ECONOMIST WHO COINED TERM "CELTIC TIGER"
economist Kevin Gardiner, head of global equity strategy at the
investment banking unit of global bank HSBC, in 1994 coined the term
Tiger, comparing Ireland's unexpected economic take-off to the Asian tiger
was then working with US investment bank Morgan
Stanley (Kevin Gardiner, 'The Irish Economy: a Celtic tiger',
MS Euroletter, 31 August 1994).
"Celtic Tiger" as a metaphor for the
Irish economic boom is very widely used, both in Ireland and
internationally. Economic historians will continue to find it a
convenient term for the unique period in the history of Ireland, for
many decades to come.
Irish Economy 2006 and Future of the Celtic Tiger: Putting a brass knocker on a barn door!
2006: Following a detail on areas warranting reform directly below, the
links are specific categories further down the page:
Political Paralysis, Limited
Accountability and the Buck Stopping Nowhere
The Rise of the Celtic
A Low Tax Economy ?
plus the Mother of all Stealth Taxes
Pay - Irish
Public Service 2001-2006: Salaries up 59%; Payroll up 18% - 38,000
additional workers and Pensions up 81.3%: Average industrial wage rise
in the period was 19%
Irish Workers without an occupational pension
Benchmarking System - The Scam of the Decade
Overpaid Legislators: 30% Special Pay Awards including Sham
Benchmarking and Pay up 119% since 1997 - Average Weekly Industrial
Earnings up 60%
Seven Years to a World
Class Knowledge Economy?
Julius Caesar reputedly said that the general who rests on his laurels,
is usually wearing them in the wrong place and as the outlook for the
Celtic Tiger beyond 2008, looks uncertain, there is a sense that the
significant opportunities to reform and modernise the economy to better
withstand future challenges, have been wasted. Tacking through the wind
has been the default option and while there have been some improvements,
a Texan might sum up the overall picture, as putting a brass knocker on
a barn door.
portrait of Dr. T.K. (Ken) Whitaker (b.1916- ), eminent civil
servant and economist, whose study, Economic Development
was the basis for the First Programme for Economic Expansion,
published in 1958, hangs in the National Gallery of Ireland. The
portrait by Thomas Ryan P.P.R.H.A. was officially unveiled
by Charlie McCreevy, T.D., Minister for Finance, in the National
Gallery on Monday, April 22nd, 2002
At an economic conference
Ireland's Central Bank on September 15th, Governor John Hurley said
that "the much-discussed era of exceptionally strong
growth - representing a delayed catch-up process, if you like - is
clearly behind us now," he said, noting a number of specific concerns
about the economy's structure. In particular, growth has become somewhat
unbalanced in recent years, with an unusually high reliance on the
construction sector, combined with some deterioration in the economy's
structural change will clearly continue to be required if we are to
maintain and improve our relative position. The policies to be pursued,
therefore, are ones that permit, or even encourage, structural change to
occur on an ongoing basis and in as smooth a manner as possible."
In a paper at the Central Bank's conference,
Dr. Frank Barry of University College Dublin, highlighted some of the
issues that are explored in this article, including the "structural
flaws that give zoned land an artificial scarcity value and that
continue to offer strong incentives for corruption. The failure to
tackle these issues seems ascribable, in part at least, to the failure
to introduce international best-practice measures with respect to the
financing of the political process. The failure to address cost and time
overruns in infrastructural provision over the boom period represents a
further weakness in Irish governance."
review of the Irish Economy published in Washington D.C. on August
7th, 2006, the International Monetary Fund (IMF) said that economic
growth is strong, unemployment is low and labour participation rising,
and government debt has been reduced dramatically over the past two
decades. Nevertheless, it observed that growth has become increasingly
unbalanced in recent years, with heavy reliance on building investment,
sharp increases in house prices, and rapid credit growth, especially in
Davy Stockbrokers says in a July 2006
report that it is highly likely that that the pace of growth of the
Irish economy will slow in the later years of this decade. After 2007,
consumer spending growth will be impacted by the withdrawal of the SSIA
stimulus and the long-anticipated peak in the housing market may finally
have occurred. Davy says that it is difficult to see what sectors could
replace this loss of momentum.
On a broader canvas, a well-known
practitioner of the dismal science, Stephen
Roach, Chief Economist of US investment bank Morgan Stanley, wrote in
the Financial Times issue of August 14, 2006:
There is nothing like the seduction
of a boom. The recent vigour of global economic growth is a siren song.
By International Monetary Fund metrics, world gross domestic product
growth probably averaged 4.8 per cent over 2003-06, the strongest four
years since the early 1970s. As tempting as it is to extrapolate this
into the future, that may be a serious mistake. There is a much better
chance that global growth has peaked and the boom is about to fizzle.
The world’s main growth engine, the
US, is slowing. That is the verdict from the labour market, with job
growth in the past four months running 35 per cent below average since
early 2004. It is the verdict from the housing market, where an emerging
downturn in residential construction activity is knocking at least 1
percentage point off the GDP growth trend of the past three years. And,
notwithstanding July’s temporary bounce-back in retail sales, it is a
message from the consumer, whose inflation-adjusted spending growth fell
to 2.5 per cent in the spring period – one percentage point below the
heady trend of the past decade.
Tiger Economy - Built to last or on a foundation of
money economy, the proximity of success and failure
is closer than many people wish to believe.
Ireland in the past decade, the big change at a human level
is the virtual disappearance of the fear of unemployment.
The searing impact of running out of money has to be
experienced to understand it, in particular where there are
don't wish to be a Cassandra forecasting the next storm as
I'm an optimist who could have opted for the safer option of
pensionable employment. However, without the constraints
that limit the comments of bank economists, I can be direct
in highlighting failures and ask if the challenges facing
our petro-like economy with almost 20% of the private sector
workforce dependent on the construction sector, could be
article should not also be viewed through the prism of
partisanship. Any Government that has been in power during
an unprecedented period of prosperity should have its
record seriously analysed. It's up to the electorate to
judge whether our leaders are political Lilliputians and
dare we imagine an Ireland where there are no ignorant
June 2006 article following the death of former Taoiseach
(Prime Minister) and Fianna Fáil leader Charles
Haughey, The Irish Times' Frank McDonald recalled a 2004
interview in which Haughey said in relation to the current
Fianna Fáil/PD coalition headed by his protégé Bertie Ahern,
that it was the "worst Government in the history of the
State - the worst", because they "can't seem to get anything
right" and had "no real vision of the future of Ireland."
The publication of this article has coincided with
more evidence that our largest exporter and second-biggest
private sector employer Dell Computer, is
facing challenging times.
Dell is planning to extend its service operation in the East
German city of Halle and is expected to soon announce plans
to build a manufacturing plant in the Polish city of Lodz
where average monthly industrial wages are €677 compared
with more than €3,000 ($3,850) at the EMEA (Europe, Middle
East, Africa) region plant at Limerick, Ireland.
employs about 3,500 directly in Limerick and a further 1,000
on a contract basis. An estimated 16,000 jobs in the
Mid-West are indirectly linked to the success of Dell in
Put simply, no philosopher's stone has
been discovered that will transmute a boom built on American
direct investment and domestic construction, into a
permanent prosperity. Neither has there been political
courage to take necessary decisions on reforming the
Ireland's economic success has been
powered by foreign owned firms - principally American - who were
87.6% of exports in 2004. Dell Computer is the largest exporter and
the three largest private sector employers are Intel, Dell and
US chip giant Intel is Ireland's largest industrial
employer with a payroll of 5,500. In the first half of the twentieth
Irish-American Protestant Henry Ford,
whose father was a native of West Cork, was the greatest industrial hero
in Ireland and in 1930, the Ford plant in Cork City, had a payroll of
Irish-American industrialist Henry Ford (1863-1947) - Ireland's
greatest industrial hero. In 1919, the year that the tractors
began rolling off the assembly lines, at the Henry Ford & Son
plant in Cork City, the war of independence against British rule
began. Protestants in Henry's father's native West Cork, were
sometimes targeted because of suspicions about their Irishness.
