Notes On The Front

From Each Business According to Its Ability . . .

It is commonly asserted that we will have to be innovative, coming up with new solutions to the unprecedented challenges we face.  Of course.  The Financial Times’ Martin Sandbu has come up with such a new solution.  Referencing a policy letter from the Leibniz Institute for Financial Research SAFE, he writes:

‘Meanwhile, some smart new taxes can be introduced. A group of European economists has proposed helping small businesses not through loans, which can leave them overstretched in the recovery, but through grants combined with a later profit surtax — in effect mimicking government equity injections, even for sole traders and family companies.’

In effect, the Government would provide grants to businesses that would be repaid through a tax surcharge.  This would be superior to loans which negatively impact a business’s balance sheets.  Let’s compare a potential tax-based grant system with the SBCI’s (Strategic Banking Corporation of Ireland’s) ‘Working Capital Loan Scheme’.

• The SBCI scheme, open to micro-enterprises and SMEs, would provide loans of between €25,000 and €1.5 million with a maximum interest rate of 4 percent, to be repaid within three years.

• A tax-based grant scheme would provide similar loans but repayments would be based on profits – for instance, a company would pay their normal 12.5 percent corporate tax and then a 5 percent surcharge which would continue until the loan is repaid. Interest could be a marginal 0.5 percent.

The advantage to the business is that it wouldn’t be carrying debt, would only repay the loan when it was in profit, would spread out repayments as long as it took, and - if inflation exceeds 0.5 percent - the loan would be effectively written down over the medium term.

The advantage to the state is that it would recoup some of the subsidies to the business sector.  This would set up a revenue stream in the years ahead, though it wouldn’t recoup all the grant money as many businesses would still go under.  Nonetheless, effectively interest-free grants to be repaid over the medium-term and only out of profits, would increase the number of companies that survive.  Indeed by subjecting grants to a tax surcharge, the state can invest more in business supports.

Brian Keegan writes in the Sunday Business Post (pay-walled) of the bewildering range of business supports:

‘There are at least a dozen state-supported funding options announced from the Covid-19 working capital schemes to the SME credit guarantee scheme . . for many businesses owners struggling to deal with the day-to-day practicalities of handling a collapsing business, the range of options, terms and conditions can be bewildering . . . We need simple and quick supports to cope with the Covid-19 unemployment crisis, not a complex new industry of loans, grants, tax breaks and deferrals.’

Business groups are certainly not shy in making demands on the Exchequer:

‘Retail Excellence wants the Government to waive local authority rates for 12 months, give grants equal to 60 per cent of commercial rents for the period of the emergency, offer zero per cent loans for all impacted businesses as well as putting in place a Covid-19 compensation scheme.’

Without commenting on the efficiency of any particular proposal, far-ranging business supports will be needed.  Retail Excellence’s proposals could be easily wrapped up in an omnibus tax-based grant system.  We now have an opportunity to rationalise business supports into three main schemes:

• Equity provision for large companies, whereby the state gets a stake in a company in exchange for equity investment
• Tax-based grants as outlined above
• Direct, non-repayable grants (e.g. Temporary Wage Subsidy Scheme)

Rationalising and funding the schemes to the extent necessary to save as many businesses as possible has now become urgent.  It will be more equitable and efficient (e.g. avoid loading debt on business) if we adopt the following principle:

From each business according to its ability to pay, to each business according to its need.

Raising Tax Revenues and Raising Taxes

The Sunday Independent headline was certainly dramatic:

‘Reality bites: Watchdog warns on tax hikes and pension age as recession kicks in’

The article featured comments by the Chairperson of the Irish Fiscal Advisory Council Sebastian Barnes which, on closer reading, weren’t as dramatic.  But it nonetheless raises the issues of how we are going to fund the economic and social repair job once this emergency is over; never mind the increase in investment  necessary for not-for-profit housing, a fully universal health service, affordable childcare and, not least, a Green New Deal.

Here I just want to focus on one issue; how we can increase tax revenue without increasing taxes.  For this we need to go outside the usual fiscal box and look into a recent paper written by Paul MacFlynn of the Nevin Economic Research Institute, ‘The Impact of Collective Bargaining on pay in Northern Ireland’.  This is not a paper about raising taxes.  It concerns industrial relations. But the implications of the findings could have a positive benefit on public finances.

Paul shows that there is a pay premium for those workers who bargain collectively with their employer; that is, those who bargain through a single agency – usually a trade union.   These workers earn, on average, 13 percent more in pay than those employees who bargain on their own with their employer:

‘ . . . workers negotiating as a collective are able to mimic or replicate the unity that employers have when they negotiate with their workforce. The market logic is that in any transaction, the power lies on the side with the least number of participants.’

Of course, the situation in the Republic could be different.  A similar study might not find a similar premium level.  A significant difference is the presence of multinationals, though Eurostat reports that in the multinational sector the average wage, including employers’ social insurance, is lower in the Republic than in any EU country in our peer group. 

The OECD estimates that 33 percent of Irish employees are covered by collective bargaining agreements.  Approximately half of this would be in the public sector.  So we would find only a small proportion of private sector workers covered under collective agreements – certainly fewer than one-in-five.  Let’s assume there is a premium of 10 percent, the level found in this study. Were collective bargaining to be extended throughout the private sector, the level of wages would rise.

This is all pre-crisis but the point is nonetheless valid even if the magnitude is different:  collective bargaining raises wages.  And with that, tax revenue.  This can be seen in the labour share - wages as a percentage of national income.  In this measurement Ireland comes up short.

Were the wage share to rise towards the average, we should expect tax revenue to rise.  In 2018, Irish employees paid, on average, 28 percent of their wages in income tax, USC and PRSI.  If this held as wages rose, a one percent increase in the labour share would increase personal tax revenue by €400 million.

This should be seen as indicative.  One would have to factor in the distribution of the wage increase (towards the low-paid or the high-paid); and the impact on profits and investment.  However, this doesn’t take account the positive impact on consumption taxes (VAT).  And as Paul and Tom McDonnell point out, there is a link between collective bargaining and productivity, which means that rising wages are not zero-sum.  Companies engaged in collective bargaining benefit from the increased productivity. 

‘Seeking these types of pay increases is more likely to be associated with agreements on upskilling and innovation, which provide benefits to the firm as a whole. In this sense, collective bargaining provides a route for firms to boost wages without suffering competitive loss to firms who do not follow their lead.’

Another way the economy would benefit would be the ability of collective bargaining to reduce precariousness in the workplace.  Precariousness costs the individual worker and the economy at large.  Workers with uncertain, intermittent income find it hard to forward-plan their expenditure, limiting their full participation in the consumer economy.  This leads not only to in-work poverty, it also leads to reduced tax revenue and higher social protection income supports. 

Coming out of the lockdown we will need every fiscal edge we can find.  Extending collective bargaining to every workplace where employees so wish  can help maximise the gains of the recovery and the substantial subsidies that will be provided for business.  The last thing we should do is squander public subsidies as we did with the VAT reductions for the hospitality sector in the last crisis. 

Collective bargaining is a win-win-win process – higher wages and tax revenue, higher productivity and reduced precariousness.  Providing every worker with the right to bargain collectively with their employer would have a verifiable and beneficial impact on public finances.  Paul makes the point that:

‘Collective bargaining thus represents one of the few policy levers that government has in order to increase wages and ultimately the labour share of income.’

The same could be said for increasing tax revenue.  And this without increasing taxes.

Agents of Recovery

The low-paid, the precarious worker, the gig worker and temporary agency worker, the under-employed, the undocumented and the marginalised in the labour market:  these are the women and men we now recognise as vital agents in networks delivering essential goods and services in these crisis times.  Where we once, as a society, assumed such poor quality employment was the inevitable result of new business models or low value-added sectors or the competitive nature of markets, we are starting now to see such work and these workers differently. 

And as we begin the long unlocking of the lockdown we have an opportunity to assign these men and women a new role; namely, agents of recovery.

The Government projects that consumer spending will fall by 14.2 percent.  To put that in perspective, in the worst year of the last crisis – 2009 – consumer spending fell by less than 5 percent.  The Government projects consumer spending will bounce back next year – by 8.7 percent; however this will still leave it at 93 percent of 2019 levels.  We certainly won’t see a full recovery until at least 2022 and possibly 2023.

Even when the current emergency has passed (bearing in mind that there is no permanent exit without a vaccine), consumer spending may struggle.  Large numbers of people will be out of work (and, so, unable to spend much).  Even those in work may be reticent to spend – especially in discretionary sectors such as hospitality due to fears of a second wave or of lack of social distancing.  Fear and behavioural change may undermine a consumer recovery for years.

Driving a consumer recovery will involve many elements; in particular, privileging the ‘spenders’ - those who have a high propensity to consume.  This means privileging lower-income groups and average income households with children.  If you give €100 to someone with a low income they are likely to spend all of it; a high-income earner is likely to save some if not most of it.  In uncertain times, it makes sense for a household to save but that doesn’t help the overall economy.

This goes further than just redistribution.  It is about giving those on low pay and precarious contracts the tools to effect this progressive distribution.  Let’s look at some of these tools.

Collective Bargaining

Collective bargaining has been shown to lift wage floors for the low-paid.  The ability of employees to come together to negotiate with their employer strengthens their bargaining power which, in turn, contributes to higher wages and better working conditions than would have prevailed under individualised or market-based bargaining.

Collective bargaining could be extended throughout the economy in two ways:

• Provide every employee with the legal right to bargain collectively; where a substantial number of employees in any enterprise opt for this method of bargaining, the employer must acknowledge this and engage

• Establish sector-wide bargaining where representatives of employees and employers negotiate wages and working conditions across a sector (e.g. retail, hotels, agriculture, food manufacturing, etc.). This would protect both workers and ‘good’ employers from businesses that use low-road business models (reduced wages, working conditions) to gain a competitive edge.

Such a model, which prevails in many European countries, provides flexibility (sectoral agreements can be adjusted at enterprise level to take account of local business conditions) and promotes productivity through high-road strategies (shifting emphasis on to product and service quality, innovation, customer satisfaction, and investment).  Most of all, it lifts the wage floor for the lowest paid, providing additional income for ‘the spenders’.

Precarious Contracts

If people experience uncertain income they cannot plan their expenditure and, so, cannot fully participate in the consumer economy.  Collective bargaining can address many of these issues at sector and enterprise level, but there will still need to be policy interventions.  Given the range of contracts, there is no magic bullet to solve precariousness but here’s one small example.  Bogus self-employment, whereby employees are treated by their employer as self-employed (to avoid higher social insurance payments, holiday pay, etc.) has long been a feature of the construction sector but is now spreading to other sectors.  This deprives employees of benefits while the state loses out on social insurance payments.  In effect, this is an attempt to drive down wages and income. 

A very simple rule could be introduced:  all employment contracts are considered a standard employer-employee contract unless the employer, with the agreement of the employee, can show that it is truly a matter of self-employment.  If they can’t do that, with reference to Revenue Commissioner and Department of Employment Affairs and Social Protection guidelines, then the contract is assumed to be standard. This would set a new floor for workers in sectors affected by bogus self-employment.

Part-Time Flexibility

Employees should be provided with the flexibility of moving between part-time and full-time work in an enterprise where the hours become available.  This was the intention of the European Directive on Part-time Employment but it was never fully transposed into Irish law.  This would give workers some autonomy over their working hours, reducing them when they have other commitments (usually caring) and increasing them when they need extra income.

Regularisation

There are an estimated 17,000 undocumented workers (pre-emergency).  These workers are subject to considerable exploitation which has the effect of driving down wages and working conditions for all employees at firm or sectoral level.  Alan Desmond, law lecturer at the University of Leicester, suggests we:

‘ . .  establish a mechanism allowing for automatic transition to legal status for irregular migrants who have spent a specified minimum period of time, say five years, in the state. While such a mechanism may justifiably be accompanied by requirements like the absence of a criminal record, such limitations should be few in number to ensure that as broad a swathe as possible of the irregular migrant population can avail of the regularisation measure.’

Automatic and accessible regularisation would remove another low-road element in our business model and help workers to become more fully integrated into the consumer economy.

* * *

These and other reforms – the Living Wage, pay-related social insurance payments, a guaranteed minimum income – would raise the income and living standard floor, privileging low-paid and precarious workers and, so, boosting a critical aspect of recovery:  consumer spending.

What’s even more important is that these structural reforms would actually give workers themselves the tools to drive the recovery by improving their living standards. 

Orthodox theory suggests that restoring growth – restoring profits, employment, investment and fiscal confidence – will address these issues, but that is patently not the case.  Prior to the emergency Ireland had one of the highest levels of low pay in the industrialised world, while the Nevin Economic Research Institute found that up to 500,000 employees were at elevated risk of contractual precariousness with another large cohort at risk of precarious living standards (in-work deprivation, inability to meet an unexpected expense). 

Orthodox theory is wedded to trickle-down economics.  What we need is a new surge-up economics – raising wages, working condition and living standard floors.  And what’s the best way of achieving that?

Give workers the tools and the choice to address their issues – through collective bargaining, precariousness reduction, flexibility, and regularisation.

Do this, and they will become for all of us the agents of recovery.

Reading the Fine Print

The Green Party is currently debating whether to enter government with Fianna Fail and Fine Gael.  There are legitimate arguments on all sides of this question.  However, before making a decision I would strongly advise the Greens to read the fine print; in particular, the fine print of the Stability Programme Update (SPU) – the Government’s latest economic and fiscal projections.

Of particular interest are the fiscal projections, the Government’s estimate of public spending in 2021.  This is a baseline, a product of layering the Medium Term Fiscal Strategy on to the Budget 2020 projections and then adding the impact of the crisis (falling tax revenue, rising unemployment and healthcare costs, etc.).  This baseline reveals the challenge for the Greens and their programme – a programme which emphasises investment to address climate chaos, a new social contract, the housing shortage and other elements of their 17 demands.

Let’s compare the SPU projections with those contained in Budget 2020 (the latter was put together last autumn).  This comparison is useful because it shows the leeway the Government is now giving to the radically altered post-coronavirus economy.   The problem is the Government is not giving much leeway.

In 2020, spending will greatly exceed the Budget 2020 projections – by €5 billion.  This is driven by increases in social payments (unemployment payments, wage subsidy scheme) and healthcare expenditure.  However, in 2021 the SPU pulls public spending back to the Budget projections.

Overall public spending (primary expenditure excludes interest payments) and spending on public services are being pulled back to pre-coronavirus projections.  In fact, when we exclude social payments, public spending under the SPU actually falls below that projected in the budget last year. 

The real question is:  how are people’s demands for enhanced public services, especially a single-tier health service, going to be met using pre-crisis budget projections?  What about the enhanced income supports?  Or a renewed public housing programme?  What about the multi-billion Euro stimulus programme for business that will be needed?   Now, add in a significant Green New Deal investment programme.  All that on the basis of spending projections presented prior to the current crisis.

Then there’s the orthodox mood music.   The Minister for Finance stated in the Dail recently:

‘Our deficit will have to be reduced, our national finances must return to a position of balance again.’

Why?  Why must we ‘return’ to a position of balance?  Even the Fiscal Rules, as orthodox a set of rules you’ll find anywhere, allow for deficits.  The rationale for a deficit-spending strategy is set out here.  Any attempt to pursue a balanced-budget strategy in the medium term will unnecessarily restrict social, environmental and economic investment.

Sebastian Barnes, the acting chair of the Irish Fiscal Advisory Council, writes in the Irish Times:

‘Compared with the 2008 crisis, it should be possible to avoid severe austerity.’

That’s good but note the word ‘severe’.  The acting Chair goes on:

‘There will likely need to be fiscal adjustment to make up for any permanent shortfall of tax revenues . . . but there should also be some space to support demand . . . public investment should be a key part of a new national economic plan . . . Despite the difficult background, universal healthcare, better housing and addressing climate change are all still achievable.  However, these goals require substantial resources to succeed . . . This will require hard political choices about how to fund these policies . . .  Spending will have to be reprioritised between programmes or become more efficient, or the tax burden will need to increase. Someone will need to pay.’

This carefully crafted op-ed has something for everyone:  ‘fiscal adjustments’ (in the last crisis this was code for spending cuts); ‘public investment’; achievable social and environmental goals; ‘hard political choices’; ‘reprioritised’ spending, ‘increased’ tax – ending with the ‘someone will need to pay’.

