Appendix 1- The Impact of €7bn Fiscal Stimulus
Below we set out the economic and fiscal impact of our €7 billion government investment stimulus programme. Again, we have used the multiplier effects for the economy as estimated by Professor of International Macroeconomics Philip Lane of Trinity College. We use these multiplier effects because they are the most conservative currently in circulation. Even the IMF’s multipliers are more optimistic. We have also used the Department of Finance’s HERMES model estimate of the sensitivity of government finances to changes in GDP, which it puts at 0.6.
The key points are these:
- A €7bn government investment programme
- Between 2012 to 2015 this lifts GDP by a cumulative €28.9bn
- This growth boosts government finances by a cumulative €17.3bn
Net Impact of Government Investment
The Lane multipliers show these effects per annum:
Year 1 = 1.24
Year 2 = 1.61
Year 3 = 1.13
Year 4 = 0.46
Total = 4.44
The Lane model includes negative effects in further years, on the grounds that increases in government investment ‘crowd out’ investment by the private sector. This view is highly questionable and is not supported by evidence from the high-growth, highinvestment patterns of the Asian economies. In any event, the economy and government finances are in crisis and these issues have to be addressed immediately.
On the fiscal side, the DoF has stated that the sensitivity of government finances to changes in GDP is 0.6%. This is higher than the tax take as a proportion of GDP for two reasons. First, most taxes are levied on marginal changes in activity (incomes, capital gains, profits, etc.), most of which have thresholds before taxes are paid. Secondly, the sensitivity also includes the benefit of increased activity in lowering government outlays, especially on welfare.
The relationship between €1 billion increased government investment over 4 years and the impact of that growth on government finances can be shown as follows:
€1bn X 4.44 X 0.6 = €2.664bn
Investment Impact on GDP and Government Finances
Our investment programme of €7bn is made over 3 years, €2bn in 2012 and €2.5bn in both 2013 and 2014. The effects are shown in the table below. (Year 1 is 2012, the year in which investment is made. Year 4 is 2015. €7 billion is expended as shown.)
In 2015 there will have been continuous expansion for 3 years so by that time the recovery would have become self-sustaining (Our GDP increase is only based on stimulus effects, not wider private sector activity, so it is likely to be an underestimate). If the recovery becomes self-sustaining and we believe it will - the private sector will start to invest because increased growth leads to increased prospect of profits - the economy will start to generate jobs independently of the stimulus.
Our budgetary adjustments also remove the need to cut capital spending over the next three years. This permanent investment can be added to the
temporary investment above.
Appendix 2 – Wealth tax
In Sinn Féin’s 2011 pre-budget submission we proposed to introduce a wealth tax. We estimated that this tax would generate €1 billion in a tax year based on an estimate of the levels of wealth currently held in the state using existing data sources including among others the CSO’s institutional sector accounts. We also stressed that the tax returned 0.6% of GDP, which fit with the average returns of wealth taxes as they are applied globally. This year we have adjusted our wealth tax to qualify the first 20% of principal residence’s worth over €1 million being excluded and also a potential situation where people are asset rich but cash poor (living in a house worth money but no income return). This would bring in a lesser amount to the exchequer – in the region of .5% of GDP, or €800 million.
There is no doubt that there is still wealth in this state. The Capgemini Merrill Lynch World Wealth Report annually tracks the liquid assets (which excludes property, collectibles and consumable) of the world’s High Net Worth Individuals (HNWI - liquid assets of $1 million or more) and Ultra High Net Worth Individuals (Ultra-HNWI – liquid assets of $30 million or more). The Report estimated that the total number of HNWI individuals in the 26 Counties increased by 1,800 to a total of 18,100. The report also estimated an increase of 18 Ultra-HNWI bringing the total to 181. The authors of the report
estimated that wealth held by these individuals had recovered to 2005 levels as a result of the transfer of assets from property based investments to currency and commodities.
In 2006 Bank of Ireland produced a Wealth of the Nation report which found that wealth held by a similar category of persons to that used in the World Wealth Report amounted to €156bn representing a 19% rise from 2005. Working back from the 2006 report we can estimate that wealth held by HNWI and Ultra-HNWI’s in the 26 Counties in 2005 was in the region of €140 billion. This is similar to findings of the CSO’s institutional sector accounts. On the basis of the above information it is reasonable to assume that a minimum of €100 billion is held in liquid assets by HNWI and Ultra-HNWI in the state as of the end of 2010. Adding property wealth to this, even with the collapse, shows that there is money in this state that can be taxed via a wealth tax. ICTU has proposed a 1% wealth tax on income in excess of €2 million, which they estimate would bring in €500 million.
