Economic 20/07/2009: Property Tax

And by request from one of you, an earlier Sunday Times article (July 12, 2009) on property tax:

A specter of a new tax is haunting Ireland. Since last October, the Government has been pre-occupied with finding increasingly less subtle ways to raise revenue out of the shrinking economy. The latest Department of Finance estimates put new ‘committed’ tax measures envisioned for 2010-2011 at €4.6bn – one and a half times more than is planned in expenditure cuts.

Per latest rumours from the Commission for Taxation, the most favoured new scheme being discussed in the corridors of power is a property tax. A source close to the Commission has indicated to me last week that this month’s report will recommend replacing the stamp duty with a levy on residential and commercial properties. Another source – this time from the Upper Merrion Street – voiced a serious concern that the Government is leaning in favour of “a quick and regressive property tax grab”. When civil servants start labelling a new tax prospect as a “regressive” policy”, one has to be concerned.

The problem is that a property tax is an economically inefficient way for addressing our long-term tax reforms objectives. To see this, consider the reasons as to why our existent structure of taxation in Ireland has to be overhauled.


To date, our taxation system has relied excessively on pro-cyclical tax sources: stamp and excise duties, VAT and assets-linked levies. This has contributed (alongside with gross over-expansion of the public sector) to a full-blown crisis of insolvency in this state.

In H1 2009 total returns from capital gains and acquisition taxes (CGT and CAT) were 74% down on their peak in H1 2007. Stamps fell 80%, VAT - 23.5%, while excise duties were off 26%. Of the €5bn shortfall in total tax revenue in the first six months of 2009 relative to the peak year of 2007, €4.7bn was accounted for by the property, capital and consumption taxes.

Assuming the property tax replaces the two-three year average revenue from stamps – in order to compensate the Exchequer at least in part for some revenue declines – the amount of tax to be raised would equal to €2.4-2.9bn against the current revenue of €680-700mln. In other words, property taxes simply cannot resolve the problem of financing the Exchequer deficit until at least there is a dramatic improvement in the economy.

What is more problematic, however, is that our tax system yields are highly volatile and unpredictable. This is linked to stamps and consumption taxes, with the former having by far the largest impact on revenue deviations from the long-term trend. Stamps are transaction taxes that normally act to reduce overall variance of asset prices and thus dampen down market bubbles – the so-called Tobin tax effect. Normally is the operative word here, for when the underlying assets is infrequently traded, like housing, transactions taxes have the exactly opposite effect, contributing to bubble inflation, rampant speculation and producing extreme peak-to-trough deviations in revenue. This makes future changes in tax receipts less predictable and thus hinders expenditure planning.

A property tax will only partially address the issues of predictability and volatility as it will be directly linked to collapsing property prices. And it will not reduce the propensity for speculative investment in real estate, thereby doing nothing to prevent bubbles in property markets. International experience shows this to be the case, as are the simulations for a property tax in Ireland.

Instead, a site value tax can be used more efficiently to smooth real estate price cycles and to introduce a system of revenue falloff warnings, because land values tend to move change slower over time in functional real estate markets than property prices. For example a simple site value tax, along the lines of the one used in Denmark and Hong Kong, can provide up to 10-12 months delay in decline in revenue relative to other tax heads in a recessionary cycle. Such a tax would apply to all land, including residential property, and can be set at rates that would encourage more efficient and environmentally and spatially more sustainable development in the long run.

In the case of Ireland, my simulations show that a land value tax, raising equivalent of the stamp duties revenue at the peak of the growth cycle in 2006-2007, would have reduced Government revenue shortfall by approximately 35-40% until roughly the end of Q4 2008 – delaying the onset of the fiscal crisis by some 9-10 months. The same tax would have fully smoothed out tax revenue volatility in previous two downturns.

In the long run, our reliance on income and consumption-related taxation is starting to adversely impact Ireland’s ability to attract highly educated and young labour force. This imperils our ambitions to develop a knowledge-intensive high value-added trading economy. In H1 2007, income tax and VAT accounted for 64% of all revenue. By 2009 this figure stood at 70%. Property and capital taxes have seen their share of overall tax burden collapse from 14% to 4% over the same period of time. In other words, thanks to our economically illiterate system of taxation, we are now subsidising property speculators while destroying more productive households. Some 83% of all taxes collected since the beginning of the current downturn accounted for by income tax, excise duties and VAT (up from 76% in 2007).

