Public sector pay freeze for top 40,000 public servants announced

Complainer said:
Have you stopped beating your wife yet, Caveat - YES or NO?
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I honestly thought a hoary old chestnut of an example like this would be beneath you but maybe not.

If you really think that any similarities can be drawn between my question and the above then I give up.

...there are some questions that can't be answered with a YES or NO.
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Of course there are - but mine isn't one of them.

I answered your question clearly.
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Of course you didn't. Do you want to try again?
There is a second more simplified statement (as answered by Licaonn) if you like.
 
We dont need an across the board public sector pay cut. We may need to cut the pay of a percentage of public sector workers by various amounts, but an across the board one shoe fits all approach is wrong.

What we do need is redundancies. We need to examine what services we require and to what extent we require them. What is certain is that a lot of non-essential services should and probably will have their funding withdrawn. So there should be compulsory redundancies of staff who are surplus to requirements because we can't afford to retain the particular services they are delivering or the services are reduced. In summary, those staff you do need - pay them what they're worth. Those you dont need, get rid.

The one area where there is enormous scope for reducing public service costs is the health service. We currently have the worst case scenario from a VFM point of view - a private sector monopoly which has passed IR and employment risks to the Government. Health providers should be forced to tender for business, deal with their own HR issues and should only be paid for work actually done.
 

Out of interest, which Eastern European countries have found it an ovewhelming success?

Lithuania's is too early to call. Much of the benefits there can easily also be attributed to the effects of migration. First, this cut unemployment rates dramatically, lowering all the necessary welfare payments etc. Then due to a labour shortage wages have increased considerably, so there's naturally more tax revenue. Simply, it's too early to say whether Flat Tax is the driver.

Estonia is the more widely used model, but again other factors are important. VAT is increased significantly (disproportionate to the flat tax). But as they've gone on and had to tinker with the system (deductions, relief, etc) it's fair to argue that it's no longer a pure flat tax. In addition, it's doubtful how much longer it can be sustained and outside of the rich-right, the public really aren't happy with it.

So it's true that many have seen an increase in tax intake, a drop in unemployment, a drop in tax evasion and an increase in GDP. But these aren't just down to flat tax.

Flat tax only appears fair on paper. Progressive taxes are pretty much accepted as the fairest system among both left and right economists. The simple analogy is take a person on the breadline and another in a well paying job. 25% off the last €100 of the poorer person is much more hard hitting that 25% off the last €100 of the more prosperous person.

But the biggest problem is trying to simplify a system (taxation) that is not simple. Flat Tax would imply that the rate is the rate no matter what. For business this would be difficult, they have to have some deductions for various expense. If they can't, then they'd have to up their fees by the tax rate to cover this (e.g. immediately costs go up by 25%).

Do we also have expections for those on the breadline? It's a flat rate, so we can't. So not only are they now paying more tax, but because business can't make deductions, the poorer people with less money are now paying more for goods and services.

I like the idea of the simplicity and general appearance of fairness, but this is all on paper. Most models have effectively become progressive tax in all but name. And really as much as we would like, tax just does not lend itself to too much simplification.
 
Is the real problem with taxation that too many people do not pay any income tax? I think there is around 600,000 low earners that do not pay any income tax.
Should all workers as a matter of principle pay income tax even if it is only €10 or €20 a week?
 
For business this would be difficult, they have to have some deductions for various expense. If they can't, then they'd have to up their fees by the tax rate to cover this (e.g. immediately costs go up by 25%).
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We're talking about personal taxes only here.

The business issues you raise are red herrings. Business in Ireland already has a flat rate tax - 12.5%. Its levied against profits. This flat rate tax is the biggest success ever in our tax system. Are you suggesting that we should introduce progressive taxation for businesses?
 
Caveat said:
Yes, I think so anyway.
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We switched emphasis from taxing the lower paid through income taxes to taxing them through indirect taxes.

We'd need to look at indirect taxes (VAT & Excise duties), minimum wages, taxation of low incomes and social welfare levels as part of a bigger ideology.

For example we could knock a few % off VAT (costing €1.5bn), a few % off social welfare (saving €0.75bn) and bring an extra €1500p.a. into the tax net for each individual (raising €0.75bn @ 25% rate).