Nothing in the above is wrong or misleading.  But it shows how amorphous the debate can be – until, that is, we get to the fiscally programmatic.  The word ‘austerity’ will be avoided.  However, that doesn’t mean it won’t feature in other forms.  The SPU projections mirror the projections in the last budget.  And those showed how misleading headline numbers can be.  For example, Budget 2020 projections for public service spending (government consumption) up to 2024:

Public service expenditure rises by nearly 10 percent between 2019 and 2024. That’s the headline number.  However, when we factor in inflation and population growth it falls by over three percent.  This can be called austerity below the radar – using inflation to squeeze spending.  That the Government returned to the 2021 level of public service spending in their SPU should warn us about future trends in the post-crisis environment. 

Let’s bottom-line this:  while many people are rightly saying there can be no return to the old normal (a two-tier health system, inadequate income supports), that’s exactly what these projections are doing.  They are returning us back to the old fiscal normal.

The Green Party will have to make an assessment based on this fine print, below-the-radar reading.  Do they believe the two larger parties are willing to engage in fiscal expansion over the medium term to fund social, environmental and economic investment?  Will there be enough money to fund Slaintecare, improved income supports and a Green New Deal?  And if not, how do the two parties intend to fund these?  Or do they intend to?  Will the two parties hide behind possibilities and eventualities, headline numbers and selective application of the Fiscal Rules?

There is an alternative.  The Fianna Fail-Fine Gael document states:

‘We also recognise the need for a strong Opposition to hold the Government to account – one that can contribute, critique, challenge, and change policies.’

A strong opposition could wield significant influence, contributing to and changing policy. And a strong opposition is the first step towards an alternative government.  If the two larger parties are reliant on independents, an early election becomes more likely. 

And in that alternative government made up of progressive parties, the Greens would be far better placed to ensure that their programme is implemented.  Indeed, they could lead climate justice policy. 

If the Green Party is still unsure, then all they need to do is read the fine print. 

Beyond Fiscal Clichés

The Irish Times headline had a familiar, ominous ring:

“We must not forget coronavirus bill will have to be paid someday”

Donal Donovan went on:

‘Clearly, the deficit will be a huge number and likely to be followed by more significant red ink in 2021.  Who will pay for this? . . . at some stage Ireland will have to pay the bill associated with the virus . . . Payment will come in the form of higher taxes or postponement of otherwise planned expenditures.’

We’ve been here before.  Who will pay for this?  The question is framed in the wrong way.  It is not about who will pay but what will pay.  Cliff Taylor talks about the ‘tough choices to be faced on tax and spending’.  But the real issue is making the right choices.  Neither tax increases nor spending cuts are going to ‘pay’ for the substantial debts arising from the crisis, unless we want to risk an extended period of stagnation.

The ESRI has projected a deficit of €12.7 billion for this year, or 4.3 percent of GDP – but that was early on in the crisis.  The Central Bank has estimated a deficit of 6 percent of GDP, which could work out close to €18 billion. 

We are likely to see a significant reduction in the deficit in 2021 as people return to work.  However, much will depend on to what extent employment and enterprises are permanently destroyed, the pace of the return to work, and progress towards a vaccine. 

There are few estimates about what the economy might look like next year; understandable given the unprecedented nature of the crisis.  The OECD claims that Ireland will be one of the least affected economically by the crisis, given the presence of medical and big-tech multinationals.  However, there could be significant sectoral and regional variations.

The IMF produced a set of projections which look promising if they turn out to be true:

Irish output levels will nearly recover in 2021.  The deficit will return to nearly a balanced budget situation.  And unemployment, while high, will be reduced to single figures.

There is a major caveat.  The IMF uses a global GDP model applied to all countries.  It is not an analysis of the detailed conditions for each country.  So this GDP model could well over-estimate the Irish economy’s resilience. 

Even if the deficit recovers quickly in 2021, we will hear calls to reduce our overall debt levels.  There are few projections for these, but with a €15 to €20 billion deficit this year, and the likelihood of this continuing into 2021, debt will rise.

In the short term, general tax increases and spending cuts of the type we saw in the last crisis will only make the recovery more difficult.  Unemployment will still be high after the emergency.  Households and businesses could fall into debt.  Disposable incomes will be reduced.  And this doesn’t count the demand to maintain the positive features of the Government’s response to the crisis:  a more equitable healthcare system, a fully subsidised childcare system, enhanced income supports. 

Rushing to a balanced budget, never mind a surplus, to pay down this debt would be a mistake.  The best way to repair the economy, build on social equity, and reduce the debt would be to embark on a medium-term strategy of deficit spending.  This might seem counter-intuitive – deficit spending to reduce the debt – but that’s exactly what Ireland did coming out of the stagnation of the 1980s.

Even though the Government ran a continuous deficit over this decade, and the actual amount of debt rose by 25 percent, the debt burden (debt measured as a percentage of GNP) fell substantially.  Of course, one can’t make straight-forward comparisons.  In the 1988/97 decade, government revenue was boosted by a tax amnesty, privatisation proceeds (which actually flattered the deficit), EU funds, and growth rates, especially in the latter half.  Nonetheless, while running deficits, the debt burden fell by 46 percent even as the actual debt pile grew.  Even if growth rates were a third less, the debt would have fallen in excess of what the fiscal rules would have required, if they were operating back then.

It’s actually just common sense.  If growth rises faster than the deficit, the debt burden falls.  Let’s run this through an extremely simple exercise.  Let’s assume that GDP falls back to 2018 levels (€325 billion) and debt increases to €250 billion (or 20 percent above 2018 levels).  Further, let’s assume the deficit runs at 2 percent per year while GDP growth rates are 4 percent (between 2012 and 2018 GNI* averaged nearly 8 percent annual growth).

Over a 10-year period, with an accumulated deficit of nearly €50 billion, the debt burden still falls; and that’s with a subdued growth rate.  One would hope for higher growth, obviating the need for a deficit in each of these 10 years.  Nonetheless, this simple illustration shows that you can reduce the debt burden while running deficits.

And we should also note that the Fiscal Rules, which are for the time being suspended (thankfully), still allow for deficit spending.  And that suspension, along with continued ECB interventions, is likely to continue.  In 2021, the IMF predicts a deficit of nearly 4 percent for the Eurozone as a whole.   

Fiscal policy, however, cannot rely on deficits alone.  It needs to encompass other initiatives such as productive investment, judicious use of our cash balances (estimated to be over €20 billion), shifting taxation on to assets, and increasing employers’ social insurance (but only when we are fully out of the emergency), and collective bargaining rights to raise wage floors.

If we fall back on fiscal clichés, the recovery will be harder, the social damage will be greater, and our ability to vindicate people’s desire for stronger public services and income supports will be greatly reduced.

And if that happens we should at least know that it will be a political, not an economic choice.

What's a Small Party to Do?

All manner of pressure is being put on the ‘smaller’ parties – Greens, Labour, Social Democrats – to sign up to a new Fianna Fail-Fine Gael government.  Some of the reasoning is specious, some naïve.  And some know exactly what is at stake; namely, a progressive government in the short term that excludes both Fianna Fail and Fine Gael.

One of the best descriptions of the current situation came from the Today with Sean O’Rourke programme:  the Fianna Fail-Fine Gael document is a colouring book and smaller parties are being invited to fill in the blank spaces. And that’s the problem: the smaller parties won’t own the book, write the story or even get to draw the picture.

One argument is that smaller parties should enter government to influence policy.  But how do we measure the potential to influence – either to implement good policies, or block bad ones?  Influence is intangible.  It is a political, not an empirical, measurement.  It is not a slide-rule.  That’s why it is so seductive – one doesn’t have to offer any proof of how much or how little.  (By the way, one can substitute the word ‘power’ for influence; you end up in the same space). 

If we use parliamentary seats as a measure of influence, then a smaller party’s influence will be minimal.  The six seats held by Labour and the Social Democrats each would barely fill a corner of a room where Fianna Fail and Fine Gael occupy 72 seats.  Even the Greens would struggle to find space with their 12 seats. 

Another variant of this ‘influence’ argument  is that if smaller parties reject participation in government, this just shows they are not interested in power; they are afraid of making ‘tough decisions’; they want to retreat into the ‘luxury of opposition’. 

Of course, parties should be afraid of making the wrong decisions, tough or otherwise.  However, the best response to the influence argument actually comes from the Fianna Fail-Fine Gael document itself:

‘We also recognise the need for a strong Opposition to hold the Government to account – one that can contribute, critique, challenge, and change policies.’

So even the larger parties acknowledge that a ‘strong’ opposition can influence policy.  Smaller parties can accept the invitation of the two larger parties – and actively participate in building a strong opposition that can ‘change’ policy and ‘contribute’ to policy.  This is not luxury.  This is hard work.

The most effective way to influence a government is to build an opposition capable of winning people over to an alternative set of ideas; one that is ready to replace the sitting government.  Government parties in situ will continually look over their shoulders, steal and borrow from the opposition, in an attempt to appease a public wanting change.  And for many commentators and politicians, this is the real fear.  Not only that a strong opposition will push the centre of political gravity to the Left; but that a strong opposition will eventually form the government.

This is the graph that unnerves conservative forces.  Over the last 40 years there has been a consistent pattern:  loss of support for the two conservative parties, rising support for progressive parties – so much so that in terms of the popular vote and seats they are now almost even. 

Imagine Pearse Doherty in Finance, Eoin O’Broin in Housing, Ged Nash in Enterprise and Employment Affairs, Roisin Shortall in Health, Nessa Hourigan in Environment, Brid Smith in Transport and, from the Independents, Thomas Pringle in Fisheries and Coastal Economies.  There’s always a danger in name-checking because you can’t list all of them – and a progressive government will have a depth and breadth of talent and abilities to draw on: Catherine Murphy, Louise O’Reilly, Catherine Martin, Cian O’Callaghan, Richard Boyd-Barret, Catherine Connolly, Roderic O’Gorman and – from future TDs – Marie Sherlock and Lynn Boylan.  Now put in the party leaders.  And all those I haven’t the space to list. 

This is a powerful and exciting cabinet that could lead a truly transformational government.  And what might have been a fantasy cabinet is now more than just a possibility.  This is what unnerves conservative forces.

]Note:  maybe someone out there in social media land could set up and launch a Progressive Cabinet Builder on-line where everyone could list their preferences in future Cabinet portfolios.  It would be fun, informative and eventually realised.]

In the past, small parties (usually Labour) didn’t have much choice.  Governments were led by either Fianna Fail or Fine Gael.  Small parties participated as very junior partners in an attempt to make the best of a bad situation.  Now, progressive parties can make the best of a good situation.  That’s what unnerves conservative forces.

So what should a small party do? 

• Take up Fianna Fail and Fine Gael’s invitation to help build a strong opposition in order to change and influence government policy

• Work with other progressive parties to build a future progressive government where their influence will be even stronger

• Develop innovative, progressive and popular policies that can challenge all of us to do better, think better

• Elect more TDs – we can’t get enough progressive TDs

• Help push the red line in the above graph ever higher and, so, push the blue even further down

It is likely, though not inevitable, that the next election will be in the short term – within 12 to 18 months.  A Fianna Fail-Fine Gael minority government could be a shaky construction.  The nature of the crisis (absolutely unforeseen back in February) will accentuate the need for alternatives.  The public demand for a new post-emergency government could become irresistible. 

Small progressive parties, like all progressive forces – throughout political and civil society – should start to realise a future that has been a long time coming; not be diverted by colouring books, and build a stronger party so as to make a progressive government a reality in a very short time.

History is beckoning.

The More Things Change (etc. etc. etc.)

‘New economy’, ‘truly historic’, ‘very substantial change’, ‘more left-wing than Sinn Fein’s election manifesto’, a ‘new relationship between the public and private sector’:  like a film whose best scenes are in the trailer, the draft Document produced by Fianna Fail and Fine Gael (Document) was never going to live up to the previews.  But it's even more problematic than that.

Let’s focus on the fiscal issues.  Understandably, given the unprecedented nature of the economic shutdown and the lag in data, the Document is light on specific targets and numbers.  However, what can we glean?

First, there are the usual protestations: ‘sound management of the public finances’ and ‘safeguard the public finances’ and ‘all decisions with regard to our national finances must be fair and sustainable’.   These are logically meaningless.  Is there anyone arguing for ‘unsound’, or ‘unsustainable’ public finances?  It’s like the politician who comes out against crime. 

However, it is an attempt to taint anyone who may, at some future point, disagree with their policies as being ‘fiscally irresponsible.  This provides a potential clue to the future direction of fiscal policy; that is, they are already preparing the ground for down-the-line fiscal ‘consolidation’ (another meaningless term except that it portends austerity).

Not only that:  we can gain some insight into the nature of this down-the-line consolidation from the promise that there will be ‘no increases in income tax and/or Universal Social Charge (USC)’.  This provides a clear signal that future consolidation will be more focused on the spending side. 

The most concerning aspect of the Document is its treatment of the Fiscal Rules:

‘Exercise sound management of the public finances, by . . . [complying] with the EU Fiscal Rules and the Stability and Growth Pact.’

This completely ignores the fact that the current government has actually abandoned the Fiscal Rules.  In the 2018 Summer Economic Statement the Government stated:

 ‘The fiscal rules are currently unhelpful  . . . A full and literal application of the fiscal rules would involve the adoption of pro-cyclical policies not remotely appropriate to our position in the economic cycle.  That is why fiscal space is increasingly an inappropriate concept . . . A literal application of the fiscal rules would damage our economy; that is why policy will no longer be formulated on the basis of ‘fiscal space’.

What’s going on here?  Simple:  when the Fiscal Rules required austerity, the Government implemented them.  When they allowed for higher spending (as started to happen in 2018), the Government abandoned them on the basis that they would fuel over-heating.  Now that we are back in big-spend times, they can be used to justify future ‘consolidation’.  In short, the Fiscal Rules are merely instrumental.

The game is further revealed when the Document discusses policy at EU level. 

• There is no suggestion the Government will argue for reform of the Fiscal Rules – at the very least, the exclusion of investment when calculating the deficit – or their continued suspension.

• There is no reference to mutualising debt between the Eurozone counties, though the reference to ‘work at an EU level to . . .  respond effectively to the COVID-19 Emergency and its aftermath, based on solidarity between Member States’  hints at this. 

• There is no recognition that an active role for the European Central Bank in absorbing national debt is the most economically efficient and socially equitable way to get us through this crisis.

There is no sense at all that the current fiscal architecture at EU or domestic level is an obstacle to recovery.  This, combined with declared fealty to unreformed fiscal rules, does not bode well.    

Already, Cliff Taylor is worrying about the cost of the commitments.  He’s not the only commentator with such concerns.  However, there is also consensus that the Document is ‘aspirational’.  Therefore, many are missing the point – because an aspiration has little cost;  though it can provide hostages to fortune. 

For instance, one can worry about the cost implication of the Document’s commitment to place ‘the State firmly at the centre of the Irish housing market’, but the best palliative for this is to read the rest of the section on housing which has little that is not already policy.  The only exception, and a welcomed one at that, is the prospect of a constitutional referendum on property rights arising out of a commitment to reduce the cost of land.

As curious as the idea that aspirations have cost is the notion that this is somehow a ‘left-wing’ document.  Newly elected Labour leader, Alan Kelly, TD:

‘ . . . welcomed the fact that the parties had come around to “a different way of thinking” . . . that they have come around to a different way of thinking on a new social contract and other social democratic policies.’

Personally I don’t see it.  Increased spending is not synonymous with social democracy or any other progressive articulation of policy.  Between 1995 and 2008, health spending more than quadrupled but we still don’t have a European-style healthcare system (i.e. single-tier, free and comprehensive – it took a pandemic to achieve that temporarily).  In the last few years the Government has substantially increased spending on early years and childcare.  But we still have the highest fees in the EU, with some of the lowest-paid workers in the economy. 

The problem with past government policy is not that they didn’t spend money – when they had it.  The problem is that they avoided the necessary structural reforms to achieve efficient and equitable outcomes.

So, the lack of fiscal numbers and targets is not the problem.  The failure to point to the necessary structural reforms is. 

If we want to pursue fiscal stability we will need to shift taxation on to:

• Assets and property, including financial property (or a wealth tax)
• Passive income such as inheritances and gifts
• Capital income and unproductive activities (can somebody please explain how currency speculation, trading in commodity futures, or buying back shares contributes anything remotely related to economic value-added?)
• Environmentally-damaging activities.

We will need higher employers’ social insurance (in the long-term, can’t be done in the short-term) to pay for European-style pay-related benefits for illness, unemployment and parental leave. 

We will need to direct state competition into the private rental sector through cost-rental accommodation – to direct spending and investment away from rentiers to the productive economy.

And we will need to strengthen an unsung plank of fiscal policy – the expansion of labour rights in the workplace.  The statutory right to collective bargaining can increase wage floors and reduce precariousness.  This would have a significant fiscal benefit through increased tax revenue and private consumption.