Shifting more tax burden from physical capital stock onto our incomes and consumption – as a property tax would do relative to the site value tax – will lead to two long-term damaging developments. An increased tax burden will disproportionately befall those amongst us who possess greater human capital and destroy the savings and investment capacity of our younger generations.

A property tax, applicable to the value of one’s residence or office will also act to increase the cost of more efficiently used facilities, putting further pressures on income of the more productive segments of our population. A land value tax, in contrast, will raise more funds out of the under-utilized speculative land and property holdings, increasing relative returns to more efficient, sustainable and demand-driven development, thus in the long run improving housing and commercial real estate markets and costs.

A property tax will hinder any realistic chances of us transitioning to a more environmentally and economically sustainable development model, incentivise further sub-urban sprawl and destruction of community social capital. It will also reward, in relative terms, those who let their property fall into disuse or disrepair. For example, for two neighbours residing in otherwise identical residences, higher taxation will apply to the one who adds an extension to her dwelling or improves insulation on the house, thus allowing for a more efficient use of our housing stock resources.

Should the city or a local authority provide new infrastructure to the neighbourhood, thus increasing the value of the land in the area, once again a property tax will hit the hardest those of the neighbours who put most effort into their property, leaving brown sites and underutilised property owners largely unaffected.

A comprehensive research study into the optimal infrastructure-financing tax systems, published this week by the University of Minnesota found conclusively that a land value tax is a unique measure for directly linking private returns to public investment and the Exchequer tax revenue. A property tax, in contrast, will yield higher private gains to less economically and environmentally sustainable forms of development and property ownership, preventing proper payment for the private benefits of public investment by property owners.

In short, introducing a property tax in place of a more progressive land value tax will be an opportunity lost to create a more equitable, economically sustainable and efficient system of taxation in Ireland.



Box-out: In response to my note on June 14 here, a recent editorial in the Irish Times (Friday, July 3) by Cathal O’Loughlin claimed that if the €10 per passenger travel tax passed into Budget in April were to induce some Irish households to stay away from vacationing abroad, there will be net gains for Irish economy.

Mr O’Loughlin’s arguments fail in terms of simple data analysis. Current data shows that in Q1 2009 relative to Q1 2008, Irish economy has lost 148,000 visitors travelling here from abroad for more than one day, it might have gained some share of the 231,000 Irish residents who decided not undertake a trip abroad. Given seasonality in travel demand, the split between business and other travellers, the latter share is likely to be in the range of 30-40%, as at least some of our potential travellers would opt to take discretionary breaks in their second homes or staying with friends and relatives instead of surrendering to the rip-off prices in our hospitality sector. Do the math: 140,000 foreigners gone, about 70-90,000 domestic travellers holidaying at home. Net gains for the travel sector?

Mr O’Loughlin further confuses the effects of imports and exports of services on the domestic economy, when he simplisticly claims that any Euro ‘saved’ from travelling out of Ireland is a Euro spent in Ireland and when he asserts that such a spending turn-about has the identical net economic effect to every Euro in spending by the foreign visitors here.


The sheer economic illiteracy of Mr O’Loughlin’s argument in favour of a tariff protection of an internationally traded domestic sector is stunning and has been refuted by the entire body of international trade literature. Not surprisingly, every developed country in the world has resisted raising such charges on travel in the current downturn, and many have lowered them.

Economics 20/07/2009: Education Plan

For those who missed my Sunday Times article last, here is the unedited version. For more on education premium in Ireland see my Long Run Economics blog here.


Remember the wave of protests hitting the streets over the withdrawal of the automatic entitlement to the senior citizens’ health cards – a benefit worth some €2,500 per annum for a well-to-do family of two? As the Government studies this month’s report on the options for the reintroduction of third-level fees, the prospect of taking out some €5,700-7,300 from the already stretched middle classes has to be an equivalent of a nightmare in our Ministers’ heads. Unlike the elderly, these are the same families hit hard by Minister Lenihan’s tax war on Ireland Inc.

