# Should the Government Borrow Now - for Cap Ex ?



## garrettod (24 Sep 2003)

Hi,

I thought this might make for an interesting discussion.

The question is, should the Government now borrow for capital expenditure purposes ?


I personally believe the answer is *YES*

As far as I am concerned, some of the reasons Ireland's economy is slowing down & unemployment is begining to become more apparent is because of the failings of our infrastructure.

Such problems as employees being continuously late for work, due to poor public transportation systems, traffic jams etc have cost this economy billions.

Businesses unable to transfer goods & services both quickly & cost effectively, are becoming less competitive and often, being forced to outsource / close down / relocate to other non-national locations

Health / Education & Public Services are all poor, when compared to many other countries.  Problems with the administration of funds, coupled with the level of funding being made available are resulting in longer waiting periods for patients, poorer services for those seeking advice / information & assistance from Government Offices & the risk of a lower standard of basic education for those unable to afford private schooling.

So, what do you think & why ?

Regards

G>


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## daltonr (24 Sep 2003)

AFAIK, we're not allowed to borrrow due to the terms of euro membership, and the stability and growth pact.

There's one argument that says capital borrowing should be allowed and only Day to Day borrowing should have such strict rules.

There's another argument that says if the larger countries can flout the rules then we should too.

I think if the rules stop us borrowing for infrastructure then we'll end up paying for our infrastructure many times over in the form of Tolls.  So if the rules can't be changed, it's time to start breaking them, and let the chips fall as they may.

And, No, I don't think we should even consider leaving the Euro.

-Rd


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## rainyday (24 Sep 2003)

> AFAIK, we're not allowed to borrrow due to the terms of euro membership, and the stability and growth pact



Actually, I heard Ruari Quinn (who negotiated Ireland's entry to the Euro/Stability & Growth pact during his time as Finance Minister) speak recently & he mentioned there were ways of borrowing for capital projects beyond the much-quoted 3% limit while staying within the terms of the pact. Unfortunately, we didn't have time to get more detail, so I can't fully explain this.


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## LiamG (24 Sep 2003)

Personally I totally agree with all garrettod's comments. However, I do not think this will happen for 3 reasons
(a)As mentioned the EU 3% cap - and Irelands insatiable need to be seen as good europeans
(b) Ploughing more money into infrastructure without any accountability (a la the LUAS etc being so far over budget) is pure fiscal mismanagement. It occures to me that the RPA have lost the governments confidence. Every developer hired sees the govenment as an each touch!
(c) They will be far to concerned with the political ramifications of benchmarking payments - and cutting back on capital spending loses far less votes than current spending.


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## CouldntGetAUsername (25 Sep 2003)

*Big countries versus us*

This really irks me. We get bollocked if we step out of line but La Republic and Das Reich appear to be able to do as they wish.

Has anyone heard of any grumblings worth mentioning within the EU Parliment or from a commissioner on this subject?

CGAN.


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## darag (26 Sep 2003)

*Re: Big countries versus us*

Yes, we should be borrowing for capital expenditure.
Using public private partnership to keep capital
borrowings off the books is hugely inefficient and
expensive.

The problem with borrowing are in some ways
political.  First of all I think the government fears
that borrowing money will encourage the public sector to
demand more money despite the ludicrous deals they've 
already screwed out of the government.  The public
sector unions generally keep smugly quiet and enjoy
their largess when government finances look dodgy and
when the lack of capital spending is very apparent.
When the government starts talking of spending money on
anything, the smell of the cash provokes the usual
public sector greedy instincts which don't distinguish
between capital spending which benefits everyone in
society and spending on public sector salaries which
benefit their narrow self interest.

For example, using a government borrowing rate of 3%,
the cost of benchmarking over the next twenty years
would pay for the borrowing and immediate spending about
15 billion euro on infrastructure.  This would give us a
metro in Dublin and finish off the motorway development
between all the major towns and cities.  The might even
be some left over to fix and upgrade all school
buildings and such like.

Also I agree that the behavior and attitude of the
French and Germans within the EU lately has been 
absolutely despicable.  It is starting to turn me into a
eurosceptic.  They really are behaving as if the EU was
their private empire.  It feels weird to feel the
beginings of sympathy for the loony British anti-euro
Tory brigade.