The son of a West Cork Protestant has a special place in the
history of Cork.
The corporate tax rate is
among Europe's lowest and tax on incomes have been reduced significantly
over the past decade. Social security payroll costs are low compared
with countries such as France and Germany. However Ireland is not a low
tax economy and the overall tax burden is comparable with the UK's (see
While the tax regime is positive for
attracting foreign direct investment, indirect taxes, which are also
dubbed stealth taxes, as a proportion of total taxes, are the highest
among the industrialised countries.
Electricity costs for consumers, are 46% above the average paid in
the UK and the cost
of a new car is 28% above the EU average. The Government collects an
average of over
30% of the cost of every housing unit built in the State, in taxes
and levies. As
the standard of the public health service is currently low, the
majority of the workforce have to take out private health insurance. The
premiums of the State health insurer VHI Healthcare, are expected to
have risen more than 50% in the period 2001-2006, by the end of this
year. Annual premiums for a typical household are at least
€2,000 and the cost of
visiting a doctor has risen by about 60% since 2002.
Time Magazine cover of July 12, 1963,
following the State visit of US President John F. Kennedy to
Ireland - - Sean Lemass, Irish Taoiseach (Prime Minister)
1959-1966 who together with T.K. Whitaker and former Minister
for Finance Gerard Sweetman (1954-1957), are the architects of
the modern Irish economy
survey that was published this week by Europe's top bank UBS, shows
that Dublin is the 8th most expensive of 71 global cities. A meal for
two in a mid price-range restaurant, would cost at least
€60, compared with about €40 off the Potsdamerplatz in central Berlin,
which gets a 26th place ranking in the survey.
policy can be viewed as positive from a macroeconomic viewpoint, as the
spoils of the Celtic Tiger have been disproportionately spread, some who
have gained from having a job, are nevertheless struggling.
Due to the
property related tax incentives during the boom, many wealthy
earners were able to reduce their income tax to zero and in 2001, one
beneficiary of a tax exemption scheme that was originally introduced for
poor artists in the 1960's, earned
€10 million. More
than 11 song writers or other writers earned more than €1 million tax
free in 2002. In the December 2005 Budget, a ceiling of
€250,000 was put on the
benefit and last week, it was reported that Irish rock star and his
colleagues in U2 have moved their business operations to the Netherlands
to avoid paying tax on the income arising from creative work, that they
would have paid for the first time.
multimillionaire Bono, who has become the world's leading designer
humanitarian, showed that he had feet of clay after all, in his elevated
shoes. In the same week, through his US equity group, he had teamed up
with another multimillionaire Malcolm Forbes, publisher of Forbes
Magazine and failed Republican Party Presidential Candidate who had
gained little traction with his advocacy of a flat tax. It's ironically
a system that chimes with Bono's support for no tax for people like
designer humanitarians, separating out the costs of 38,000
additional workers on the public payroll since 2001,
public service salaries have increased by 38%. The comparable rise
in the average industrial wage was 19%. Salaries of members of the
Oireachtas (Irish Parliament) have risen by 100% since 1997 and the base
salary (excluding unvouchered expenses) of a member of
Dáil Éireann is
€96,650, more than three times that average industrial wage for a male
worker. In addition, 900,000 workers in the private sector, have no
A member of
Dáil Éireann is entitled to a pension for life
of half annual salary, after 20 years service.
The planned IPO (Initial Public Offering)
of Irish State airline Aer Lingus, starkly illustrates the gulf between
the Irish public sector and the private professional services sector on
one side and the private traded goods sector, on the other.
announcement of plans for the stock market floatation, Ireland's largest
trade union played its hand well in opposing the privatisation. While
trade unions have limited influence in the Irish private sector in
contrast with their grip in the public sector, SIPTU has used the Aer
Lingus issue to make it clear to the Government and workers in general,
that trade unions are still a potent power in the country.
At the urging of the Government, Aer
Lingus has conceded all major demands and the workforce will not have
their current 14.9 per cent stake in the airline diluted. See:
SIPTU celebrates Aer Lingus agreement to privatisation
inducements. Average earnings are the highest
in the State-owned electricity supplier ESB.
The impact of
the construction sector is evident in every other sector of the economy.
Property related taxes and levies may amount to
billion this year - almost 19% of
spending in 2006. We are
building a record number of new housing units
and approximately 1 in 8 people (12.6%) are
employed in Ireland, in work in construction. This compares with an EU
average of less than 8%.
New house building units increased by
23.6% in the seven months to July 2006 and the Central Bank
80% of the 27.3% growth in Private Sector Credit in the year to June
2006, was property related.
Up to 20% of Ireland's
private sector workforce is dependent either directly or indirectly on
the property sector, for employment.
Of the 258,000 net increase in total persons
at work between 2000 and 2005, over 76,000 (or 30%) were in the
construction sector. The new housing units are small and are among the
lowest standard in the Developed World.
4% urbanised but we're short of land!
The Irish Central Bank says that the
proportion of household borrowing in June 2006 that is secured on
housing in the the euro-area countries was highest in the Netherlands at
89.5 per cent,
followed by Ireland at 80.2 per cent. The Bank says that while both
these countries have high personal debt to income ratios, they also have
the highest proportion of household debt secured on housing. Both
countries are well above the euro-area ratio of 70.3 per cent.
made some Irish people very wealthy and Bank of Ireland Private Banking
says that the Irish invested
€30 billion (equity and borrowings) in local
and overseas commercial property in the period 2001-2005.
Ireland has overtaken the United States
as the single largest cross-border investor into UK commercial property,
accounting for almost 22% of total overseas purchases in 2005.
research report published last month, Bank of Ireland Private
Banking shows that, in a survey of the top 8 leading OECD nations,
Ireland is ranked the second wealthiest, behind Japan and ahead of the
UK, US, Italy, France, Germany and Canada, showing an average wealth per
head of nearly €150,000.
private rent support has cost the Government
€1.6 billion since 2000.
At the end of 2000, there were 42,700 recipients. This had increased to
60,100 at the end of 2003 and then settled at the higher level. Last
week, the Department of Social and Family Affairs said that a record
79,000 people had requested assistance with the costs of sending their
children back to school.
National house prices have increased by 270% over the past ten years
– compared to a total rise of just 30% in the consumer price index.
Sunday Business Post wrote in November 2000 that former Taoiseach (Prime
Minister) Albert Reynolds' "home at 18 Ailesbury Road is now worth over
£4.5 million. It is believed that he originally paid around £650,000 (€825,000)
for the house," in the mid-1990s. Last month, The Sunday Independent
"estate agent Pat Gunne has emerged as the mystery buyer of number 17
Ailesbury Road, Dublin 4, paying a stunning €13m for the luxury house.
The house, previously the property of Delphine Kelly, widow of former
Fine Gael minister John Kelly, was sold quietly before the auction."
There is no tax payable by the vendor on
the proceeds of a principal residence, whatever the value while Pat
Gunne will pay
€1.17 million in stamp duty.
Farmers who rely on payments from the
EU's Common Agricultural Policy and who have been able to sell land for
development whether for house or road building, have raked in money from
a crazy system that creates both a bonanza and fuels corruption.
In a report in The Financial Times issue
of August 12th, 2006, on Irish buyers driving up farm prices in the UK,
Matt Dempsey editor of The Farmer's Journal is quoted:
"When you can now sell a
piece of rezoned farm land on the edge of a town in Ireland for
an acre, several farmers have found themselves very rich."
Ireland's richest men is the top beneficiary of the direct payments
from Brussels that are a form of public welfare and Ireland has to yet
to be a net funder of the European Union Budget, after 33 years
killings are made from the property bonanza, the industrial sector is
contracting and this year less than
€200 million in venture capital
will be invested in Irish firms.
total monies invested since 2001 by the Enterprise Ireland Partnership
amounted to €183m in 99 companies.