Politics aside, this level of radical pain therapy would be warranted were it to deliver improved quality of education. Alas, the plan is so fundamentally flawed that one must wonder if serious economic impact assessment of its proposals was even attempted.

The Department of Education report suggests, as a clearly preferred option, setting fixed fees of €5,715 for arts and humanities students and €7,272 for nursing and engineering. While these differentials somewhat reflect the variation in capital between the two broad categories of programmes, these are hardly sufficient to establish proper pricing of education. Neither do they recognise the differences in the costs of non-capital inputs, such as faculty salaries.

In other words, the idea of fixed, uniform pricing independent of quality or institution’s ability to attract top internationally competitive students and faculty is about as daft as charging a single price for all cars. Do this, and within years you’ll get an overpriced mediocre labour force.

Two features of the Irish market for education amplify this negative effect of fixed pricing.

The first feature is extreme over-proliferation of third level institutions. In normal circumstances, when price reflects quality differences between competitors, the markets regulate the new entries and the survival of the incumbent colleges, institutes and universities. But absent pricing mechanism and with politically motivated education expenditure allocations you get a competition driven by the race to increase numbers of degrees awarded. A race to excellence is replaced by a race to graduation and grades inflation. Do we, as a nation, want certified mediocrity for the indigenous labour force? If not, we should allow our universities to charge a market rate for their services.

The second feature relates to the market for education. For all our talk about the knowledge economy Irish wages are driven primarily by tenure. Per latest CSO data, released last week, even at the peak of the boom in 2007, Irish workers collected low earnings premia per each additional year of investment in education compared to tenure. Chart illustrates. After-tax real annual earnings gains from moving from post-leaving cert level of education to a 3rd level non-degree education are lower than those from staying in the workforce. This is true for all types of potential students, with exception of mature female students. A picture is better for those planning to invest in a full 3rd level degree or higher, but even here the premium earned falls below the price to be charged under the proposed reform. That was before the latest decimation of jobs, wage rates and bonuses associated with the current recession.

In other words, given the labour market-enshrined system of tenure-driven rewards, education does not really pay in Ireland. Staying in the job does. This is likely to explain why on average more educated EU15 foreign nationals (excluding UK and Ireland) have earned some 9.6% less in hourly wages in 2007 than their Irish counterparts. For males, the same number was a whooping 14%. Per CSO data, not a single sector in Ireland yields an education premium in excess of the upper marginal tax rate other than our knowledge-thirsty public sector. And even there, only females earn such a premium.

This makes it even more crucial for the reform of education financing to be focused on long term objective of creating a functional market pricing of human capital – skills, schooling and aptitude. On a deeper level, such a reform should be linked with a rapid shift away from the system that rewards tenure and taxes heavily educational attainment and resultant skills. In other words, we need more after-tax wage inequality based on skills and educational attainment differentials before we can charge a real price of education. But at the level of education reform itself, we need a system of fees that differentiates between degrees of varying quality, incentivises student effort and merit.

The main mistake of the proposed fees system is that it sets singular pricing for all degrees independent of quality or the variations in the demand for specific degrees in the market place.

For example, if the country is experiencing a reduced supply of engineering and hard science personnel, as FAS and Forfas have asserted on so many occasions, surely we should witness a combination of lower fees (due to smaller demand for admissions from the potential students) and higher wages emerging. Under the latest Department of Education proposal, we will get exactly the opposite.

Similarly, if our two world-class institutions, TCD and UCD, were to offer their degrees at the exact same price as those offered by less internationally recognisable schools, this society will be underpaying for their services and overpaying for lower quality universities and schools. This is hardly a system that can be expected to yield economically and socially efficient outcomes.

Bizarrely, our education mandarins claimed in the report that allowing institutions to vary the price of admission can lead to some charging “excessively high fee rates, perhaps resting more on reputation than service”. This is economically illiterate and smacks of an outright manipulation of the market.

The second grave mistake is not to create a fully diversified and functional system of state-supported lending for tuition fees coverage and merit-based grants. Such a system, for obvious reasons, should be accessible only to the children of Irish citizens and long-term (8-10 years plus) residents. It should be coupled with a University-driven system of own merit grants open to all candidates to attract star applicants from abroad.