Administering the wealth tax
We propose the following:
- A 1% tax on total assets excluding working farmland, business assets, and the first 20% of primary residences worth in excess of €1 million, at a single point in time in a financial year
- Tax to apply to all Irish Citizens born in the state and all others legally resident in the state
- Tax may also apply to trusts or families if revenue believes that these are being used for the purpose of avoiding the wealth tax
- Tax to apply to all assets irrespective of location of asset
- CSO to conduct an annual assessment of the wealth held by such individuals
- Tax returns for wealth tax to be via self assessment with random inspections by revenue and significant penalties, including back-dated fines, for non-compliance
- Estimated return of wealth tax to be €800 million annually (.5% GDP) to be adjusted according to findings of CSO report
- The Department of Finance to examine an inability to pay clause for people who are asset rich and cash poor.
Appendix 3. State agencies
Despite promises of reform, it is still the case that the Minister for Public Expenditure and Reform is unable to provide a comprehensive list of all state agencies under the aegis of Government departments nor does his department collate a list of all state agency board appointees or their remuneration.
Over 60% of state agencies were established from the 1990s onwards and a number of reports have called for a more effective system of management and oversight to ensure effective delivery of services to the public. Non-commercial state agencies are required to present draft un-audited annual accounts to their parent department and the Department of Finance not later than two months after the end of the relevant financial year. The Comptroller & Auditor General recently found that just 31% of non-commercial state agencies complied with the requirement in 2010, down from 40% in 2009.
Broad reform of the public sector must include state agencies, however a simple cull is not the answer. The Government must commit to a considered programme of reform, overseen by the Department of Public Expenditure and Reform, and delivered within a 12 month period, that incorporates proposals for enhanced governance, output measurement, reporting, shared services, a reduction in pay targeted at senior management and possibly a reduction in staff numbers.
Immediate reforms should include:
- Departmental staff should not serve on the board of state agencies.
- Board numbers that currently average at 12 should be reduced to 7 with a review in three years to consider a maximum increase to nine.
- All remuneration awarded to commercial and noncommercial state body board members should be cut by 25%. Saving €6.7million
- The Department of Public Expenditure to compile a ‘State Agency Database’ of all commercial and noncommercial state agencies/bodies, board member names and competencies and remuneration. The ‘State Agency Database’ must be uploaded on the department website.
- The Department of Public Expenditure and Reform to compile an additional database of potential board appointees selected on the basis of their capabilities and this database must also be made available on the department website.
Appendix 4 - Non tax sources of revenue – offshore resources
In this climate, the state should be trying to generate non-tax revenue, as this creates an opportunity to responsibly lessen the overall tax burden. One area to target is the state’s offshore resources. This Government has been entirely
unhelpful in answering parliamentary questions put by Sinn Féin concerning the changing of licensing terms and taxes on offshore resources related activity. As a result we cannot include any potential revenue raising figures in this PBS, though we believe there is substantial amounts to be made by changing the licensing laws. In the interim we believe the Government should do the following:
- Establish a state oil, gas and mineral exploration company that would actively participate and invest in exploration and which, alongside a proper revenue and royalties structure, would ensure that resultant finds benefit the Irish people by providing additional revenue for the Exchequer.
- The huge giveaway of Ireland’s offshore resources must be revisited. We have called for the state to take a 50% shareholding in these resources. In the interim, we believe taxes on profits from the companies currently sourcing these resources should be levied at 48% and a royalty of 7.5% should be applied.
Appendix 5 - Public Sector Pensions
Public sector pensions are expected to cost €2.9 billion for 2011, yet public sector numbers are down. New public service entrants are subject to a 10% reduction in pay rates and public sector pensioners have been subject to the Public Service Pension Reduction. Low and middle-income public servants are bearing the brunt of these cuts. Yet judges, hospital consultants, county council managers, the President and ministers and members of the Oireachtas continue to enjoy pay and pension packages that would make their European counterparts’ eyes water.
Over 100 retired civil servants are in receipt of an annual pension payment in excess of €100,000. The average pension for the majority of public sector workers is between €20,000 and €30,000 per year. The Department of Public Expenditure and Reform has admitted that it only collates pension information relating to civil servants, who make up just one tenth of the overall public sector. The department cannot provide any details on the pay and pensions for all those who work for Local Authorities. In fact no department within the Government is able to provide a full breakdown of pension scales for all retirees from the public sector.
This Government, like the last, is failing to tackle excessive high pay and pensions amongst the highest ranks of the civil and public service. It is failing to bring in the kind of reforms necessary to end the bad practice, bad culture and excessive pay that runs across the senior management ranks of the civil and public sector.
The Public Services Pensions (Single Scheme) and Remuneration Bill 2011 looks to be a step in the right direction but does not go far enough to end the culture of big bucks for the boys at the top. Crucially it does not tackle the pension pay bill retrospectively; new rules will only apply to new entrants. Sinn Féin intends to critically engage with the Government proposed Public Sector Pensions legislation and will bring forward a comprehensive set of pension reform proposals.