In contrast, the
Dublin-based Cosgrave Property Group family, has invested
almost £500 million in UK property, in this year so far.
The Israeli IVC
Research Center reports that:
- Capital raised by
Israeli VCs surged to $1.2 billion in 2005
- Capital available
for investment now at $2.3 billion
- $1 billion projected
to be raised by VCs in 2006
The Minister for
Enterprise, Trade and Employment, Micheál Martin TD says that Ireland
can be a global knowledge economy in 7 years and
€3.8 billion is to be spent on a
Research & Development programme in the period 2006-2013.
Ireland's needs a deeper science base and
much of the money will inevitably be wasted. The question is will it all
disappear down a sinkhole?
The MIT Media Lab's operation in Dublin
folded in 2005 after burning through
€35 million in public money. The
Institute of Neuroscience
at Trinity College got €28 million in
public funding and apparently, the room that was built for
Ireland's first whole
body 3 Tesla magnet, was too small for it.
Given the lamentable record in managing
large public-funded projects, the new R&D plan has rich pickings for
academics wishing to convert their dreams to reality. The existing
record of commercialising patents in the higher education area is poor
and research done by PhD students often has no relevance to what they
work at later. Public funds are already being spent on funding PhD
students at Irish universities to attend overseas universities
and participate in research. The issue of who owns the intellectual
property is a relevant point.
Bitch-fights among academics fighting for
turf, lucre and a reluctance to cede ground to world-renowned scientists
who could increase the chances of success of the programme, will also be
inevitable. The international conference industry will also do well.
Meanwhile, the senior civil servants who presided over the wasted
spending of huge amounts on IT and infrastructure projects, will monitor
The Minister has said that "excellence
is what this is all about and we have already embarked on this journey
towards excellence and I want to take this opportunity now to exhort
you, the stakeholders, to drive this challenge."
The 7 year
time period seems ridiculous and the missing ingredient is the need for
excellence in seeking value for money, while at the same time
recognising that there is a big aspirational aspect to any R&D plan
where there is so much ground to be made up.
Political Paralysis, Limited
Accountability and the Buck Stopping Nowhere
Taoiseach Bertie Ahern, TD meets Nicholas Evans (2) from
Blackrock, Dublin -- Ahern is viewed as indecisive and a
Exchequer awash with cash from the property boom and windfalls from past
tax dodging, the most palatable option for politicians in power, is to
sail with the wind.
Ireland's most successful company of the past decade, has benefited from
EU airline deregulation and there would have been no serious competition
for the State airline Aer Lingus if deregulation had depended on the
decisions of an Irish Government.
deregulation was introduced following a High Court decision but wealthy
vested interests remain untouched.
The Government provided taxi drivers with
average compensation of €11,500 provided that they had "suffered extreme
personal financial hardship and loss of income." It is in marked
contrast to payments to
beet farmers for up to seven years even though they have ceased
growing beet on some of the best land in Ireland.
Progressive Democrats (PDs) has been the junior party in the Irish
Government since 1997 and a decade ago, there was optimism that it would
be more serious about reform but although small, it has morphed into a
version of Ireland's two main parties
and Fine Gael where there is little appetite for challenging vested
after the introduction of the Internal Market in the European Union, the
Irish pharmacists' trade body wishes to maintain the legal prohibition
on foreign qualified pharmacists practising in Ireland. Pharmacists
dispense drugs on the basis of prescriptions written by doctors; sell
non-prescription drugs and cosmetics. Even where, a pharmacist is in a
rare position of providing advice to a member of the public, they issue
prescriptions every day that have been written by foreign-trained
The Chairman of the PDs Senator John
Minihane is a pharmacist and Minister of State Tim O'Malley is also a
Prices in Ireland are high
Price difference between Ireland and EU15, per cent
Economic Survey of Ireland 2006: Boosting growth through greater
While the implementation of an EU Directive
has liberalised some aspects of the pharmacy trade, the OECD said the
following in its May 2006
Economic Survey of Ireland:
There are several barriers to competition in the pharmacy industry. The
worst is the restriction on foreign-trained pharmacists. Even Irish
citizens who train abroad are not permitted to open or run a new
pharmacy – the best they can do is buy one that has been operating for
This does nothing
to promote healthcare; it is purely an anti-competitive restriction that
protects incumbents. The government’s proposal to remove this
restriction should be implemented swiftly. However, liberalising the
industry is more complicated than just lifting entry restrictions
because the (regulated and negotiated) retail margin on pharmaceuticals
is too high. The margin has to be lowered – or completely deregulated –
before the gates are opened to new entrants.
When PD Justice Minister Michael McDowell tried
to liberalise the drink licensing laws which stymie competition in
particular in Dublin, he folded in the face of the publican lobby in the
senior Government party Fianna Fáil.
Michael McDowell, PD Leader and Minister
for Justice once made the bold claim in relation to his
party that it's credited with
major responsibility for Ireland's economic boom by pioneering
tax reform, deregulation and competition to end mass
unemployment and emigration. In nine years, the reality is
that the record in tax reform deregulation and competition is
lamentable and while personal income tax levels have fallen, the
overall tax burden is still as high as the UK's.
McDowell claiming credit on his
website: "Michael In
What Turned Out To Be A Defining Moment Of The Election."
William Prasifka, the chairman of Ireland's Competition Authority, said
last June that
too many areas, Ireland has not willingly embraced
competition. European Directives forced the introduction of minimum
levels of competition in the telecommunications and energy sectors. In
other areas, such as taxis and pharmacies, legal advice or court actions
The OECD also said in its May Survey, that rolling back Irish
anti-competitive regulation in services, should be a priority as it
would spur productivity growth and restrain inflation. It also said that
deteriorating competitiveness of Irish products implies that net exports
will contribute very little to growth in 2006 and 2007.
In the tenth year of the present
Government, serious attention at last is being given to reform of the
health service but there is no evidence that the powerful and wealthy
medical consultants' lobby will be challenged.
striking aspect of Irish public governance is that the buck stops
The Taoiseach Bertie Ahern has a
hands-off approach to governing, apart from his active involvement in
the Northern Ireland peace process. He does not hold incompetent
ministers to account and between elections, he gets away with refusing
to give in-depth television interviews. It is also notable that Ahern
seldom gives detailed speeches on Government policy.
Ministers blame civil servants for
cock-ups and last week it was reported that the cream of the crop had
received bonuses for achieving objectives.
Three senior civil servants received over €20,000, with one securing
a €25,000 pay-out. Most of the senior civil servants - 13 top Gardai and
12 Army officers - received bonuses of at least 10% of their salaries.
These are based on self-assessment forms and a review by each
Department's Secretary-General of how specific goals have been achieved.
The Committee for Performance Awards (CPA), which monitors the
awarding of the bonuses, warned Department heads not to be so generous
with taxpayers' money after giving over €2.1m in special bonuses to 185
senior civil servants.
The CPA also expressed its concern that in nearly one-third of
government departments these annual objectives, or targets, have not
been issued by April, when one-quarter of the performance period had
The bonuses were paid in respect of 2005
and in October 2005, new
controls were introduced by Minister for Finance Brian Cowen on large IT
projects and contracts for infrastructure, following a public
It is likely that the individual in the
Department of Health who was responsible for paying consulting firm
Accenture €3 million in respect of producing a website that was never
launched, also met his targets.
It says a lot about
Irish public governance, the competence of individual ministers and the
senior bureaucrats, that everyone in a position to make what would have
been commonsense and basic business decisions, did not do so until
several hundred millions of euros disappeared down an Information
Technology sinkhole and billions were underestimated on roadbuilding
Each year, the
Comptroller and Auditor-General details waste and negligence in the
spending of public money. Inaction can be important even down to
parish-pump levels when a dangerously cracked pavement on the Main
Street in Blackrock, South Dublin, goes unrepaired for more than 2
Who cares? Where is the responsibility?