It should also work seamlessly with the means-tested system of supports. The much-lauded Australian option (or Option 3a in the report terminology) will simply not work for a small open economy like Ireland that is a temporary migration attractor within a much larger EU. Judging by the fact that the Department of Education expects the cost of running the scheme to be roughly equivalent to only 3-4% of the set up cost, I doubt they counted on the potential education tourism and skills drain to be of any significant magnitude.

And yet, our own Government expects some 150,000 Irish people to leave this country in the current recession alone. How many of these new emigrants will carry with them above average levels of education attainment is an open question. However, were we to have the proposed fees system in place today, the Government migration solution to the crisis could be washing away some €800-1,200mln in educational investment out of the country.

The last error of judgement by the Department of Education is to address the issue of fees separately from the overall financing of academia. Even assuming that our mandarins’ numbers stand up to scrutiny, there is no added certainty as to the future income for the academic institutions in this country. How much of the current funding will the fees replace? How will the fees revenue be distributed across various institutions? Who will be responsible for financing of uncompetitive institutions? All of these and other questions remain unasked. Which suggests that the fees reform will be nothing more than a plaster on a gapping wound that is our system of education.

Box-out: This month’s ECB Bulletin on the Euro area economy included an interesting model for estimating the sovereign bond spreads as a function of public debt to GDP ratio, public deficits, the volumes of bond financing required in the future, past yields and the measure of international financial markets’ willingness to accept investment risk. The original ECB estimation was based on the yields history for 10 Euro area countries, including Ireland. Recalibrated forward to reflect the expected changes in our fiscal position in years to come, this model predicts Irish bonds spreads over the German bund to increase by roughly 40-50% through 2013 assuming NAMA bonds are held off the public balance sheet and have no impact on the market demand for our bonds. Under less favourable conditions, with NAMA bonds entering public balance sheet and demand for Irish bonds falling to the level where the ECB becomes the sole purchaser of bond, market yields spreads can rise by some 200%. Drastic, but feasible.

Economics 19/07/2009: 'Punter's perspective' in my INIA report

A quick reply to a box-out by Liam Fay in the main section of the Sunday Times with a critique of the Irish Nightclubs Industry Association (INIA) report, launched last week, which was prepared by me.

I like Liam's column and was certainly amused by his allegory for my economic career. Not being familiar with Mrs Sophie Ellis-Baxtor's career or personality, I would presume that Liam's reference is a positive one, especially given my suspicion that he is familiar with my established credentials as a champion of competitive and lower cost markets for consumer services and goods and the opponent of the rip-off culture that is a feature of some areas of our economy.

Liam has an acute eye for bulls**t and he spotted something that was missing in my report. "But one of the chief reasons most adults avoid nightclubs is the extortionate prices charged for booze. If Gurdgiev had surveyed the nightlife scene from the punter's perspective, he would've discovered that it's actually the greed of club owners that's killing the groove".

Liam is correct to say that my report was not based on the 'punter's perspective'. I was asked to provide a professional opinion on specific proposals presented by the INIA, not to conduct a general research into what is right or wrong with the industry. Like a lawyer providing a specific client advice, I have my remit and scope of research, and this remit is clearly identified in the title of the report.

But Liam is incorrect to imply that the different approach of my report somehow acts to glance over "the greed of club owners that's killing the groove". If high cost is a deterrent to night clubs attendance, then, as I hope Liam would agree, reducing this cost would help.

Reducing this cost can be done via many alternative ways. Cutting the price of drinks is one, but it is not the policy objective of any of our policymakers, so to deal with high cost of drink, induced by high taxation structure, in a legislative proposal framework would be a waste of time and effort.

Other charges do enter the determination of the cost of entertainment in a nightclub alongside the price of drink. My report clearly shows that these charges can be made more competitive, allowing a punter buying the same drink for the same price to enjoy more entertainment per Euro spent. These are:

• longer hours of access to entertainment,
  
• better quality of music and dancing environments,
  
• more regulated and safer entertainment conditions,
  
• better trained staff etc
  

These benefits are to be delivered as a result of the reforms I was asked to evaluate and these benefits surely provide better value for money to a punter. So, Liam's argument that high cost of drink matters to the decisions made by the punters does not clash with the report findings - it actually supports them.

