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Wednesday 30 November 2011

Are Pensioners Over-indulged?


My last post dealt with child allowances and my belief that, in Ireland, they are excessive. This time I am looking at the other end of the age scale: old age pensioners; and especially those, like myself, of foreign origin residing here in Ireland. And, no, I am not complaining that we don't get enough; rather, that we are another group whose treatment by the state is more generous than it ought to be.

I recently turned 70 which means that I am eligible for something called "The Household Benefits Package". This consists of a free TV licence, assistance with telephone costs and a contribution towards fuel costs. The latter is in addition to the heating allowance to which every UK citizen over 60 is entitled. And the whole package, which amounts to about €700 per annum, is in addition to the far more generous tax allowances received by senior citizens in Ireland. My wife and I are jointly able to receive up to €36k per annum before we become liable for income tax. This age related exemption is, however, being phased out over 4 years from 2011 when it was reduced from €40k.

Free Medical Treatment
A further way in which I and other overseas pensioners resident in Ireland receive preferential treatment is with regard to the Medical Card which entitles certain groups to free medical treatment. In general it is not available to Irish citizens until they turn 70 and, even then, is subject to a means test. In the case of anyone in receipt of a social welfare benefit from any state within the European Union no means test is applied so that anyone receiving, for example, the UK state old age pension is entitled to a medical card. I have been happy to take advantage of this over the past number of years because I assumed that there was in place some kind of agreement whereby medical costs that I and my wife incurred would be reimbursed by the UK government.

In short, I have all the benefits of a UK citizen plus the advantages of living in Ireland. I thank the Irish for their generosity but can't help feeling that in this, as in so many other things, the Irish are too kind for their own good. The only downside from my point of view is the exchange rate. When we arrived we were receiving €1.50 for every £1 we transferred from our UK accounts. That changed quite dramatically within little more than a year since when it has been fluctuating at around €1.15. I can't wait for the long forecast collapse of the Euro which should mean I can once again get more €s for my £s and more to spend here in Ireland, helping local businesses to stay afloat.

Saturday 26 November 2011

Ireland’s Child Benefit is too Generous

One benefit long overdue for reform is the one that encourages profligate parenthood

What follows may not be true of Ireland but in the UK child benefit began as an allowance against taxable income. At that time there was also a small welfare payment called “family allowance” paid via post offices. The tax allowance was discontinued and the two payments merged to produce the present child benefit payment.

Two factors were cited as reasons for the change. Firstly the allowance against tax meant that people on higher rates of tax got more than those on lower rates – and those whose earnings fell below the tax threshold even without the allowance and who were therefore most in need, got nothing. Secondly it was argued, especially by family and women’s support groups, that the reduction in income tax benefited the main breadwinner – usually the man in those days – who did not necessarily pass the gain on to the main shopper – usually the woman. It was argued that men were more likely to spend it on drink and gambling rather than their children.

The benefit was therefore paid as a uniform amount regardless of other income and into the hands of the mother. This, of course, did not prevent the mother spending it on drink and gambling instead of the children and some no doubt did and still do.

Too much is paid out for second and subsequent children
The other interesting thing about the benefit as paid in the UK is that it has traditionally been paid at a significantly higher rate for the first child than for subsequent children. I suppose the argument for this is that it is perfectly possible to re-use clothing and other items purchased for the first child so that the costs associated with later children are noticeably less than that of the first.

In Ireland, not only is the rate paid for the first child substantially higher than in the UK, it is the same for a second child, more for a third and more still for fourth and subsequent children. This means that the parent of, for example, three children in the UK will receive £188 per month. In Ireland the equivalent payment is €427.

I find it strange that, in a country that has a tradition of producing large families the state should provide an incentive for continuing to do so at a time when arguably one of the greatest threats the world faces is over-population. Who will pay to educate all these children? Who will pay their medical expenses? As the existing cohort of adults live longer and young people spend longer in education how in future will those currently leaving colleges and universities keep the large number of individuals who are either too young or too old for productive work?

Reform this benefit now
This benefit is long overdue for reform. I would advocate a return to the idea of an allowance against taxable income but at the lowest rate of tax. This could be achieved by lowering the threshold for higher rate tax by an amount equivalent to the allowance. To illustrate the principle I offer the following example which I hasten to add bears no relation to any real situation.