This might create an extra incentive to spend whilst having no detriment on encouragement to work
 
csirl said:
We're talking about personal taxes only here.
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Yes but in order to simplify a tax system that equates to being tax neutral it would affect business. Simply, because the bulk of the tax burden at the moment is on higher earners, the flat tax system shifts this down. Middle income are still hit, but lower income is now hit and higher income pays less.

However, the loss in revenue from a lower tax rate on higher income would be significant, basically would mean the deficit gets bigger. Simplified example:

I'm on 10K and now have to pay 25%. Flat tax means no deductions, and only on income. So the state mow gets €2,500 it didn't have before. But I'm on 100K and paying around 42% currently. That's €42K for the state. I'm now taxed at 25% and that's €25K, a loss of €18K. Add in the new tax on the lower income person and I'm still down.

So you simplify the tax on one hand, but increase the deficit, so you have to find the taxes from elsewhere.

If you'd provided any examples of where flat tax had been an overwhelming success purely as a result of taxing. You'd find that their systems are not only balanced by either much higher VAT or Corporation Tax, but that they also apply flat tax principles to business. It's all or nothing to make it work. So my example (not rule) regarding business is relevant in the context of you claiming Eastern Europe is rolling in dosh. If you want to use them as an example of the success then you must consider their entire system and not just the bits you like (which is the real red herring in this discussion).

Your also assuming that business problems only equate to large companies. In fact it would be a benefit for them as it would mean less red tape, less tax advisors etc. But the SME and self-employed sector is huge here. It wouldn’t be so uncomplicated for them.

And while the argument may not hold much water or gain much sympathy, but in the context of defending (not you personally, in fact from you previous posts I presume you agree with some cuts in the PS and so this wouldn’t be hypocritical) job cuts, you would effectively end the financial advice sector and legal system. However, the same argument of “greater good” must be applied even in their case.

However, the simple nature of even just a flat tax on income is that the poor pay more and the rich pay less. Also to just have it for income would mean a greater deficit, not a smaller one.
 

Maybe the 12.5% should only apply to profits from exporting companies, with 20% to others?
 

With any change in taxation, there will be winners and losers. As we all know, those in the high income brackets pay very little tax due to multiple write-off opportunities. My proposal is based on taking the average wage and working out the % tax needed to reach the income tax take the government needs to turn this thing around, so 25% will mean extra income on average. There are 3 important features of a flat rate tax - (i) does not penalise hard work and (ii) ensures that everyone contributes & (iii) easier to understand and administer which helps compliance.

You shouldnt confuse the actual operation of the system with the tax rates applying. Yes there are countries with flat rate taxes that have pitched the rate at the wrong level - either too high or too low - this is a totally different issue to the operation of the tax.
 

So are there any countries that run a perfect model and it is shown that their success is down to flat tax?

Again, the problem with the proposal is that this optimum rate can't be achieved. You either have to have some form of weighting, ergo not flat tax, or it means a considerable amount of tax for the poorer people. That gap between what their introduction into the tax system would give against what you lose from taxation of higher earners cannot be bridged. Flat tax on income alone would give a higher deficit.

You're right, it is simpler overall on paper. But you end up with a system that is overall just as complicated as you try to adjust for the loss of revenue.

The "work harder" idea is all well and good when it is being said (such as Mr Forbes) but there's no proof of this. It makes people want to earn more to end up paying less, but there's a limited number of jobs in those higher pay regions, only so many people can earn that amount. What's more likely is another artificial inflation of wages.
 
What about a tax system where tax there are different bands, but tax is paid on all income? The 1st bands could be very small.
For example, 5% on first 20K, 10% on 20-40K etc.
Also have no PRSI, just more income tax.
 
Shawady said:
What about a tax system where tax there are different bands, but tax is paid on all income? The 1st bands could be very small.
For example, 5% on first 20K, 10% on 20-40K etc.
Also have no PRSI, just more income tax.
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Well an income tax debate has taken away from the thread...but the point is an overall fair tax system. I'm sure there are means of adjusting the current rates, but even though I'm at the higher rate (and would benefit hugely from a flat rate), I honestly think that with a few exceptions they're fair.

I don't think the exceptions really add up to that much in the big picture when it comes to income tax.

The issue with taxation is an overall reform of the system such, one that is sustainable and not so vulnerable to downturns in any one specific sector.

However, as Germany has demonstrated, no economy, no matter how well run, is immune to such significant global downturns.
 