Where is the accountability?
Taoiseach Bertie Ahern has been termed a
master of actionless action and nothing exemplifies it better than the
failure to address
land development reform, which creates a logjam to advances in so
many areas while at the same time creating multimillionaires of farmers
already on public welfare, at the expense of people struggling to get on
the property ladder.
Dublin's principal shopping street, is the sixth most expensive
retail street in the world for rents and
prime office and
industrial rents in Dublin, are among the highest in the world.
The high property costs and rents, fuel
inflation and impact our international
We have enough land rezoned for up to
five years housing output but as there has been no local government
reform either, local councils have no incentive to provide services for
In 1973, a report known as the Kenny
Report recommended that development land should be priced with a 25%
mark-up on agricultural land prices.
Recently in The
Sunday Independent, its Political Correspondent Joseph O'Malley wrote:
Six years ago, Bertie Ahern asked the
Committee on the Constitution to examine the issue. In 2004, it
concluded that Mr Justice Kenny's recommendations could be introduced by
legislation, and without amending the Constitution. Two-and-a-half years
later, still no legislation, but last week the Taoiseach was hopeful "we
can do it by legislation". He was awaiting a final report from the
Implementing the Kenny report, like draining the Shannon, has
remained the unfulfilled aspiration of successive governments that have,
in practice, done nothing to achieve it. And if it hasn't been done over
the last three decades, then Bertie Ahern is even less likely to do it
Yet it allows Bertie Ahern to do what he does best, which is to
engage in actionless action, by identifying with a problem, and by
empathising with those affected. But he can also detach himself from any
responsibility for the Government's failure to do anything about
rectifying the problem. It clearly works.
that a public tribunal investigating planning corruption, has been
sitting since 1997 when the present government combination came to
power. Lawyers have become multimillionaires in the interval and
surprise, surprise, ABSOLUTELY NOTHING has been done to change the
system that fuelled the corruption!!
On Wednesday August 30th, in a scene reminiscent of
a political satire show, a man stood next to Taoiseach Bertie Ahern TD,
at a press briefing on housing. He had similar speech gestures and
mannerisms to Bertie Ahern and left the cat out of the bag on Bertie
Ahern's Government's Rip Van Winkle attitude to the property bubble.
Noel Ahern - thought
that he was on the Opposition benches when he attacked a
nine-year record of his own Government
Bertie Ahern's older brother Noel who is a Junior
Minister in the Irish Government,
said that property speculators trying to make a fast buck in the Irish
housing market, would be better off dealing in oil and cocoa beans.
He warned that people who trade in houses and apartments or buy land to
sell on to developers should be "taxed out of existence."
Ahern said up to 90,000 homes could be built this year but it didn’t
seem to be curbing the cost of housing.
“There is something wrong if the prices keep going up,” he said. “Some
form of taxation would help, as output alone does not seem to keep
“There are people buying land in the short term, not to build on it but
to sit on it for a few years before selling on to some developer.
chance of Bertie Ahern or the PDs with their farmers' advocate Tom
Parlon as their new President, upsetting the land development bonanza.
For the latter, radicalism is posturing on who should run a second
terminal at Dublin Airport or on the number of buses run by private
operators. There are no radical proposals for change at the Soviet-style
State transport company Córas Iompair Éireann (CIÉ).
There's a general election on the way and why not just put another brass
knocker on the barn door?
With a reformed land development system,
a Government with vision could have already built a second Dublin
Airport between Dublin and Portlaoise and centralised all Government
Departments on the western rim of the city as an alternative to the
December 2003 back-of-the-envelope shambolic decentralisation project.
-Chaos at Dublin
In 2005, the two Government parties only
finally decided to build a second terminal at Dublin's only airport,
that has experienced a huge growth in traffic in the past decade.
They spent years arguing about whether
the second terminal should be run by the existing State airports
management company or a private operation. A sod has not yet been turned
Ryanair's additional routes announced on August 9th, will result in
at least an extra 900,000 people passing through the already congested
More than 18.4 million passengers
travelled through the airport last year and the numbers next year are
expected to exceed 24 million.
It will be 2010 or 2011 before the chaos
at peak hours abates. As the politicians
argued, a temporary long wood extension was added to Pier A at the
second terminal will cost at least €395
million - 46% above the April 2005 cost forecast!!
Last March, a
low-cost airline terminal that can handle 10 million passengers
annually, opened at Kuala Lumpur's impressive modern airport. It took
less than a year to build at a cost of €27
In May 2005, the Dublin Airport Authority
(DAA) said the following:
The timeline for
the development of a second terminal is likely to extend over three
and-a-half, to four years. The DAA will first consult with its airline
customers to ascertain what type of facility they require to cater for
their forecast volumes and mix of traffic. This will help determine the
most appropriate site, scope and design of the terminal building and
support infrastructure. As soon as the specification is finalised, DAA
is committed to having the scope and costings of the project submitted
for independent verification, before proceeding to the planning process
and subsequent tender process.
The DAA also notes
the Government’s decision to put in place preliminary arrangements for
the provision of a third terminal at Dublin Airport at the appropriate
time. The DAA will work positively with the Government and other
interested parties to facilitate this development.
Preliminary arrangements for a third terminal?
Isn't that something to get excited about when the second terminal
will arrive a decade late!
The DAA's craven kowtowing to its indecisive political masters, will
hardly speed up delivery.
"This existing Government has broken its
promise to provide us with a second terminal during the lifetime of this
Government," Michael O'Leary said when he announced additional routes
from Dublin Airport.
"We'll be coming back to it in the run-up
to the election."
The Ryanair CEO called on Dublin Airport
Authority to sell its stake in Birmingham and Düsseldorf airports, as
well as the Great Southern Hotel group, to fund expansion at the three
main Irish airports.
"That would pay off the debt in Cork, it
would pay off the debt in Shannon and it would pay for the second
terminal at Dublin, and we cannot understand why these things are not
"If someone as bright as Dermot Desmond
thinks it's the right time to sell London City Airport, surely you would
think that the halfwits in the Irish Government would think maybe it's
the right time to offload the stakes in Birmingham and Düsseldorf
"Neither of them makes any contribution
to Irish tourism or the Irish economy generally," O'Leary said.
In the Budget speech of December 2003,
the then Minister for Finance Charlie McCreevy announced that
of decentralisation of public services "will involve the relocation of
10,300 civil and public service jobs to 53 centres in 25 counties."
was a rabbit-out-of-a-hat announcement and the biggest planning aspect
to it before the announcement was the division of the jobs to ministers'
constituencies. With the local elections months away, it was perceived
to be a master stroke that political opponents couldn't oppose.
This biggest "reform" plan in what will be ten years of governing in
2007, was given to PD minister Tom Parlon to implement.
Irish Junior Minister Tom Parlon
(seated) has warned that any change in the restrictive rezoning
system of land for development that has a 20-50 times multiplier
effect on values, would be to the "left of Stalin" even though
as a big farmer, he is a significant beneficiary of European
a clear sign in 2002 that a return to government was more important than
principle, the PDs had recruited the former leader of the Irish Farmers'
Association as a candidate for the
Dáil, in return for a promise
that he would be made a Junior Minister if elected.
Parlon was the
most militant and sucessful trade/professional group leader at the time
and months before had forced the Government to concede significantly
improved terms for farmers forced to sell land for roadbuilding.
