Ireland's Tax Deficit will exceed € 8 billion

Ireland's Minister for Finance Brian Lenihan (left) has said that he will take "remedial steps" to reduce government spending after the latest Exchequer figures revealed a very sharp deterioration in the country's public finances.

The new figures show that the shortfall for this year is now set to exceed € 8 billion, which is almost € 2 billion more than the government expected just two months ago.

November is the most important month in the tax collection calendar for the government, since it includes all self-assessed taxes as well as a larger proportion of corporation and capital gains taxes due for the year.

According to the new Exchequer figures there has been a massive shortfall of close to € 7.5 billion in the amount of taxes collected by the government during the first eleven months of the year.
This is a much more than was predicted, and analysts now expect the tax shortfall for 2008 to exceed € 8 billion, which is about twice as much as the amount allowed under EU guidelines.

Richard Bruton (right), the deputy leader and Finance spokesman of the opposition Fine Gael party, accused the government of "rushing the 2009 Budget" and of "making a bad economic situation much worse".

As a neutral observer and analyst I cannot help but agree with Deputy Bruton, who is regarded as one of Ireland's most capable experts on fiscal politics.

But what is even more significant is the fact that for years the Department of Finance - under Brian Cowen and now under Brian Lenihan - got every single forecast of taxation totally wrong. So-called 'experts' of the government and the highly paid senior civil servants in the department alike seem to have no clue about the real economic and fiscal situation in the country.

During the boom times they were each November "surprised" by a sudden surplus of several billions in extra taxes they had not expected to rake in. (But they saw well fit to waste them very quickly on needless projects and - more significantly - on themselves and their luxury lifestyle.) And now they are equally surprised that the shortfall is much larger than it was calculated only a few weeks ago.

One has to wonder what qualifications these people have to hold their senior positions. There are very few economists among them, but plenty of pig-headed apparatchiks whose inflexibility has cost the country already dearly - and it will get a lot worse next year.

No-one in the government, and especially in the Department of Finance, listened to the regular and steady warnings that some well-known and highly qualified Irish economists like David McWilliams, Senator Shane Ross and George Lee (of RTÉ) have issued over years. They predicted with amazing clarity everything that has happened during the past months of rapid economic decline, and I have contributed my own two-pence of analysis and advice as well.

It becomes ever more obvious that our current government, and in particular its majority party Fianna Fáil - which is in charge of the Department of Finance for more than eleven years now - is completely incompetent to govern the country.

Furthermore, the government is directly responsible for many of the elements that caused the current crisis.

But instead of doing the decent thing - resign and call a general election - the clueless and highly overpaid scoundrels muddle on and pretend that they understand what is going on.
Every day they cling on to their power - and the beloved perks it brings them - the situation for our country and economy will get worse. It is now time for the people of Ireland to take matters into their own hands, stand up and be counted.

People power has recently made a huge change in the USA, and people power has also just forced the corrupt government of Thailand to resign. We could learn a lot from those examples, and if we still care for ourselves and our future, we need to act now.

The Emerald Islander

Brian Cowen at the Crossroads

A half-point cut in interest rates by the world's most important central banks has failed to halt the slide on the international stock markets, and the massive infusion of billions into the desolate banks of many western countries seems not to achieve the desired affect either.

It appears that those who control the immense multi-national gambling dens - known as stock exchanges - know something that central banks and governments do not know.

And even though I am no economist, I can imagine what this extra knowledge is: The fact that the whole system of US-led western capitalism is totally over-hyped and under-capitalised. Sooner or later this house of cards will collapse completely and leave all of us with gaping mouths and staring eyes - staring into the abyss.

Unless - that is - we do something drastic about the financial 'markets', and do it fast.

The Irish economist, author and commentator David McWilliams has made a good suggestion on the Questions & Answers programme on RTE 1 television two weeks ago. He suggested to establish an independent investigation unit - something in the style and with the authority of the famous 'Untouchables' under Eliot Ness, which cleaned up Chicago in the 1920s and 1930s - to sort out the mess, mismanagement and corruption in the finance sector.