Suppose someone earns €50k and has allowances of €10k, not including child allowance. The first €20k above the allowance is taxed at 20% and everything above that at 40%. The tax liability would be (€20k at 20% = €4k) + (€20k at 40% = €8k), a total of €12k. If child allowance is set at €5k that will reduce the amount taxable at the higher rate to €15k, reducing the total liability by (€5k x 40% = €2k). But I am suggesting that the threshold should be lowered by an amount equal to the child allowance so that the liability reduces only by (€5k x 20% = €1k), thereby ensuring that everyone eligible for tax gets the same rebate for his or her child.

Those earning too little to be liable for any tax would receive the allowance as a “negative income tax” paid through his/her employer. This would be objected to by some as placing an unnecessary burden on business and by others, once again, as placing the money in the wrong hands. This latter objection, I would argue, is no longer valid as in most households both parents are breadwinners. Where both parents are unemployed their job-seekers or unemployment benefit would be enhanced by an appropriate amount for child allowance as now.

Finally, whatever system is adopted the amount paid in respect of second and subsequent children must be less than that paid for the first.

Thursday 24 November 2011

Sweet and Sour Memories

Sugar beet and debt forgiveness may seem strange bedfellows but for me they show how history echoes down the decades

For most of the 1980s I was politically active in the UK: County Councillor, District Councillor, general election agent. And I was a regular attendee at party conferences, the party in question being the British Liberal Party and, later the Liberal Democrats. On one occasion – I think it would have been 1986 – I had the opportunity to make a speech at a Liberal Party conference. The issue being debated concerned the effect of EU subsidies to sugar beet production on the price of sugar on world markets. Many developing nations relied on sugar cane production in order to survive and the dumping of surplus European production on the world market was harmful to them.

My home constituency at the time contained a sugar mill and sugar beet was an important crop for many local farmers. I argued in my short speech that Europe should follow the Brazilian example and turn surplus sugar into fuel. I also argued, in the same speech, for the forgiveness of third world debt. This was long before such luminaries as Blair and Bono began putting forward the same argument. The gist of what I said to that conference was that these countries had been persuaded to borrow in order to invest in producing commodities that were now incapable of yielding the promised incomes. Meanwhile populations were starving whilst their governments paid out more in interest to first world banks than they received in aid from first world governments.

Fast forward ten years and I was participating in a major construction project at a steel works in Scunthorpe. My daily journey to and from work took me past the sugar factory which had shortly before been converted to produce ethanol fuel. Sugar beet continued to be an important agricultural product throughout Lincolnshire and East Yorkshire.

Another ten years passed and I retired and moved to the Irish Midlands. One of the things I was soon to discover was that many people were still angry about the closure of a sugar factory in Carlow and the demise of sugar beet production in Ireland. I was especially surprised about this given the country's commitment to reducing its carbon footprint and the presence of Green Party representatives in government.

Five years later still I am passing great mounds of sugar beet as a cycle around the countryside on the Laois/Kildare border. In the Irish papers I read of meetings to discuss the re-establishment of sugar production here in Ireland. Meanwhile it is the nations of Europe that are unable to meet the interest payments on their debts and whilst the people clamour for those debts to be forgiven the governments impose austerity measures in order to keep the banks on-side. Plus ca change!

Footnote: the efforts to kick start the industry in Ireland may have nothing to do with the mounds of beets I am seeing as plans are still only at the formative stage. I guess what I am seeing is a crop that will be used as a supplement to winter feed for animals which is a shame when it could be put to use reducing Ireland’s reliance on imports for sugar and fuel.

Anyone wanting more information should check out these links:

Tuesday 22 November 2011

Hospital Closures: Openness and Transparency Needed

If the people of Abbeyleix and Pportlaoise had been properly informed from the outset would they still have objected?

When I hear the word “hospital” I automatically think of beds arranged in rows in a ward. The lack of privacy alone in such an environment would, in my view, make it totally inappropriate as a setting in which to end one's days. I have no idea if that image is correct in the case of Abbeyleix or Shaen – I have never been inside either. What is obvious is that the present occupants of those places are perfectly happy there as are those occupants’ friends and relatives.

On the other hand both facilities were designed and constructed at a time when little thought was given to the cost of maintaining a comfortable temperature throughout the year. It seems more then likely that both establishments are extremely costly to heat and maintain and that considerable investment would be required to bring the energy rating of those buildings up to a modern standard so that the heating bills could be substantially reduced and, in the process, the nation’s carbon footprint reduced.

It so happens that I live close by to a recently opened 'state of the art' nursing home of which I have had the opportunity to inspect the interior. Each resident has a private room where they may, if they wish, install some of their own personal effects, even small pieces of furniture. Opened early in 2011 this facility is, at the time of writing, no more than 50% occupied. It happens to be one of the places being mooted as alternative accommodation for the current residents of the two facilities facing closure.