It is up to progressive parties whether they want to tango with this draft Document for Government.  But, if so, start the dance with eyes wide open.  The idea that they can ‘influence’ or ‘shape’ the final Programme may be enticing. 

But lurking behind the text and aspirations is a fiscal orthodoxy that is waiting to come roaring back – domestically, at Eurozone level and, if this morning’s media commentary is a taster, in the public debate. 

And then what will progressive parties do?

Easter Sunday Morning

‘The words of the prophets are written on the subway walls and tenement halls.’ (Paul Simon)

‘As I went down in the river to pray, studying about the good ol’ ways, and you should wear the starry crown – good lord, show me the way.’ (African-American Slave Hymn)

The first book I read, and the first book that was read to me, was the Bible. The first sin I was taught was the sin of racism. My mother was a fundamentalist protestant Christian.  So was Dr. Martin Luther King.  So much of the progressive politics of my birth-country was rooted in faith – from the pre-civil war Presbyterian abolitionists; to many of the first trade unionists, gunned down by para-military agents of employers; to the founders of the Catholic Worker Movement; and the civil rights movement of the 50s and 60s.  All were informed by a number of sources, and faith was one of them.

Why should we be surprised?  The Old Testament prophet wrote:

‘Those who recline on beds of ivory and sprawl on their couches, who eat lambs from the flock and dink wine from by the bowlful, while anointing themselves with finest of oils – you have turned justice into wormwood and hate the man dispensing justice and detest those who speak with honesty.  You have imposed heavy rent on the people, extorting levies on their wheat. You have sold the poor for a pair of sandals and left the widow and orphan outside the city gate – I will destroy your mansions and all who dwell in them (only a few will escape to carry out the bones).  I do not want to hear your prayers; I do not want to smell your sacrificial feasts. ). I reject your solemn assemblies.  I want justice to flow like a river.  Thus speaks Yahweh.’ (Amos:  5 and 6).

Class war has nothing on this.

So, Easter Sunday. Christians celebrate Jesus’ physical resurrection from death and his return to the creator, his father.   All great religions have similar stories: the Jewish migration from slavery to the Promised Land, Mohamed’s first revelation in the cave outside Mecca, Buddha’s awakening under the Bodhi tree, Krishna’s counsel on the battlefield of life, Lao Tzu’s final advice before he leaves into exile. These stories contain great sacrifice, great defeats and ultimately, great victory. We are, first and foremost, story-tellers and our first stories are those of struggle and liberation.

I may have moved away from my mother’s faith, but maybe because I grew up with it, the Christian story strikes me as particularly thought-provoking. For though there are mythological precedents, in the Easter narrative God (the Word made flesh) actually dies. It is a brave faith that contemplates the death of its deity. No wonder darkness descends, earthquakes rip open the tombs and the dead walk the city (Mathew 27: 51-53).

The first Christian telling of that Easter morning was not, however about how Jesus appeared to the many.  References to Jesus’ physical re-appearance were later textual interpolations. That’s why none of the Gospel writers agree on the main points of what happened after the resurrection: Jesus ascended to heaven on the day of his resurrection or he spent 40 days on Earth;  he appeared in his own form or in many forms; he ascended from Galilee or maybe from Jerusalem;  and so on. Confusion?  Yes. Important?  No.

The earliest Christian manuscript, Mark, actually ends with Jesus’ disappearance, not his reappearance – a more ambiguous but, for me, a more provocative ending. For on that first Easter morning, when Jesus’ mother, Mary Magdalene and Salome went to Jesus’ tomb to perform the death rituals they did not find him there or anywhere else. All they found was a ‘young man’ telling them that Jesus wasn’t there, that he had risen. And what was there reaction? The last line of the original Christian story puts it this way:

 ‘And the women went out and fled from the tomb, for trembling and astonishment had gripped them and they said nothing to anyone, for they were very afraid.' (Mark 16:8)

The Christian faith was rooted in an empty tomb, a cryptic message from an unknown, unnamed man . . . and fear. And who brought this story to the world? Women – who in Biblical times were (and still are in so many places and households) treated as second-class, without rights, chattel. The Christian story of salvation starts with a confused message brought to the world by the marginalised.

Today, people celebrate the evolution of that Easter story – evolved not by hidden or supernatural forces – but by men and women filled with the Good News they now couldn’t wait to spread:  that death has no domain, that the cryptic message is now clear as the darkness recedes; and that our original fear is not only conquered but transformed into celebration.  Or, put another way, we are no longer enslaved.   The lyrics of the African-American slave hymn quoted above contained hidden messages on how to escape – ‘to go into the river’ is advice to use the water to escape the scent of the tracker hounds; the ‘starry crown’ – use the stars to navigate; ‘show me the way’ – get to the Underground Railroad and, so, freedom).

On this Easter morning, so many here and throughout the world will wake up to concern and fear – fear of a virus, fear of losing loved ones and friends, fear of what the future may hold (this is in addition to the millions waking up to hunger and war, exile and dispossession). On this Easter morning, we can choose.

We can hide in our fear, and passively submit ourselves to a future designed by others for others.  Or, coming out of this crisis, we can raise each other up and, like the first evangelists, spread the good news – of prosperity and hope, democracy and equality; from that tomb, that dark space of decay, comes a new light, a new recovery, our recovery where everyone is invited – no one left behind – to collectively rewrite what is now a desultory narrative.

It is our choice.  This is Easter Sunday morning.  It belongs to all of us.

Photo of painting, Harriet Tubman's Underground Railroad, by Paul Collins

Learning from the VAT Cuts

The Sunday Business Post (paywall) reports that Fianna Fail and Fine Gael are discussing various fiscal responses to reboot the economy when the emergency is over.

‘Initiatives such as temporary VAT cuts across a number of the worst affected sectors, rather than just the tourism and hospitality industry, are expected to be in the mix.  The plan will also seek to answer calls from business groups for the write-off of rates bills and access to working capital for business.’

There is nothing wrong with this approach in principle.  We need to get our enterprise base back up on its feet.  The question is:  how can we optimise any incentives, subsidies and supports?  In this respect, we can learn lessons from the last time the Government intervened to boost a sector with the VAT cuts - in the hospitality sector back in 2011.

One of the first things the Fine Gael / Labour government did on entering office was to launch a Jobs Initiative which included a temporary cut in the VAT rate from 13.5 percent to 9 percent.  This was intended to do two things:  reduce prices to incentivise demand, and help repair balance sheets.    These, in turn, were intended to drive hospitality employment and, so, help overcome the jobs crisis at the time.

Temporarily reducing VAT to boost economic activity is a classic Keynesian, social democratic or counter-cyclical tool.  During the crisis one commentator taunted the trade union movement with the success of the VAT rate cut, not realising that it was the trade union movement who had first come up with the idea.

Focussing on the hospitality sector, the headline results were impressive.  Numbers employed in the sector topped out at 147,000 in 2007.  This bottomed out at 113,000 in 2011.  However, from that point, at approximately the same time as the VAT cut, employment rose so that by 2015 it surpassed pre-crash highs and by 2018 – the year the VAT cut was reversed - there were over 180,000 employed.

How much of this was due to the VAT rate cut is open to debate.  For instance, the number of visits to Ireland from abroad fell to 6.1 million in 2010.  This started rising in 2011 and by 2015, the numbers increased to 8.6 million.  By 2018 this rose again to 10.6 million.  The hospitality sector benefitted from foreign demand (that is, it was reliant upon the spending capacity of people from outside the country).  Most of this increased foreign demand would have been down to rising incomes and consumer confidence in other countries.

Nonetheless, we can be reasonably satisfied that the VAT rate cut was helpful, even if we can’t quite identify its precise contribution to employment growth.

However, within the sector, there are some issues to consider. According to the CSO, value-added in the hospitality sector rose significantly after the VAT cuts.   

Value-added rose by 28 percent in the period between 2009 and 2018 while wages stagnated, rising by less than 4 percent (this was a third of the rise in the overall private sector).

Eurostat reports that, in 2008, profits made up 7 percent of value-added.  After going into negative territory during the height of the recession, profits started rising in 2012, going from four percent to 24.6 percent in 2017.  Meanwhile wages stagnated, rising only 3.7 percent during this same period.

We can see a similar pattern of profit growth in industry surveys.  

Crowe Howarth charts the rising level of profits per hotel room.  Profits more than doubled between 2012 and 2018.

The failure to match wage growth with profit growth – so that the benefits from a cut in VAT (which is subsidised by everyone) are spread out evenly – not only constitutes a social inequity and industrial injustice.  It imposes costs on the public and other businesses as well.

• Suppressing wages means less tax revenue (income tax, PRSI, consumption taxes) and higher social protection costs (Working Family Payment, Part-Time Unemployment Benefit).

• Consumer spending is hit – not only by low wages but by precarious work contracts where income is uncertain from one week to the next. This has a negative impact on other businesses that rely on workers’ purchasing power.

In short, by suppressing wage growth companies in the hospitality sector externalised, or imposed, costs on to other sectors of the economy, so that they could grab ever-higher profits. 

Cutting VAT rates remains a potentially beneficial strategy in reviving economic activity.  However, the strategy will be costly and inefficient if it follows the pattern of the last VAT cuts.  How can we make it better? 

We can make it better by ensuring that workers in these sectors have a voice at the table, by creating sectoral collective bargaining bodies in those sectors directly benefitting from any proposed VAT cuts such as hospitality, retail, business services, etc.  Representatives of employees would negotiate an agreement with employer representatives covering issues such as wage increases, overtime, pay scales, working conditions (e.g. health & safety) and contractual certainty (e.g. secure hours, minimum hours, secure income).  Such sectoral collective bargaining should be accompanied by the right of employees to bargain collectively at firm level.  And neither employees nor employers would have the right to undermine these bodies by boycotting them (as is being done currently by employers with the Joint Labour Committees).  This could be done by implementing the principles in the private members bill introduced by Senator Ged Nash last year (now a TD). 

There's also the anti-social behaviour of many hospitality employers - demanding state subsidies but refusing to abide by the state's industrial relations machinery.

We can no longer indulge employers who demand state subsidies but refuse to engage with the state's industrial relations machinery.  VAT cuts must be accompanied by stakeholder justice – the right of employees to participate in the benefit that a public subsidy provides (and which they pay for).  This would ensure such state interventions are socially equitable, fiscally beneficial and economically optimal.

In other words, common sense.

The New Normal and the Old Normal

We’re all fiscal expansionists now.   From the fiscal orthodoxy to the radicals of the Left there is one message:  throw money at it, don’t worry about the deficit, do whatever is necessary and worry about the cost later.  Absolutely correct.  But progressives should now start debating the implications of that ‘cost later’.  Because after the emergency the issue will turn to ‘who’s picking up the bill’.

A good starting point is the ESRI’s current Quarterly Economic Commentary.  While normally these contain forecasts, such is the uncertainty that the authors produced a scenario instead.  For 2020:

• GDP falls by 7.1 percent
• Unemployment more than doubles to 12.6 percent
• The deficit rises to nearly €13 billion with a deficit-to-GDP ratio of -4.3 percent

And the ESRI says this scenario could be on the ‘benign’ side; that is, it could be worse.  They assume a short sharp hit in the second quarter, with the recovery coming on stream in the third and fourth quarters.  However, we don’t know how big the hit will be, when the recovery will start or how robust it will be.  There are assumptions layered on assumptions.  For instance, the ESRI assumes the trajectory of unemployment to be:

The unemployment rate in the second quarter of 18 percent suggests nearly 450,000 unemployed, falling to approximately 260,000 by the last quarter if the national and international recovery starts in July.   However, what happens if the second quarter is worse and the recovery is more sluggish? What if there is no vaccine or effective treatment found by the end of the year?  Will we see another round of infections, isolation and lockdowns?   Even the fear of a fresh round would depress investment and consumer spending, prolonging the recession.

In terms of the budget, what should have been a surplus in 2020 will now be a deficit of nearly €13 billion in the ESRI’s scenario, or -4.3 percent of GDP.   Though the ESRI doesn’t provide a scenario for public debt, we can extrapolate.  Based on the pessimistic Brexit budget projections, the Government estimated a debt level of nearly €200 billion, or 56 percent of GDP (97 percent of GNI*).  They produced new more optimistic projections earlier this year, but didn’t include debt numbers.   However, based on the budget projections, the debt could rise to over 70 percent of GDP and over 120 percent of GNI* under the ESRI scenario.  A return to growth should help to bring this ratio down, but it may be some time before it returns to pre-crisis levels. 

What can we expect?

1)            On the other side of the emergency, the Government will need to engage in another bout of spending to resuscitate business activity. These will be the stimulus measures (the current measures can be better described as ‘disaster prevention’).  Those measures may include investment increases (though this takes time to come on stream), VAT cuts, cuts in employers’ PRSI, continued liquidity to businesses, etc. 

2)            At some point, the argument over fiscal retrenchment will start – to rein in the deficit and debt.  It will be austerity but it will be called something else (‘consolidation’, ‘stabilisation’, etc.).  However, there could be political limits.  For instance, after experiencing a single-tier health system, will people tolerate a reversion back to the two-tier regime and the old normal of waiting lists and over-crowded A&Es?  Will people tolerate the reduction of Illness Benefit from €350 per week back to €203?

3)            Nonetheless, the fiscal orthodoxy will want to use the pre-crisis levels of public spending as a baseline, even if demand-based expenditure (e.g. social protection, healthcare) cannot be easily reduced.  And it is doubtful whether increasing taxation will form a significant part of an austerity/baseline strategy and with some good reason – increasing taxation while an economy is recovering would have the same negative impact it did in the last crisis; but, then, so would cutting public spending.

How should progressives respond?  Some starting points to discuss:

• First, the elevated expenditure on health care and income supports during the emergency – on public services and social protection – are not sustainable on the current tax base.

• Second, in the election some progressive parties proposed substantial tax cuts. These proposals should be scrapped.  There may be room for limited, forensic tax reductions where social equity and economic efficiency can be shown.  But as a rule, tax cuts should be treated as guilty until proven innocent. 

• Third, strategies to make the ‘rich’ and ‘corporations’ pay for the crisis will disappoint. For instance, corporate tax receipts will decline in the medium term.  This was on the cards prior to the crisis.  After the emergency, countries will be even more desperate to find extra revenue.  This will accelerate (and rightly so) the clampdown on international corporate tax avoidance.  Given that we are a beneficiary of such avoidance, this will hit Irish tax revenue. 

And while there is nothing wrong with soaking the rich (or giving them a good splash), higher tax rates on high incomes, withdrawal of tax credits, etc. would make up about 1 percent of total Government revenue.  And a new wealth tax would have to take into account the fact that most wealth is tied up in people’s homes, business and farming assets.  So, yes, increase progressive taxes but don’t think it will be sufficient to fund a new dispensation. 

There are no easy solutions.  A key part of progressives’ response should be to explore all the potential and ramifications of fiscal reform.  In particular, we should develop a medium-term strategy based on deficit-spending that can still reduce the debt ratio.  But this could be hemmed in or curtailed by the return of the fiscal rules and their enforcement by conditional European Central Bank funding.   

However, the response cannot be limited to fiscal measures.  The fiscal is a consequence of the economic, and the economic is the totality of power relationships. 

We need to look at systemic reforms which can lay the foundation for a successful fiscal policy.  At the end of the day, getting a few hundred million Euros from the rich, or even a couple of billion, is not the key question (though, please, let’s have it).  It is the system that privileges the rich – whether we understand that as individuals, corporate and financial institutions, or simply the logic of capital accumulation; that suborns the productive economy to rentier capital; that excludes or marginalises the role of the producers (a.k.a. the workers).

If we want to ensure the new normal doesn’t end up looking like the old normal, this is the territory we must occupy.

Nationalising Dog Walking

Not quite.  But in Portugal the Carnide local authority, a small suburb in Lisbon, is offering a dog walking service for older people who can’t come out due to the coronavirus crisis.   The local authority is also training teenagers online to talk with elderly people who are alone at home and who feel the need to talk by telephone.  In addition, the elderly or chronically ill may request delivery of products from the pharmacy or grocery shopping and the local authority organizes orders and pick-ups. 

These are the stories throughout countries undergoing Irish-style lockdowns.  However, the structure of local government in Portugal has an advantage (shared by many other EU countries but not here):  a structure which is neighbourhood based.  This is part of a multi-layer decentralised system.

There are 18 districts in Portugal.  Below that are over 300 municipalities.  And below that are over 3,000 civil parishes (or Junta de Freguesia).  These civil parishes average have an average population of around 3,400 – though in the urban areas they are likely to be larger while in the rural areas much smaller.  These are no so much local authorities as neighbourhood authorities.