In my opinion this is an excellent idea, and one can only hope that Taoiseach Brian Cowen and Finance Minister Brian Lenihan are taking David's advice, as they have done with the state guarantee for the bank's deposits and loans.
But time is of the essence, and the usual Irish procrastination could lead us into a huge disaster. The State has instruments already in place - such as the Financial Regulator and the Criminal Assets Bureau (CAB) - and an independent investigation unit could be formed in a relatively short time, if the government has the will to do it.

Brian Cowen, who inherited the prime-ministerial mantle from Bertie Ahern only in May of this year, is approaching his political and personal crossroads. Which direction he chooses will have detrimental and long-lasting affects on him, his reputation, his party, the government and the whole of Ireland.
Depending on his choice of policies, Cowen could become either the most unpopular Taoiseach in Irish history and the greatest failure in political leadership we have ever seen, or - if he rises to the challenge - he could achieve almost heroic stature and great popularity for himself and his party.

So what is it going to be? I don't know, and at this stage really nobody does. But the next few weeks will be crucial and make all the difference.

With the unpopular new measures introduced by Brian Lenihan in the 2009 Budget on Tuesday - especially the scandalous withdrawal of medical cards for the over 70-year-olds - the pressure is mounting on Cowen and his government.
Already one TD - Joe Behan from Wicklow - has resigned from Fianna Fáil over the matter, and the independent Dublin TD Finian McGrath is contemplating to withdraw his support from the government coalition as well.

Now is the time to act, and act decisively, otherwise Brian Cowen could be out of office faster than he got into it.

While only a year ago the new government - formed after the 2007 election - looked safe, stable and settled in for the full five years, almost all of this stability has disappeared in recent weeks. The prospect of an early general election is no longer a far-away figment of wishful thinking.
With the - widely self-inflicted - damage to the government it is now a realistic and ever more looming possibility.

The Emerald Islander

In Reply to David McWilliams

This morning David McWilliams (right) published another very interesting article on his website.
You can read the complete text by going to http://www.davidmcwilliams.ie/2008/10/12/breaking-the-vicious-circle

In this article David suggests the establishment of a new international clearing house for banks under the direct authority of the G 7 (most industrialised) countries, which are the USA, Canada, Japan, the UK, France, Germany and Italy.

Once again I happened to be one of the first people to read the article, and the first to leave a comment at 5:58 a.m. this morning. Having read my comment, which was written impromptu and without preparation, a second time now, I realise that it is not just a comment on David's article, but goes further with its demands and is a separate article itself.

I am taking the liberty of posting it here as well, for the benefit of those who do not read David's articles or visit his website on a regular basis. So, here is the text:

Events in Ireland - and in most other countries - have been overtaken by the international reaction - or perhaps over-reaction - to the US credit crunch.

A new international clearing house under the control of the G 7 would be useful, I agree. But we need a lot more to get the economic fleet sailing again. State pressure on the banks will be necessary, yes, but at this stage one has also to contemplate a complete nationalisation of the whole banking system.

We were very kind and generous to the banks by giving the guarantees, but it seems to have little affect. The problem is that leopards do not change their spots. So they try to carry on, perhaps with reduced speed, but still staying on the same old course. This has to stop.

If we put all our money and state resources up, then I think we should also have control. And that means first of all a change of course and of leadership. Heads need to roll, quite a lot of heads, and from the top downwards. Most of the CEOs and directors have shown their incompetence and recklessness only too clearly, so they have to go - fast and without golden parachutes.

There should be a new rule that no-one in any company - including banks and stock brokers - can earn more than ten times the income of the lowest paid employee. This would lead over night to a massive increase in equality, and also lead to more investment.

Simultaneously Brian Lenihan should raise the income tax for all people earning more than 100,000 per annum significantly, and introduce new taxes on the buying and selling of shares. Betting taxes should be raised as well, and all the loop holes for the super-rich should be closed immediately.

Further the government should - through the budget - impose an immediate freeze of all consumer prices (especially for food, fuel, electricity and all essential commodities) for at least six months. This would be a great relief for everyone, but particularly for people with lower income, and get us well over the winter. The freeze should be reviewed in 6 months, with the option of an extension.

In terms of structure, all the various regulators should be abolished and merged into one single national consumer authority, directly responsible to the Taoiseach, and with real powers and teeth, as they are in existence already in many continental countries. This would reduce state expenditure and strengthen the effects of regulation.

