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.

The Arrogance of Believers

I see that the UK government has indicated that it will withhold funding from any "free school" that teaches creationism (Richard Dawkins Celebrates a Victory, Observer, 15 Jan 2012). This is the doctrine that the universe was created more or less as we see it now just a few thousand years ago. This is taught by some organisations as if it were a scientifically sound theory on an equal footing with evolution.

It does seem to me that it is perfectly possible to accept evolution as scientific fact, based as it is on incontrovertible evidence, and at the same time to believe in a creator. Not, of course, a creator who constructed the universe exactly as it currently appears to us, but one who set off the "Big Bang" that science tells us got it all started.

The truth is that we cannot know if there is a creator behind it all. It is difficult for the human mind to conceive of anything that has not been created by an intelligent being, let alone something as vast and complex as the known universe. And then there is that ancient conundrum: if God created the universe, who (or what) created God?

The "Chosen People" Myth

What I do think is the height of arrogance is the belief that the creator, if there is one, did it all for the benefit of the human race. And that is topped only by the belief that it was done solely for the benefit of a small portion of the human race that will at some point see the elimination of all non-believers. I also think that the existence of a creator does not in any way imply the existence of an after-life.

Nor do I believe that praying or offering sacrifices or other forms of obeisance to the creator is at all likely to make that creator change his/its/her plans so as to satisfy our personal preferences. That is not to say that I don't believe in the power of prayer so long as the word "prayer" is a way of describing a period of quiet consideration of ones difficulties, a form of meditation, in which one is enabled to come to some level of understanding of the cause of those difficulties and, thereby, see a way to overcome them.

If you have read this far you will have gathered that, when I am asked about my religion, I tend to describe myself as an atheist or humanist. It is not that I belong to a formal organisation of those who describe themselves thus, just that my beliefs seem to be more closely aligned with atheism and humanism than with any of the multiplicity of belief systems based around the notion of a supreme being.

Property Tax Pros and Cons

The Household Charge currently being introduced in Ireland is an interim measure pending the introduction next year of a "property tax". It is argued that Ireland is one of the few countries in the developed world that does not levy a tax on private domestic property and use that levy to fund local public services.

The notion of taxing property, or more specifically, land, goes back a long way and is based on the belief that the land and the natural resources on and under the land should be held in common. It is not possible to make a moral case for ownership of land and natural resources to be held exclusively by a single individual or family. Any rent charged for the right to develop and use the land rightfully belongs to the community. A property tax is therefore justified on the basis that it returns to the community a portion of the value generated by use of the land.

Location, Location, Location

Whilst this can readily be seen to apply to commercial uses of land, how can it be applied to domestic property? Especially in the case of the ownership of a single dwelling? The answer can be found in the old estate agent's adage "Location, location, location". Homes that are established close to good public amenities command a higher value than those in isolated locations. It follows that the increased value that arises because of those public amenities should be taxed in order to contribute to the cost of providing those services.

In a paper produced at Dublin Institute of Technology in 2005 Tom Dunne enumerated these arguments and went on to highlight the practical difficulties associated with the implementation of such a tax. It makes interesting reading and we must hope that Enda Kenny and his advisors have studied it. [Land Value Taxation: Persuasive Theory but Practically Difficult, Dublin Institute of Technology School of Real Estate and Construction Economics, 2005]

Tax Bads not Goods

A more thorough examination of the case for a tax based on the increased value of land that arises from community provided services can be found in an earlier article by Nic Tideman which also discusses the practical issues and offers suggestions for ways to overcome them. Tideman also points out that such a tax could be developed in such a way as to benefit the community by taxing only "bads" rather than "goods". Thus a business that imposes burdens on the community such as pollution or traffic congestion, lowering the value of neighbouring property, could be taxed at a higher rate than businesses that are of benefit to the neighbourhood which might even be exempted from the tax. [The Case for Site Value Rating, T. Nicolaus Tideman, Date unknown, originally published by the British Liberal Party]

I found the Tideman article via a website called Wealth and Want. Although this is a USA based site geared to the US economic situation the articles that the site owner has assembled and to which he has provided links are from around the world and relate just as much to the Irish and wider European economy as to that of the USA. He has created an excellent resource for those seeking alternatives to our failed economic system.