In 2001, the Irish State agency, the
National Roads Authority (NRA), said in relation to a campaign for an
increase in compensation for land acquired by Compulsory Purchase Order,
that was led by Tom Parlon, then President of the Irish Farmers
Association (IFA) that pronouncements by senior IFA officials, including
Parlon, had claimed that:
- the State, through the actions of
local authorities, has no right to appropriate farmland;
- the compulsory acquisition of
farmland for the national roads building programme is unjust,
inequitable and seriously damages the livelihood and viability of
8,000 farm families;
- CPO legislation is outdated and
compensation paid to farmers is inadequate;
- compensation should be paid at
development land prices given the intended use of land for road
schemes and not at market value for agriculture land
Parlon as a
Minister of State has said that any tampering with the existing system
of determining land prices for development, would be a form of
It surely is a bizarre system of "free enterprise" that the PDs claim to
support, where public funds paid primarily by German and Dutch
taxpayers, provide Parlon and his farmer colleagues with most of their
income and when they sell land, the average Irish taxpayer is also
Parlon's speech at the Parnell Summer School, Aug 2003:
The provision of quality affordable housing to all citizens is the
ultimate goal that the State wants to achieve, and I fully support that.
But I believe that weakening private property rights as a means to
achieve this goal would be a great mistake.
approach is gift-wrapped in an ideology somewhere left of Stalin, which
has no place in a modern dynamic open economy like Ireland.
Any measure giving the State the power to control the value of private
assets would have major negative ramifications for thousands of property
owners and would be a jump back to the dark days of the 19th century.
What if your home, your business or your farm is zoned for development?
Should you be allow reap the benefits of this? In a democracy of course
The practical implementation of such a measure would be hugely
inequitable and would end up taking the value of the land off the
property owner and passing it on to the eventual owners of houses on the
It took centuries for Irish politicians to establish property rights and
any move to change that would be a slight on the memory of people like
Charles Stewart Parnell.
My party, the Progressive Democrats have worked hard since our
foundation 18 years ago to put competition and enterprise at the heart
of the Irish economy and a move like this would be regressive for
land at €500,000 an acre is a result of competition in a country that is
4% urbanised!! Where did you learn
your economics Mr. Parlon?
In May 2004, Parlon's then party
leader Mary Harney said in an address to her party members at the launch
of the Progressive Democrats' Local Elections' Manifesto: "In this
manifesto, we are... committed to ending private windfall profits
arising from rezoning decisions."
As with Bertie Ahern on the 1973 Kenny Report, more actionless action
as Harney being "committed" does not mean anything has happened in the
meantime and with socialist farmer Parlon in her camp, nobody should
hold their breaths!!
Jerome Casey, who is editor of the
Building Industry Bulletin in a report in 2003,
said that site costs account for 42.5% of a
house nationwide. Casey said that typically in the mid 1990s, Durkan
Brothers sold apartments off O'Connell Street for £35,000 to £40,000
(€44,440 to €50,790) for which the site cost was £5,000. Currently, both
the Irish Council for Social Housing and private house builders are
reporting city house site costs at up to 50% of the house price. Outside
the cities, site costs can represent up to 40% of the house price. For
the country as a whole, site costs may now constitute 42.5% of the house
price, an increase of almost 30 percentage points on the pre-boom
position. In Dublin that increases to 50%. Overall the Irish figures are
grossly out of line with the rest of the developed world.
In the US land accounts for 20% of the total cost of a house. In
Denmark the figure is similar while in Portugal the land factor drops to
It is similar for the rest of Europe. Casey estimated that the 30%
differential between land prices for houses in Ireland accounted for
about €6.6 billion of the total new and second hand housing market,
estimated to be worth €22 billion in 2002.
By applying the 30% margin on the cost of land, Casey said the amount of
surplus profit for the key landowners was estimated at €300 million. In
his report Casey said the major issue was that just 25 individuals or
companies controlled more than half of the housing development land in
the Fingal area. That includes Balbriggan, Lusk, Donabate and other
well- known areas targeted for development on Dublin’s expanding north
conclusion means that up to eight years in the life of a normal 25 year
mortgage now goes to pay for the excess in the price of the site.
Yes to Property Rights but No to
Rights of Workers
So the man who would have got away with
shutting down central Dublin with farmers' tractors on what is termed a
tractorcade, to get a Government to cave-in, had no problem telling
civil servants living in Dublin, many with teenage children and partners
working outside the service, they should head off on their bikes to the
In the meantime, Parlon's mode in media
interviews is to downplay clear opposition to the scheme while avoiding
addressing the issue of what is planned for civil servants who do not
wish to move.
With the general
election on the horizon, the Government has said little on its flagship
In a decade, any
Government has bragging rights to some achievements. However, in key
areas, reform has been glacial and the soft option has carried the day.
In a decade, about 100,000 jobs will be lost in the construction sector
and competition for foreign direct investment will be strong. We are
currently like an oil economy with property dominating every sector. The
politicians currently in power will be on very generous pensions when
they leave office. They do not have any money worries ahead of them but
can the same be said for so many others?
I'm not forecasting a
property bust but I will not be surprised in future years if people will
look back on these halycon days of the Celtic Tiger and wonder why in a
unique period since independence, when a Government was not distracted
by economic turmoil, it flunked the test of political leadership so
comprehensively and left the economy unprepared on a foundation of
Finally, before moving on to
more in-depth coverage of specific issues raised below, we end this
section with a conclusion of the article of Stephen Roach of Morgan
Stanley in the FT that's referred to above, which also has implications
for our open economy: "Excess liquidity bought time for a precarious
world. As central banks move to normalise monetary policy, that time has
run out. Without the unsustainable support of asset bubbles, it is back
to basics – with aggregate demand supported by more modest labour income
generation rather than the excesses of wealth creation. So much for the
artificial boom of an unbalanced world. It could be about to fizzle
The Rise of the Celtic
The genesis of the Celtic Tiger dates back to the bleak 1950's when
Ireland appeared to be in terminal decline with an average of 50,000
emigrating each year.
The man who really changed things was Ken
Whitaker... I don't think there is any other official who has a
remotely comparable impact upon Irish history in the second half
of the 20th century- - Professor Ronan Fanning,
Department of History, University College Dublin
In 1950, the Industrial Development
Authority was established as an independent State agency and in the
interval, IDA Ireland has shown what State employees can achieve when
freed of the cobwebs of civil service bureaucracy. In 1955, the Minister
for Finance Gerard Sweetman appointed the 39-year old Thomas Kenneth
Whitaker as Secretary of the Department of Finance. The choice was not
only inspired but in the then backward theocratic society, it was brave.
The 1956 budget that was introduced by
Sweetman proposed a tax exemption on profits from exports. It had
Whitaker's imprint and in the following year, that was marked by the
creation of the European Economic Community, he began work on the
seminal paper Economic Development. He
was focused on preparing the Irish economy that had been so linked with
the UK's, for eventual membership of the new six-country member European
Whitaker's paper was the blueprint for the
move from protectionism to free trade and the modernisation of the
economy through the incentivising of multinational companies via tax
breaks and grants, to establish manufacturing operations in Ireland.
Source: Heritage Foundation
Sean Lemass, the Tánaiste (Deputy Prime
Minister) and Minister for Industry and Commerce from mid-1957, was a
strong supporter of Whitaker's blueprint despite opposition from
business and trade union interests and it became the basis of the First
Programme for Economic Development. In 1959, Lemass became Taoiseach
(Prime Minister). In the same year, the Shannon Industrial Free Zone
opened at Shannon Airport in south-west Ireland and American companies
began opening assembly facilities in the zone. In 1961, Ireland applied
for membership of the European Economic Community without success. Two
years later, the State visit of President John F. Kennedy, the
great-grandson of Irish emigrants, set the seal on the new modernising
Irish economy as prosperity began to reverse the tide of emigration.
In January 1973, Ireland joined the then
European Economic Community. In October of that year, unemployment fell
to 63,000 and another Middle East War ushered in an oil embargo and a
quadrupling of oil prices. Inflation shot up to double digit levels and
governments lost control of public spending, emigration resumed and
negated the positive impact of the membership of the EEC.
Between 1977 and
1981, the combination of tax cuts with huge spending increases (in the
single year 1979, the public service pay bill was increased by
34%), resulted in a trebling of the National Debt.