These small civil parishes have elected councillors, offices, employees and a budget (funded by the municipality, of which property tax and national grants are a major revenue source).  Their powers revolve around support for the population in their area and physical improvements (street repairs, cemetery upkeep, etc.).

However, they are in a strong position to help mobilise, organise and support civil society initiatives.  For instance, the dog-walkers in Carnide are local volunteers, organised through the neighbourhood authority. 

Imagine if we had a network of such neighbourhood authorities which could help create networks of cooperation and support – and not just through the bad times.  For instance, my local street held annual festivals – with food (prepared by the residents) and games for children.  However, this relied heavily on the work of one or two people and the organisation was considerable.  A neighbourhood authority could lift some of the burden and expense of organising these and other events.

There are a range of recreational, cultural, musical events that could be held at neighbourhood level.  Training support for young people, local clean-ups, childcare services, supports for small local businesses and cooperatives, sporting initiatives – there are any range of activities that could be initiated by people, using the neighbourhood authority to help them organisationally and financially.

But Ireland doesn’t do well in the local government stakes.  We have the weakest local government system in Europe bar Moldova.  Portuguese local government expenditure is twice the level of Ireland.  In places like Denmark and Sweden, local government expenditure exceeds central government expenditure.  In Ireland, on the other hand, local government makes up only 10 percent of central government expenditure.

Imagine if we had a tier of local government situated at the neighbourhood level – a public authority for every 3,000 to 5,000 residents – which could work with civil society (both organisations and individuals) on any range of activities that boost life quality and social capital, creating layers of support and networks of mutual assistance.

There are many lessons to be drawn from this crisis.  One of them is the capacity of civil society to respond with collective action.  We should reform government structures that provide a stronger foundation for civil society initiatives, working in partnership at neighbourhood level.

Cynical and Irresponsible

ISME’s threat to the wage subsidy scheme is irresponsible and cynical.  According to the Irish Times: 

‘An employers’ group threatened to advise its members to ignore the State’s scheme to cover 70 per cent of laid-off workers’ wages, unless problems with the emergency Covid legislation being debated on Thursday were fixed.’

What is it that so concerns ISME - the employer body for small and medium-sized enterprises - that they threaten the wage subsidy scheme, threaten to undermine the living standards of hundreds of thousands of workers, threaten business survival and threaten a more rapid recovery once the emergency is over?. 

They are opposed to the provision that all companies that avail of the scheme will have their names published on the Revenue Commissioner’s website.  They describe this as ‘red tape’ though there is no administrative cost on businesses arising from Revenue publishing their names (when you want to have a go at something, call it ‘red tape’).

But they go further.

“Publication by Revenue is something that is usually reserved for tax defaulters,” Neil McDonnell, Isme’s chief executive, told The Irish Times. The ostensible objective of the scheme is to get employers to continue to pay workers. But the notion of publication sends the wrong message. It is treating companies in a crisis as if they were tax defaulters. It is tone deaf.”

While the issue of making public the businesses who avail of the wage subsidy scheme is exercising the employers’ body, it is actually fairly common.  Businesses in receipt of state-aid are identified on this EU database (the State Aid Transparency Public Search).  This includes companies benefiting from IDA, Enterprise Ireland and other state agency grants.  Beneficiaries of Common Agricultural Policy payments are likewise identified on this database.  Further, General Medical Scheme payments to doctors are publicly available. 

The publication of the names of businesses and individuals in receipt of public monies is fairly routine.  So why is ISME opposed to this?  It is up to them to answer honestly but here is a surmise.

Transparency raises the question of accountability.  And therein lies the problem for some interests.  If they are seen to be in receipt of public monies, they may be asked (or it may be demanded of them) to act in an accountable way.  For instance, a company receives state-aid and, yet, they refuse to abide by the state’s industrial relations machinery.  Or they refuse to act in an environmentally responsible way.  Or they refuse to acknowledge any other stakeholder in their business, save the ‘owners’. 

Public monies bring (or should bring) public responsibilities.  This is something that various companies or employer lobby groups don’t want to abide. They want to take the state-aid and continue business as usual – which may mean continuing to deny their employees respect (e.g. won’t recognise their employees’ desire to bargain collectively, ignores health and safety demands, continues to operate precarious contracts, etc.).  Transparency opens up the possibility of employee and consumer scrutiny and public monitoring.

This crisis raises more than just the publication of the recipients of the wage subsidy scheme.  It raises the general issue of transparency.  Many companies are exempt from providing publicly-available financial accounts to the Corporation Registration Office (CRO).  And the office itself charges for access to these accounts (unlike in the UK where you can access this information for free).  Once the emergency passes, we should revisit these arrangements.  Not only should all businesses be required to submit to the CRO full financial accounts, those accounts should be freely accessible.

Most of all, we need to politicise transparency.  There is a reasonable demand that recipients of state-aid should act in a publicly-responsible way.  They should be required to engage with the state’s industrial relations machinery, respect their employees’ wish to bargain collectively, promote climate justice;  in many instances, the state should aid by way of taking equity in the company.  This will not be easy.  As we have seen, ISME is willing to tank the economy and the long-term interests of their own members just to maintain secrecy over who gets the subsidies that you and I pay for.

But when was the struggle for democracy ever easy?

The New Political Economy of the Coronavirus

There is now a danger that the economy will suffer deep and long-lasting harm arising from the coronavirus.  Unfortunately (but inevitably), the virus has exposed major flaws in our income protection system, industrial institutions and public service capacity. With an estimated 140,000 already laid off, this will quickly turn into a recession.  Now is the time to design emergency policies based on key principles:

• Maintain as many people in work as possible and keep as many businesses going – even at reduced capacity and hours

• Where businesses are closed down due to Government instruction (pubs, restaurants, crèches), ensure they are in a position to recommence business once the emergency is over – and that workers have a place to go back to work

• Maintain as much as possible people’s income during illness and unemployment

• Negotiate emergency protocols across sectors, starting with those most vulnerable to a downturn, between representatives of employees, employers and the government

And, most of all, supply the cash that is needed – in economic terms this is first and foremost a liquidity crisis.  If we don’t do this, we could quickly see this turning into an insolvency crisis with high levels of permanent business destruction. 

Income Support

Our social protection system has been exposed as ill-equipped to deal with the crisis.  This was conceded early on by the Government when it reformed the Illness Benefit system, eliminating the six-day waiting period and increasing payments by €102 per week.  While many employees will have the protection of occupational sick-pay schemes which provide high levels of income protection, these will be mostly found in higher-income sectors such as financial and professional services, big tech, modern manufacturing and the public sector.  However, well over 50 percent of private sector workers may have no such protection – meaning that up to one million employees are totally reliant on the state’s Illness Benefit.

There is no sense in getting into comparisons with sick pay on the continent.  Suffice it to say that all employees are protected by a combination of employers and the state/social insurance funds providing up to 100 percent of pay in the first few weeks.  We should have that same universal income-related protection for all employees but we don’t, and designing such a system would take months.  The government acted in the only way they could regarding Illness Benefit.

We should do the same thing for Jobseekers Benefit and immediately increase it by €100 per week.  Again, on the continent, unemployment benefit is income-related, something we should have put in place during the recovery.  Such payments protect living standards and prevent households falling into poverty and debt.  The increase of €100 – while still not adequate – will at least help protect the incomes of the low-paid.

In addition, the Government could consider bringing in instructions that, for the duration of the emergency, there will be no evictions, foreclosures, utility shut-offs or discontinued health insurance for those on Illness and Jobseekers’ Benefit.  Or it could go further and declare a moratorium on rents, mortgage payments, utility and insurance payments.  This would give some sense of security to households who will be struggling to cope.

Business Supports

At the start of the crisis the Government announced a series of business supports.  However, some of these were already in place, while others were designed to deal with a much different Brexit-related crisis (e.g. Enterprise Ireland’s Rescue and Restructuring Scheme).  We need strategic policies designed for, in the first instance, the sectors impacted by Government closure orders.

(a)          State Protection Regime

In the case of restaurants, public houses, crèches and other impacted sectors, zero percent loans or a range of repayable grants should be provided for firms to help continue paying fixed costs while closed:  rates, rents, utilities, insurance, postponement of VAT, PRSI payments, minimal maintenance staff, the new Government measures to subsidise employment, etc.  With no revenue coming in (though larger establishments may have reserves or insurance policies that cater to these type of emergencies through business interruption insurance), we have to at least ensure they can survive the emergency period and be in a position to re-open when some normalcy returns. Workers need a place to go back to work.    These businesses could be put under a special state-sponsored protection regime.  While there would be a high up-front cost, in theory these subsidies would be repayable over a number of years; though in many cases businesses will go under permanently. 

(b)          Dealing with Reduced Demand

In other sectors which remain open and are struggling with reduced demand (such as non-supermarket retail outlets, business services, etc.), a range of measures could be introduced through three different mechanisms:

• A series of measures such as subsidised short-timing, postponement of tax payments (VAT, etc.), subsidies for rates, rents, etc. These subsidies would be based on the particular sector’s capacity to absorb the damage incurred by the coronavirus-related downturn. 

• Adopt the Danish approach: a national tri-partite agreement between representatives of employees, employers and the Government (see below for details)

• A turnover-based subsidy: when a business’s turnover falls below a certain benchmark (e.g. 25 percent of average turnover based on the last six months, or this time a year ago), the state would subsidise a certain portion of that loss.  This allows the business to continue functioning, maintain people in employment, pay its bills, etc.

All this is dependent on whether the emergency is extended beyond the end of the month, but we should assume that it will be.

Industrial Relation Institutions

In Denmark, an agreement has been reached between representatives of employees, employers and the government whereby the state will pay employees in the private sector 75% of their salary if there is no guarantee they can work because of the coronavirus crisis, in exchange for employer commitment to keep employees in work and an employee exchange of working during some of their holiday leave.  The deal covers companies who would have to lay off at least 30 percent of staff, or 50 staff or more. In return, companies commit to not lay off any staff for economic reasons while they’re receiving state compensation.

This shows the power of collective and solidaristic bargaining, acting quickly, urgently and flexibly.  For the most part we don’t have such institutions at the national or sector level.  Therefore, the ability to address economic issues through stakeholder cooperation is limited.  We can’t rewrite industrial practice or create new industrial institutions in the short term.  However, it is open to the Government to convene an emergency tri-partite body either at the national or sectoral levels covering, in the first instance, the hardest-hit sectors.  This would mean sectoral dialogue and negotiated protocols in the restaurant, hotel, retail, and childcare sectors.  And if any stakeholder doesn’t want to attend, then the dialogue and negotiated mandatory protocols will be conducted without them.  No one should have the right to veto emergency action. 

Emergency democratic co-operation would provide a strong foundation to bring together all strands of civil society.  It would mean that all sections feel they are getting equal treatment – in terms of relief and in terms of burden-sharing.  Instead of a cacophony of demands from interest groups, we could establish a more stable and transparent framework to deliver supports. 

A Progressive Fiscal Framework

The coronavirus-related impact on the economy will trash all previous projections (I understand the Department of Finance was going to produce new projections this week; however, so fast is the emergency unfolding such projections will probably be out of date within a few days). 

Let’s be clear about two things:  first, this will be an expensive package upfront.  However, much of this would be repaid to the state over a number of years when the economy recovers.  Further, if firms are permanently closed, if employees fall into poverty and debt, the recovery will take longer and will be even more expensive.  This is not a stimulus programme.  This is a defensive one.

Second, we have the resources.  Prior to this emergency, the Government anticipated an accumulated surplus of €20 billion to €25 billion over the next five years.  This will be reduced due to the economic downturn and the need to support health services.  However, the Government is working off a different, fiscally-healthier baseline than it did prior to the 2008 recession.  In addition, it has €20 billion in cash balances and it can borrow at near 0 percent, meaning it can access free money.  As investors flee the stock exchanges for safe investments, these interest rates could fall well into negative numbers (which means that investors are paying us to buy our debt).

At the EU level, the Government should campaign to ensure that increased expenditure and reduced revenue owing to the coronavirus should be exempt from the fiscal rules; in particular, the force majeure clauses (disasters which government can’t control).  The EU Commission has already provided increased flexibility and exemptions for Italy. 

How much can we afford?  As much as it takes.  A package of €10 billion to €20 billion to deal with the crisis (not including the additional resources for the health services) would be a reasonable amount.  As stated above, much of this would be recouped from businesses when the economy recovers, and would save money if it helps a faster recovery.

* * *

Such a programme would pre-figure important post-emergency reforms:  a national sick-pay scheme underpinned by an enhanced social protection system.  This could lead to further reforms with pay-related benefits for a number of contingencies (unemployment, invalidity, parental leave) as applies on the continent.  We would see new industrial relation institutions such as firm-level and sectoral collective bargaining to ensure greater participation and protection for all stakeholders.  Business practice would be transformed with greater financial transparency (no longer should business demand subsidies but hide behind walls of financial secrecy) and more democratic governance. 

Most of all, this could represent, as Bue Rubner Hansen puts it, ‘a step towards a new post-neoliberal economic paradigm’.  This crisis shows that its resolution lies in the combined forces of a cooperative civil society and a public sector that privileges people’s health over profit.  These can be powerful forces in the transformation of economic and social relationships and can become the driving forces in overcoming climate chaos, blurring the distinction between the public and private (e.g. business supports are just forms of socialisation and a realisation of the limits of the market), reducing inequality of living standards through enhanced social protection supports and public services, and reducing inequality of power in the workplace through collective bargaining.  

But that lies in the future.  Today we face the challenges of defeating the virus, saving lives and protecting the economy.  These are challenges that will require resources and solidarity.  Fortunately, we have both in healthy abundance.

Note:  Thanks to Dr. Tom McDonnell, co-director of the Nevin Economic Research Institute (@TomAMcDonnell1) for discussing some of these ideas with me. 

Financing a Green New Deal

Just because climate chaos didn’t feature much in in the campaign doesn’t mean that it shouldn’t feature prominently in a Programme for Government.  A Green New Deal is absolutely essential.  And it will cost.  How much?  The National Development Plan (NDP) committed an additional €750 million per year over a 10-year period from the Exchequer.  This was before the crisis became a major political topic – before the Interdepartmental Panel on Climate Change’s warning we have 15 years to turn things around and the international school strikes.

Indeed, the Climate Action Plan made a virtue of not committing resources:

“While the plan sets out a major programme of change, this cannot be approached as a call for a new programme of spending for the Exchequer to meet.”

Instead it relies on the funding envelope contained in the NDP.  We will need considerably more than what is allocated to ‘turn things around’.  So without getting into the specific content, let’s look at how we can finance a transformative Green New Deal.  And let’s estimate the expenditure at €10 billion over a five-year period (the amount and the period is not the key point of this post – merely where we can access the funding).

In showing how we can finance a special investment programme we need to consider the following.

First, any Green New Deal must be additional to what the Government has already proposed to spend in the ten-year NDP.  Any attempt to ‘repackage’ or double-count spending will hopefully be exposed as a manipulative PR exercise. 

Second, is the spending a once-off or does it commit the Government to continuous spending.  Example:  is the €200 million earmarked for a once-off public transport project (once built it doesn’t need to be built again)?  Or is it an ongoing expenditure such as subsidies to public transport to reduce fares?  Ideally, a Green New Deal should be earmarked for capital projects but this needn’t be an iron law.

Third, is the expenditure a commercial investment and, therefore, not a charge on the Exchequer?  For instance, Bord na Mona management once had an expansionary vision of a transition to sustainable business activity such as resources recovery, wind energy, biomass, environmental products, district heating and eco-tourism, encapsulated in its New Contract with Nature.    As these would have been commercial ventures, state investment would be ‘off-the-books’ (recently, however, Bord na Mona management has adopted a downsizing strategy wherein redundancies are described as investment in decarbonisation).  Another example of commercial activity would be a public stake in a consortium to build large-scale offshore wind farms.  Being a commercial activity, the investment would not be a charge on the Exchequer.  Commercial investments would be part of a Green New Deal but would not be a cost.

Fourth, all expenditure creates new revenue streams – either tax revenue or national income.  For instance, providing free retrofit for households would be a significant upfront cost to the state.  However, the state would recoup the expenditure through a number of sources:  repayments based on income or energy savings, the construction activity (income tax, etc.), household savings spent in other non-energy areas, reduction in fossil-fuel imports, reduced EU fines, etc.   Identifying revenue streams is important to costing a Green New Deal because there is a tendency to assume that €10 billion investment means that our national debt would rise by €10 billion.  It doesn’t.  The impact on the national debt would be much less and, in the long term, would save money compared to the scenario where there was no investment.