I would urge anyone actively seeking solutions to our woes, rather than merely seeking to explain how we got here, to study these articles. In my humble opinion they make a very strong case for a complete re-thinking of our economic system with the potential of ensuring fairer distribution of wealth, at the same time providing greater rewards for wealth creators. As the site's masthead states "... democracy alone is not enough to produce widely shared prosperity"

Are Sales Taxes Fairer Than Income Taxes?

With an increase in VAT taking effect in Ireland today (Jan 1st 2012) it is worth taking a look at the comparative fairness of taxes on sales and those on earnings.

There is a widespread belief that those individuals who receive very high earnings should pay high rates of tax on at least that part of their income that is deemed excessive. There are a number of problems with this concept. First and foremost, who determines what is "excessive" against what criteria? €100k? €500k? and just how punitive should be the tax on the portion of income that exceeds the chosen threshold?

Then there is the effect on incentives; although it is wrong to attach too much importance to this in relation to high incomes. Too often when an individual's earned income is so low that he or she receives support from a variety of social welfare programmes the marginal rate of tax becomes close to - and sometimes even exceeds - 100%. This occurs when the amount of support withdrawn as a result of crossing a particular income threshold exceeds the additional income received. That certainly is a disincentive. No one ought to be placed in the situation of becoming worse off as a result of working harder, working longer or receiving a promotion. So it is not necessary to feel too much sympathy for high earners whose marginal rate of tax exceeds, say, 50%.

More than one tax is levied on incomes

I can remember when the marginal rate of income tax on high earners in the UK was 90%. Executives justified high salary increases on the basis that, in order to give someone a £100 increase in take home pay it was necessary to raise his (and in those days it was nearly always a man) headline salary by £1000. Logically, when marginal rates fell dramatically under a previous Tory government, these individuals should have had their salaries reduced. In fact they just continued to receive big annual increases.

In most jurisdictions the tax that goes by the official title of "income tax" is not the only tax levied directly on incomes. In the UK, for example, there is "National Insurance", originally intended to cover the cost of health and social programmes this tax long since ceased to be so hypothecated and simply went into the general pool of government income. The equivalent in Ireland is PRSI.

Often these levies are applied only to income up to a certain level, thus reducing the effective margin between basic rates of income tax and the next higher band. So, for example, the basic rate might be 20% and the next band 40%, but, if the person on basic rate is also paying an 11% "Social Insurance" levy that cuts off at the same level as that at which the rate of income tax increases to 40%, the margin might look like 20% but is actually only 9%.

It's all so complicated

All this is starting to get complicated and I have only scratched the surface of the many different taxes on incomes and the allowances that can be claimed against them. And that is the other problem with income taxes. The harder you try to make them fair the more complicated they get.

Having taken a portion of an individual's earnings before he or she even gets to see its colour the government next proceeds to take another chunk from every pound, dollar or euro he or she spends. Actually, not everything because certain goods deemed essential to living, typically food and children's clothing, are exempted from sales taxes. And this is where the sales tax as a concept starts to look fairer than income tax. These days it is not possible to survive without purchasing some things that are subjected to sales taxes but it can reasonably be argued that the sales tax levied against big ticket items that only those on high incomes can afford ensure that the rich contribute more to the state's coffers than do the poor.

It is argued that such taxes act as a disincentive to consumption and that is bad for an economy but this surely happens only at the margins. If you can't afford to pay an extra 2% on the price of an item you probably can't afford it anyway. On the other hand, if paying €10k for something is no problem increasing the price by €200 probably won't stop you.

Increase sales tax on luxury goods

I would go much further, as the late Roy Jenkins did back in the days when the UK sales tax was called purchase tax, and levy a higher rate of sales tax on luxury goods. Of course, we are then presented with the problem of defining "luxury goods". One way might be to look at the average price paid for a particular category of item, say motor cars or ladies' wear, and levy the higher tax on those items for which the recommended retail price was more than double the category average. Difficult but not impossible I would argue.

And it could have another benefit: many such items are imported. Ireland and the UK could both do with reducing their level of expenditure on imported goods so a tax that acted as a disincentive would be beneficial. And, because the tax was determined against the value of the item rather than its origin it ought not to be outlawed by trade agreements as being overly protectionist.

