global-Wealth-Report-Data

book1.pdf

Energy Security in Ireland: A Statistical Overview, Sustainable Energy Authority ofIreland, 2011http://www.seai.ie/Publications/Statistics_Publications/EPSSU_Publications/Energy_Security_in_Ireland/Energy_Security_in_Ireland_A_Statistical_Overview.pdf

Internet Matters: The Net’s Sweeping impact on Growth, Jobs & Prosperity, McKinsey

Global Institute, 2011

http://www.mckinsey.com/insights/high_tech_telecoms_internet/internet_matters

Irish Congress of Trade Unions Pre Budget Submission

http://www.ictu.ie/download/pdf/jit16_prebudget_submission_fiscaladjustment_web.pdf

Joint Oireachtas Committee on the Environment, Culture and the Gaeltacht, 1st

October 2013, debate on Management and Operation Housing Associations (Accessed

7th Oct 2013)

http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/ENJ

2013100100001?opendocument

McDonnell, Thomas (2013), Nevin Economic Research Institute & TASC; NERI Working

Paper 2013/06 “Wealth Tax: Options for its implementation in the Republic of Ireland”

http://www.nerinstitute.net/download/pdf/neri_wp_no_6_2013_mcdonnell_wealth_tax.pdf

Nakamura, E. and J. Steinsson (2011) “Fiscal Stimulus in a Monetary Union Evidence

from US Regions,” NBER Working Paper 17391

Nevin Economic Research Institute, Quarterly Economic Observer - Autumn 2013;

NERI, September 2013

http://www.nerinstitute.net/download/pdf/neri_qeo_autumn_2013.pdf?issuusl=ignore

O’Farrel, Rory (2012) An Examination of the Effects of an Investment Stimulus, NevinEconomic Research Institute Working Paper 2012/4,http://www.nerinstitute.net/download/pdf/neri_working_paper_rof_no_4.pdf

Parliamentary Question 14408/11 of the 7th June 2011 (Minster Micheal Noonan)

http://debates.oireachtas.ie/dail/2011/06/07/00008.asp

Prospects for Job Creation, TASC Report for Catherine Murphy TD, 2012

http://79.170.44.204/catherinemurphy.ie/wp-content/uploads/2011/08/Catherine-Murphy-TD-Prospects-for-Job-Creation-TASC-2-July-2012.pd

Social Justice Ireland; Budget Choices 2014http://www.socialjustice.ie/sites/default/files/file/Budget/2013-06%20-%20Budget%20Choices%202014%20-%20FINALFINAL.pdf

The Government of Norway: Innovative e-Government Capabilities; Accenture, 2009http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Human_Services_Norway_Altinn_eGoverment_Capabilities.pdf

Wind in Power: 2012 European Statistics, European Wind Energy Association, 2012http://www.ewea.org/statistics/