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January 19, 2009



A general comment about the mess we're in.
Ihave been reading your analyses, Michael and agree with them. The single most important point that you have made relates to how we look at Government spending.
The Government spends its money in 3 ways,
1. Current spending:- wages of teachers, nurses,guards, civil servants etc. How much each year? easily found.
2. Capital spending:- roads, bridges, water treatment railways etc. How much each year? Easily found.
3. Tax spending:- tax relief to artists, stud farms, developers, gratuities, mortgage holders etc. How much each year? Oops, nobody is counting!
The last group include the real gravy-trainers. It must all be put on the table and looked at in the light of our present situation. When some exclusively advocate a cut in Public Sector pay the must be challenged to say why they believe that children should suffer a drop in their education just to support a millionaire stud-farm owner or a rock star from the shock of having to pay tax.

Michael Taft

Thanks for the comment, Sam, and as you say there is no doubt that there could be some good pickings among tax expenditures. I've listed some of them before - especially pensions which TASC has highlighted. But here's just a small little item: while I can see the point of providing health insurance tax relief, especially as many average income families rightly avail of it to ensure the best healthcare they can afford, what is the purpose of providing tax releif to Plans (such as VHI's D and E plans) that are exclusively private? Abolishing relief on these super schemes might not save much, but conduct a line-by-line item of every tax expediture in tax code and they would mount up.


Thanks for the comment, I have been away so couldnt respond.
Very quickly, the link you have for OECD is not a link to a document instead a webpage about low wages/min wages/incomes of those returning to work. They have something called an average production wage but don't define it. I presume it is similar to ave manufacturing wage. I dont think that proves anything but I did look for the standard definition of if a country is rich/poor (GDP per capita) and we are 4th highest in the OECD. I use GDP since you are using it ;)
The income as a proportion of GDP is not used in labour economics as a standard measure of high/low wages rich/poor.

I have not had much chance to look at the other links (I ignored the union ones because its their job to fight for higher wages and therefore are not independent) but from what I see you are talking constantly about the manufacturing wage (i.e. non-financial market sector/manufacturing etc). That ignores the service sector (including financial services and, depending on how you define it, government employees in services) so it depresses the wages. So I still don't think you have shown in anyway that we are a "low wage" economy. Looking forward to you coming back with some credible and independent numbers.

Michael Taft

Simon, I've checked the link and it brings you to the OECD tax/benefit calculator. You might want to check it out - the average wages cover both the industrial and service sector (NACE C - K) in 2006. Average wage for some countries are: Austria €36,690 / Germany €42,382 / Netherlands €38,491 / Belgium €37,674 / Finland €33,543 / France €31,269. Ireland comes in at €29,960.

This database doesn't ignore the services sector. Nor does the European Business Statistics (except for the financial sector). Nor does the Deloitte Remuneration Survey.

I would also suggest that just because a figure appears in a trade union document (or an IBEC or ISME document) doesn't mean that's invalid if the data is sourced properly. For instance, SIPTU and UNITE use Eurostat data. So does the Central Bank. They use the same data and database. Does that mean the cited statistic in the SIPTU or UNITE document is invalid but the same cited statistic in the Central Bank is valid?

You asked for the data and I have presented it. You might want to run through the IBEC and ISME websites and see what data they cite in support of their argument that wages are 'uncompetitive'. Prepare to be disappointed.


You say :"I, of course, used GDP rather than GNP. GDP represents all the wealth our society produces."
I'm not an economist and probably know just enough to be foolish, but it seems to me that using GDP instead of GNP is not as straightforward as you imply. Our benign corporate tax system attracts a lot of capital which is in Ireland for tax purposes only. I don't know the amount but it's significant enough to have damaged our reputation abroad. Our GDP figures would therefore have different wage implications than countries like Germany which have a strong manufacturing base.

So a far better way would be to use GNP -- or perhaps you might justify the use of GDP rather than asserting that you use it because others do.

Hope I'm clear. Apologies if I'm way off.

Michael Taft

No, Oliver, you're not way off. There is a considerable debate over which measure to use. For me, it is a matter of the circumstances in which they are employed. Each have their strengths and weaknesses.

In the case of total labour costs in society, GDP (I believe) is the appropriate measure. Labour is a factor of total production. Regardless of where the profits of that production goes after, measuring the cost of labour to produce all the wealth is the best way to approach this issue. Comparing it on this basis, we can assess the proportion of labour makes up the product it produces.

Of course, GNP comes into play when we assess how much of the product (and profit is a function of profit) we keep. It throws a very sharp light on the state of our indigenous sector (90% of all exports are produced by multi-nationls), the taxation structure we need to keep FDI coming, and remaining, since our indigenous sector is so weak, and, of course, how much profits are produced here or elsewhere and then shipped here to take advantage of tax laws.

In any event, GDP is the common international measurement. Neither the EU, OECD, World Bank or US statistical agencies use GNP. In that sense, GDP lets us compare ourselves to others; GNP lets us examine exactly what is right but more precisely what is wrong with our wealth creation base.

And, as always, I may be way off.

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