Taking all this into account, where could we find €10 billion in a fiscally-efficient way.

First, the government is planning an accumulated surplus of €24 billion out to 2025.

This surplus is not required under the fiscal rules.  In fact, those rules would allow us a deficit in each of these years though that is probably not advisable.  However, a slightly lower accumulated surplus to fund a green investment programme is.

Second, we will have considerable cash balances (i.e. savings) out to 2023 and in all likelihood beyond.  These are cash and assets available to the Government.  In the years 2021 to 2023, cash balances will average €24 billion annually.  It is doubtful that a small reduction in our ‘savings’ will have any negative impact on a finances which are firmly in the black.

Third, we could borrow money through Green bonds.  With interest rates at rock-bottom (so rock-bottom that many of the bonds are selling at negative yield), the market is essentially paying us to borrow.  So we can start racking up the finance now at almost no cost over the next 10 years.

Fourth, reduce the tax cuts proposed in manifestos.   Fianna Fail proposed approximately €2 billion in tax cuts; Sinn Fein proposed €2.4 billion while Fine Gael proposed €3 billion. 

From these four sources (and this doesn’t include rainy day funds), we have the ability to finance a Green New Deal.  Indeed, the financing is probably the easy part.  The hard part would be finding the capacity to implement the programme.  It is already questionable whether we have the labour to launch a major housing construction programme.  Launching a major retro-fit programme might run into severe bottle-necks for the simple reason that we don’t have the labour.

However, if any new Government wants to be taken seriously it will have to substantially increase the investment into climate justice over its lifetime – whether they call it a Green New Deal or something else.  If it’s not there in the big or fine print of a new programme then we will know that the status quo has succeeded and references to ‘change’ are just so much green-washing.

Towards the 4th Disruption

It was a three-way race after all.  As of the time of writing there are still a number of seats to be filled but we have the popular vote.

Not only has there been a substantial increase in support for progressive parties;  this bloc is far ahead of the individual conservative parties.  Even when we combine the Fianna Fail and Fine Gael vote, the contest is pretty even. 

If the progressive vote has increased substantially, it is largely due to Sinn Fein’s performance.  They are now the dominant party in the progressive bloc. 

In 2016, Sinn Fein took less than 50 percent of the total progressive vote.  Today, they have nearly 60 percent.  Social democracy has seen its influence diminished, while the radical parties are also falling back.  The Greens are now challenging for second place. 

Many of the seats of the non-Sinn Fein progressive parties are potentially on loan.  Having adopted an understandably cautious candidate policy, in any subsequent election Sinn Fein will field two candidates if their support holds up in the polls.  It won’t be just the high-profile transfer-beneficiary TDs who will be at risk (e.g. Dublin South West, Dublin South Central); thousands of Sinn Fein surplus votes in other constituencies helped progressive candidates.  Sinn Fein could soon have a firmer grasp on the progressive vote.

The Sinn Fein vote has been described as a ‘surge’.  Could we be seeing a ‘what-goes-up-must-come-down’ once-off phenomenon?  We have seen party surges in the past.

In 1948, Clann na Poblachta took 13 percent of the vote two years after being formed.  They fell to 4 percent in the next election and limped along until the 1965 election – the last time they elected a TD.

In similar fashion, the Progressive Democrats took 12 percent in their first outing in 1987 but fell back to 5 percent in the next election and lasted until its dissolution in late 2008 (a little historical note:  that ol’ immigrant-basher, Noel Grealish, was the PDs’ last leader).

Labour experienced two surges – the 1992 ‘Spring Tide’ and the 2011 ‘Gilmore Gale’.  These surges didn’t last.  In 1997, Labour lost half its votes and seats.  In 2016, the party went into meltdown.  Both occurred after being in coalition.

Is this Sinn Fein’s fate?  Doubtful.  Unlike the examples above, where the surge came off a first election, or after a period of stagnation, Sinn Fein grew steadily – from 7 percent in 2007, to 10 percent in 2011, to 14 percent in 2016 and now:  24 percent.  While continuous growth is not guaranteed, they have built a decent foundation.

It is more difficult to predict the evolution of Irish politics.  This is the third disruptive election in a row.  Some will refer to 2020 as a seismic political shift, but it is just the latest twist in a volatile political landscape that started back in 2008/09. 

• First disruption: during the banking crisis Fianna Fail undid its historical broad-class alliance by siding with finance capital against its working class base.   This resulted in their collapse in 2011 and the rise of the Labour Party.  However, instead of becoming the main opposition for the first time since the 1920s, Labour made the fateful decision to enter government and continue implementing Fianna Fail’s austerity programme.

• Second disruption: In 2016 we saw Labour’s meltdown and the fragmentation of the progressive vote.  But most important was the first formal governmental arrangement between a revived Fianna Fail and a chastened Fine Gael.

• Third disruption: now we have the rise of Sinn Fein, aided by an unpopular confidence and supply government where the historically distinct brands of the conservative parties dissolved to the point that people couldn’t detect any difference between the two. 

So will this volatility continue or will we settle into a lengthy period of three party electoral competition? 

Much may depend on what happens next.  Sinn Fein has rightly begun with an attempt to construct a progressive-led government.   Even if the sears are not there (yet), the mere exercise shows that progressive politics has arrived and points to future probabilities.  Before a political force comes to power it must act like it has power.

After that, it gets hazy.  Will Fianna Fail open up to a Sinn Fein coalition?  What compromises will have to be made on both sides – and will such compromises be acceptable to the respective parties’ bases?  Will the two parties agree to rotate the Taoiseach’s office? Or will the two conservative parties patch up another governmental arrangement?  Or even a Fianna Fail-Green government with supply and confidence?   If none of this works, are we looking into a summer election?  And what would happen then?  Speculation time.

But other progressive parties face their own challenges.  The Greens’ highly successful election shouldn’t blind us to the fact that climate chaos did not play a significant role in the campaign.  They may enter government, but without popular demands for climate justice policies they may struggle to convince their coalition partners of the need for significant policy departures, thus undermining their rationale for being in government.   Reducing emissions by 8 percent per year (a minimum according to the Greens) will take a whole lot more than public transport and retrofitting projects, as vital as they are.

With Labour and the Social Democrats on the same number of seats, there will be calls for the two to merge.  However, this avoids the more fundamental question:  what can social democracy offer that Sinn Fein can’t?  For all the talk of ‘radical’ policies from housing, health, education and pensions, to workers’ right and more - Sinn Fein’s manifesto is not a whole lot different from what a robust centre-left party would offer, with the possible exception of tax-base-eroding proposals.  Without addressing that question, you can merge parties, change their names and logos, but the fundamental problem will remain.

The radical parties may be relieved to have escaped a seat-drubbing, especially after poor elections last year.  However, they, too, have challenges.  Yes, people want change – but not necessarily socio-economic regime change.  At 2.6 percent of the vote and, in many constituencies, reliant on Sinn Fein surpluses, how can these parties keep their ideological edge while making themselves relevant to a larger section of the electorate?  

And the biggest question of all is whether the parties that make up the progressive bloc will commit to cooperation and a new alignment which can eventually replace the weakening hold that the conservative parties have over government.  It may well be that answering this question in the affirmative will help the individual parties to meet their individual challenges. 

And lead to the fourth disruption – hopefully sooner or later.

Finding Their Voice, Finding Ours

On Wednesday, February 5^th there will be an unprecedented protest by childcare professionals in Dublin, organised by the Early Years Alliance. With crèches closing down, workers from around the country will descend on the capital to protest not only their working conditions but the very system of childcare that exists today – a system that penalises workers, parents, providers and children. 

Childcare in Ireland is a fragmented, exploited sector made up almost entirely of women.  When other European countries were developing childcare and early years’ provision as a public service in order to promote women’s participation in the labour force, childcare was an afterthought among Irish policy-makers.  Employees were subjected to low pay and poor working conditions – precarious contracts, lack of in-work benefits, etc.   They still are.  

Over the last decade greater official attention has been paid to childcare and the Early Years Sector.  Free early years education was established; programmes to professionalise the sector were rolled out; means-testing provided greater access for low-income households while subsidies to providers were increased.  However, these measures did not address the fundamental flaws in the childcare model.  This has resulted in the highest childcare fees in the EU and some of the worst-paid employees in the economy.  Simply put, the current model of childcare is broken.

Broken and unsustainable:  staff turnover rates in full-time childcare are over 40 percent.  In a SIPTU / Big Start survey of early years’ professionals, two-thirds of employees stated they would not be working in the sector in five years’ time if things don’t change, while over 40 percent are actively seeking other work.  The providers’ organisation - Early Childhood Ireland - reports that over a third of providers are unable to recruit employees, with half unable to retain staff.  If these trends persist, there will be severe labour shortages leading to fewer providers.

These problems are due to treating childcare as a ‘market’.  This model means that providers must raise at least as much revenue as they spend (like any other business).  This places an impossible burden on providers.  If they want to improve wages and working conditions (and, so, attract and retain staff), they will have to raise fees, making childcare even more unaffordable.

If, however, they want to reduce fees they will have to reduce expenditure and, since labour makes up over 70 percent of providers’ expenditure, this means squeezing labour.  This would only exacerbate low pay and poor working conditions.

It is against this backdrop that the protest is taking place – a protest being driven by the childcare professionals themselves.  They have joined the SIPTU trade union in their thousands; they have collectively begun to put forward their own analysis.  The key to unlocking the potential of the sector, to transforming it into a modern public service, is the workers themselves. 

When the protest was first announced, some elements in the media and officialdom attempted to turn the story into how protesting employees were burdening parents by closing down childcare provision for a day.  However, even the most cursory review of what was happing on the ground showed substantial support for the one-day action from across the community. 

The workers have made alliances with many providers – both in the community and private sectors.  And the parents themselves know there is a major problem; they are aware of workers’ poor working conditions, and are asking themselves why fees are so high.  The interests of the childcare professionals, the providers and the parents coincide.

The workers, therefore, are protesting not only their own conditions; they are also mounting a fundamental challenge to the childcare system itself on behalf of all stakeholders.  

Political parties have picked up on this and, for the most part, have made significant resource commitments to the sector.   That is good.  But the modernisation of the sector rests on three principles:

• The state – through whatever mechanism – will have to subsidise the overwhelming proportion of the operating costs of providers.

• This will have to be accompanied by a fees cap – once the subsidies, investment and provider sustainability are put in place

• Wages will have to rise significantly, accompanied by an improvement in working conditions (e.g. permanent contracts, in-work benefits, etc.). Currently, over 60 percent of childcare professionals are paid below the Living Wage

Starting from where we are now, it is a matter of supporting private and not-for-profit providers as deliverers of this public service.  Even in countries where there is a large public sector component to childcare provision, the state still supports private and not-for-profit providers. 

That childcare is now becoming a major issue in this election is due to one development – the entry of childcare professionals themselves into the public debate.  Quite simply, workers have found their voice and now, speaking out on behalf of a new model of childcare, they are helping us to find our own voice. 

We can use that voice, in our hundreds of thousands, when we go to vote next Saturday.

Protest Details:  Wednesday, February 5^th, Parnell Square, Dublin 11:30 am.

Prepare for Government

The latest Red C poll suggests one thing:  progressives should start preparing for Government.  At the beginning of January I suggested that we should view the 2020 general election as a three way contest – between Fianna Fail, Fine Gael and the Progressive bloc.  All the polls taken since the beginning of the election have borne this out.  Indeed, it shows the Progressive bloc winning.

This is an average based on five polls:  two Red C polls, along with one each from B&A, MRBI and Ireland Thinks.  Not only do they show the Progressive Bloc out in the lead, this support has been growing.

The Progressive bloc has seen its support grow over the campaign with the last poll showing a combined support of 40 percent.  Fianna Fail and Fine Gael on the other hand have struggled in the low and mid-twenties.

The idea that progressive parties could, together, form a government that could command a majority in the Dail is now on the agenda.  There are still considerable hurdles.  Without a strong internal transfer between the progressive parties, progressives may fail to maximise the seats.  And there may still be reluctance between some parties dealing with other parties within the bloc.  However, there are two things we should bear in mind:

First, the momentum is with progressives.  The fieldwork for the last Red C poll was conducted between the 25^th and 30^th of January.  This is with more than a week left in the campaign.  If that trend continues into the polling booth, we could see the Progressive bloc break the 40 percent mark.

Second, with Fianna Fail and Fine Gael squabbling over who will not, not, not negotiate with Sinn Fein, the only government option for the two conservative parties is a repeat of the current arrangement – either in a coalition or a repeat of the confidence and supply arrangement.  It would be a missed opportunity if progressive parties baulked at providing a parliamentary alternative to another round of conservative government.

What would the composition of such a progressive government look like?  Based on the average of all the polls, these are the proportions.  This is based on the categories that I used here.

In a progressive government, Sinn Fein would be the largest party.  However, it would only make up approximately half.  The Greens and social democratic parties would constitute significant blocs.  While the radical parties might seem to be a small part, their poll support could be concentrated in a few constituencies resulting in winning seats beyond what the polls show.  And with progressive independents, the Progressive bloc is even bigger.

The key point here is that all parties are needed to construct an alternative, and this means that no particular party is privileged.  However, this should not be seen as a make-up-the-numbers exercise.  To my mind, a progressive government would be at its strongest when all the currents that make up progressive politics are involved, maximising the political and programmatic options. 

With days left, what should progressives do?   As I suggested in a Modest Strategy for Progressives, there are two things:  maximise support for your progressive party of choice, and keep transfers within the progressive bloc.  The parties are not going to do the latter, not formally anyway.  However, as activists – in parties, trade unions, and civil society groups – we can.  Whether it’s on the doorstep, in the workplace, on social media, in our families and neighbourhoods – a bottom-up demand for progressive transfers can help win those seats on the last count without a quota. 

But mentally, we should start preparing for government; be prepared to start that process immediately after the votes are tallied.  As stated previously, the issue isn’t ruling out negotiating with conservative parties.  The issue is ruling in negotiating with each other in the progressive bloc.  We should start considering the main elements of such a programme, the priorities, the concrete targets.

So we should make it clear that the goal is to put together a progressive government.  That could provide a considerable boost to all progressive parties.  And if it falls short (if it does it won’t be by much), then Fianna Fail and Fine Gael will be returned to government in one more turn of the screw.  But this could well be the last turn. 

For the historical trends – both long term and short term – are telling us one thing:  that a progressive government is on its way. 

It could well start next Saturday.

A Tale of Two (Dumb) Tax Cuts

Fianna Fail and Fine Gael competing over tax cuts.  Let’s look at two of them.

First up is Fianna Fail’s proposed cut in the capital gains tax rate – from 33 percent to 25 percent.  They claim that this will:

‘. . . help to incentivise investment and free up more money to be put into new companies, creating more jobs and broadening our tax base.’

Leaving aside the non sequitur (a tax cut broadens the tax base? really?) there are three issues here.

First, most of the capital gains tax receipts come from companies, not individuals.  So this is actually a corporate tax cut.  And there is no guarantee that a company that sells an asset will use the proceeds to re-invest in new companies. 

Second, the tax cut will be available for all activities – productive or not.  I make a killing in the currency market, swapping Japanese yens and Aussie dollars .  Not terribly productive (indeed, these types of activities on a large scale can be quite disruptive) but I get the tax cut.  Given that 25 percent of capital gains tax comes from the real estate sector, this is a tax cut for the buying and selling of houses and property.  What could go wrong with that?

Third, capital gains tax has little to do with start-ups – it occurs when you sell the asset; in other words, when you exit an activity.  So here I am with a great idea that I want to turn into a business, I believe it will make me serious dosh, I will be my own boss, I will drink with the beautiful people in boutique hostelries.  I estimate that after three years I can sell my business for a neat €10 million.  However, I demur.  Why?  Because Fianna Fail wasn’t elected.  Instead of netting €7.5 million under a Fianna Fail tax regime, I will only net €6.7 billion under the Fine Gael regime.  Not worth it.  I stick with my current job and a marginal tax rate of nearly 50 percent.

The above may be a bit extreme but you get the point.  And what’s the price tag for Fianna Fail’s tax cut?  €267 million.  That’s a fair bit for very little.

Paschal Donohoe called this tax cut: ‘the dumbest tax change I’ve seen’. 

Maybe.  But Fine Gael is making a strong challenge.  Let’s turn to the second ‘dumb’ tax cut:  Fine Gael’s proposed cut in the inheritance tax.

Currently, daughters and sons receive a tax-exempt threshold on inheritances from their parents.  This is worth €335,000.  Inheritances above that are taxed at 33 percent.  Fine Gael is proposing  that the first €250,000 above the tax exempt threshold will be taxed at 20 percent. 

