There is so much out there on Lenihan’s April Budget that it’s hardly going to get a mention here; apart from saying it was totally predictable insofar as the section of society that contributes most to the overall tax take – the PAYE Sector – will be contributing even more.During the heady (for some) days of the false boom, Ireland was supposedly the new economic miracle - but it was one big, Government-sponsored credit splurge. The following quote from Lenihan’s Budget speech is telling.
“The economic boom this country has enjoyed in recent decades brought a remarkable rise in our living standards. Rapid growth in the early years was driven by exports. As in many other countries, the later stages were accompanied by a property bubble, fuelled in part by very low interest rates and the ready availability of credit. Some did warn that the housing market was unsustainable. Plenty did not. The consensus view suggested a soft landing. That prediction proved wrong. With the benefit of hindsight, it is clear that more should have been done to contain the housing market. We became too reliant on the construction sector for growth and tax receipts.”
Far from being soley due to international economic factors (see italics), the severity of the crash in Ireland is due to active inflation of that market through Government taxation policies, including property incentives and shelters in an overheated market.
And they still have not learned the lesson. Tax residency laws remain untouched, there has been no effort to widen the tax base, and private pension schemes have not been capped to prevent abuse. Whatever consumer demand there might have been will be smothered now with significant decreases in people's take-home pay.
With all this talk of Ireland Inc “sharing the pain” - or should that be PAYE(n)? - maybe we should rename ourselves Ireland S&M?
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11 comments:
Hi GM, yes Brian took the lazy predictable option, screw the PAYE worker. There was nothing fair about the budget as was promised, unless of course you are an over paid banker.
Without any fantasy, without any new idea, without any plan - that's what it looks like to me.
As long as you can rise taxes for the working class everything seems to be fine for Lenihan and the rest of the crew.
Economic stimulous package? No way!
Just more and more taxes, so people will have even less money now to spend.
And still no idea, how to create new jobs and how to keep those jobs that are still left.
Disgraceful.
Time for a Change?
I noticed yesterday one report saying Diesel taxes will rise but Petrol wont because motorists will go up the north and buy there.
Don't they realise that a LOT of people use diesel? If I ran a haulage company I'd buy wherever it was cheapest even if it meant buying in bulk.
How can they justify increasing diesel prices? Do they not think that people with diesel cars won't go up the north to buy it?
When it comes to Petrol cars do they assume that everyone is stupid enough to waste almost a full tank of fuel to drive up the north from the midlands or down south just to save a few cents on a litre? knowing it cost them more to drive up there to get it?
Perhaps the real reason is they know the haulage companies have to use diesel, therefore increase the tax more income for the goverment, it's not about stopping people with petrol cars going up the north!
If they wanted to stop people going up the north to buy "petrol" why not LOWER the duty on fuel? both petrol and diesel
More people would buy it, you'd get people from the north coming down south to buy it, increasing the goverment's cut from the duty massively.
Is it me or don't anyone in any goverments have that thing we all used to have - common sense?
Lew, that's a good point. They are supposed to be encouraging people to switch to diesel - so it's surprising they hit that in preference to petrol. Your explanation could be the answer.
Ella and Harold: just as we expected, I think. Sometimes it would be nice to be proven wrong!
Hi Lew, GM, the government does have common sense, they know exactly what they are doing. It's a good point and one I hadn't thought of. Another thing too, aren't the green party part of the government, I'm sure they were banging on before the election about driving diesel powered cars over petrol, well that's assuming we choose not to walk to work. Not a possibility for many, myself included, I work 28km from my house, there is no public transport so I have to drive my diesel car, which will now cost me more and then after the budget I'll get less for my efforts.
hithere G>M a happy easter to you and yours, the biffo bud jet certainly shocked many here in beverly hills,my friend paris described biffo as sooooh not cool and cancelled her trip to iceland to see her newest bestfriend BONER, paris is a blond as you may knowand gets words mixed up just like many in ireland where owing money got confused with owning said money
What i forgot to add in the previous post was
Higher diesel price = more duty and more tax to the goverment
PLUS
that equates to higher prices for the goods they are carrying which equates to higher taxes on the goods once sold
The goverment wins every way you look at it, the people lose everytime.
By the way it's not just Ireland UK is just as bad if not way worse!
And a happy Easter to you, Mr Beverly Hills! I envy you, being so far away from Biffo and Co!! Give my regards to Paris! You might ask her to send me a few bob, if she's any to spare (what with this budget, and all). Have a good one.
That's it Lew... the bastards get us every way!
This is some of my thoughts on the budget I think some of what is in it is not being discussed by the Irish public and imo should be of course I might be completely wrong on the other hand anyway here it is
According to the Minister economic recovery have has four main facets
1. Raise taxes and reduce public spending. This will clearly reduce the amount of expendable income in the economy but is I think a necessary step without arguing the detail or merits of whether there should have been further reductions in public spending and less increases in taxation or vice versa. imo gov spending should have been slashed but this is a really a quible compared to the other recovery measures imo
2. Investment in the "smart economy" and the export economy. As far as I can tell this is a dead business model, the government are predicting 10.5% fiscal deficits I think this is optimistic (a euphemism to say the least). Ireland's main trading partners are the UK and the US, both of which will probably continue to contract in the coming months (Japan being wedded to the US is a case of point of how much consumer demand has actually collapsed in the US), Ireland is virtually entirely dependent on export income now the property bubble has burst and so the real income from exports and manufacturing is likely to see further contraction and this of course will have massive effects on a struggling service economy and hence I think the fall in tax receipts will increase in the coming months rather then stabilize or decrease putting further pressure on the deficit.