Conspiracy Theories Abound
It is easy to sense a conspiracy in which HSE officials create the conditions in which people are provided with no reasonable alternative than to move out of a public sector establishment into private care. I have no doubt that, whether for genuine or sinister motives, that is what lies behind this situation. What is totally unacceptable is the apparently underhanded way in which the state of affairs has been brought about.

If the powers that be had taken the courage to be open, honest and transparent in their decision making and said two or three years ago to the communities of Abbeyleix and Portlaoise “look, these places have outlived their usefulness. It is costing far too much to keep them running; there are much more comfortable places in which senior citizens can be accommodated and we want to phase out these older units and instead subsidise the cost of placing older people who can no longer cope at home in such establishments.”

If they had backed this up with independently audited figures; if they had set a timetable for gradually reducing the population of each hospital and given the last few remaining patients time to get used to the possibility of moving into a better place, then my guess is that people would be complaining not about the closures but about the fact that the plan was running behind schedule as it surely would be.

Sunday 20 November 2011

Stop Blaming the Germans

Some people have started saying the Germans want to take over Europe. But since they are the principle source of our largesse, they have a right to tell us how it’s spent.

Recently I have heard people knocking Germany for her insistence that nations receiving bail-outs from the European Union adopt prudent economic policies. “They failed in two world wars; now they are trying a different way of taking us over” is the gist of what some are saying on both sides of the Irish Sea.

It seems to me that this betrays a complete lack of understanding of recent history. Those nations that now have to make difficult and unpopular decisions are the same nations that for the last couple of decades have been milking the EU for all it was worth. When I first arrived in Ireland towards the end of 2006 I encountered a forest of signs pointing out that this sewerage scheme or that motorway or the other new railway rolling stock was financed “with assistance from the European Regional Development Fund” or some other EU scheme.

When I did some work on a voluntary basis for a local development agency many of the projects the agency facilitated were part funded under one or more European “Directives” aimed at increasing social inclusion and helping reduce the disparity between the relative wealth of the more successful members of the European community of nations.

The CAP Boosts Farmers’ Incomes
As I cycle around the Irish countryside I marvel at the huge number of abandoned houses and cottages each with one or more smart modern houses built alongside and evidence of the success of the Common Agricultural Policy in boosting the incomes of farmers.

With each of theses examples I am struck by the fact that all of this European money comes from the taxes that French, British and German citizens contribute to the EU budget. Believe it or not I do not resent, in principle, any of it. I support the general idea that wealth should be redistributed from rich to poor both on a personal basis and between nations. But what I certainly do find disturbing is the extent to which the corruption in Irish politics ensured that much of this money ended up in places and pockets that did not deserve to receive it.

Parish Pump Politics Ruined Ireland
It was not just that developers were enabled to pocket vast sums of public money. The tradition in Ireland of “Parish Pump Politics” ensured that developments happened in places where local representatives could point to them as achievements that would not have taken place without their intervention rather than in the most appropriate and cost effective situation.

Whilst the banks were busy lending vast multiples of the money deposited in their vaults on the assumption that this gravy train would go on for ever, politicians were busy lining the pockets of their constituents, including public servants and the recipients of social welfare, on the basis of an identical assumption. Now, having received billions of Euros in grants and loans those banks and politicians are looking for yet more loans to keep things ticking over. Is it really too much for the lenders to ask that they dictate how those loans are distributed?

Friday 18 November 2011

The True Meaning of Austerity


Do the people who protest about “austerity measures” being introduced by the governments of Europe really know the meaning of the word “austerity”?

Governments around Europe are responding to the economic crisis of 2009 to 2012 by introducing so called austerity measures. I believe that neither the governments nor the people who are protesting so loudly really understand the meaning of the expression.

I am of a generation that grew up during World War 2 and the decade that followed. People like me remember a time when working for 48 hours a week was the minimum, not the maximum ordained by statute; when most workers had only two weeks annual leave and that often unpaid. When 95% of young people left school at fifteen or earlier and not only worked 48 hours but, if they sought advancement, went to night school two or three evenings a week.

This was a time when very few homes were centrally heated and none had adequate insulation; you woke up on a winter morning to scrape ice from the inside of your bedroom window. The majority of families did not have access to a motor car so had to rely on public transport. Most did not have a land-line telephone; mobiles were the stuff of science fiction.

Bathing Once a Week
Only a lucky few had one of the new fangled television sets in their home; those sets broadcast a single channel of programming for four hours or less each evening. The images were in barely discernable black and white. Many homes still did not have access to mains electricity, water or sewage disposal. Baths were taken once a week and often the whole family shared the bath water.