I do not compare costs of drink in different types of licensed venues, nor do I provide any assessment as to whether a price of drink premium in Irish nightclubs over that of other licensed venues is out of line with other countries. My work did not require this and none of my conclusions depend on any assumptions or inputs relating to these, otherwise very interesting, comparisons.

But even if there are such differentials, to suggest that price of drink is high in the nightclubs (in absolute terms or in relative terms, compared to elsewhere) due to 'greed' of the nightclubs owners is simplistic. My report supplies evidence to show that, at least in part, the cost of drink in the nightclubs is driven by external factors other than 'greed':

1. Table 1.6 on page 9, shows that annual licensing costs to operate nightclubs in Ireland are 8.91% of the total nightclub sector turnover. This is 31 times greater than licensing costs for operating an ordinary on-trade venue and 99 times greater than the off-license licensing cost;
2. nightclubs have to maintain larger physical premises than other on-license venues (e.g at least 20% of the floorspace in the nightclub will be allocated to a dancefloor, which yeilds no drink-related revenue);
   
3. nightclubs operate shorter daily and weekly hours (section 3.7 of the report and Table 3.7);
4. nightclubs face higher rate of amortization of premises (section 3.4);
5. nightclubs maintain higher ratio of staff to clients than oridnary venues (Table 3.7);
6. nightclubs have higher capital cost per each person entertained than other on-license venues (section 3.7 of my report);
7. Table 3.7 in my report clearly states various areas of operations, relating to technology, space utilization and staff requirements, where nightclubs are incurring higher costs than other on-license premises. In fact, of 10 areas related to the subject of my research, 7 show higher cost of operations for the nightclubs;
8. Tables 3.5 and 3.6 show that out of the expected gains in alcohol sales of €122mln pa due to reforms, the Exchequer will receive some €62mln in alcholo-related tax revenues. Roughly 50%, overall value added to the Exchequer will increase by over 2 times tha rate of increase in the value added attributable to labour and 30% more than the value added attributable to physical capital stock. Since roughly 89% of this increase is expected to come from substitution away from home consumption of alcohol, these figures clearly show a vast differences in tax-induced costs of alcohol consumption at home and in the licensed premises.

The bottom line is - over 50% of what we pay in a nightclub for a drink has absolutely nothing to do with the nightclub owner's profit line. The above points - all clearly identified in the report - suggest that the cost of drink to the punter might be driven by the greed and/or other considerations of the Exchequer.

Once again, Liam is correct, this is not a report written from a punter's perspective. As much as I would have loved to work on such an exciting topic of research, limitations of time, resources and brief require that this research be postponed for the future. Economics, like legal profession, is a field of professional inquiry and this means that one works within a given brief.

However, I see no evidence to suggest at this moment in time that the industry I describe in the report is driven by some exceptional greed or short-termist pricing policies that are killing the groove.

If anything, there is evidence in the report to show that the opposite is true. For example, the proposals for nightclub permit set very strict and costly (to the owners) parameters for what constitutes a nightclub. This is not done because there is a pursuit of a groove-killing quick profit, but because the sector participants have recognised the need to explicitly focus on long-term sector development.

The end result of these proposals would be to deliver better value for money for the punters and safer and more responsible entertainment from the social point of view. These are hardly the reforms a 'greedy' profit-stripping business owner would subscribe to.

Economics 18/07/2009: B-day present

My small Birthday Present to the followers of this blog: I have just published a new post on Public Sector Overpay and Knowledge Economy Wages on the Long Run Economics blog.

Economics 17/07/2009: Oh, the horror in our shops

Well, in the week when the infantile reports from the CB and Forfas have delivered no news (just a mash of poorly cooked up secondary factoids) and the press interpreted the ESRI's dithering as a sign of the bottoming out economy... CSO's data for retail sales told a much more honest story.

Yes, pigs do not fly, unless propelled into the skies by someone else's design. And neither do the theories that the Irish consumer has finally decided to become this Government policies cheerleader. Retail sales have no completely collapsed, going for the double dip move. Let's say thanks for the lack of consumer support (even at already abysmally dismal levels) to our Brian+Brian+Mary 'Economics on Drugs' team.