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## daltonr (27 Sep 2003)

*Re: Big countries versus us*



> It feels weird to feel the beginings of sympathy for the loony British anti-euro Tory brigade.



Don't you just hate it when the world changes so much that the crazy people start making sense.   And you start sounding like a nut!

-Rd


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## Tommy (27 Sep 2003)

*Re: Big countries versus us*

Further to darag's post (which I largely agree with) the history of Irish governments borrowing money for so-called capital infrastructural projects has been nothing short of disastrous. 

Govts borrowed huge amounts for these purposes in the 1970s and the subsequent waste and neglect left us with... 

(1) a third world infrastructre (that only began to improve with the injection of EU structural funds in the early 90s), 

(2) literally desperate public finances and taxation problems for 15+ years

(3) the creation of a bloated, monopolistic, wasteful and totally inefficent element of public administration that, to this day, cannot manage even the simplest of planning or infrastructural projects with any degree of competence.

Until and unless major reforms are introduced in public administration, I can see history repeating itself if we start borrowing in this manner again.


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## Observer (28 Sep 2003)

*Re: Big countries versus us*

Well, well, well, so Darag thinks its all the fault of the Benchmarking





> the smell of the cash provokes the usual public sector greedy instincts



Really?

Funny but I didn't see any benchmarking recipients in the list of over 400 criminals published yesterday by the Revenue Commissioners.  Lots of the usual suspects though - farmers, company directors, publicans, hoteliers, guesthouse owners, plant hire merchants, builders, shopkeepers aplenty; the odd doctor and solicitor too (but not as many as I would have expected?)

Greedy instincts, how are you?  If you're looking for greed look no further.  Clearly, these heroic non-public servants, and many many more like them, were evading tax on a MASSIVE scale throughout the eighties and nineties.  Only with the granting of extra investigative powers to the revenue in 1999 has it become possible to glimpse the scale of the tax evasion.  The figures are staggering. €200m+ collected from the 400 heroes above, another €200m+ from their brighter brethren who availed of the partial amnesty to settle their affairs, another €200m+ from the banks for thier part in the bogus no-resident scam.  €6.1m from CJH alone.  And more to come.  The vast bulk of the Ansbacher clients have yet to settle.  And this is just from the evaded tax that went into non-resident accounts.  The tip of the iceberg.  Much more evaded tax, no doubt was spent on wealth acquisition and sustaining lifestyles far beyond the aspiration of any PAYE worker.

No wonder that, as Tommy says we were left with





> literally desperate public finances and taxation problems for 15+ years


  Of course we were.  The richest in our society were robbing the rest of us blind and refusing to pay their fair share of taxes.  Compliant taxpayers (particularly the PAYE sector) were left to pick up the burden.  It is farcical to blame public servants for the financial and infrastructural woes of this country.  

The real villians are:

a) those who could have, should have and didn't pay their taxes
b) the politicians who knowingly allowed this state of affairs to continue

 and perhaps, a long way down the scale, those voters who returned those same politicians time and time again.


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## Tommy (29 Sep 2003)

*Re: Big countries versus us*

As I have said countless times previously, it is totally  incorrect to assume that none of the people listed on this or other tax defaulters list are not (or their spouses) in receipt of public service PAYE income and by extension claim that the PAYE sector is entirely blameless for our national tax evasion problem. 

For a start, the bould Michael Collins TD is a PAYE earner (via his Dail salary) who is also due to benefit from benchmarking!! I could go on...

Your guff about linking the Ansbacher accounts with "wealth acquisition and sustaining lifestyles far beyond the aspiration of any PAYE worker" is ludicrous, given that many of those fingered in the Ansbacher investigations were themselves PAYE workers - namely directors and other senior managers of publicly quoted and semi-state or other high-profile companies.

And just because some people have been found to evade tax doesn't mean that the govt should carelessly fritter away whatever other resources it has at its disposal, either funded from borrowings or taxation.  Remember this discussion is about whether the govt should borrow more to fund increased capital expenditure, and I can't see what your (frankly, at this stage, tiresomely repetitive) tirades about BNR's, Ansbacher etc have to do with this question.


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## mcoll (29 Sep 2003)

*self employed when I dodged the taxman*



> For a start, the bould Michael Collins TD is a PAYE earner (via his Dail salary)



ah yes, but that's not the whole truth is it tommy?