The continued success in building up the
base of foreign companies, the opening of a financial services centre in
Dublin in the late 1980's, eventual political courage and cross-party
support to control public finances, large structural funds transfers
from Europe and a favourable demographic factor with a young educated
population, coincided with the take-off of the American economy from the
mid-1990's and the Celtic Tiger was born.
Garret FitzGerald has written in the Irish Times that during the brief
Celtic Tiger period from 1993 to 2001, our living standards rose by
one-half. But this was due to two special factors - both of which were
essentially temporary in character.
first was the impact upon our national productivity of a quite
exceptional inflow of new US investment. For a number of years
Ireland, with only 1 per cent
of Europe's population, attracted up to 25 per cent of all US greenfield industrial investment in our
continent. The new technology and skills that this inflow brought
contributed to a 4 per cent annual increase in output per worker at
national level, ie productivity.
second factor, which played an even larger role in boosting our living
standards during this time, was the huge increase in the total number of
people at work, and the corresponding drop in the proportion of
dependants in our population. Several factors contributed to this: the
exceptional inflows of young workers emerging from the educational
system and of women transferring from "home duties" to the labour force,
and also the flow of unemployed people returning to work and of recent
emigrants coming back to jobs here.
decade these inflows into our labour-force reduced from 230 to 115 the
number of dependants that every 100 workers had to support, either
directly within their families or indirectly through taxation.
FitzGerald writes that the
increase in the proportion of our population engaged in work, and the
consequential drop in our dependency ratio - more rapid than had ever
previously been seen anywhere in Europe in peacetime - accounted for
more than half of the improvement in our living standards. But that
extraordinary combination of productivity growth and reduced dependency,
which distinguished the 1990s in
Ireland from any other decade, was a
future, our standard of living is likely to rise much more slowly than
we became accustomed to during the 1990s. However, I don't think that
people this particular penny has yet dropped,” FitzGerald writes. “Since
the end of 2003, output per worker in Ireland has been almost static. It
seems to have risen by only 1 per cent in 2004 and not at all in 2005.
Even if the CSO was in due course to revise upwards its current
estimates of economic growth in those two years - which is quite
possible - any such revision is unlikely to be on a scale that would
show any appreciable rise in productivity…. in the absence of
improvements in output per worker, the current spending spree, financed
by borrowing, could not continue indefinitely. And, on top of the
uncertainty created by our huge growth in dwelling construction, this
new factor introduces a further element of uncertainty into our economic
prospects in the latter part of the current decade.”
A Low Tax Economy ?
plus the Mother of all Stealth Taxes
Prices and Earnings that was published by Europe's biggest bank UBS
on August 9th, says that Ireland is the 8th most expensive of a sample
of 71 cities worldwide.
With the highest net wages, Zurich and Geneva, followed by Dublin,
Los Angeles and Luxembourg, lead the pack in purchasing power.
However, in Dublin, rents are low but
house prices are very high. So net earnings after housing costs can vary
widely depending on whether the worker is a renter or mortgage payer. In
contrast with other European cities, where public health care standards
are high, many Dublin workers have to buy private medical insurance from
their net earnings after tax. There are other examples of hidden taxes
such as the data from the EU last month that
electricity prices for consumers from the State-owned monopoly, are
46% higher than in the UK.
The Irish Government gets an average of
in various taxes and levies i.e. tax, from the cost of every housing
unit built in the State. It amounts to more than 30% of the average cost
and is the Mother of all Stealth Taxes. In November 2004, the Minister
for Finance Brian Cowen, said in the
that the percentage was 28%. The Construction Industry Federation says
that its more than 30%.
OECD in October 2005 show that
Ireland's tax as a percentage of
GDP (Gross Domestic Product) ratio was 30.2% in 2004 compared with 29.1%
in 1975. The
European Commission said in May 2006 that
Ireland's tax ratio burden fell 2.9% from 1995 to 30.2%
GDP in Ireland is substantially larger
than GNP (Gross National Product) due to the disproportionate impact of
multinationals in Ireland.
The ratio of tax to GNP in Ireland in
2003 was 36.21%, according to the National Competitiveness Council (NCC).
In other countries, the difference between the GDP and GNP ratio, is
The OECD says that
Sweden once again had the highest tax-to-GDP ratio among OECD countries,
at 50.7% in 2004 against 50.6% in 2003. Denmark came next at 49.6%
(48.3%), followed by Belgium at 45.6% (45.4%). At the other end of the
scale, Mexico had the lowest tax-to-GDP ratio, at 18.5%, against 19.0%
in 2003. Korea had the second lowest, at 24.6% (25.3%), and the United
States had the third, at 25.4% (25.6%).
The OECD says
countries with high tax-to-GDP ratios provide family benefits as cash
payments rather than as tax reductions, increasing the apparent tax
burden as measured by the tax-to-GDP ratio.
NCC says that the fall in the Irish tax burden by 10% in the period
1995-2003, can be largely attributed to the significant rise in the
value of Ireland's GDP.
The NCC also says that the breakdown of
total tax revenue between direct, indirect and social security tax shows
that Ireland has one of the highest shares of indirect tax as a
percentage of total tax revenue. Low direct taxes and high indirect
taxes favour export oriented manufacturing and services sectors over
As the Celtic Tiger boom accelerated from
the mid-1990s, the Irish Government significantly extended
property-related tax incentives in respect of rundown areas in most
urban areas, car parks, nursing homes and holiday homes.
Very wealthy people have
been able to use such incentives to reduce their tax liabilities to low
levels or even zero.
Breakdown of Tax Revenue, 2003
Social Security Tax
Income tax or direct taxes rates have
fallen since the dawn of the Celtic Tiger.
In the 2002 Programme for Government, Fianna Fáil
and the PDs agreed that 80 per cent of all income earners pay only
standard rate tax. The commitment has not been met.
In 2002, almost three quarters of
earners paid only standard rate tax. Today, just two thirds do. Four
years ago, just over a quarter paid tax at the higher (42 per cent)
rate. By 2006, nearly a third now do. The failure to index bands and
allowances for inflation in recent budgets, except in December 2005, is
the principal reason.
In percentage terms, more people are paying tax at the higher rates
in 2006, than in 2002. And this has happened despite years of strong
Pay - Irish
Public Service 2001-2006: Salaries up 59%; Payroll up 18% - 38,000
additional workers and Pensions up 81.3%: Average industrial wage rise
in the period was 19%
service salaries have risen by 59% in the past five years and the
payroll has expanded by 38,000 extra staff.
Increases in public sector over the period due to
general rounds total €2,479m (or 24.3%), “special” pay increases
(primarily Benchmarking) total €1,328m (or 13%), and other factors (such
as extra numbers) total €2,193m (or 21.6%).
The increase in the average
industrial wage for a male worker in the period 2001-2005, was 19%.
annual wages and pensions bill increased sharply from €10.2 billion in
2001 to €16.2bn last year, with what has been termed "benchmarking"
accounting for up to €1.32bn of the rise.
The number of public servants grew by 38,760, or 18%, since 2001 to
257,013 last January.
The education sector saw the biggest increase with pay costs rising by
65%. Health sector pay surged by 63% in the period, civil service
salaries rose 48% and in the security sector they rose by 34.8%.
The average weekly earnings for non-health
service public sector workers stood at €848 last September, according to
This was above the €754 for the banking and insurance sector and €579
for industrial workers.
Fine Gael finance spokesman Richard Bruton insisted taxpayers were not
getting value for money.
“Salaries have increased greatly, but there has been no quid pro quo for
the taxpayer because ministers did not build the necessary reforms into
the benchmarking structure,” he said.
Labour’s spokeswoman on finance Joan Burton called for benchmarking to
be much more transparent.
“I really don’t think we are seeing the money showing up on the
frontline of health and education in particular. The bloated bureaucracy
is swallowing so much up,” she said.
Public sector pay rose by 8% in 2005 and pensions now account for 10%
of the total pay bill, up from 8.6% in 2001. The pensions bill has
increased from €876m in 2001 to €1,588m in 2006 representing an 81.3%
increase over the period. The increase in the health sector has been
104%. Pensioners also received the special benchmarking increase of an
average of 9%.
