An Honourable Tradition of which Ireland can be Proud

Yet more opprobrium is heaped on Enda Kenny as a result of his recent statement to Bloomberg TV. And to some extent it is justified for the man often seems to be telling foreigners things that are out of kilter with what, at least until recently, he has been telling his fellow Irish men and women. But in that he is little different from any other politician and if there is one thing that Irish politicians excel at it is the art of political double speak.

But, as usual, a great deal of the criticism aimed at the Taoseach is concerned with the declared intention to pay off our debts in full. Many Irish people see the debts in question as somehow not their responsibility but instead that of faceless investors who bought bonds in failed banks. It seems to me, in my contrarian way, that in order to investigate the veracity of such a notion it is necessary to examine two straight forward questions: what happened to the money and who are the bond holders?

The €300 grand that you paid for a house that is now worth €120 grand was paid to a developer. Whilst it may be true that the developer buried some of that money in a tax haven along with all the other amounts he received from other buyers, most of it will have been paid to the employees and sub-contractors he engaged to build the house. Some will have gone to the original owner of the land on which your house and all the others are built. Some may have gone to a sales agent although many developers handled their own sales.

The point is that all of these people - with one relatively minor exception which I will come to - spent that money in Ireland and paid the taxes that enabled the government of the day to increase the wages of public sector workers and the social welfare benefits paid to claimants. In short, all that money drove the economy throughout those heady tiger years. It is still visible in all those new houses and apartments, all the luxury cars that were purchased in those years and all the gadgets in the houses. As I pointed out back in November, a lot of this ended up in countries like China - who invested it in Africa. As an aside, this latter fact should make one or two Irishmen - I'm thinking of Messrs Geldof and Bono - happy.

The developers, the sub-contractors and the businesses that boomed from all the money that well paid people in all sectors of the economy had to spend, then went to the banks and said, in effect, "look, my business is booming. Lend me the money to expand and I can do even better." It looked like what, in the vernacular is known as a "no brainer". But when everybody has the house of his and her dreams, what is the point of building more?

That is where it all came to grief. Nobody wanted to buy the third or fourth phase of the development. Marks and Spencer and Debenhams had all the retail space they could handle. Materials were bought, tradesmen paid but no-one wanted to buy. So the money suddenly stopped circulating around the system. People were laid off. Instead of paying taxes they were drawing benefits. Businesses started to go bust. With few house sales there were no development levies or stamp duty to support local and national government which ended up paying out far more than it was receiving.

The exception I mentioned earlier? A significant proportion of the incomes paid to foreign nationals working in Ireland was sent home to support family back in Eastern Europe or Africa. (More delight for the ageing rockers!)

Now consider the bond holders that so many people are eager to see "burned". The conventional view is of a Champaign and caviar scoffing bunch of spivs laughing at the gullible Irish. That is certainly a part of the reality and I am as angry as anyone at the inflated salaries and bonuses these people receive. But they are only the middle men and women in a complex web of transactions. Somewhere, way down the ladder, and forgotten equally by the spivs and by those who would seemingly see them starve, are people who placed their life savings in pension funds and trust funds at a time when government bonds were regarded as the safest places to invest. Returns might not be as good as those obtainable from stocks and shares but the risks were far less. Governments don't go bust. Governments honour their debts.

In the face of so much that has been turned on its head by this current crisis, Mr Kenny and Ireland are to be congratulated, not reviled, for holding fast to this honourable tradition.

Kenny is Right: The Irish Were Greedy

Taoiseach Enda Kenny has raised the ire of his fellow citizens by suggesting that their greed was at the root of the Irish economic collapse. How true is that?

About six months after I arrived in Portlaoise there was a release of apartments in a luxury block under construction next to the O'Moore Park GAA ground. People queued overnight to buy and they were all sold within the first hour. Some signed up and paid deposits for two or more units. Their motivation had nothing to do with a desire for a home. They believed that they would make a killing either from the rent they hoped to receive from future tenants or by selling on at a profit.

That is one example among many that illustrate the veracity of Enda Kenny's words yesterday when he said that the country had gone mad during the property boom, driven by greed. In Portlaoise not only were there more houses and apartments being built than there were ever likely to be buyers or tenants for. In addition several retail complexes were under construction or planned. Even then there were many empty units in the town centre and in each of the recently completed shopping centres. Some of these have now been occupied, but elsewhere businesses have closed leaving even more vacant premises.

This was the story right across Ireland. In our five years living here my wife and I have taken several short breaks in various parts of the country and in every town and village we've stayed or passed through there are newly built estates. At the height of the boom homes were being completed at a rate of 90,000 a year; enough to replace the whole of the previously existing housing stock within a decade. Anybody who had the temerity to suggest, as some did, that this rate of construction could not be sustained was condemned for talking down the economy.