So, on balance I tend to favour sales taxes over taxes on income when it comes to assessing their relative fairness. Of course, the elephant in the room is the size of the overall tax burden. And that depends very much on what you believe should be included on the list of things best provided by the state. Views on that vary widely across the political spectrum and between this side of the Atlantic and the USA. But that is a whole different argument.

New Approaches to Management Not Enough

I recently came across an interesting article on the forbes.com business and management website. Written by Steve Denning it was a comprehensive review of a book called Fixing the Game by Roger Martin. Martin holds that by concentrating on maximising shareholder value executives have begun managing expectations instead of managing the business. It is clear from Denning's article that he is a fan of Martin's thesis. Indeed, Denning has also written a recent book, The Leader's Guide to Radical Management in which he expounds his own theories of what constitutes good management.

The goal of maximising shareholder value need not be as destructive as Martin and Denning suggest. What is required is an acceptance of two things: that shareholder value can only be maximised by keeping on doing well what the organisation does best and that shareholder value means the long term return in the form of high dividends paid against the value of shares held. Martin and Denning argue that what has been happening is that "shareholder value" has been confused with share price on the stock market.

According to Denning, Martin argues that encouraged by bonuses paid in the form of share options executives have devised and followed strategies that produced increases in share price based on market expectations. The executives have managed those expectations by means of regular announcements and predictions of profitability. So long as the predictions proved to be accurate within narrow margins demand for shares in the company was generated pushing up the price of those shares.

Old Ideas Re-invented Not the Answer

Reading the article I was struck by the similarities between the ideas being put forward in the wake of the financial meltdown of the last few years and ideas that were being widely embraced 30 years ago. In my own article ahead of the 2010 general election in the UK I discussed ways of successfully implementing efficiency savings and referred to a process called Total Quality Management. Almost twenty years ago one of the several roles I undertook in a small engineering company was that of TQM "facilitator" explaining the various techniques and strategies covered by that broad title to fellow employees.

The problem with management theorists is that they base their ideas on the assumption that economic growth is a natural and desirable goal. They are simply seeking and advocating alternative ways of achieving that goal now that the methods of recent decades have been shown to be incapable of doing so. Some of the most prescient of commentators have been advocating for at least the past two decades that this never ending pursuit of growth is killing the planet. Is it not time to take a closer look at sustainable developments of the kind advocated by the late Richard Douthwaite and other members of the organisation FEASTA?

Car on Fire? Don't Call the Fire Brigade!

I was listening on Midlands Today this morning to an interview with a poor man who has received a huge bill from Laois County Council. Back in July last year he was returning home to Portlaoise from working a night shift in a homeless centre in Dublin when smoke started coming out of the cooling vents in his car. He did what any of us would in the circumstances; pulled over onto the hard shoulder, took out his mobile phone and called the emergency services.

As the fire took hold a couple of trucks pulled up and the drivers attempted to tackle the blaze with fire extinguishers from their cabs. The blaze was too severe. By the time the fire brigade arrived half an hour after the call the car was destroyed. A few weeks later the man was shocked to receive a bill from the County Council for €3.5k. After he had contested the amount it was reduced to a little over €3k. His insurance company will contribute €1k leaving the man with €2k to find.

In my previous post I discussed the forthcoming Household Charge and noted that whereas most services provided by local councils in the UK are free of charge with a proportion of the cost raised via a locally determined tax called the Council Tax, here in Ireland most services are either funded centrally by the state government or charged for. This incident illustrates precisely what is wrong with that system. Local councils are free to charge whatever they deem to be appropriate for a fire service call-out. In the case of Laois County Council the charge is based on the number of men attending and the length of time that elapses between receipt of the call and the return of the men to their respective stations. The charge is doubled for calls received between midnight and 7am.

Nineteen Men to Extinguish a Car Fire

On this occasion two fire tenders turned out from two different stations involving a total of 19 men. I have no idea to what extend that level of turn-out was determined by the firemen's terms of service but it is well known that public service workers in Ireland are grossly over-indulged; it's one of the reasons the country is bankrupt. Leaving that aside, however, the iniquity of having to pay for a service when you have absolutely no control over the cost of providing that service and no alternative is obvious.

At this point it is worth looking back at the history of fire services. Long before they were taken over by local authorities they were provided by insurance companies. You paid an annual premium to the company and in return they came and put out any fire that occurred on your premises. It was fair because the company published statistics about the number of fires attended together with an account of income and expenditure. Prospective clients could judge whether the proposed premium matched the cost of the service and whether or not it was worth paying on the basis that if they didn't pay up front they would not get the service should they ever be unfortunate enough to need it.