3. Retention of a competitive tax base to maintain inward investment - (I nearly chocked at this if this is there plan for recovery) I can not really see the IDA securing further inward investment to replace the lost jobs with US or foreign owned multinationals in the current international climate.
4. Recapitalisation of the two major banks AIB and BOI (7Bn Euro and that is not included in the projected 10.5% fiscal deficits).and the creation of a bad bank to take toxic assets (property assets mainly I believe) off the books of the banks. The Irish public. The Irish times ran a piece yesterday concerning the "bad bank" model and I will quote a portion of it
"Under the system proposed by the Minister impaired assets will be transferred from the banks to the new agency with the “purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced”.
He said this was to ensure a “sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy”.
Distressed land and development loans in Irish banks will transfer to the new agency as these “pose the main systemic risk to the banking sector in Ireland and the most significant obstacle to the recovery and restoration of lending by the banking system”, Mr Lenihan said.
These assets will be purchased by using Government bonds, resulting in a sharp increase in gross national debt"
This of course does not mentioning the fact that many people in Ireland are completely underwater sitting on property assets which have lost upward of 40% of their value in some cases with no sight in end for where this devaluation will end, therefore it is unlikely a great deal of people will want or be able to access "credit" in the near future in Ireland.
From the same article in the times it says
"Mr Lenihan said the cost of servicing this debt “will be offset, as far as practical, from income accruing from the assets of the new agency”.
He said the potential maximum book value of loans to transfer to the new agency was estimated at between €80 and €90 billion, although be believes the final amount paid will be significantly less than this.
However, if the agency falls short of recouping all of the costs the Government said a levy would be applied to recoup any shortfall. All borrowers will be required to meet full legal obligations for repayment."
So magically they are going to transfer nominal value euro 90bn assets/loans (purchased at a write downs I believe) which are on the books of the banks to this agency, and pay for them by increasing government borrowing.
The government hopes to pay for the interest on this borrowing from the "earnings" on the loans. If that falls short they'll introduce a levy on the banks. However it will be virtually impossible to price these assets now, for instance some of the so called assets may include stuff like green field sites around Dublin purchased for 100 Million plus - who is going to purchase these sites now for even a 75% haircut when the property market is dead and with surplus stock. Even more distressing is the fact that they may cover speculative assets outside of Ireland in the UK and elsewhere, when hearing this I was quite perplexed why they might be doing this regarding the purchase of assets outside the country? I am now thinking one possible reason maybe because of the bank deposit insurance limit of euro 250k; the government back in September or October 08 guaranteed all deposits, bonds and other liabilities of the banks. At the time they said it would not cost a cent. When they did that, they effectively absorbed the 100% plus GDP losses of the banks I mentioned above, they just didn't realize it. So if the asset side of the bank balance sheet collapses, they've already promised to make the depositors and bond holders whole.
What is new is that this is the first time the scope of the problem is being noted in public ( nominal 90bn euro), even if only in a sideways manner. This may well will slip past the public, as everyone obsesses about the tax rate and the cancellation of the child benefits.....
This is such a rip-off of the tax-payer that it boggles the mind.
This is also happening at a time when as I stated earlier fiscal receipts are likely to fall further, the plan for "recovery" assumes global conditions returning as they were previous to the Credit crisis and CDS swaps on Irish debt is widening, credit rating of the country are falling making the servicing of the debt more expensive then it already is, the deficit could very quickly become unmanagable and rhat means the IMF or someother internation supral national body and hence more austerity measures regardless of who is in government
part 2 of 3 -
4. Recapitalisation of the two major banks AIB and BOI (7Bn Euro and that is not included in the projected 10.5% fiscal deficits).and the creation of a bad bank to take toxic assets (property assets mainly I believe) off the books of the banks. The Irish public. The Irish times ran a piece yesterday concerning the "bad bank" model and I will quote a portion of it
"Under the system proposed by the Minister impaired assets will be transferred from the banks to the new agency with the “purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced”.
He said this was to ensure a “sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy”.
Distressed land and development loans in Irish banks will transfer to the new agency as these “pose the main systemic risk to the banking sector in Ireland and the most significant obstacle to the recovery and restoration of lending by the banking system”, Mr Lenihan said.
These assets will be purchased by using Government bonds, resulting in a sharp increase in gross national debt"
This of course does not mentioning the fact that many people in Ireland are completely underwater sitting on property assets which have lost upward of 40% of their value in some cases with no sight in end for where this devaluation will end, therefore it is unlikely a great deal of people will want or be able to access "credit" in the near future in Ireland.
From the same article in the times it says
"Mr Lenihan said the cost of servicing this debt “will be offset, as far as practical, from income accruing from the assets of the new agency”.
He said the potential maximum book value of loans to transfer to the new agency was estimated at between €80 and €90 billion, although be believes the final amount paid will be significantly less than this.
However, if the agency falls short of recouping all of the costs the Government said a levy would be applied to recoup any shortfall. All borrowers will be required to meet full legal obligations for repayment."
So magically they are going to transfer nominal value euro 90bn assets/loans (purchased at a write downs I believe) which are on the books of the banks to this agency, and pay for them by increasing government borrowing.
Thanks for your well-considered comments, Anon. Yes, the "Smart Economy" is just a bandwagon cliche being bandied about at the moment, I feel - I've yet to see any substance behind it. As far as inward investment goes, I think Ireland will be trumped by the accession states. It's not a time for one-trick ponies - which is what Ireland has been for the past while with its low corporate tax rate.
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