For instance, I inherit €750,000 from my parents.  Currently my inheritance tax bill would be €137,000 – or 18 percent of the inheritance.  Pretty low already.  Fine Gael would drive that down even further.  Under Fine Gael’s proposal my tax bill would be €104,000 – a cut of nearly 25 percent.  I now pay only a 14 percent tax rate.  I get an extra €33,000.  And for what?  This is not ‘earned’ income. I didn’t work for this money. I get this money for the simple reason I am the son or daughter of my parent.  And only if I’m in the highest income group.

This tax cut will cost only €40 million but my question regarding the tax cut is ‘why’?  My second question is ‘why’ ?  That’s also my third question.  This tax cut give no benefit to the productive economy, does not benefit the overwhelming majority of people.  It is highly, highly regressive

Calling Fianna Fail’s capital gains tax cut ‘dumb’ while producing this inheritance tax cuts – well, Paschal should be aware of stones and glass houses. 

It’s hard to know who wins the ‘dumbest tax cut’ award.   Each has their own merits.  While Fine Gael’s tax cut is the most venal, from a social equity perspective,, Fianna Fail runs strong if only for the price tag.  If we see this election as a two-way race, this is what we are reduced to.

Maybe we should look at more progressive choices.

The Progressive Bloc Opens Up a Significant Lead

Is there any justification in maintaining that election 2020 is a two-way race between Fianna Fail and Fine Gael?

In the Irish Times MRBI poll – the first poll whose fieldwork came after the election was called – the Progressive bloc garners 38 percent of the vote, with Fianna Fail trailing at 25 percent and Fine Gael falling further behind at 23 percent.  The two conservative blocs total less than half the vote.

Earlier this month I suggested this contest could be seen as a three-way contest.  The first two polls (the Sunday Times B&A poll having come out on Sunday) seem to confirm that.    But we shouldn’t be too surprised.  The growth in support for progressive parties has been growing since the early 1980s.  During much of this time, this growth was taking place below the radar as we were still captured by the idea that Irish elections are a contest between Fianna Fail and Fine Gael.

Now, however, that growth has burst into and throughout the radar.  Indeed, support for Progressive parties is now beginning to challenge the combined strength of the two conservative blocs.

Of course, there are the usual caveats:  this is just one poll; it is ‘early days’, etc.  Parties can grow or fall back over the course of the campaign.  A real problem is that, not being cohesive, there may be a problem in maximising seats between progressive parties (though, as pointed out previously, voters are increasingly transferring within the progressive bloc). These and other questions will fuel speculation in the days ahead.

However, this speculation should be rooted in the fact that the first two polls show that Progressives are contenders, not also rans, not just mere fillers for a conservative-led coalition.    

The challenge is to build on these results.  In an earlier post I suggested a modest strategy for progressives – to boost the votes of all progressive parties (the party of your choice) and to urge progressives to transfer within the bloc to maximise seats. 

Most of all, progressive parties – activists, spokespersons – should now start acting and talking like poll leaders.  We need to convince more people that progressive policies will make a real and positive impact on their day-to-day lives.  To do that requires people having confidence in the candidates and parties they vote for.  We should start acting like the leaders that the polls show that we are.

Now is the time for trade unionists to make these arguments, either individually or collectively.  Now is the time for civil society activists who might not be associated with any particularly party to urge support and transfers for progressives.  And it is time that party activists to make their voices heard within their own party.  Support for progressives has never been higher in an election poll.  Let’s not throw away the opportunities this presents.

It might be a stretch to say that the old order is collapsing while the new order is trying to emerge.  History rarely vindicates poetic aspiration.

But we can confidently say that there is a lot of people trying to tell us something,  trying to tell us that they are not satisfied with either conservative bloc, trying to say they are willing to support a progressive party and, potentially, a progressive alternative.

The question is – are we listening. 

Fianna Fail: Learning Nothing, Forgetting Nothing

It was said of the French Bourbon kings that they learned nothing and forgot nothing.  Fianna Fail are the modern-day Bourbons.

‘Fianna Fail is pledging to give first-time buyers €1 for every €3 they save for a mortgage as part of a radical new plan . . . The new SSIA-style savings scheme would be capped at €10,000 per person and run in conjunction with the Help to Buy scheme.’

Fianna Fail proposes to pump demand in a housing market that is already unaffordable to most prospective house-buyers, especially in Dublin and increasingly in other urban areas.  What can we expect from this policy?

First, this will inflate prices.  Already, industry analysts are predicting a return to house-price growth of between two to four percent, arising from ‘post-Brexit certainty’.  Putting cash into buyers’ hands will drive up prices as developers increase the sale price to grab some of that subsidy.  This is Economics 101.  This is not dissimilar to the subsidies that were introduced prior to the crash and we know where that led.

Second, it means that prospective house-buyers will face higher debt levels as they jump the hurdle of the Central Bank’s deposit requirement.  Higher prices mean more borrowing and higher household debt.

Third, it will drive up housing costs.  Higher prices will mean higher mortgage payments, especially with banks charging the highest levels of interest rates in the EU (bar Greece).

And here’s the kicker:  it will cost the state €250 million per year – or €1.25 billion over the next five years.

So Fianna Fail proposes to increase public spending by €1 billion plus – all to increase house prices, household debt and housing costs.  To say you couldn’t make this up doesn’t really capture the full absurdity of this proposal.

There is an alternative – one that has been raised by a number of groups in ICTU’s Raise the Roof coalition.  The Government could build houses on land in public ownership and sell directly to house purchasers at cost – either through local authorities or a dedicated agency.  Prices would be lower which would put downward competitive pressure on private house sales.   This would also lower debt and monthly housing costs (i.e. mortgages).  And the price tag?  Nothing.  You build the house for x amount and sell it for x amount (or possibly with a slight surplus that could be re-invested into more public house building).   

But neither Fianna Fail nor Fine Gael are interested in alternatives.  They are sticking rigidly to the private market, tweaking it with demand-side subsidies, which will only inflate prices and push house purchasing beyond the reach of ever growing numbers.

We need a third choice to implement rational, economically-efficient and socially equitable solutions to the housing crisis.

The First Poll Shows Progressives and Fianna Fail Out in Front

The campaign’s first poll coming from Behaviour & Attitudes (the fieldwork was done prior to the election called, so the first published poll) shows progressives and Fianna Fail out in front with Fine Gael trailing badly.

The commentary will focus on Fianna Fail’s rise and Fine Gael’s decline.  And while one might question the magnitude of the change between the two parties (in the previous B&A poll, Fianna Fail and Fine Gael were even at 27 percent), unless it is an outsider, the poll shows a considerable swing against the current Government.

However, a third of voters want something different than the conservative parties.  Pat Leahy of the Irish Times described the three choices facing the Irish electorate:

‘The early days have suggested that voters are faced with three broad choices. The first is to stick with Fine Gael as the leaders of the next government . . . The second choice is to make Fianna Fáil the largest party, and thus ensure they will lead the next government . . . The third choice is a radical break with the past, as represented by much of the non-Fianna Fáil opposition. This choice won’t lead the next government. But it will influence it greatly.’

According to the B&A poll, the third choice has more support than the first two.   How can progressives build on this? 

First, this week should see Fianna Fail publishing policies, notably economic policies.  We will see what difference there is with Fine Gael (we will probably have to look hard).  Progressives should be ready with their critiques.

Second, progressives should start making clear the few key points they will enter the post-election scenario with.  This will help people to focus on what they can expect from voting progressive.

One thing this poll does show is that support for parties could be quite fluid and even volatile.  The ‘third choice’ is very much on the agenda.

Promising the Sun, Moon and Stars

During elections there is always a danger of promise-inflation.  But Fine Gael is looking to be the most inflationary of all.  They have promised increased public spending increases, tax cuts, budget surpluses and higher investment.  All interesting until you start looking at the details.  Let’s look at primary current public spending (excluding capital investment and interest payments).  This is the area that will fund improvements in health, education, childcare, public transport, etc.

Fine Gael is basing their promises on the recent economic and fiscal projections published by the Department of Finance.

The Government / Fine Gael is projecting spending increases of €11 billion.  However, €3 billion of that is pre-committed – mostly from the impact of demographics (e.g. an older population and health care).  When this is factored in, the projected increase in current public spending is €8 billion over the next five years. 

However, inflation eats almost all this away.  The current spending increases amount to a 10.7 percent increase over the five years; inflation will over run at 9.8 percent.  In essence, this spending increase amounts to running to standstill with no real (after inflation) increases.

And when we factor in population growth (over the next five years, population is projected to increase by 250,000), we find that the promised spending increases actually end up falling – by nearly four percent.

So a promised spending increase actually ends up being a spending cut.

Of course, any party in office could easily rectify this:  by reducing the level of projected tax cuts (Fine Gael is promising €3 billion over the next five years); by finding new revenue streams; by reducing the projected high levels of the budget surplus. 

However, as an opening bid, Fine Gael is promising spending increases which on closer examination are anything but.

With election promises, sometimes the sun is not so warm, the moon not so bright and the stars can be a very long ways away. 

A Modest Strategy for Progressives

This post follows on from last week’s post which suggested we don’t have to see Irish politics as defined by a two-way contest between Fianna Fail and Fine Gael.  There is a potential for a three-way contest that includes the combined progressive parties.

Now that the election has effectively been called we can reasonably assume there will be no pre-election alliance among the progressive parties.  However, this should not be fatal to the progressive project.  Let’s look at Portugal.

In 2015, after four years of austerity policies implemented by the centre-right PSD government, the Portuguese went to the polls.  The result was a minority Socialist government supported by the Left Bloc and Communist Party.  In the run-up to and during the campaign such a formation was not considered nor did it appear on the agenda of any of the progressive parties – in large part because Portugal never had such a government.  The race was seen as between the PSD and the Socialists.  When the result was in, both parties fell well short of a majority.  However, even on election night the Socialist leader Antonio Costa seemed to reject a progressive coalition. 

Nonetheless, a progressive government eventually emerged after protracted negotiations, a failed attempt by the PSD to form a government, and a hostile President.   Though progressive politics in Portugal and Ireland are not comparable (Portugal has a strong Left tradition with a European left/right divide), there are some potentially interesting parallel: 

• Such a governmental arrangement was not contemplated during the campaign; not by the public nor any of the political parties.
• It only became a prospect after the election, especially with the strong performance of the Left Bloc which did not come at the expense of the either the Socialists or Communists.
• The parties – especially the Socialists and Communists - overcame their historical conflicts to cooperate in the new arrangement.
• It was a unique arrangement, never having been tried before, except briefly in the aftermath of the 1974 revolution.

The individual progressive parties worked separately prior to the election and, without planning, ended up together.  Could that happen here?

Grassroots Action

The reality is that a progressive consensus can only be forged in a post-election scenario – and even here this will depend on political will and the relative and combined strengths of the parties.   Therefore, what we do and say during the election should help lay the ground for what could happen afterwards. 

We shouldn’t expect the parties themselves to take the lead.  They will, as organisations, be understandably concerned with their own agendas, manifestos and constituency campaigns.  But this doesn’t mean the grassroots can’t act - party members and activists, trade union and civil society activists.  Two small things that can be done:

Propagate a progressive analysis:  quite simply, put forward the idea of a three-way contest wherever they can - in the media, social media, in meetings and engagements of every kind.  This would help put greater public (including media) focus on the individual progressive parties without precipitating any decision a party might make after the election.

Keep the votes in the progressive house:  to help drive up the number of seats and create progressive cohesion – call for transfers to other progressive parties.  As shown in the last blog post, without any guidance, voters for progressive parties are increasingly transferring within the progressive bloc. One doesn’t have to name names; a simple call to ‘vote for the progressive party of your choice and transfer to other progressive parties’ would help.

We don’t have to rely on, or wait for, party leaderships and executives to act.  Any supporter of progressive politics can take these steps in whatever small (or big) way they can.

A Modest Strategy

This still leaves open the question of what happens after the election.   However, as the 2015 Portuguese election showed, a positive result is not predicated on pre-election agreements.  

We can make this work to our advantage.  If progressive parties won’t rule out a post-election accommodation with either of the conservative parties (and most won’t) then consistency would at least mean they don’t rule out acting cohesively, as a bloc. This can help insinuate the logic of a three-bloc contest into the debate.

Maximising gains across the progressive spectrum is more likely to increase options.  A poor result would make it easier for the conservative parties to co-opt one or two progressive parties.  A strong result, however, would require the conservative parties to deal with almost the entire range of progressive parties.  This sets up the potential for those parties to construct a common purpose based on their own policy similarities. 

And a very strong performance could even open the possibility of a progressive-led government.  Or force the two larger parties closer together, opening up the possibility of a progressive realignment in the medium term.

Irish politics teaches us to be wary about predicting post-election scenarios.

• In 1989 Fine Gael and the Progressive Democrats entered into a pre-election alliance, but following the election the PDs entered into a coalition with Fianna Fail. This was notable for being the first time Fianna Fail entered a coalition, in a deal between two long-time enemies:  Charlie Haughey and Des O’Malley.
• In 1992 Albert Reynolds and Dick Spring tore strips off one another prior to the election but entered into a historic coalition afterwards – the first time Fianna Fail and Labour coalesced.
• At the same time John Bruton declared he would never enter into coalition with Democratic Left, accusing them of still having links with paramilitaries. Two years later they were coalition partners.
• In 2016, Fianna Fail formally supported a minority Fine Gael government, a first for these parties.

Things can change dramatically and unexpectedly following an inconclusive election.  And this includes a cohesive progressive intervention.

This is a modest strategy.  This is not about generals moving pieces on an electoral chessboard that doesn’t reflect political conditions.  The point in any progressive struggle is to root strategy in reality, to identify what is possible, to make a credible assessment of the actors’ capacity in any particular conjuncture. 

The priority is to rule-in the possibility of a third bloc in the public debate.  This requires maximising cooperation, respecting the legitimacy of other parties’ positions or strategies (even if we don’t agree with them) and ending sectarianism.  In some corners of the progressive landscape, sectarian attacks are still made.  This undermines progressive cooperation and reinforces the rule of the conservative parties.  Fortunately, the propagators of such attacks are becoming less influential.

The post-election scenario could be a lengthy affair.  In 2016 it took over two months to reach a post-election conclusion.  Election 2020 could see an even longer period, depending on the result and the number of parties involved in negotiations.  Therefore, there will be considerable time to make arguments and interventions.

Some will be concerned that such an open-ended strategy would allow some parties to take the gains and subsequently reject any post-election cooperation, choosing to go it alone.  That is, of course, a risk.  Is it worth taking?  Is it worth participating in a broad, if messy, church where there is always the danger people will do things that we oppose?  If we don’t think the risk is worth taking, we can always retreat into our small contented chapels. But we know where that leads. 

So let’s go out and support our respective parties and candidates, talk up a three-way contest, ask supporters to keep their transfers within the progressive house, refrain from sectarianism  and do everything possible to push up the progressive vote so we can maximise opportunities following the election.

And on the day after the results, let’s start the debate about how progressives, if they act together, can achieve a lot more than if they act separately.  

A Three-Way Contest

While elections can throw up surprises there is one thing we can be fairly certain of:  either Fine Gael or Fianna Fail will lead the next government.  Will they combine, repeating the confidence and supply experience (with roles potentially reversed) or enter into an ideologically-compatible grand coalition?  Or will they win the support of other, smaller parties and rule separate from each other?   Whatever the final outcome, we know the answer because the only question is – will Fianna Fail or Fine Gael lead the next government.   It’s a two-way race. 

In this construction, progressive parties are confined to a supporting role.

However, one can construct the electoral landscape in a different way, at least at a categorical level.  There are four broad progressive currents:

• Nationalist Left: Sinn Fein
• Social Democratic: Labour and Social Democrats
• Radical: People before Profit, Solidarity, Workers Party, Rise
• Greens

In addition, there are independents loosely associated within Independents4Change (I4C) as well as other unaffiliated independents.

Together, these four currents constitute a ‘progressive bloc’ – parties that have more in common with each other than they do with either the conservative parties; on a policy level, at least.  If this is the case, then we can see Irish politics as – or evolving into – a three-way contest. 

Let’s take the European and local elections as an example.  The results were not considered good for progressives.  Sinn Fein and the radical parties suffered considerable losses, Labour treaded low-tide water while the Social Democrats failed to make significant inroads.  Only the Greens managed to make significant gains.  Yet, despite this, progressives as a bloc competed with the two larger political blocs.

As a bloc, the votes for progressive parties were approximately equivalent to what Fine Gael or Fianna Fail received.  It should be noted that the above does not include ‘independents’; in particular, the I4C candidates.  Therefore, support for progressive candidates in the European election is understated.