Atmosphere of Affluence

The government was enabled to keep the level of general taxation down in part because of the revenue generated through stamp duty, a transaction tax imposed on every purchase. Social welfare payments and public sector incomes soared. But it is also unfair to read into Mr Kenny's words the suggestion that individual citizens were the only group on whom he was placing blame. I have indicated elsewhere my view that one of the underlying causes of the atmosphere that prevailed during those years of madness was the amount of money pouring into Ireland from tax payers in the wealthier nations of the EU.

In that atmosphere with new infrastructure under construction across the nation, brash new shopping centres and estates of homes described by their developers as "luxury" or "executive" even when all too often they were anything but, it was inevitable that people would forget the old adage "never a borrower or a lender be". It was easy to forget the reason why the system of hire purchase that enabled my generation to furnish our homes on so called "easy payments" was described by our parents as "the never-never".

As affluence increased steadily through the second half of the twentieth century and at an increasing pace in the first few years of the twenty first it was easy to ignore such seemingly old fashioned notions. It was all too easy to believe that, whilst it might be difficult to pay the mortgage today, tomorrow's salary increase would make it easier in the future. The more luxurious our neighbour's home and contents the more luxury we wanted for ourselves. That is the nature of greed. It feeds on itself, creating a sense of false security in its victims. Like a drug, it creates a craving that can never be satisfied. And, like a drug, when it is denied it leaves its victim with unbearable withdrawal symptoms.

As I indicated in that earlier post it is unreasonable to blame foreign tax-payers for wanting their governments to seek recompense. I can quite understand why Mr Kenny is both eager to demonstrate Ireland's willingness to repay her debts by paying off the most recent instalment to bond holders and to try to explain to the leaders of those wealthier nations how his country incurred such incomprehensible levels of debt in the first place.

Emigration: Lifestyle Choice or Dire Necessity?

I am in regular contact with a number of the people with whom I was in school during the 1950s. All were born and brought up in England but a significant number of them have made their careers and still live in various "foreign parts." One runs a small mineral exploration business in central Africa, a couple live in the Philippines, another in Thailand. At least one is in Canada and another runs a website dedicated to the Norton motorcycle owners club in France. Yet another has lived in Johannesburg for many years.

Of the young men who served their apprenticeship alongside me in a small engineering company in the early 1960s, three emigrated to Canada as soon as they qualified. At that time it was possible to migrate to Australia for £10 and many did. Of my close relatives, a nephew moved his small business to Australia several years ago and has gone from strength to strength.

So there can be nothing intrinsically wrong with Minister Noonan's statement that "emigration is a lifestyle choice," for that is plainly the case in every one of the examples I have just enumerated.  On the other hand, when unemployment is running at 14.3%, it is at best stupid and at worst insensitive to suggest that the recent increase in migration from Ireland is not fuelled by the lack of opportunities here. That fact was confirmed in Will Faulkner's interview with a representative from the Australian immigration service on Thursday morning's Midlands Today programme.

Not a Choice, a Necessity

A young person seeking work in Australia recently had this to say in an anonymous article in the Kerryman: "I wish I could have stayed in Ireland. I wish that I had another option other than to leave, but I didn't." So no, Minister, these days emigration is not so much a lifestyle choice as a regrettable necessity for too many of your citizens.

The Minister is also showing a degree of stupidity when he asserts that Ireland needs to ensure that it is providing the best possible education and training for its young people so that they can take advantage of opportunities overseas. This, it seems to me, is the opposite of what is required. Whilst it is true that the only people able to take advantage of overseas employment opportunities are those with marketable skills, it must also be the case that those are the very people the nation needs to retain if it is to regenerate its failed economy.

What is needed is for the banks to start lending again so that young ambitious entrepreneurial people can start new businesses and generate the jobs the country so desperately needs.

Ireland’s Child Benefit is too Generous

One benefit long overdue for reform is the one that encourages profligate parenthood

What follows may not be true of Ireland but in the UK child benefit began as an allowance against taxable income. At that time there was also a small welfare payment called “family allowance” paid via post offices. The tax allowance was discontinued and the two payments merged to produce the present child benefit payment.

Two factors were cited as reasons for the change. Firstly the allowance against tax meant that people on higher rates of tax got more than those on lower rates – and those whose earnings fell below the tax threshold even without the allowance and who were therefore most in need, got nothing. Secondly it was argued, especially by family and women’s support groups, that the reduction in income tax benefited the main breadwinner – usually the man in those days – who did not necessarily pass the gain on to the main shopper – usually the woman. It was argued that men were more likely to spend it on drink and gambling rather than their children.

The benefit was therefore paid as a uniform amount regardless of other income and into the hands of the mother. This, of course, did not prevent the mother spending it on drink and gambling instead of the children and some no doubt did and still do.

