Category Archives: Ireland

Prior to the 2011 general election, opposition parties were falling over themselves telling us how they were going to play hardball with the banks. One senior opposition spokesperson, now a Minister, famously said a new government wouldn’t give the banks ‘another red cent’. Maybe, as another senior Minister in the FG-Labour government has said, that’s just the sort of think you say during an election campaign.

As a parting gift, the outgoing FF-led government decided to postpone publishing the results of the ‘Prudential Capital Assessment Review’ (PCAR). This was carried out by Blackrock Solutions, a credible player in the global financial world. The PCAR was supposed to put a number on the ‘red cents’ the banks would require to ensure they were bullet-proofed against what was supposed to be a worst-case economic scenario. To this end, Blackrock ran a slide rule across the banks’ accounts and loan portfolios and reported back to the authorities.

Fianna Fail clearly didn’t like what they saw. The election happened in February. The PCAR was published in March. The banks got another €24bn to tide them over until 2013. And bondholders continued to laugh all the way to the … well, not to the bank, I suppose. Continue reading →

Five years of perma-crisis has sapped the optimism of many an economist, in Ireland and beyond. Some of these dismal scientists have prospered in one sense however, making a cottage industry out of doom and gloom. Some of the more thoughtful have offered some humility, realizing that the pre-crisis conventional wisdom was, at best, incomplete and, at worst, false.

For normal people, the age of austerity feels like it’s lasting an eternity. With unemployment still high and incomes stagnant, making ends meet is a constant struggle. Emigration is the path of choice for too many of our young people: enough people to fill Croke Park are leaving every year. The huge household and private sector debt burden means a large cohort of people can’t participate fully in our economy and in society. Unfortunately, none of this is going to change dramatically in the near term. Continue reading →

The debate on debt may go down as the defining debate of this decade. Everyone is painfully aware that after a borrowing-fuelled consumption and property bubble, Ireland is now reeling from the hangover.

The government is over-indebted, businesses are over-indebted, and families are over-indebted. Even the banks themselves are over-indebted, mandated by the troika to shrink their balance sheets, reining in credit for everyone else as a result. As a nation, we are among the world’s leaders in the borrowing race, total private sector credit standing at over 300% of GDP, even after IFSC activities are stripped out, and general government debt nearing 120% of GDP.

This debt overhang is undoubtedly undermining investment, job-creation and economic growth. Everyone is spending less, borrowing less, investing less and busy paying down loans to ‘repair their balance sheets’. Even though Ireland’s savings rate has increased markedly in recent years to about 11%, investment as a proportion of GDP is only 10%, near record lows and about half of where it needs to be at to retain and improve the country’s production capacity. Continue reading →

“Death, taxes and childbirth! There’s never a convenient time for them.” – Margaret Mitchell, Gone with the Wind, 1936

It is hardly controversial to suggest that rational people prefer to pay less tax rather than more, assuming all else is equal. If one follows the public debate in Ireland, however, it soon becomes clear that rationality is not universal on fiscal matters.

As the government struggles to bring the budget deficit under control, and as we are in a phase of increasing rather than stable or falling taxes, this is all the more pertinent. What is at issue, from the government’s perspective, is how to distribute and minimize citizens’ inevitable displeasure at rising taxes.

All taxes are not created equal, it would appear. What you pay tax on, and how you pay it, seems to matter a great deal,  perhaps even more so than the extent to which taxes hit our pockets. Continue reading →