An Emerging Progressive Bloc

It would be convenient if the public debate understood that the next election was a three-way competition between these competing blocs.  Unfortunately, this is a categorical construction, not a political one.  The different elements that make up the progressive bloc are not cohesive.  They do not have a common purpose or recognise a common destiny with each other.  Progressives are not conscious of constituting a bloc.

The progressive bloc may exist only as a potential but this potential has some concrete validity.

First, there is considerable agreement on policies and principles between the different parties that make up the progressive spectrum – housing, labour rights, public services, low-pay and poverty.  They are closer to each other than they are to either conservative party.  This cohesiveness is underlined by voting patterns in the current Dail where progressives tend to support each other.

Secondly, supporters of progressive parties self-identify as politically ‘left’.  In the 2016 RTE exit poll, voters were asked to self-identify as either ‘Left’ or ‘Right’ on a scale from 0 (the most left-wing)  to 10 (the most right-wing).  Anything below 5.0 can be considered progressive, or left-of-centre.

AAA/PbP voters identified themselves as the most ‘left-wing’, followed by Sinn Fein.  The Greens, Labour and the Social Democrats were grouped closely together as left-of-centre.

Third, transfer patterns in the recent European election show supporters of progressive parties transferring in far greater numbers to other progressive parties than to conservative parties. 

Over a third of voters for progressive parties transferred to candidates from other progressive parties.  This compares to eight and six percent for Fine Gael and Fianna Fail respectively. Among voters, anyway, a progressive consciousness is starting to emerge.  In this tabulation, the two I4C candidates were included as they feature prominently in their respective constituencies. 

Fourth, there is a long-term decline in support for the Fianna Fail and Fine Gael blocs and an increase in support for the combined progressive parties.

In the 1980s Ireland was described as having a two-and-a-half party system:  Fianna Fail, Fine Gael and Labour with the latter (even in combination with the Workers’ Party) trailing the larger parties by a substantial margin.  35 years later, support for progressive parties has nearly trebled, with all three blocs now receiving nearly equal support.

Finally, many party members and activists are already cooperating in a range of civil society initiatives:  housing campaigns, anti-racism campaigns, etc.

Policy compatibility, voter identification, transfer patterns, historical trends and activist cooperation:  the tragedy for progressives is that they collectively have not connected these dots (even though voters may have started to), and are not yet capable of constituting an alternative to the conservative blocs.

* * *

Some may dispute the categorisation of progressive parties.  How can some of the parties who have been in coalition with conservative parties, or who are open to coalition with them, be considered ‘progressive’?  There are legitimate concerns that parties will tack one way prior to an election and tack a completely different way when the results are in.  However, this is not something confined to progressive parties (Fianna Fail didn’t campaign in the last election on the basis of supporting a Fine Gael minority government).

What is important is not to let the past dictate or circumscribe our ability to create new and better alliances, or pursue strategies that can achieve concrete gains for progressive parties and their supporters.  Some have suggested that the fundamental starting point of a progressive alliance is the rejection of any post-election accommodation with either of the conservative parties.  However, the logical conclusion of this position is to radically shrink the progressive bloc to almost nothing; in effect, to eliminate it altogether. 

Progressive parties in other countries have refused to allow past actions to limit future relationships.  If Podemos had rejected any contact with the PSOE (who implemented painful austerity measures), then Spain would not be on the verge of a progressive government.  If the Left Bloc and Communists / Greens had, similarly, rejected the Socialists (who also implemented austerity), then Portugal would not have benefitted from one of the most progressive governments in Europe.

With voters already moving over the long term to a more progressive position, reinforcing that in transfer patterns, it is imperative that progressive parties vindicate the emerging preferences of their support base.  In the next post I will propose a way of doing that as we enter into election 2020.

Closing the Gaps

The CSO has published new data that will greatly assist in analysing wage trends.  Here I just want to focus on a small selection of the data provided in Earnings Analysis Using Administrative Data Sources 2018 and Econometric Analysis of the Public / Private Sector Pay Differential 2018; in particular, high and low pay, and public / private sector pay.

A useful measurement that the CSO has produced is median pay.  This measures the mid-point in wages where 50 percent are above and 50 percent below.  This contrasts with average, or mean, pay which can be skewered by high earners.  For instance, in 2018:

• Average weekly pay was €740
• Median weekly pay was €593

Even though average pay was €740,63 percent of employees earned less than this.  50 percent of employees actually earned less than €593.  That is the distinction between average and median. 

Where are the High and Low Earners?

Information & communication leads the table which is not surprising.  The mid point in weekly earnings is nearly €1,000, followed by the Public Administration and Financial sectors.  At the bottom is Wholesale & retail, Arts and recreation and, the lowest sector, Hospitality (hotels and restaurants).  It should be noted that reduced working hours contribute to low weekly earnings.  For instance:

• Information & communication average weekly earnings are 3.6 times that of Hospitality
• However, Information & communication average hourly earnings are 2.5 times that of Hospitality

The difference is working hours.  Information & communication average working hours are 36 hours per week compared to a Hospitality average of 27 hours.

We can identify high and low earners by sector.  The following shows the percentage of workers earning less than €400 and more than €1,600 per week.

29 percent of all employees earn below €400 per week.  However, over two-thirds of Hospitality workers earn below this amount while workers in the arts, distributive and administration sectors also have a disproportionate share of low earners.

At the other end we find the Information, Financial and Professional sectors had the highest percentage of employees earning more than €1,600. 

There is one interesting sector – Public Administration.  This is made up of civil servants, Gardai, prison officers, employees in non-commercial semi-states and agencies – approximately 100,000 employees.  This sector is 100 percent public sector, unlike the Health and Education sectors where there is a considerable proportion of private sector workers.

While Public Administration had the second highest median weekly earnings, it had the lowest level of low-income earners.  But it didn’t have a big proportion of high earners either.  This suggests a more ‘egalitarian’ pay structure; that is, the gap between the highest and lowest earners was smaller than other sectors.  To test this suggestion, let’s turn to the CSO’s second release on the public / private pay differential.

Public and Private Sector Pay

Headline data shows public sector weekly earnings significantly exceeding private sector earnings.  But there are serious flaws in this headline comparison.  First, there are many jobs in the private sector that don’t exist in the public sector – hospitality, retail, etc.  Second, weekly earnings don’t take account of hours worked.  Third, the comparisons are not like-for-like.

Thankfully, the CSO has performed an analysis which attempts to compare similar jobs in the public and private sector.  This means factoring in a range of variables:  gender, age, full-time/part-time status, supervisor status, temporary/permanent status, hours worked (including shift work and overtime), length of service with current employer, union membership and enterprise size.

When factoring in these variables, they compare permanent, full-time jobs for people aged between 25 and 59.  This is what they found (a negative figure indicates that public sector pay is below their private sector counterpart).

The CSO uses two measurements – including and excluding enterprise size (as there is debate over how relevant that is).   Overall, on a like-for-like basis, public sector pay is between 3 and 4 percent below the private sector. 

• Public sector men earn between 10 and 11 percent less than their private sector counterparts
• Public sector women earn between 3 and 5 percent more

The result for women is understandable given that the gender pay gap is much less in the public sector.  Eurostat shows that, in the Irish private sector, the gender pay gap was 19.7 percent; in the public sector the pay gap was less than half that at 9.6 percent.

In testing the proposition that the pay structure in the public sector is more equal than in the private sector, the CSO shows the following:

Here we find that the public sector has a premium for low and average income earners.  In the lowest 10 percent, public sector wages are 13 percent higher than their private sector counterparts.  At the higher income levels, public sector employees earn 17 percent below their private sector counterparts.  In short, the gap between the highest and lowest-paid is much narrower in the public sector.

* * *

What can we draw from this selection of CSO data?

First, the level of working hours is an important contributor to low weekly earnings.  75,000 work part-time because they can’t find a full-time job.  However, 200,000 work part-time because they have family and caring responsibilities.  Clearly, precarious contracts are an issue.  But lack of social supports (in particular, childcare and eldercare) may limit people’s ability to take up more work. 

Second, the public sector succeeds in reducing both inequality and the gender pay gap because their wage structure is ‘managed’ through collective bargaining.  Collective bargaining is a key tool in reducing inequalities.  Greater employee-based management of wages (through the right to collective bargaining) throughout the economy would have a beneficial effect.

Reducing precariousness, increasing social supports, and democratic wage management – if we are serious about a more equal society that can boost living standards, we will need to create policies to achieve these ends.

Dog Whistling the Data

Deputy Noel Grealish has raised what he considers concerns over the level of remittances sent abroad, using terms like ‘staggering’ and ‘astronomical’.  He specifically referred to Nigeria.  During Leaders’ Questions in the Dáil on Tuesday the Galway West TD said a “staggering” amount of money had been transferred over the last eight years with the largest amounts going to Lithuania (€843 million), France (€1 billion), Poland (€1.54 billion), UK (€2.7 billion) and Nigeria (€3.54 billion) .

‘Mr Grealish . . . said he could understand transfers (remittances) to other EU countries such as the UK because 100,000 British people were living in Ireland.  But he said in reference to Nigeria that €3.54 billion going to one non-EU country is “astronomical” and he asked if the Revenue Commissioners or the Department of Finance had a method of tracking the source of this money to ensure it was not the proceeds of crime and fraud because more than €1 billion a year was being transferred.’

Given his recent comments in Oughterard referring to Africans as ‘spongers’, it is clear that the Deputy is in dog whistle territory.  And on top of all that, the Deputy wasn’t even quoting from official data sources.

The Deputy was basing his numbers on a report from the World Bank/Knomad (the latter an international NGO).  However, the data presented is neither official data nor officially sourced.  They are estimates from a model based on a methodology developed 12 years ago.  The World Bank is quite clear: 

‘These are analytical estimates based on logical assumptions and derived from a global estimation of bilateral remittance flows worldwide. They are not actual officially reported data.’

While such models are useful, especially regarding information where there is little data, they must always be treated with caution.  But if the World Bank report is not official data, is there any place we can go to find hard information on remittances?  Yes, from Eurostat.  Data on remittances is collected as part of the Balance of Payments framework.  What does this tell us?

The World Bank model estimates remittances to Nigeria in 2018 to be €539 million.  However, Eurostat’s data shows €16 million were remitted to Nigeria.  That is a big difference – between a model-based estimate and official data actually collected by the CSO on behalf of Eurostat. 

Indeed, most remittances are not sent outside the EU.  79 percent of remittances are sent to other EU countries.   That is the third highest level of intra-EU transfers among EU countries.

If Deputy Grealish were concerned about ‘crime’ or ‘fraud’ or suspicious tax-avoidance activities he might have actually asked the Minister about one particular place that remittances were sent to.  In 2018, €32 million was sent from Irish households to households in ‘offshore financial centres’.  That would be an interesting question.

He could have asked the Minister for Finance about the difference between the World Bank report, which estimates remittances at three times more than the Eurostat data.  This would have implications for the GDP. While technical, that, too, could be interesting.

But no, interesting questions is not what Deputy Grealish is about. He is about using whatever information he happens to have to victimise a racial minority.  And if he doesn’t have the information he just makes it up.

Shouting over at Grealish in the Dail yesterday, Deputy Ruth Coppinger accused him of ‘disgraceful racism’.  She was correct.

It's Not the Tax - It's the Social Insurance

In last week’s blog I argued that, while increasing taxation on the rich was desirable, it would not be enough to raise tax revenue to the level of our EU peer group.  But if we want to be an average tax and spend economy (by European terms) what does this mean?  Income tax increases?  Big VAT hikes?  How is the Irish tax structure different than our peer group?  Let’s attempt to identify the key driver in Ireland’s ‘low-tax’ status.

Personal Income Tax

There is one issue we can dispense with quickly:  income tax. 

For those countries with a comparable tax/social insurance structure (Finland, Belgium, Netherlands and Austria), Irish income tax revenue is in the middle, slightly above the average of the four countries.  We exclude Denmark and Sweden.  The former doesn’t have a social insurance system; therefore, income taxes are higher.  In Sweden, employees’ don’t pay social insurance (though, unlike Denmark, employers do).  Therefore, higher income taxes make up for the lack of employees’ social insurance.

In short, income taxes, which include USC, are not the cause of Ireland’s low-tax status.

Other Main Tax Categories

The other two main tax categories are consumption and household capital taxes.   They are approximately average.  It should be noted, however, that increasing capital taxes by 0.7 percentage points to reach the EU peer group average would raise €1.2 billion.  Even fractional differences can be significant.

Last week we saw that corporate tax revenue was above the peer group average.  Here we find that in the other main tax categories Ireland is average.  Income, consumption, capital and corporate taxes:  they make up over 85 percent in tax revenue.  So if we are average or even slightly above average in these categories, where do we fall down?

Social Insurance

Social insurance (PRSI):  Ireland is at the bottom of the league – not only in comparison with our peer group but with all EU countries.  Only Malta and Denmark (which doesn’t have a social insurance system) are lower than us.

Total social contributions are less than half our peer group.  Headline social contributions would have to rise by some €15 billion though when demographic spending is factored in, the gap shrinks somewhat.  This is the driving reason behind Ireland lagging behind other countries.

With some exceptions, social contributions are paid into a social insurance or similar fund.  They do not get paid into the Exchequer.  These funds are not for financing education or police or public sector pay.  They specifically finance in-work benefits, including pensions.  In some countries healthcare is wholly or partially funded out of social insurance funds.   There are two parts to social contributions. 

•  Employers’ social contributions are considered part of employees’ compensation.  For example, if an employer pays a worker €20 per hour, they pay €2.15, or 10.75 percent, to the Social Insurance Fund (SIF).  The total compensation to the employee is €22.15.  If the worker experiences an insurable contingency – temporary unemployment, sickness, pregnancy, occupational injury, etc. – they can access benefits from the SIF.  That is why this part of social insurance is sometimes referred to as the Social Wage.
• Household social contributions are made up of employee and self-employed social contributions.  They act like insurance payments as they insure against particular contingencies and are paid directly out a workers’/self-employed wage.

Increasing social contributions would be a huge challenge and constitute a systemic reform.  It would have to be phased in over the long-tem (e.g. 10 years) and would impact on all businesses and income groups.  There are two aspects to this.

First, according to conventional analysis, an increase in employers’ social insurance would be shared out between both the employer and employee.  Half would be absorbed by the employer and half absorbed by the employee.  Take the example of a one percentage point increase:  employees would pay 0.5 percent, meaning that instead of getting a two percent wage increase, they would get 1.5 percent increase.  They would, however, gain through increases in benefits.  This is how workers in many firms negotiate through collective bargaining:  they reduce their pay demands in order to win a better pension plan or increased sick-pay.  Thus, increasing the social wage is, or should be, part of a collective bargaining process.

Second, regarding increased contributions directly from workers and the self-employed, there is one advantage to social insurance.  Unlike general taxation which finances public services, uninsured social protection payments and investment (for many this is like money going into a black hole), I know where my social insurance contributions go.  They go to finance specific benefits related to work and my needs.  In that respect, social insurance is more transparent.

Why are contributions so much higher in other countries?  Because their in-work benefits are much more generous.  Take maternity benefit:  in Ireland it is a flat-rate payment of €245 per week.  An average full-time employee will only receive a payment equivalent to 25 percent of their wage.  In other EU countries, maternity benefit is paid out at 100 percent of the workers’ wage, which means households do not lose income during a high-cost period.

Temporary unemployment benefits, illness benefit, occupational injury benefit, old age pensions – all these are low flat-rated payments in Ireland.  In other countries they are pay-related and, therefore, much higher.  And in some countries free healthcare is fully or partially paid through social contributions.  That is what we might get if we paid European level of social insurance.

* * *

As stated in the previous post, we should still seek to increase revenue through taxes on wealth and capital, and high incomes.  But if we want to make a European-style breakthrough, increase benefits for workers and the self-employed, and drive living standards, it won’t be done through taxation.  It will be done through social insurance.  Progressives should make every effort to direct the debate towards social insurance and the benefits it can provide society.

A good start would be a catchy slogan that upends the usual tax-and-spend image progressives have.  How about:  ‘a high-insured economy’.

Taxing the Rich Not Enough

There are many necessary and progressive projects that could be implemented if there was enough money – public services, in-work supports, anti-poverty programmes, social and economic investment.  How would these be paid for?  There is a tendency to underplay the question, or imply that funding would come from simply ensuring the wealthy and corporate sectors pay their fair share.  Unfortunately, taxing the rich (whether households or corporations) will not be enough. 

Let’s first look at how far behind we are other comparable small open economies in the EU.  Among high-income countries, the Department of Finance suggests we should compare ourselves to Austria, Belgium, Denmark, Finland, Sweden and The Netherlands.  