A few charts on the latest data... They are pretty much self explanatory.
Tell me if need reading glasses, but my usual 20:20 vision can't spot any green shoots... At best - a bounce at the bottom, going into another down spiral?
Yeah, about the only positive is that the monthly rate of collapse is slightly lower for value of sales... inflation cometh? Not quite. Not yet. But gas prices are biting... and a host of other state-led charges... and bars - oh yes, warm weather when even C&C should be able to make money (don't bet on it, for their problem is not the weather, but perennial stupor of the management team, or shall we make it 'pear-anneal'?).

Let me play a weather man for a sec...

Again, aside from bars (weather effect combined with desperation and late night Government meetings) and Electrical Goods (either ESB was doing some frequency manipulations to help economy or good weather got few builders out for nixers and small jobs, thus small appliances purchases went up) not much of a Green Valley out there.And, of course, the same is replayed in rates of growth... 11 categories show things getting worse and worse by the month in value terms, while 2 categories are showing an improvement - Motors and Bars... drinking and driving, anyone? Other 2 categories showing such a small improvement, that you might as well call in the crew that fixed the Hubble for super fine Green Weeds removal. Ditto on the side of volume.

May annual decline was 15.4% in volume terms an improvement in the average decline of 21% in the year to April. But this was driven by the slower rate of decline in motor sales – the sector that has been so thoroughly devastated in the past that continuous decline in it, even at a slower pace, still marks a deepening disaster: -40% down yoy in May. The figures mask a significant, and anticipated by this blog, deterioration in core retail sales (ex motors). In April, core sales rose 0.5% mom for the first time after a four months straight decline. At the time I remarked that this is a technical correction which will be followed by deeper falls. What I couldn’t have known at the time that the preliminary figure will be actually revised significantly down, so now we know that April marked an actual fall of 0.7% in core sales. This has now accelerated to -1.3% in May. Volume is now down 9.2% on annual basis – way down from the already historic 7.4% annual rate of decline clocked in Q1 2009. 3-mo MA also points to further declines ahead: in March, 3-mo MA stood at -7.4%, falling to -7.7% in April and to -8.4% in May.

Food sales – which should have been boosted by good weather, implying higher consumption of meats and other BBQ-items had another disastrous month falling 0.9% in May (mom) to -4.6% yoy. Ditto for clothing and footware – also items that should have been boosted by warmer weather. Instead of that ‘Special-K’ new red bikini, old T-shirts and shorts are out of the donations bins. So the category is down 5.2% in May mom. Pubs sales were up 1%, but this was not due to an improved weather, rather masking a slight statistical bounce on April’s horrific -5.2% fall mom (the category is now 11.4% below May 2008 levels).

This is a disaster unfolding in front of our eyes as the entire establishment – from Taoiseach to ESRI are blabbing about the ‘green shoots’. There is no sign of stabilization in the retail sector.

I like the frankness of the Ulster Bank note: “It is important to point out that we anticipated some weakness in retail sales in May, given that the tax hikes introduced in the April budget began to hit pay packets during this period. However, the May outcome was a bit weaker than we expected with downward revisions to the March and April data adding to the sense of a weak report.” Yes, let’s keep taxing the economy to avoid cutting public sector welfare, as Jack O’Connor suggests – it has been working wonders in improving our consumer confidence.

Economics 17/07/2009: Pathologies of the crisis

If Ireland were a patient, its political democracy would be on its death bed. This is the only logical conclusion from today's An Bord Snip Nua report.

This country is facing a more severe crisis than that of fiscal insolvency or economic depression. This Government, and its predecessors have chosen not to do their duty by the country - they chosen not to govern. Now they have also de facto lost their legitimacy.

The outsourcing of policy decisions to an unelected and unrepresentative external bodies - chiefly the Social Partnership - in the past had a logical culmination in the outsourcing of the crisis management policies to An Bord Snip Nua and Taxation Commission. The fact that An Bord Snip did a decent job in identifying expenditure cuts is a moot point.