[broken link removed]


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## Tommy (29 Sep 2003)

*Re:  self employed when I dodged the taxman*

I don't see what your point is. Many tens of thousands of Irish PAYE earners have self-employment income. Many tens of thousands of Irish self-employed people have PAYE earnings. Add to that the fact that all company directors (comprising a large percentage of the Irish entrepreneurial class) are taxed under PAYE and you will see quickly that this "PAYE sector v Self Employed" distinction that often people make when discussing tax compliance etc is bogus.


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## darag (29 Sep 2003)

*Re:  self employed when I dodged the taxman*

Observer, I know this is getting away from the point
of the the thread but I certainly believe
implementing benchmarking will have a terrible
effect on capital infrastructure investment by the
government.  Such investment benefits everyone in
society while the money spent on benchmarking
benefits a narrow self-interested group who are
arguably very well looked after already.

Notice that the government has no real flexibility
when it comes to paying public sector salaries but
it can defer building new roads, fixing up schools
and hospitals, investing in public transport, etc.
When the squeeze happens, as it is happening now, it
means that capital investment is what takes the hit.

I don't think it's any coincidence that when the
government started running a surplus of about a
billion a year that the public sector unions got
bolshie and we ended up with benchmarking which
funnily enough is going to cost us roughly a billion
a year.  Never mind that this surplus is gone and
has turned into a deficit.  This is my fear; if the
government starts borrowing heavily, it will ease
the political pressure to stand up to unreasonable
public sector pay demands.

Tax evasion is just not relevant to this discussion
at all.  It's not like the government is encouraging
in tax evasion; instead it's getting better and
better at cracking down on it.  I agree that tax
evasion is a very bad thing but I don't see what it
has to do with the split between investment in
infrastructure and general expenditure.  

To steer things back to the original point; another
area of contention for me relates to Charlie's
pension fund.  It seems the government has ended up
borrowing to fund investment in foreign
stockmarkets.  This is crazy given the the capital
investment needs of the country.


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## Observer (30 Sep 2003)

*Re:  self employed when I dodged the taxman*



> Remember this discussion is about whether the govt should borrow more to fund increased capital expenditure, and I can't see what your (frankly, at this stage, tiresomely repetitive) tirades about BNR's, Ansbacher etc have to do with this question.



Indeed it *is* about whether the Government should borrow to fund increased capital expenditure.  And a very reasonable question to pose, too.  darag broadened out the discussion by pointing out that if benchmarking was not paid, the Government could use that money instead to finance the capital expenditure programme.  Quite relevant to the original question posed by garrettod, would you not agree?  darag also brought the alleged "greed" of public servants (for looking for their benchmarking) into the debate.  

I replied to this by pointing out that if one is seeking greed, it is exemplified more by the recently uncovered tax defaulters (is criminal too strong a word for you or what?) than by a public service pay claim.  The former being illegal, criminal acts to enrich individuals; the latter the perfectly legal, legitimate pursuit of a sectional interest through a democratic process.   I also pointed out the *extent* of the tax evasion and noted that had it not occurred, that money might also have been used to fund our capital expenditure programme, at a time when it was particularly badly needed.

In summary, the argument went (paraphrazing somewhat!)
garrettod: should be borrow for capex?
darag: we wouldnt have to if we cancelled benchmarking and public servant are greedy for demanding it
observer: we wouldnt have to if tax evasion had not been so rampant and those guilty of it are the *real* greedy ones in our society, nor public servants.

That, Tommy is what "*BNR's, Ansbacher etc have to do with this question*" 

And, yes of course, I know that many taxpayers have both PAYE and non-PAYE income; and that a lot of the reported PAYE tax figures are actually that of proprietory directors.  I am using "*the PAYE sector*" as a convenient shorthand for that sector who derive the vast bulk of their income from employment by other persons or non-owned companies.  By "_*self-employed*_", I mean those who run their own businesses or live on investment income, even though they might well technically come within the ambit of PAYE.  I think most people instinctively understand this terminology and the distinction therein.  As for your posited evader of tens/hundreds of thousands of euro being a public servant on the side, well, yes, perhaps the odd one was.  But it sure as hell wasn't the public sector portion of income that was under-reported!   It hardly makes a dent in my point that _*"self-employed"*_ income was under-reported; "_*PAYE income*_" by and large was not.  This was my major point and I believe it is relevant to the debate as I have argued above.



