Taoiseach Brian Cowen

Irish Economy - Putting Brass Knocker on Barn Door: Taoiseach Brian Cowen will today stage a high profile launch of a "framework" plan for economic recovery on the day the Dáil, will adjourn for a 40-day break. Based on Government leaks over the past month, there is no evidence that serious reform is planned, which should be the first step in preparing for economic renewal.

In August 2006, a Finfacts article on the Celtic Tiger and the failure/zero interest, in modernising systems of governance where the buck stops nowhere and addressing vested interest issues, such as land rezoning, began: 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.  

In the same article, we noted that Davy Stockbrokers had said in a July 2006 report that it was highly likely that that the pace of growth of the Irish economy would slow in the later years of this decade. After 2007, consumer spending growth would be impacted by the withdrawal of the SSIA stimulus and the long-anticipated peak in the housing market may finally have occurred. Davy said that it was difficult to see what sectors could replace this loss of momentum.

The Financial Times commented in an editorial this week: George W. Bush, who ducked a volley of shoes from an enraged Iraqi journalist at a press conference in Baghdad on Sunday, professed to be perplexed. This was an epic insult intended for a serial bungler. But, like the shoes, it too went straight over his head. Mr Bush, who has buried America’s reputation throughout the Arab and Muslim worlds in the ruins of Iraq, did not, does not and will never get it.

In Dublin Castle today, Brain Cowen, another serial bungler, who also doesn't get it, will try to deflect attention from his government's lamentable failure to show serious political leadership during what he terms "a once-in-a-century" crisis, by outlining measures that may well individually have a positive impact but are no substitute for addressing the fundamental flaws in the Irish economy.

It's simply business as usual and as the Dáil, will remain shuttered through January, the parliament of another developed country New Zealand, will also not be sitting. However, it is summer there and January is the only month in the year when the parliament doesn't sit. With comparable populations, New Zealand has a single chamber parliament of 121 members, compared with Ireland's 216 - - this with so much else just illustrates the lack of commitment to change.

Apart from the issue of modernisation, the implications of the period of slower medium-term global growth as a result of the current crisis, have not been addressed thus far by Irish political leaders.

It's as if a number of new tax incentives will do the job and life will return to normal. That is unlikely to be the case as the US savings rate is expected to rise in the absence of increasing wealth from growing asset values.

"By putting a framework on the table, this Government is showing its commitment not only to lead the country through this once-in-a-century downturn, but also to restructure the economy so that we are in pole position when the global recovery occurs. We must plan for the recovery now," Cowen said last night.

"The Government intends to work with all who have a stake in our country's future, including the unions, employers and other social partners. I met with the social partners on Tuesday and outlined the Government's thinking. I invited the social partners to work with us in a constructive spirit so as to finalise the necessary actions to develop and implement the framework."

The Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal programme, to be unveiled today is reported to focus on the concept of a "smart economy" designed to provide incentives for new business ventures, particularly those that involve research and development.

A new variable tax regime will be introduced for venture capitalists, with rates as low as 15% for individuals to complement the 12.5% corporation tax regime.

To encourage start-ups, particularly in research and development, a three-year exemption from corporation tax will be introduced for companies that meet the criteria.

In the environmental area, there will be a focus on the development of wind energy and incentives to encourage the fast-track development of wave energy projects.

The plan is also expected to include details of spending priorities on critical infrastructure, particularly the school building programme.

Meanwhile, the Dublin Airport Authority told staff  that its plan to build a second runway at Dublin airport, at a cost of more than €200 million, has been deferred due to the decline in passenger numbers.

"We now feel the airport will not experience significant capacity constraints on the runway system for a number of years, thereby pushing back its commencement date," Chief Executive Declan Collier said. It is understood that the runway, which was due to open in 2014, could be deferred by three or four years - - good planning maybe or maybe not?

On the wages front, the Irish Congress of Trade Unions (Ictu) has said that it is to seek an increase in the rate of the national minimum wage, despite the expectation that the cost of living will fall in 2009.

IBEC Director Brendan McGinty said:“Job security must be the focus. It does not make any sense to raise the minimum wage at a time when thousands of jobs are being lost every week. Companies simply cannot afford an increase and any rise will result in job losses. Living standards of those on the minimum wage are not under threat as the cost of living will actually fall next year. No increase is justified.

"The move by ICTU is not in the national interest or in keeping with the public mood, particularly at a time when the Taoiseach has begun a process of engagement with the social partners to build consensus on a programme for economic renewal.

"The national minimum wage was last increased by 4.2% from €8.30 per hour to €8.65 per hour from 1 July 2007 without any increase in output. It applies to about 5.2% of the workforce and has a disproportionate effect on employers in the hospitality, retail and manufacturing sectors, which are currently facing extremely difficult trading conditions. Labour costs are a very high percentage of operating costs in these sectors, and productivity growth cannot readily offset any increase.

"As a result of the rapid drop in the value of sterling over the past year, the national minimum wage in the UK is now 26% below that in Ireland. Ireland already has the highest after tax national minimum wage in Europe. The decision by the Government to exempt those on the national minimum wage from the 1% income levy has removed all workers on the minimum wage from the tax net. There should be a moratorium on any review of the national minimum wage until 2010 at the very earliest.

"Under the national partnership agreement ‘Towards 2016’, trade unions have accepted that “given the current uncertainty in domestic and international economic conditions and the need for stability, there will be some employers for whom it may not be possible to apply the increases provided for”. Any minimum wage increase would be contrary to the terms of the agreement.

“The former Minister for Labour Affairs Tony Killeen TD, following the last review of the national minimum wage in January 2007, stated that he intended raising with the social partners how the adjustment process for the national minimum wage might be better managed to meet the concerns expressed by employers. This has not happened yet and must be urgently addressed by the Government.”

In the Irish Times today, Miriam Lord comments:"But the attacks from Enda and Eamon must have stung, because by teatime, word came from Government Buildings that the invisible plan had been located and it was being gussied up in readiness for a big presentation in Dublin Castle today. If the event goes to previous form, all house-trained social partners will be rounded up and herded into the castle. It'll be like one of those days outside the Department of Agriculture in Kildare Street when the farmers come to protest.

But why all the hugger- mugger? Could it be that there is no plan at all? Actually, there isn't. There is a "framework". All very nice and aspirational, but hardly a plan, which is what everyone had been led to expect.

This was later described by one Government source as "an evolving framework". Tánaiste Coughlan called it "a platform". It'll probably be a blueprint by this morning.

However, as with all good wheezes, there is a title: "Building Ireland's Smart Economy." The way things are being handled by this secretive administration (nervous Fianna Fáil deputies are in a state of constant surprise) with their last-minute announcements and invisible plans that aren't really plans, we could be in for something this afternoon that is more Maxwell Smart than smart."