We find that Ireland lags well behind the other countries.  In primary revenue (total revenue excluding interest payments), Ireland would have to increase public spending by €19.2 billion to reach the average of our peer group.  However, we don’t need to raise all that money as we need to spend less on pensions given our low elderly demographic.  Nevertheless, when we exclude spending on public pensions, Ireland would still have to raise taxation by €11.5 billion.  However, this is probably an under-estimate as we have a much higher youth demographic requiring additional spending on education and family supports. 

Would simply taxing wealth, high-incomes and the corporate sector raise €11.5 billion?  No.

Taxing Wealth

The arguments for a net assets tax, commonly known as a ‘wealth’ tax, are considerable.  How much we would get from that source is debatable.  The ESRI and NERI’s Dr. Tom McDonnell have done excellent work on the design of a net assets tax, different models and the resulting revenue.  The ESRI estimates that, in its most expansive form, a net assets tax would raise €3.8 billion.  However, they rightly call this ‘highly unrealistic’:

‘ . . . the highly unrealistic scenario of taxing all positive wealth at 1%, this would raise an estimated €3,781 million and affect 86% of all households. To achieve this yield, however, would require taxing lots of people who have very little net wealth and possibly low incomes. In addition, applying a wealth tax to all households would present a very large administrative burden.’

More realistic scenarios suggest yields of between €300 and €600 million (where only 6 percent of households would be affected).  One could drive revenue up to €2 billion, but that would involve taxing one-third of all households. 

We need a net assets tax, but we also need to be realistic about the revenue it can raise within the parameters of social equity and economic efficiency.  One bright spot:  there is a tendency to underestimate wealth and, thus, the potential tax revenue.  But that still won’t get us to the levels of other comparable EU countries.

The Corporate Sector

The scandalous stories of corporate tax avoidance suggest we should be capable of raising more revenue from this source.  But given Ireland’s position in the global tax avoidance chain, we need to tread carefully given the potential of perverse outcomes.

Ireland is already a significant beneficiary of corporate tax revenue, the highest in the EU – and with the lowest corporate tax rate.

Irish corporate tax revenue makes up 6 percent of national income with a very low corporate tax rate.  How does this happen?  This is one of the few benefits of being a tax haven (or ‘tax haven conduit’ or a ‘vital link in the global corporate tax avoidance chain’ – whatever).  Money flows in and through Ireland and the state can wet its beak – taxing profits generated in other countries. 

If Ireland were a normal economy (i.e. non-tax haven type jurisdiction – though The Netherlands has been known to play fast and loose) with a normal corporate tax base and tax regime, it would take in far less corporate tax revenue – about €3.6 billion less.

Calls for increasing taxation on the corporate sector need to take into account that the revenue we already raise is labelled ‘unsustainable’ – a nice way of saying that tax-avoiding multi-nationals could move their tax-avoiding profit flows away from Ireland.  Such calls also need to take into account the fact that flows into Ireland as part of a tax avoidance chain can easily be diverted elsewhere.  Calls need to take into account the impact that potential changes in international taxation (e.g. the OECD base-erosion proposals and the EU’s digital tax) will have on Irish taxation without any domestic policy change.  The fact is that international tax justice will likely lead to lower corporate tax revenue for Ireland.

And while Ireland has tax haven features, it is not by-and-large a letter-box tax haven (though someone might want to knock on a few doors in the IFSC to see if anyone answers).  Most multi-nationals here have substantial presence – in terms of employment, wages and economic activity. What would the combination of changing international tax rules and any domestic policy changes have on future foreign direct investment?   We have a tax-based FDI policy which is long past its sell-by-date.  Do we have a new one ready to go?  A progressive one that doesn’t rely on a lax regime with low tax rates?

Social Justice Ireland estimates that a minimum corporate tax rate would raise a substantial €1 billion.  Even if that had no blow-back or downsides, this would still leave us far from the tax revenue raised in other countries.

High Income Individuals

What about increasing taxes on high income individuals? 

While Irish marginal tax rates (the percentage of tax you pay on each additional Euro earned) are average, average tax rates under-perform - but not by significant amounts.  So we could do a little better.

What about our friends in the top 1 percent?  According to the Revenue Commissioners, the top 1 percent income earners – earning over €200,000 – pay an effective tax rate of 35 percent.  If we were to increase that to 50 percent it would raise an additional €1.4 billion.  To do the same thing for the top two percent would yield an additional €2.3 billion.  However, this would require steep increases in tax rates and could incentivise tax avoidance activities. 

Sinn Fein proposed a more modest tax on higher incomes – essentially a new 45 percent tax rate on incomes above €140,000.  This would raise €345 million.  While this money would be welcome, it would not get us a whole lot closer to our peer group’s overall tax levels.  This also suggests that to raise the €2.3 billion on the top two percent would require an income tax rate of 70 percent for those on €150,000 and above; or a marginal tax rate of 81 percent.  That is not terribly realistic.

* * *

This is not an argument against increasing taxes on those who can well afford it.  Taxes on wealth – financial and real property – should be a no-brainer.  They are efficient and progressive. 

Nor is it an argument against domestic reforms of our corporate tax regime, even as we support international reforms.  The operations of a number of corporate tax expenditures (i.e. tax reliefs) are worthy of examination and reform:  the knowledge box, entrepreneurial relief, bringing forward losses, enterprise incentive schemes, R&D tax credits.  These could yield considerable resources which could be put toward better purposes.

And as for high-income individuals, it’s not the rate that counts but the base.  We could lower marginal rates – especially on average income earners – while increasing yield by broadening the tax base.  A stronger Universal Social Charge could achieve this for the simple reason that all income is subjected to the tax.

However, even these changes will not be sufficient to raise our revenue to the levels enjoyed in other countries.  What will?  I hope to take up this issue in a future post.  But here’s a teaser: it’s not just about raising taxes. 

It is about progressing the economy, especially the indigenous sector, into higher value-added activities while ensuring a more equitable share-out between labour and capital. 

This is the hard work of transforming the productive base of the economy while privileging the producers (aka the workers).  Increasing tax revenue doesn’t always have to mean raising taxes.

Making Climate Repair Affordable, Accessible and Democratic

Going by Budget 2020, you wouldn’t think there was a climate emergency.  There was bits-and-pieces funding for greenways and urban cycling, electric vehicle infrastructure and purchase, installation of solar panels, emerging ocean technologies and uptake of alternative fuels such as biomass; a 14 percent increase for the Department of Transport, Tourism and Sport, and a Just Transition Fund for the Midlands along with a Just Transition ‘Commissioner’.  All in all, little enough funding and even less urgency. 

The Government’s big ambitions for retrofitting the building stock in their climate change strategy don’t seem to have been matched by the budget.  Yes, there will be an increase to the Warmer Homes Schemes – to €53 million - but that is a means-tested scheme for those on low incomes. 

The climate change strategy envisages 500,000 building retrofits to reach a B2 BER, along with the installation of 400,000 heat pumps.  According to Social Justice Ireland, the Sustainable Energy Authority estimates the cost of moving our building stock to low carbon status at €35 billion.  IBEC has a price tag of €25 billion.  Whatever the sums, it will be significant.

We will also need, as IBEC puts it, a systematic upskilling programme to develop nationwide expertise and know-how in new low-carbon technologies, energy efficient design, building services and retrofitting.  We can’t assume that, if the Government provides the investment, the retrofits will follow.

Most of all, we need affordability.  Under the Deep Retrofit Scheme – which was launched, closed down and then slightly re-opened – applicants have to pay 50 percent or more of the total costs.  This is beyond most households’ ability (especially given that 42 percent can’t afford an unexpected financial expense).   In effect, such grants constitute regressive subsidies to higher income households.

This is one of many acid tests of Just Transition.  If people are locked out of the retrofitting programme or can only participate at considerable cost, then not only will it fail to achieve its climate objective; it will violate social equity.  There is a commitment to develop a retrofitting plan to ensure that the grant schemes, new finance models and the delivery system are effectively integrated.  This plan is to be published by the autumn of next year.

A number of proposals have been put forward:  to allow repayments through energy bills or through increased property taxes.  Here is one more suggestion.

Accessible and Affordable

The first principle is that retrofitting – to the maximum possible depth (deep over shallow retrofitting) - should be free upfront.   Retrofitting brings wider social benefits; in particular, the reduction in carbon consumption.  It also brings economic benefits such as the reduction of fossil-fuel reliance and imports.  The benefits are spread well beyond the fiscal and environmental benefit to the household.

The financing model could be a variant on Fine Gael’s proposed National Recovery Wholesale Bank:

‘Fine Gael proposes that a “National Recovery Wholesale Bank (NRWB)” will be created. The NRWB will provide funds to the utilities to allow them to start retrofitting the 1.2 million houses with poor energy ratings. The NRWB will provide the up-front funds to the power utility companies, who will then subcontract the work to construction companies. They will, in turn, install insulation and other energy efficient fixtures in applicant houses. The money invested in the retrofit programme will be recouped through “Pay as You Save” schemes, which will allow consumers to pay back the costs of the retrofit over a number of years out of the fuel savings generated.’

While the operation through utility companies may not be optimal, the principle of free up-front retrofitting is recognised. 

The second principle is that repayments should be affordable.  Ideally, they could be linked to ability to pay.  This may or may not be achieved through repayments based on energy bill reductions.  It could be achieved through a small levy on income, to be collected by the Revenue Commissioners or Department of Social Protection on an agency basis.  The repayment period shouldn’t be an issue.  The Bank would have a lien on the property and the balance could be cleared on the sale or transfer of the house.

The state could still step in with grants, but now they would be open to everyone.  Further, any house that is sold or transferred would be required to have a deep retrofit executed before the sale/ transfer is legally completed.  In addition, this Bank could similarly fund retrofitting of rental accommodation and commercial / industrial premises.

These principles – accessibility and affordability – can be extended to other climate repair initiatives.  There could be a programme of providing similar loans based on ability to pay to purchasers of electric vehicles.   The loan could be based on the cost difference between purchasing a regular car (petrol or diesel) and an electric vehicle, and rolled out in rural areas where car-reliance is highest.

Such initiatives could also play a role in ensuring best labour and consumer practices.  Only construction companies that apply the highest level of labour protection would be allowed to participate in the scheme, while there would be a bank-guarantee for the work done with bonds posted by installers. 

If Just Transition is to have any substance we will need to ensure that everyone is enabled to participate in climate repair initiatives.  This is only one example.  The principles of accessibility and affordability can be extended throughout the range of activities required by decarbonisation.   This is a democratic issue.

But this will require new programmes, financial innovation and a little bit of imagination.  Unfortunately, all these were absent in Budget 2020.

Snatching Social Prosperity from Climate Crisis

Amidst all the commentary on the millions-across-the-globe Friday climate change strike, one remark was striking:  we should be very afraid.  Certainly, failure to contain the rise in global heating will wreak devastation.  And the United in Science report makes for unnerving reading. 

However, fear may not be the best way to mobilise people into action.  A better way is to show how climate repair will actually make life better and improve our living standards beyond just avoiding global meltdown.  In other words, the policies to address the climate emergency will actually result in a more prosperous society.   

Take a carbon tax:  if this were increased without a robust compensation mechanism, it will further degrade the living standards of low and average income households.  However, if it is accompanied by a Carbon Dividend – or a ‘climate income’ - things change.  Low and average income groups are likely winners and income inequality is reduced.  In that context, the carbon tax could then do what it is supposed to:  reprice carbon to remove externalities (i.e. remove the massive subsidy fossil fuel extractors receive from a failed market) and provide environmentally-sound incentives to investors and innovators.

So what climate repair policies can actually make things better?  Here is a small list – no doubt there are other and better examples.

Free Public Transport

Public transport is key to reducing emissions and congestion.  So why not make it free?  This could induce more people out of their vehicles, provided there is capacity and access.  Looking at the experience of other European cities, free public transport can have a transformative impact on mobility and life quality.  And it would especially benefit low and average income groups given that a month’s pass in Dublin costs €140. 

Car-Free City Centres

Ban or limit private cars into city centres.  Again, this could induce people to use public transport, while recapturing  the city streets for people .  Cities throughout Europe are taking initiatives, from outright bans to bans on weekends to extending pedestrian zones.

Free Retrofitting

Well, free up front.  One of the problems with the current grant system is that only those with enough money can take advantage of the grant.  So why not make the retrofit free upfront with repayments linked to income or ability to pay.  The full cost can be recovered when the house is sold or disponed.  This could be funded by a National Housing Bank (similar to the bank Fine Gael proposed under their NewEra proposals) and include solar panel installation and fuel pumps.   Further steps would be to require retrofitting when a house is sold or transferred. 

Electric Cars

Similar to retrofitting, grants and tax breaks for electric cars benefit higher income groups who can afford such vehicles.  So why don’t we substantially subsidise the purchase of electric cars with repayments based on income and the balance cleared upon disposal of the car?  In the first instance, we could initially target this programme at rural dwellers, since they will be disproportionately impacted by a carbon tax.  This would have to be done alongside a rollout of a recharging infrastructure.

Green Our Cities

Greening urban areas has a multiple of beneficial effects – from health to climate change to improving the overall liveability of our neighbourhoods.   This is where community democracy can play a driving role – neighbourhood councils established to draw up local plans for greening, design and planting.  This should come with sufficient resources to realise these plans (e.g. Munich local government provides grants to households to dig up hard surfacing and replant their gardens).

Make Just Transition Truly Just

The Green Party has proposed a Just Transition Commission in their Just Transition (Worker and Community Environmental Rights) Bill.  This would be a significant step forward.  But we can go further.  There will be job losses across a range of sectors.  A fund could be established to ensure that anyone who loses their job due to decarbonisation would be entitled to their full wage for a an extended period to facilitate re-training, new employment opportunities, or moving to a new job – a Green Guaranteed Income.  This would not only provide security for workers, it would maintain their spending power which would help protect employment in other sectors (e.g. retail).  Another new feature would be a Green Examinership – a process by which a failing company (due to decarbonisation) is given legal protection to allow its workforce to come up with proposals to convert production to renewable or sustainable goods and services.

Let a 1000 Ideas Bloom

When we think about climate repair we tend to think of either government policy or individual action.  We have to bring the productive economy into this debate.  Every business with more than 50 employees (this threshold could be lower) should produce an annual joint environmental audit between management and employees, emphasising environmental innovation in new processes and / or products.  The Strategic Investment Fund could be re-orientated towards green innovation to assist in this.  Let people in and let a thousand ideas flourish. 

* * *

The advantage of these policies is that they would be good in and of themselves.  That they can help in pursuing climate justice and repair makes them win-win.   There are more policies that could be introduced to achieve this beneficial impact:

• To shore up low incomes we could consider a partial Basic Income, the Living Wage and collective bargaining – all of which can boost living standards.
• Considering that some things may get more expensive (e.g. food), we should be reducing costs in other areas such as housing with cost-rental and cost-purchase housing.
• Reduction in working hours (the 30-hour working week) can contribute to climate repair through a reduction of our carbon footprint (the fewer hours worked, the better).

Of course, the first question in response is how much will it cost?  The problem is we have no baseline for the cost in the scenario where we do nothing or very little.  Therefore, we can’t make comparisons.  So let’s just work out costs based on where we are now.

Many of the above have few cost implications:  guaranteeing people’s income in the case of climate-related job loss (a 0.2 percent increase in social insurance), car-free city centres, etc.  Some of the proposals could actually raise revenue by driving productivity (the 1000 ideas, green examinershp), while subsidising retrofitting and electric cars would be debt-financed by households over the long-term.  Even so, a truly Just Transition will have significant costs.  For instance, free public transport would cost over €600 million – and this doesn’t count the cost of increased demand and capacity (thanks to @Sean_Fearon for pointing out this PQ). 

The Government should conduct a thorough analysis of what the CSO describes as ‘potentially environmentally damaging subsidies.’  In 2016, through direct spending subsidies and indirect tax reductions, we spent over €4 billion in 2016 on such subsidies.  It should be noted that these are potentially damaging, and many of the subsidies are social supports (fuel and gas allowances, subsidies to disabled drivers, etc.).  This means that it is far from a simple matter of ending the subsidies and redirecting the money towards green investment.  However, in the first instance, the Government should identify which subsidies are definitely damaging.

Warmer houses at lower cost, living city centres, retrofitting and electric cars accessible to everyone, green towns and cities, income guarantees and employee-driven innovation – the transition to the new energy, production and consumption regime needed to combat climate change will contain many challenges.  But in so many areas we can show that the transition can be Just, spreading real benefits to everyone. 

This is a programme capable of mobilising society around a new and progressive consensus.