Where the service is provided as part of a package funded by local taxes the general point remains true. The local councils in the UK publish annual accounts showing the actual cost of running the service in order to justify the level of tax being levied. In Ireland there is no such requirement. So the council, no doubt aided and abetted by the fire-fighters, can determine how many men to send to an incident and what to charge. Moreover, where such arbitrary charges are met from the vehicle owner's insurance it has the inevitable effect of pushing up premiums for everyone.

The remedy, at least for car owners, is to have a fire extinguisher and use it should the need arise. Whatever you do, don't call the fire brigade!

Ireland's Household Charge - the Final Straw for Hard Pressed Citizens?

The first of January 2012 sees the introduction in Ireland of a charge of €100 per annum to be imposed on every occupied house in the land. In theory this is supposed to be a payment towards the cost of services received by the occupants of the house. In fact it is nothing of the sort. To understand why it is necessary to look at how such services are currently funded.

In Britain in the 1980s Margaret Thatcher attempted to introduce a similar charge levied from every adult member of a household. Officially called "Community Charge", it was quickly dubbed "Poll Tax" by press and opposition parties and was widely regarded as grossly unfair. It soon met considerable resistance with rioting and widespread refusal to pay. It was not long before the idea was dropped and replaced by a "Council Tax" based on the notional value of a property.

There are a number of differences between Ireland's new Household Charge and Britain's former Poll Tax but the most significant of these is the fact that whereas the Poll Tax was a replacement for an existing levy the Household Charge is entirely new.

In Britain householders have for many decades paid a contribution to the cost of operating local government. The Poll Tax was an, albeit unsuccessful, attempt to replace an unpopular tax called "rates" - essentially a levy based on the assessed rental value of a property. Rates provided a significant proportion of the funding for local government at a time when local councils in Britain had significantly greater powers than they presently do and far more than any in Ireland.

Unfair and Undemocratic

The system was regarded as unfair because based roughly on the size of a house whereas in many instances a large house that may once have been occupied by a family now grown up could still be occupied by a single elderly individual who would be paying more towards local services than a large family in a smaller house in a less salubrious part of town. The Poll Tax attempted to remedy this by charging every person of voting age the same amount. Families with grown-up children living at home suddenly had to pay more than they had been under the old system. Because it was possible to evade the tax simply by not registering to vote it was deemed undemocratic.

Council Tax was, and remains, based on the notional value of a property but was, and has been further, ameliorated by an increase in the contribution of central government funds to local authorities together with the removal of some of those authorities' more costly responsibilities. But the tax is set and collected by the local authorities.

Local government in Ireland is presently funded part by central government and part by business rates. Moreover County Councils in Ireland have far fewer responsibilities than their opposite numbers in Britain. People already pay for refuse collection services, for example, and in most areas these are privatised. There are charges for other services - libraries, leisure centres and municipal theatre performances - and whilst these are subsidised and therefore lower than corresponding private sector facilities there is an inevitable feeling that this new levy means people are paying twice.

Prisons Overflowing

This feeling is not helped by the fact that the new charge is part of a large package of increased taxes and charges levied in the recent budget and therefore not obviously a new way of funding local services. Unlike the British Council Tax it is set by central government so there is no sense of local control over the amount or the way it is spent. It is a levy that had been signalled by the previous government with an underlying assumption that it would be offset by a reduction in other taxes. The new government seems to have used it as a means of keeping their own promise not to increase income tax. Having broken so many other promises, it might have been better had they broken that one as well instead of introducing such a regressive tax at a time of widespread hardship.

Many citizens - including several members of the Irish parliament - have vowed they will go to prison rather than pay. In itself this is a frightening prospect for it is already the case that the only way our prisons can accomodate the people that the judiciary send them every day is by the early release of existing inmates. So we could see the imprisonment of innocent citizens whilst hardened criminals are released onto the streets. There is a growing movement to oppose the charge. Many see it as the last straw in an ever increasing series of impositions on a hard pressed population. It will do nothing to assist the achievement of a "yes" vote in any referendum on measures to defend the Euro. Time for a re-think, Mr Kenny?