Homelessness really did mean that whole families had lost their homes, destroyed by bombs or shells. Their only recourse was to share with relatives in over-crowded houses or apartments or, as many did in the years immediately after the war, establish squats in abandoned military buildings.

Food was still rationed well into the 1950s and the fruit and vegetables on display in greengrocers’ shops were only those available in season. You only had salad in summer and it consisted of lettuce, cucumber and tomatoes. In Britain olive oil was sold in tiny bottles in chemist’s shops, used for medicinal purposes only.

Restaurant Menus Restricted
People dined out in restaurants only on special occasions and the menus in such establishments were extremely limited thanks in part to the rationing already referred to and the non-availability of unseasonal produce. At home only the wealthy could afford to drink wine and eat steak. Most ordinary folk were happy to take whatever cheap cuts of meat and offal they could obtain.

I have pointed out in a previous blog that much of the affluence enjoyed in Europe in recent years was obtained on the backs of abject poverty in the developing world. Now the tables are turning, countries in what used to be called “the third world” are achieving new levels of affluence themselves. We have nothing to offer them and must fall back on our own resources. That need not mean a return to post war austerity but it does mean that in the future we will have to meet the real cost of everything we consume.

Crisis in Europe? You Ain’t Seen Nothin’ Yet!

The balance of the world’s economy has tilted on its axis and Europe faces decades of comparative hardship.

There is an irony in at least one aspect of the European economic crisis. It is that, having used cheap labour from East Asia to produce a plethora of goods throughout the boom years of the latter part of the twentieth and early years of the twenty first centuries, governments are now going cap in hand to the Chinese and asking for our money back.

In order to understand how this situation has arisen we need to first understand two things that some people seem to have lost sight of. The first is the inherent nature of money and the second is the history of trade and development.

Money has no intrinsic worth. Its value lies in the fact that it can be exchanged for goods and services. Supposing someone is mad enough to pay me to write an article, I use that money to by food and clothing, to heat my house, run my car and so on. The people from whom I purchase those things then use the same money to obtain the goods and services they need. International trade is no different. A country, let’s call it Ireland, buys raw materials, goods and services that it is unable or unwilling to produce for itself. In return the supplying country buys goods and services from Ireland.

Natural Resources Plundered
At least since the industrial revolution the countries of northern Europe have plundered the natural resources of the countries in Africa and Asia that it colonised, using those resources to produce goods which they traded amongst themselves. Until the middle of the twentieth century the indigenous peoples of these non-European countries were poorly rewarded for the effort they expended in reclaiming those resources. More recently control of these resources was ceded to the indigenous people whose leaders behaved every bit as despicably as had the colonists towards their fellow citizens; often more so.

Meanwhile the nations of northern Europe had discovered two things: they could use the same cheap labour to do the manufacturing and they could pay for it with a fabulous form of alchemy they called “financial services” which basically amounted to printing money. The result is that all of us here in northern Europe have unimaginable numbers of gadgets and appliances, all with the built-in obsolescence we designed into them, whilst the nations of East Asia, especially China, have lots of paper money. In the traditions of trade as described above it might be expected that the Chinese would use that money to buy goods and services from us Europeans. The problem is that we have very little that the Chinese need. So, instead of being able to sell things to them we face the ignominy of holding out a begging bowl asking for our money back.

Commodity Prices Rising
What are the Chinese doing with that money? Using it to further exploit the same natural resources that we originally laid claim to and, in the process, pushing up the price of those commodities in international markets thereby making things even tougher for us.

In short, the economic balance of the world has tilted on its axis. We in Europe are no longer in control. China and the countries of the Pacific Rim are. If I am right we have to get used to the fact that in future we must either pay more for, or find ways of doing without, those resources that are not available here in Europe. That, in turn, means that the “austerity measures” now being introduced by governments across Europe and resisted by ordinary people are but a cool breeze in comparison with the icy blast of reality that is yet to come.

A word about Cassandra

In ancient Greece Cassandra was the person who told the unpalatable truth, the things the politicians of the day would rather the general populace did not know. Much later, in the 1950s a man whose real name was Connolly but who was a brilliant writer had a regular column in the Daily Mirror where he wrote under the name "Cassandra". Back then I was a great admirer and aspired to immitate him. This is my attempt to do just that. I welcome comments, especially those that come from people who are willing to use their expertise to expose errors in my statements about economic theory and history. We live in worrying times and it is incumbent on us all to try to understand what the problem is and how to solve it.