YOU TOO COULD BE A TARGET
It was a long winter, colder than usual, and with an almost daily litany of growing economic woe. It was a winter during which we had glaring confirmation that, among bankers at least, “business ethics” is an oxymoron. It was a winter in which we learned a new meaning for “bed and breakfast”. It was also a winter in which we learned some at least of the reasons why our electricity is the most expensive in Europe.
But all winters come to an end and this has been no exception. Fittingly, St Patrick’s Day saw the weather pick up and with it the mood of the nation. President Obama’s observation “Is feidir linn”, delivered in the presence of the Taoiseach, might, hopefully, herald a change. For morale, as FDR was acutely aware, is vital when seeking to turn around the fortunes of a nation. And, right now Ireland could do with a morale boost
There have been some nuggets of good news. The exploits of the victorious Irish Rugby team for one. A brave world boxing champion for another. We have high hopes of the soccer team qualifying for the World Cup Finals (with memories of the last morale boost during hard times). We now have a super song with a good chance of winning the Eurovision Song Contest, provided voting is not along ethnic lines (last year there was national embarrassment at our entry – a turkey with a song to match!)
However, the economic situation remains dire. The emergency budget announced in early April has helped concentrate minds The sheer scale of the deterioration in the country’s fortunes is awesome with the gap between what the government is committed to spending and its revenue from taxes now apparent to all. Correction is likely to prove a long haul. Public expenditure surged during the Celtic Tiger years. It wasn’t all squandered. Much went towards improving social services and payments to the less well off, including the elderly. An ambitious programme to improve roads and the rest of the physical infrastructure was launched. . Unfortunately now the money has run out and we have been left with a realisation that, in the last few years, as a nation, we spent or committed large amounts of money for which there is now no revenue to cover. Government expenditure covers public sector pay and pensions, social welfare expenditure and spending on everything else. The books can be balanced only by cutting this expenditure, or borrowing , or both.
We share with the USA and Britain the problem of what to do with the banks, and, also, what to do with the bankers, who, in Ireland as elsewhere, have paid themselves salaries and bonuses that beggar belief and who show brazen indifference when asked for justification. One gentleman drew down enormous loans (in excess of $100 million) from the bank of which he was Chairman, hiding them from shareholders through the device of repaying them with matching loans from a compliant bank just before the annual accounts were prepared so nothing would show on the balance sheet; this was repeated over seven years! Another caused public mirth when he confessed that he too would have to take a pay cut and in 2009 would have to try to exist on less than $2,500,000!
VWe have added a new meaning to the term “bed and breakfast”; in banking terms it means shifting millions between financial institutions for brief periods – even overnight. Meanwhile small businesses are being refused loans for vital working capital. There is a growing feeling that the two or three major banks may have to be taken in to public ownership, to join the one already there. The bank saga is ongoing, with investigations still underway and new tighter regulations promised.
We have also received some insights into how our electricity prices have risen from the lowest to the most expensive in Europe within a decade, seriously affecting our industrial competitiveness not to mention hitting everyone’s pocket. It has now emerged that the state owned Irish electricity company ESB (a near monopoly) has been forbidden to reduce its charges, in order to encourage other suppliers to enter the market. The theory is that “competitors“ would be attracted to enter the market by the profits on offer!. With this has come the further revelation that the average ESB employee earns $100,000 per year!
The current public mood is one of resignation combined with anger. Spiralling unemployment and the enforced adoption by many of short time working and pay cuts has fed into this. As in the US and Britain, the bankers are the chief scapegoats but the sense of national hangover – “we all share some of the blame“- requires that everyone must now share some of the pain. There is less agreement on how this is to be done but a highly vocal lobby has emerged demanding a pound of flesh from selected targets. Public sector employees, media figures and tax exiles (now branded in some quarters as “tax fugitives”) have already been targeted, not always consistently.
With assured employment and generous pensions, those employed in the public sector were obvious targets. The first move has been to levy gross pay for “pension contributions”; can a further levy on “job security” be far behind? What price a pay cut on top? Elsewhere the national broadcaster, RTE, faced with declining advertising revenue, has imposed pay cuts of 10% on its employees, and, after a sustained and vocal public pressure campaign, cajoled its highest paid celebrities, who are on contract, to accept similar cuts.
Those who have exploited – quite legally – tax avoidance measures by becoming “non-resident” in Ireland for tax purposes are the object of particular opprobrium. Some voices, not just on the left, have castigated them as “tax fugitives” and even suggested that henceforth citizenship should be in some way linked to paying taxes to the Irish state. Among those targeted in this regard are rock superstars U2, with some particularly nasty criticism directed at lead singer Bono, who has been accused of hypocrisy in terms of his championing of the cause of aid to the Third World.
Certainly we have been more than generous with our tax laws on residence, with 183 days per year the criterion and, until recently, a “Cinderella rule”-under which departures before midnight were excluded from the count. These arrangements have an obvious attraction for the rich and their accountants and may partly explain why the number of “tax exiles” has been climbing though even penal taxation of all those involved would at best only marginally improve our finances.
What is most interesting about this, of course, is floating the idea of linking Irish citizenship with possible tax obligations. This is new and it must probably await a report due midsummer from a commission examining taxation before it is given any substance. Moreover, it is not aimed at the great Irish overseas family, but rather at those Irish, identifiably functioning in Ireland, who are perceived to be using technicalities to dodge paying their fair share of taxes. U2 are a target (among others). You too are all right!