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Analysis/Comment Last Updated: Jan 28, 2015 - 8:44 AM


The Finfacts Troika: Better times ahead and a hangover to forget?
By Michael Hennigan, Finfacts founder and editor
Dec 20, 2013 - 11:11 AM

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Source: IMF

The Finfacts Troika: The year ends on a high note with 2014 prospects for the Irish economy and the main developed economies looking much brighter than some months ago. The length and severity of the bust after mythical living in the second wealthiest nation on earth, suggests that memories of the hangover should endure for some time.

"All changed, changed utterly..." William Butler Yeats wrote in 'Easter 1916' but this time the best that could be said is that the status quo remains firmly intact with the same powerful vested interests still grasping the public megaphone.

Even in the space of a week, there have been calls for costless tax cuts: Michael Noonan, finance minister, has dangled the prospect of cuts. When he reduced the VAT rate in 2011 on tourism activities to 9%, he had made the brave move of raiding private pensions funds (there is no fund for his own 3 public pensions). It was  from the playbook of Jean Baptiste Colbert (1619–83), finance minister of King Louis XIV of France, who reputedly said: "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."

Like Colbert's gabelle tax, Noonan's levy/tax was salt in the wounds of a banjaxed pension system.

IBEC, the business lobby group, which had rode the tiger to hell and back, has called for cuts in both income tax and business taxes - - the lowest corporate and employer social security taxes in Europe and the majority of the private sector without an occupational pension, isn't enough. In fairness, the cuts would be funded by putting all staff of the Irish public sector including the people at the top, on the same pension terms as new entrants - - turkeys voting for an early Christmas? To anyone who believes that's a runner amidst signs of recovery, I have a bridge in a place called the Empty Quarter that I want to sell to you! (just in passing in a reverse deal, in 1968 an American oilman bought an 1831 vintage London bridge for $2.5m and shipped it to the Arizona desert.)

"We campaign in poetry, but when we’re elected we’re forced to govern in prose,” Mario Cuomo, then New York governor, said in a speech at Yale University, in 1985.

Process is often boring for politicians and President Obama's lack of attention to the implementation of his healthcare program is a colossal failure that puts him in the same boat a George W. Bush in the competence rankings. The Republicans tried about 40 times to abolish the Affordable Healthcare Act and the president himself ends up being responsible for most of the damage to his signature legislative achievement.

On the home front, reform has been minimal and I have wondered why Richard Bruton, enterprise, jobs and innovation minister, could be mistaken for Micheál Martin, a Fianna Fáil predecessor?

Bruton appears to run a permanent publicity campaign and in common with his ministerial colleagues, the publication this week of  'Strategy for Growth: Medium-Term Economic Strategy 2014 – 2020' betrayed a bankruptcy of ideas.

Laundry lists of actions like ideas competitions are not an answer to where 300,0000 net new jobs would come form in just over a half decade?  The pre-2008 economy is not set for a return.

Our Finfacts Troika has comprised 3 themes:

  • We were in the minority that stood up against the consensus during the bubble that regarded questioning of their house of cards as "talking down the economy." As a small media company selling advertising to the financial services sector, we made no Faustian Bargains - - unlike the bigger players;
  • The international moves against corporate tax avoidance this year shocked the same bubble insiders who were convinced that the EU veto on taxation issues would guarantee the status quo. This issue has been linked with misuse of data distorted by the multinational sector that sees ministers making false claims on competiveness when for example a surge in computer services exports and output directly results from tax avoidance. Sailing against the wind in conservative Ireland of course brings derision rather than awards but we will continue telling little emperors when they have no clothes;
  • This year was to be when Ireland would be recognised as a "world-class knowledge economy," according to a 2006 official target. The issue was buried by the establishment as patent applications fell to a 30-year low. Putting research at the heart of enterprise policy is delusional but providing no evidence of success, Richard Bruton's Department told Finfacts this week: "Minister Bruton and the Department of Jobs are unashamedly ambitious for the potential of scientific research in Ireland to support economic growth and job-creation in Ireland" -  - this comes down to faith and we expect that time will be called when the effort to conceal failure with public funds will be unsustainable. A recent €88m project, is a combination of SFI public funding (€58m) and 30 industry partners (€30m). "This does not include other state funding such as academic salaries, buildings, in universities etc which may be used at times by the research centre," the Department said meaning that for industry partners net of grants and tax credits, Joe Taxpayer is funding the lion's share.

Irish Innovation: Evidence of science policy failure mounts

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Parts 1-8

Europe's helping hand

Public outrage came too late in response to reckless misgovernance. We had asked in 2007: "Where is the outrage" but for many it was still party time.

"Let me say this to you all: You are not responsible for the crisis," Enda Kenny, taoiseach, said in a national address in December 2011 - - people elect politicians to govern but the buck stops nowhere! Last week he said in another address to the nation: "Two years ago, this month, I said that retrieving our economic sovereignty was an important step in the plan to deliver on that mandate. Since then - - the people of Ireland and your government -- have worked hard to deliver that plan."

This blather has conceded with belated outrage mainly directed at easy targets beyond our shores.

The old sense of victimhood returned during teh bust, which John Banville, the writer, referred to in 'The New York Times' in November 2010, following the EU-IMF bailout: "There used to be a nice acronym that neatly expressed how the Irish people conceive of themselves: MOPE, that is, Most Oppressed People Ever."

The Irish Government told the European Commission not to send any representatives to Dublin this month to mark the end of the international bailout - -  Kenny did not wish to share bragging rights while there was also pandering to those who like to believe that the bust was mainly the responsibility of nefarious foreigners.

The European Union had been slow to recognise the impact of the developing debt crisis in the peripheral members of the single currency area and policy responses were piecemeal.

However, the European Commission had been an advocate of Ireland's demand for lower bailout interest rates and the rescheduling of almost €30bn worth of Anglo Irish Bank/ Irish Nationwide promissory notes that had been used to mainly fund depositor bailouts.

José Manuel Barroso, European Commission president, responded on Thursday to Kenny's snub when asked at a press briefing whether Ireland should be entitled to retroactive debt relief, he said the problems that appeared in Ireland were not created by the European Union.

The president said that the “major destabilisation of the euro area” which had resulted from events in the Irish banking sector “happened under the responsibility of the national authorities of Ireland and the national supervisory entities” and it would be “wrong to give the impression that Europe has created a problem for Ireland and now Europe has to help Ireland.” He added: “In fact it was the banking sector in Ireland that was one of the biggest problems in the world in terms of banking stability. Let’s be honest about this.”

When President Franklin D. Roosevelt was running for reelection in 1936, he commented on the ungrateful business critics of the New Deal:

Do I need to recall the powerful leaders of industry and banking who came to me in Washington in those early days of 1933 pleading to be saved?

Most people in the United States remember today the fact that starvation was averted, that homes and farms were saved, that banks were reopened, that crop prices rose, that industry revived, and that the dangerous forces subversive of our form of government were turned aside.

A few people- a few only—unwilling to remember, seem to have forgotten those days.

In the summer of 1933, a nice old gentleman wearing a silk hat fell off the end of a pier. He was unable to swim. A friend ran down the pier, dived overboard and pulled him out; but the silk hat floated off with the tide. After the old gentleman had been revived, he was effusive in his thanks. He praised his friend for saving his life. Today, three years later, the old gentleman is berating his friend because the silk hat was lost."

Eaten bread is soon forgotten and those who pine to live in Iceland, check the facts: Iceland's economy is recovering but still in crisis

In net terms, Ireland has neither contributed a penny or cent to the EU budget in 40 years!

Happy Christmas and New Year!

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