In August 2006, it was reported that senior civil servants had been
paid average bonuses of €11,000 in respect of 2005.
Some of the largest performance-related bonuses were paid to senior
Department of Health officials.
Three public servants received over €20,000, with one getting
€25,000. Most of the senior civil servants - 13 top gardai and 12
defence forces chiefs - received bonuses of at least 10% of their
The bonuses are based on self-assessment forms and a review by each
Department's Secretary General of how specific goals have been achieved.
The Committee for Performance Awards (CPA), which has a
responsibility for monitoring the awarding of the bonuses, warned
Departments not to be so generous with taxpayers' money after giving
over €2.1m in special bonuses to 185 senior civil servants.
The CPA also expressed concern that in nearly one-third of Government
Departments, the annual objectives, or targets, have not been issued by
April, when one-quarter of the performance period had elapsed.
Their report shows that seven assistant secretaries in the Department
of Health received an average of €13,730 each. In no case were any of
the public servants rated for a zero award, although none received the
A €532,000 bonus pot was shared among 46 senior staff at the
Department of Foreign Affairs, most of whom are ambassadors.
Common Agricultural Policy receipts
per head. Source: Future Financing of the European Union report,
UK House of Lords European Union Committee
On Tuesday October 10, 2006,
Ahern said that problems in health and other public services cannot be
solved unless working practices change.
Ahern said change
and modernisation in the public service could be achieved only if staff
extended their working day.
He said it would
not be possible to face challenges in the future if public sector
workers wanted to work only six hours a day and take a half-day on a
So in the tenth
year in power, it's as if he had never heard of benchmarking or more
likely, that he knows that he has been a fraud that has not resulted in
any worthwhile changes.
Taoiseach says problems in health and other public
services cannot be solved unless working practices change such as
working six hours a day and a half-day on a Friday
Irish Workers without an occupational pension
In August, a report prepared by the Pension
Board stated that at present over 900,000 people, almost half the
country's workforce, have not made provision for any private pensions
and, as of now, are moving towards a retirement in which their main
source of income will be the State pension.
In May 2006, Danny McCoy, Director of Economic Policy at
IBEC, the principal Irish employers' group, said that we spend 3% of our
GNP annually providing pensions for our pensioner population of
We spend a further
1.3% of GNP in funding what are excellent pensions for 70,000 public
service pensioners. The average public service pension is about twice
the Social Welfare pension and the overall bill keeps growing as a
consequence of Benchmarking and wage related indexation.
A private sector
worker can provide for the equivalent of a public service pension for a
maximum of two-thirds of final salary for retirement. However, 28% of
salary would have to be put aside every year for 40 years to do so.
This figure is based on an assumption
that a person's salary increases by 5% per annum; annual investment
growth is 7% and annuity rates (which buy a pension on retirement) are
Public pensions now
account for 10% of the total public service pay bill, up from 8.6% in
2001. The pensions bill has increased from €876m in 2001 to €1,588m in
2006 representing an 81.3% increase over the period. The increase in the
health sector has been 104%. Pensioners also received the special
benchmarking increase of an average of 9%.
As a consequence of our favourable demographics Irish
public spending on pensions is among the lowest in Europe.
At a recent
Pensions Board meeting, William Beausang, the representative of the
Minister for Finance Brian Cowen, objected to mandatory pensions on cost
grounds. Both he and his Minister have gold-plated pensions and a
National Pension Reserve Fund that will pay for these pensions, is
currently valued at
Benchmarking System - The Scam of the Decade
An average special pay increase of 9% has been awarded to politicians,
public servants and pensioners. Aspirational targets have been
introduced in public services but there is no evidence of any
improvement whatsoever in accountability.
In the public service, the opportunity to link responsibility with
accountability was flunked with a sham benchmarking system. The recent
national partnership deal
has provided for some public
service reforms including a removal of the ban on outsourcing "core
work" but these are essentially baby steps.
public service workers come from the same gene pool as those who work
for the world class companies that power our economy. However, senior
managers can sign-off on multi-million euro projects without having to
take any responsibility for it.
December 2000, a
Service Benchmarking Body,
established under the Programme for Prosperity and Fairness (PPF), was
asked to undertake a fundamental examination of the pay of public
service employees vis-a-vis the private sector. Former
Davy Stockbrokers' economist Jim O'Leary was a member of the body for a
period but he resigned before it reported.
2004, O'Leary who had joined the Department of Economics at Maynooth
University, published with two of his colleagues, the results of six
months' rigorous and painstaking research into public-private sector pay
differentials in Ireland -
Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary,
O'Leary and his colleagues wanted to discover whether similar people in
similar employment circumstances were better or worse off working in the
public than in the private sector. In order to do this, they had to
control for attributes like age, experience, gender and education, and
also for job characteristics like occupation, type of contract and size
the CSO data does not permit this kind of analysis, the dataset that
they had to use is one based on a large-scale survey conducted by the
Economic and Social Research Institute (ESRI) and used for much of its
research into poverty and inequality.
core finding was that on average, public servants earned 13 per cent
more than their private sector counterparts on a like-for-like basis in
2001. The researchers also discovered that the size of this margin (the
public sector premium) in 2001 was not significantly different from what
it had been in 1994, suggesting that pay increases in the public sector
had kept pace with the private sector throughout the Celtic Tiger
Another discovery was that the margin by which public service workers
outearned their private sector counterparts tended to be significantly
larger at the bottom of the income distribution than at the top.
A particularly striking finding was that the estimate of the public
sector premium for Ireland was more than twice as large
as the available estimates for other countries.
Public Sector Benchmarking Body recommended pay increases which averaged
9 per cent across the grades examined and cost €1.2 billion a year.
Government Departments introduced aspirational targets for staff that
would make a laughing stock of a manager in the private sector who
emulated the farcical exercise.
O'Leary says that the Public Sector Benchmarking Body never published
its research results and at no stage in its 278-page report did it
explicitly state or opine that public sector pay had fallen behind that
in the private sector.
Ministers, other politicians and all living former employees of the
Irish public service received special payments.
November, Davy Stockbrokers said that Irish public sector pay is on
average around 120 percent of private sector earnings, having risen from
113 percent in the past five years
The biggest fraud
of all was that the Benchmarking Body did not take any account of the
unique public pension scheme, never mind the issue of job security.
Ahern wanted to buy off the public service unions, whatever the price
and as a man whose job before entering politics was an administrator in
a Dublin hospital, he had not the exposure of life in an unprotected
private sector company.
Overpaid Legislators: 30% Special Pay Awards including Sham
Benchmarking and Pay up 119% since 1997 - Average Weekly Industrial
Earnings up 60%
Ireland has 166 members (TDs) in the lower parliament chamber Dáil
Éireann who represent some 4.2 million people.
With one TD for every 25,000 persons, the people are over-represented in
parliament, and their representatives are, by international comparison,
overpaid as national legislators.
However, following the latest census of population, Ireland may even
Joseph O'Malley, Political Correspondent of the Sunday Independent
recently wrote that IreIand has far more TDs than Britain has MPs: four
times as many in proportional terms. The TD in Leinster House is now
better paid than his or her counterpart at Westminster. The TD also
enjoys superior pension benefits, and for a much lower pension
contribution: 6 per cent of a TD's salary, while the MP pays 10 per
O'Malley says that for the TD, the transformation from being
underpaid to being overpaid represents a remarkable turnaround in a
short time. The TDs, however, are not complaining. Within a decade, few
sectors of society have done better in pay terms than the political
class at Leinster House.
In 1997, the Westminster member was paid a quarter more than the TD,
who then earned €44,067. Nine years later the TD/MP pay gap has not just
been closed, it has been reversed. Today, the
deputy earns €96,650 and the MP earns 11 per cent
less, at €87,132.