Too much is paid out for second and subsequent children

The other interesting thing about the benefit as paid in the UK is that it has traditionally been paid at a significantly higher rate for the first child than for subsequent children. I suppose the argument for this is that it is perfectly possible to re-use clothing and other items purchased for the first child so that the costs associated with later children are noticeably less than that of the first.

In Ireland, not only is the rate paid for the first child substantially higher than in the UK, it is the same for a second child, more for a third and more still for fourth and subsequent children. This means that the parent of, for example, three children in the UK will receive £188 per month. In Ireland the equivalent payment is €427.

I find it strange that, in a country that has a tradition of producing large families the state should provide an incentive for continuing to do so at a time when arguably one of the greatest threats the world faces is over-population. Who will pay to educate all these children? Who will pay their medical expenses? As the existing cohort of adults live longer and young people spend longer in education how in future will those currently leaving colleges and universities keep the large number of individuals who are either too young or too old for productive work?

Reform this benefit now

This benefit is long overdue for reform. I would advocate a return to the idea of an allowance against taxable income but at the lowest rate of tax. This could be achieved by lowering the threshold for higher rate tax by an amount equivalent to the allowance. To illustrate the principle I offer the following example which I hasten to add bears no relation to any real situation.

Suppose someone earns €50k and has allowances of €10k, not including child allowance. The first €20k above the allowance is taxed at 20% and everything above that at 40%. The tax liability would be (€20k at 20% = €4k) + (€20k at 40% = €8k), a total of €12k. If child allowance is set at €5k that will reduce the amount taxable at the higher rate to €15k, reducing the total liability by (€5k x 40% = €2k). But I am suggesting that the threshold should be lowered by an amount equal to the child allowance so that the liability reduces only by (€5k x 20% = €1k), thereby ensuring that everyone eligible for tax gets the same rebate for his or her child.

Those earning too little to be liable for any tax would receive the allowance as a “negative income tax” paid through his/her employer. This would be objected to by some as placing an unnecessary burden on business and by others, once again, as placing the money in the wrong hands. This latter objection, I would argue, is no longer valid as in most households both parents are breadwinners. Where both parents are unemployed their job-seekers or unemployment benefit would be enhanced by an appropriate amount for child allowance as now.

Finally, whatever system is adopted the amount paid in respect of second and subsequent children must be less than that paid for the first.

Sweet and Sour Memories

Sugar beet and debt forgiveness may seem strange bedfellows but for me they show how history echoes down the decades

For most of the 1980s I was politically active in the UK: County Councillor, District Councillor, general election agent. And I was a regular attendee at party conferences, the party in question being the British Liberal Party and, later the Liberal Democrats. On one occasion – I think it would have been 1986 – I had the opportunity to make a speech at a Liberal Party conference. The issue being debated concerned the effect of EU subsidies to sugar beet production on the price of sugar on world markets. Many developing nations relied on sugar cane production in order to survive and the dumping of surplus European production on the world market was harmful to them.

My home constituency at the time contained a sugar mill and sugar beet was an important crop for many local farmers. I argued in my short speech that Europe should follow the Brazilian example and turn surplus sugar into fuel. I also argued, in the same speech, for the forgiveness of third world debt. This was long before such luminaries as Blair and Bono began putting forward the same argument. The gist of what I said to that conference was that these countries had been persuaded to borrow in order to invest in producing commodities that were now incapable of yielding the promised incomes. Meanwhile populations were starving whilst their governments paid out more in interest to first world banks than they received in aid from first world governments.

Fast forward ten years and I was participating in a major construction project at a steel works in Scunthorpe. My daily journey to and from work took me past the sugar factory which had shortly before been converted to produce ethanol fuel. Sugar beet continued to be an important agricultural product throughout Lincolnshire and East Yorkshire.

Another ten years passed and I retired and moved to the Irish Midlands. One of the things I was soon to discover was that many people were still angry about the closure of a sugar factory in Carlow and the demise of sugar beet production in Ireland. I was especially surprised about this given the country's commitment to reducing its carbon footprint and the presence of Green Party representatives in government.

Five years later still I am passing great mounds of sugar beet as a cycle around the countryside on the Laois/Kildare border. In the Irish papers I read of meetings to discuss the re-establishment of sugar production here in Ireland. Meanwhile it is the nations of Europe that are unable to meet the interest payments on their debts and whilst the people clamour for those debts to be forgiven the governments impose austerity measures in order to keep the banks on-side. Plus ca change!

Footnote: the efforts to kick start the industry in Ireland may have nothing to do with the mounds of beets I am seeing as plans are still only at the formative stage. I guess what I am seeing is a crop that will be used as a supplement to winter feed for animals which is a shame when it could be put to use reducing Ireland’s reliance on imports for sugar and fuel.

Anyone wanting more information should check out these links:

http://www.independent.ie/farming/crops/athy-meeting-for-beet-ireland-2941079.html

http://justbeetit.net/2011/05/08/update-on-sugar-beet-ireland/