The state has paid extravagant salaries to FAS, Forfas, NCC, NESC, Department of Finance, Central Bank, and other policy quangoes to conduct

• analysis of economic and policy conditions in the country for years - they all missed the crisis that was obviously unfolding in front of their eyes, more than that - they directly contributed to the crisis by creating or intellectually underwriting the policies that led us here;
• preparation of policy responses - they all failed to deliver a single implemented policy document of any real economic worth;
• crisis management - they all chose to abstain from engaging in what they were paid to do.

The state has paid billions in wages and perks to an army of civil servants who produce illiterate, embarrassingly childish policies and waste resources, obstructing change and reforms.

An Bord Snip Nua report says this much, yet still leaves them all in their jobs, until they choose to retire and saddles us, taxpayers with the charge of paying their grotesquely disproportionate (by any measure of their competence and/or international comparisons) wages.

CB and Forfas reports this week on Irish economy are the case in point. People who signed these reports earn more than their US, UK, German - you name the country short of some totalitarian oil-pumping hell-hole - counterparts. These reports have zero value, for they contain not an ounce of new information. Their authors will go on working till retirement in permanent jobs, while their bosses will go one collecting wages that are so sinfully out of proportion to their talents, they make them the lottery winners compared to the senior bankers.

But let us get back to the crisis of our state legitimacy.

This Government took the job voluntarily. Their first act in power was to accept huge pay increases for themselves and their senior cronies in the public sector. They have no capacity or legitimacy to rule. Yet our Taoiseach, and his Ministers, collect more in wages and perks than the vast majority of other leaders in mature democracies. Some of our Ministers are simply completely inadequate in positions they fill. We pay them hundreds of thousands in annual wages and millions in pensions benefits believing that if you pay peanuts for a job you get monkeys. What if you pay millions to the monkeys? Will that make them suitable candidates for the job?

Angry yet?

Our trade unionists and anti-poverty NGOs leaders believe that the Government is measured by how it treats the poor not by how much it overpays itself. Fergus Finlay of Barnardo's believes so. This is the morality of such a depraved estate that feudal lords would have cringed. It makes no difference that Barnardo's is a worthy organization pursuing a worthy cause - failing to understand that this state has more than one constituency to answer to (not just the poor), and that the legitimacy of the state objectives (including that of combating poverty) is based on morality of state actions in their totality, Finlay either betrays an amazingly low level of intellect or an extremely high levels of Machiavelian cynicism. Either way - his failure to accept at a basic, DNA-level the moral premises of liberty, legality and democracy make him an unfit public figure, no matter how well-intentioned his direct objective might be.

Our Liberal Left - where are you, Fintain O'Toole, Ivana Bacik and others, to oppose this - believes it is ok for the Government to raid the lower, middle and upper classes, to squander and corruptly allocate billions in public money... as long as their own constituencies are protected. "Give me my dosh", they say, "and we'll close our eyes on what you will do elsewhere," say the Trade Unionists and Finlay's of this world - those who have signed on the dotted Partnership line dividing the spoils of the boom and now have no guts to point the finger at the lack of our government's moral legitimacy.

Under the Partnership agreements and the corporatist policies they enshrined, the entire public finance system, since the departure of Charlie McCreevy, has been run like a crude, unimaginative pyramid scheme - partially out of sheer incompetence and partially out of sheer venality of its managers. One exception is that a sleek salesman defrauding old grannies was replaced by a brutish taxman with the full apparatus of coercion this state possesses.

Bernie Maddoff was a saint compared to this Government. It took billions in arbitrary taxes and wasted tens of billions in arbitrary payoffs to its own cheerleaders. The chart on the second page of Chapter 2 of the An Bord Snip Nua report shows this explicitly. All of this - in the hope that we will raise more taxes come next year. They paid lavish dividends to their Social Partners cronies, their pub and childhood chums, and a vast army of clientilist NGOs and quangoes all of whom apparently have no problem with the state officials at the senior level earning excessive salaries as long as their own cogs and constituencies were greased.

The country is bankrupt: morally first, financially second, economically third. Full stop! Read An Bord's Report and think of John Hurley's of this country - earning more than the US Federal Reserve Chairman earns and more than his ECB boss is paid. Golden Circle is not the by-now bankrupt Irish bankers or developers. The real Golden Circle is the army of top officials, majority of the Social Partners and politicos all of whom are grossly overpaid and all of whom are callous and venal enough not be embarrassed by this fact.