Now to more serious matters:  You, a moderator, have accused me of issuing 





> tiresomely repetitive) tirades


 on this topic.  
May I respectfully point out:
1) it is many months since I posted on this topic
2) your comments are not in keeping with the spirit of this board, where one is encouraged to attack the views and not the contributors.
3) feel free to disagree with my opinions and refute them as best you can, but really, is "tiresome", "repetitive" and "tirade" the best you can come up with?
4) my argument is relevant to the topic as posed by garrettod and developed by darag and yourself.  

All in all, I believe your response is unworthy of a respected contributor, yet alone a moderator of this board.  I am second to none in my admiration of your contribution to this board and I have previously acknowledged the merit of your professional advice, freely given to many.  However, whenever I raise the tax evasion topic, it seems to trigger some very strange responses from you.  Even when I posted  in the speeding and penalty points thread,  you managed to have a go there regarding my views on tax evasion.

Ultimately, my views on tax evasion are fairly simple:
A) there was massive, widespread, institutionalised tax evasion throughout the 80's and well into the 90's
B) I am unconvinced that this is now totally behind us
C) The vast, vast bulk of the income on which tax was evaded was self-employed income 
D) This represents a massive injustice to those who did not/do notevade tax and *is a very serious crime*
E) the high return, even still, from Revenue Audits indicates that considerable extra resources should go into tax enforcement and audits
F) criminal prosecutions should almost always be brought for proven or admitted tax evasion
G) Tax evasion being a crime, the Criminal Assets Bureau should be used to combat it.

And finally (and belatedly!) to darags substantive point.  A choice is proposed between benchmarking (benefitting some) and increased capex (benefitting all)
I believe this is a misguided approach.  Firstly benchmarking is an award already delayed. It was:
- agreed to be done in 2000
- researched in 2001
- published in 2002
- paid over 2003, 2004 and 2005 (minor backdating to late 2001)
and designed merely to bring public servants in line with comparable employment elsewhere.

Effectively the real choice is between funding capex via borrowing (burden paid for by everyone) or renaging on benchmarking (burden exclusively borne by the public sector)

Which is fairer?


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## Tommy (30 Sep 2003)

*Re:  self employed when I dodged the taxman*



> However, whenever I raise the tax evasion topic, it seems to trigger some very strange responses from you. Even when I posted in the speeding and penalty points thread, you managed to have a go there regarding my views on tax evasion.



Perhaps this may or may not be unconnected to the fact that you have previously used debates on tax compliance and evasion to explicitly cast (unfounded) aspersions on my professional character and reputation, and also occasionally to add in implicit and indeed "tiresomely repetitive" digs in my direction, eg 



> (is criminal too strong a word for you or what?)



Given the fact that you explicitly incited non-compliance with road safety enforcement measures in one of the previous threads to which you refer, I have no intention of taking lectures from you on any subject where you claim moral superiority.

For the record, I have never denied that the vast bulk of tax evasion in our society was in relation to self-employment or investment income - simply because these sources of income are not (and cannot, by their nature, be) subject to the equivalent self-policing mechanisms that operate, by and large, in the PAYE system. However I will still strongly contend that our tax evasion problem touches all sectors of society and any that it is totally wrong to assume that the PAYE sector can be safely ignored in any attempt to address or resolve the issue.


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## darag (30 Sep 2003)

*Re:  self employed when I dodged the taxman*

Observer, I guess we have to fundamentally disagree on


> and designed merely to bring public servants in line
> with comparable employment elsewhere.


This is a bit tangential to main point of the thread
but from all of the figures I've seen, a simple
comparison on the basis of value of pension and of
average salary/wage shows that, on average, the
pre-benchmarking public sector worker was better
rewarded that the average private sector worker.
The only studies which show the opposite seems to be
the benchmarking report itself which is being kept
secret; I wonder why?  This is before you look at a
qualitative comparison between the two sectors where
there is little argument that the public sector
enjoys huge benefits over the private sector in
terms of job security and working conditions.  Over
the last few years, the growth of employment in the
public sector has exceeded that of the private
sector which strongly suggests that the current
rewards are enough.

On this basis I disagree with your claim that
canceling benchmarking would constitute putting the
burden for infrastructure investment on the public
sector.