Few can seriously dispute that the TD has less onerous national
responsibilities than his British counterpart. The Dail sits less often
than the Commons, and parliamentary life is much less demanding in
Leinster House than at Westminster. Never mind that Britain's population
is 15 times larger. And its economy is 11 times the size of the Irish
economy. The TD represents fewer people in a much smaller country.
Nevertheless, Dail deputies are now paid more than MPs to do a less
The key to the current high salary status of TDs has been the
conjunction of some remarkable series of developments on the pay front.
First, in 1999 the Buckley pay review awarded TDs a special pay
increase of some 18 per cent. Buckley also recommended that Dáil deputies'
pay should be linked to that of a principal officer in the civil
service. Second, in 2002 the benchmarking review recommended a 12 per
cent pay rise for principal officers. And because TDs were linked to
principal officers, they also benefited from that award. Since 1997, the
30 per cent from the special pay awards, when added to the normal
partnership pay rises, has meant that the pay of Dail deputies has more
than doubled. It is up 119 per cent, or twice
as rapidly as the average industrial wage.
Stephen Collins in The Irish Times reported last July that
politicians received their fourth pay rise in a year at the beginning of
June, bringing the basic salary of a TD to €96,560 before special
allowances and expenses are taken into account.
For the Taoiseach and his Ministers, it was the sixth pay rise over the
past 12 months. Mr Ahern's salary is now €258,730 a year, including his
TD's salary, while the Tánaiste earns €222,256 and other members of the
Cabinet get €204,020.
Each Government minister has got 2 benchmarking awards, even though
everyone knows that the system has been an absolute scam.
A comparable country to Ireland, such as New Zealand, which is
similar in population size (4.1m) and economic scale and performance to
Ireland, manages with 120 MPs, one chamber, and no upper house. Indeed
in 1999, in a non-binding referendum, the New Zealand people voted to
reduce the number of MPs to 99: some 84 per cent voted in favour. Even
more remarkable: the Kiwi MP is paid just €56,730, under two thirds the
Joseph O'Malley in The Sunday Independent, says that a contribution
of only 6 per cent of salary
entitles TDs to a full pension after just 20 years,
based on half their final salary, and with a lump sum payment of one and
a half times that salary. But what the TD pays for his pension bears no
relation to the real economic cost of providing his retirement benefits.
The taxpayer pays that extra, unquantified, cost.
In a damning indictment of the current wide gap between many of the
governed and their legislators, O'Malley writes:
Many private sector companies are closing their defined benefit
(final salary) schemes to new entrants, while others raise contributions
to close the funding deficit, which the law passed by the Oireachtas
requires. Remarkably, however, little echo of this great debate on
pensions can be heard in the national parliament.
To cap it all, part-time local
councillors are seeking public occupational pensions even though most
private sector workers beyond the foreign-owned sector and large
Irish-owned companies, such as banks and public companies, have none!!
The Sunday Independent has reported that thirteen Government
ministers have benefited from tax breaks, averaging almost €5,000 each
on second homes in the capital, just weeks after the Taoiseach's brother
Noel Ahern, said property speculators should be "taxed out of
The break designed
exclusively for members of the Government, allows ministers to claim
relief on second homes and for overnight accommodation in Dublin. Latest
figures reveal that 13 ministers availed of the perk, claiming €63,477
The "dual abode
allowance" allows rural TDs to claim up to 100 per cent mortgage relief,
and they can claim back the stamp duty on their city homes.
Ministers who qualify can write off much of their mortgage
repayments on second homes against tax, and are allowed to cash in on
the Dublin property boom tax free.
The latest figures
on the ministerial tax breaks come just weeks after Noel Ahern, the
junior housing minister, called for a tax to put property speculators
out of business.
Commissioners refused to name the ministers and junior ministers who
availed of the scheme in 2004, citing "confidentiality".
More than half of
the 23 senior and junior ministers who represent constituencies outside
of Dublin have applied for the breaks.
And finally on one
of many legislative perks...an audit by the Comptroller and Auditor
General's office has found that a pint costs as little as €3.70 in the
Dáil visitors' bar, more than 50 cent cheaper than elsewhere in Dublin.
The audit has also reportedly raised concerns about the slow rate at
which TDs pay off their bar tabs and the falling profit margins at the
four bars and restaurants in Leinster House.
Do more pay and perks increase the
likelihood of a better standard of public representatives?
Many of the 166 current members of Dáil
Éireann are uninspiring individuals who principally play the traditional
role of political messenger boy/girl. In the House. with the exception
of Joe Higgins and Pat Rabbitte, parliamentary performers are a rare
specie and mumbling with the aid of a script is surely one good cure for
A TD or aspiring one, should be expected to put forward challenging
ideas, defying conventional wisdom where appropriate and addressing
issues of public policy beyond a forthcoming election.
The limited talent on the backbenches can also be seen when up to 30
senior and junior ministers are selected.
How many of the current crop would be selected in an open competition to
run a significant business?
This is an important issue because when ministers are expected to
sign-off on big public sector projects for example, it's pretty blatant
that even some of the more obvious questions are not asked.
The typical existing or aspiring TD who cannot articulate a challenging
idea, finds refuge in an expression of support for party policy but ask
what will likely follow the ending of the current CAP system for farmers
in 2013 or when the foreign manufacturing sector or construction
industry will contract, there is nothing to be said.
Then there are the one-issue independent candidates who are vacuous
beyond their pet local hospital or whatever got them elected.
At the Central Bank's economic conference,
referred to at the outset,
Dr. Frank Barry of UCD, highlighted
the detrimental effects
of the localist and clientalist nature of the Irish political system.
The shelving of the Buchanan Report of the 1960s on regional policy, for
example – in response to localist pressures – is now widely recognised
to have had highly adverse consequences for the country as a whole.
Barry said that the
imminent end to EU supervision of national investment policy will
strengthen the scope for localist pressures. A move from the present
national electoral system towards the kind of list system frequently
encountered elsewhere in the developed world would help insulate against
such pressures and would also serve to raise the quality of Irish
The list system,
which allocates parliamentary representation proportionately to parties
but lets parties choose the members of parliament, was recommended by a
commission on electoral reform in 1996.
The Constitution Review Group (1996) was
chaired by Dr T.K. Whitaker.
Bertie Ahern isn't going to do anything
about it; the new PD President Tom Parlon will not support any land
development reform and one can only wonder what the new PD leader
Michael McDowell means by radicalism?
Lazy journalism is surely a godsend to
many of them!
Seven Years to a World
Class Knowledge Economy?
Brian Maccaba founder of FX technology company Cognotec,
recently told Finfacts that the company will have revenues of $100
million before contemplating an IPO.
Maccaba welcomed the Government's July announcement that
the State will invest up to €3.8 billion in R&D in the
period to 2013.
"We've been unable to produce scalable tech companies
because of the lack of depth in scientific research. A comparable
country like Israel, has over 70 companies on Nadsaq," he said.
Top Irish-owned Tech
It will likely take Ireland up to 20 years rather than 7
to achieve the level of Israel in relation to the development of
home-grown knowledge intensive firms.
On Tuesday, July 25th, Hewlett-Packard announced its
agreement to acquire Israeli software company Mercury Interactive, which
has annual revenues of $800 million and was founded in 1989.
Foreign firms were responsible for 87.6% of Irish
exports in 2004 and it is expected that the current level of Foreign
Direct Investment in the Irish economy will fall over the next two
Chipmaker Intel and top PC maker Dell, are Ireland's
biggest manufacturing employers.
Leverhume, who as William Hesketh Lever
(1851 - 1925)
, manufactured Sunlight Soap, famously said: "I know
half my advertising is wasted, tell me which half!" The same could be
said of public R&D spending.
There is a danger
that academics could be the ones who reap the material gains while using
PhD students on public funding as mules working on research that has
little likelihood of being commercialised. Enterprise Ireland already
provides funds for PhD research where part of it is used for research at
overseas universities, which would have control of intellectual property
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