Latrade said:
Well an income tax debate has taken away from the thread...but the point is an overall fair tax system.
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+1

The truth is that rebalancing the tax system has to take a back seat to the haemmorrhaging of cash to overgenerous public sector payments and welfare levels.

Until we address the cost base of doing business in this country and the ballooning government deficet, then everything else is re-arranging the deck chairs on the Titanic
 
The idea of transferability is indeed important, but to say something like 'no admin jobs' is far too simplistic. There may well be some options to eliminate admin posts through process optimisation and use of technology. There may also be opportunity to eliminate some front line posts through process optimisation and use of technology (did you see the 'robot doctor' on the news yesterday?). This is plenty of scope for improvement right across the public sector, just as there is across the private sector.

It's great that you can speak with certainty about how a programme that hasn't yet been devised will work, and what the impacts will be. Any tips for the 3.15 at Haydock on Saturday?
This is nothing to do with comradeship or support. This has to do with public services. Who are these people who have 'no productivity' in the workplace? Who are these people who offer 'no value'? Get down from your high horse with these wild, unsupported generalisations, and let's get some specifics on the table about what organisations you want to 'dissappear'?
Latrade said:
It’s utter nonsense to suggest that it’s only the public sector propping up the economy and spending money, because that is the implication with the stupidity of Labour Party Economics.
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I would indeed be utter nonsense. That's why I never suggested this. It would also be utter nonsense to suggest that putting a chunk of public servants on the dole will not have a direct effect on social welfare payments, medical card costs, rental/mortgage interest allowances and a downstream effect on where there money is currently spent.
There is no basis for your assumption that there are piles of non-productive administrators or managers waiting to be trimmed off. The OECD report confirms that the Irish public sector is (if anything) understaffed, and is just about catching up on international norms of staffing levels after years of under-resourcing.
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Shocker - one union official blew his top! Maybe instead of recalling what one public official said on the news one day, you'd like to look at the reality of what is happening on the ground every day right across the public sector. PMDS (or variations of) are standard operating procedure. They aren't perfect, and there is still a lot of learning to do (just as there is in performance management in many private sector bodies), but it is there. To be honest, I wasn't thinking about PMDS in my answer. I was thinking about the kind of restructuring and reallocation of resources that has happened in my organisation and in many others, with some limited impacts on services.
This seems to be one of those things where you try and make people believe something by repeating it often enough. Who decided that the PS is too expensive (certainly not the respected OECD in their recent report)? Who decided that the extra tax is going to support benchmarking and not (just for example) going to NAMA or Anglo-Irish?
The benefit of taking money via the tax system is that those who can afford it will pay most. It might mean one less foreign holiday, or holding off on changing the 08 car until 2010 or 2011, or one less apartment purchased in Spain/Czech/Florida, but it does not mean that families will not have enough food on the table. Basic day-to-day spending will largely continue - the 'gravy' off the top might dry up, but much of this goes outside the country anyway.

While I'm not a fan of the current structure or business model of the health service either, I have very little confidence (and I have seen no evidence) that there are substantial numbers of headcount available for cutting in the health service. Who are these people that you believe can be cut without impacting services?

Nice selective view there. No mention of the impacts of oooh lets say the cost of commercial rents on doing business, or the costs of accountant fees, or the costs of business loans from the banks - it is all the fault of the public sector of course. Mea culpa, mea culpa, mea maxima culpa...
 

All the services you list above are under severe price pressure. I don't know any business owner in the service industry who has not seen their business and profits fall dramatically. Indeed the sectors you identify are those that are hardest hit by job cuts.

I honestly don't think the recession is the fault of the public sector, but unions obstructing fundamental downward changes in labour prices and working practices will cause our country to languish in recession for far longer than we have to.

Public sector pay and working practice reform is only part of the answer though. Other things, like bloated welfare rates, the minimum wage, cartels amongst the professional classes, and import and trading regulations need to also be addressed to rapidly change the competitive base for generations to come.

Time to change is now. I only hope the government have the neck to make the hard decisions needed. The alternative is very very dark indeed.
 
BeanPole said:
And you really think that the old Dept of Posts & Telegraphs would have done better?

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What does that even mean?

Are you disputing that selling off the telecoms infrastructure has been a mistake? If so, maybe list out what you see are the reasons, and then maybe people can debate the points you make...

...that's how this is supposed to work.
 
Line one and line three.... how ironic!
 
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