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## Observer (30 Sep 2003)

*Re:  self employed when I dodged the taxman*

darag,

while you are corect in  stating





> a simple comparison on the basis of value of pension and of
> average salary/wage shows that, on average, the
> pre-benchmarking public sector worker was better
> rewarded that the average private sector worker.


 this is not an apples with apples comparison.

Most public sector employment is "white collar" in nature, and many jobs need professional/vocational qualifications.  EG healthcare, teaching and so on.  

In contrast much private sector employment is in inherently low paid occupations such as retail, services and industry.

Inevitably the "average" public servant appears to be better paid than the "average" non public servant on this analysis.

However the benchmarking exercise was designed to compare like with like. EG payroll officer in a Govt department with payroll officer in a private comapny of similar size would be a fair comparison.  Thousands of individual jods were analysed and compared using standard job analysis methods.  There is no reason to suspect the process was anything but fair.  The presence of representatives from IBEC, from Government and a retired High court judge should have seen to that.  
(I accept that a lot of people don't like the outcome, but that's a different matter!)
As regards transparency, of course it would be nice if all the data was published.  However, guarantees of confidentiality were sought by and given to those private sector employers who participated in the bennchmarking exercise, on the very reasonable basis that the information was commercially sensitive.

In short, any society needs a fair way to set the remuneration of its public employees that goes beyond prejudice and stereotyping (like the odd posting on AAM to the effect that "my sister works in the civil service and they never do any work/talk to their friends on the phone all day/are always on maternity leave/take 6 weeks sick leave a year each/insert favourite 'gospel truth' anecdote here")

Benchmarking is probably as good a it gets.


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## Tommy (30 Sep 2003)

*Re:  self employed when I dodged the taxman*

The problem is that the secrecy surrounding the benchmarking process (particularly the non-disclosure of the reasons for certain decisions taken) does lead people to suspect that there was no proper basis for their decisions. 

The idea that this was done to protect the confidentiality of private sector source information is certainly a red herring. The fact that the Central Statistics Office and other bodies routinely collect commercially sensitive information from businesses and employers all the time and make the results of their research openly available in the public domain in a manner that protects the confidentiality of individual sources. I have never heard anyone seriously suggest that they are out of order in doing so and I cannot see why the benchmarking body could not have adopted a similar methodology. 

Certainly the resignation from the benchmarking body of economist and NUI Maynooth professor Jim O'Leary, a few weeks in advance of the publication of the report, does little to inspire confidence, even among those of us (myself included) who originally strongly supported the concept of benchmarking, and who loathe the tendency of others to ridicule public servants in the manner you describe.


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## darag (30 Sep 2003)

*Re:  self employed when I dodged the taxman*

Hi Observer.  Ok, I accept that average income is
probably an unfair way to compare the sectors.  But
I basically agree with Tommy.  In fact I would go
further and say I am completely skeptical about the
benchmarking report and to be honest refuse to
accept it in good faith.  Like Tommy points out the
only member of the body with a background in
economics resigned before the reports publication.

The "protect privacy" argument is laughable; every
week there is are surveys performed on all sorts of
sensitive personal information (about incomes,
political beliefs, sexual habits, etc.) and the
results are published in the papers without anyone's
privacy being compromised.

Even without the statistics being published, the
fact that even the METHOD is being kept secret means
that no reasonable person could accept the results.
They wont tell us, for example, what factors were
used to decide that there was equivalence between
classes of jobs in the two sectors? How did they do
this for the likes of teachers, guards, etc.?  Did
they just compare raw income figures?  Did they
include pension benefits and what actuarial
assumptions did they value the government pension?
For example, I recently calculated that I would need
a pension fund of about three million euro to be
able to purchase an annuity to match the pension a
public sector friend who has just retired got.  I
accept this is entirely anecdotal but I think it
would be reasonable to know whether benchmarking
took this benefit into account.

I believe that the reason the answers to these
questions are being hidden is simply because the
benchmarking process was so completely unscientific
and driven by political expediency, that it wouldn't
stand up to the mildest of examination.

So I don't know how you can claim that benchmarking
is the best we got since noone knows diddly about
how the report was produced.

Also for me, the job market itself has provided an
answer to the question on whether public sector
workers are reasonably rewarded.  Employment in that
sector has grown more than employment in the private
sector over the last three years.


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