IDA, FÁS and other institutions should focus on supporting existing Irish businesses and helping to start new enterprises - especially small and medium size companies - in Ireland and owned by Irish people. It has been one of the main mistakes to concentrate always on the big international companies - mostly US owned - and give them millions in advance of even coming and creating jobs. They all packed up again when the extra benefits ran out, or when they got better offers elsewhere.

In general Ireland and Europe should reduce their economical and financial ties with the USA as much as possible. The USA have created this crisis, out of greed, stupidity and criminal activity, and now the whole world is suffering as a result. We have to be realistic and look after our own interests first. (As the Prime Minister of Iceland said so rightly last week: Every man for himself.)

Fortunately we are not entirely on our own and have the EU and ECB behind us. If Europe uses her very well developed infrastructure and skill base, the recession will not last as long as is feared now, and it will also be manageable. Let the USA sort out her own mess, which is entirely of her own making!

Europe could come out of this crisis a lot stronger, and become the No. 1 economic power in the world, if we do things right. Otherwise we will always depend on whatever the USA is doing.
Let the Americans sink or swim, whatever they can manage. Their country is meanwhile so run down - in all areas - and riddled with social and political problems that have no relevance for us.

I am no socialist as such, and as we have seen in Eastern Europe, most socialist models have failed as well. But we need to realise that capitalism of the US & UK style, which has so far been our model as well, does not work. It has its failure already built into the system. So if we repair the damage, only to return to the old capitalist model, we can as well leave it and save us the bother and money.

There are very good and workable models of moderate capitalism with a social dimension, especially in the Scandinavian countries, but also in Germany, France and some other nations. These models we need to study closely, and then adopt which ever is the most suitable for us. If we do that, we will have a safe and prosperous future. If not, we will be sucked down into the abyss by the vortex created by the foundering last empire - the USA.

The Emerald Islander

Brian is listening and took David's Advice

In the small hours of last Sunday morning David McWilliams, one of the brightest young analysts and commentators in Ireland, posted a new article on his website.

This article made a bold, but very sensible statement: To get out of the current financial crisis the Irish State should go solo - without waiting for models from other countries - and give a full 100% guarantee for all deposits and loans of Irish banks.

"The only option is to guarantee 100 per cent of all depositors/creditors in the Irish banking system. This guarantee does not extend to shareholders who will have to live with the losses they have suffered. However, it applies to everyone else," McWilliams wrote as the essence of his long and learned article. The complete text can be found on David McWilliams' website under 'Articles' at http://www.davidmcwilliams.ie/

I was probably one of the first people who read this article, right after it was posted online. And I happened also to be the first to leave a comment, at 4:04 am on that Sunday morning.

Then I took the liberty to send a copy of the article to Taoiseach Brian Cowen, Minister for Finance Brian Lenihan and a couple of other ministers who - in my opinion - are able to think for themselves.
Knowing that there was a cabinet meeting scheduled for later that Sunday, I hoped that they might read David’s article beforehand and - maybe - be wise enough to take his advice.

Of course I have no way of knowing if my little initiative helped, if they did read the article before the cabinet meeting, and if it influenced them.

However, the government announcement Minister for Finance Brian Lenihan (left) has made today is exactly what McWilliams advised to do and asked for.

So one could well come to the conclusion that one of the Brians (Lenihan & Cowen) - or someone else in the government - is listening to sound advice. Which means there is some hope after all for Ireland and our economy

Following the biggest drop in share prices the Irish market has ever seen - the ISEQ fell by 13% in one day yesterday, and the especially troubled bank shares dropped between 30% and 45% - this morning's announcement has brought some confidence and stability back to the Dublin stock exchange.

It is early days yet, and the massive financial crisis of the western world is far from over. It will probably even get worse, in particular for the USA, which are now caught in the fast downward spiral all collapsing empires in history have encountered after they overreached themselves and overspent on military adventures and senseless luxuries.

But Ireland might this time get away with only one black eye - metaphorically speaking - if nothing else in our country goes badly wrong.

Following David McWilliams' advice, the government has shown a strong position of leadership and the guarantee of our money by the State is good news for all of us, regardless of wealth and position.

In contrast to programmes initiated elsewhere, this is neither a nationalisation (like the British government's take-over of Northern Rock) nor a bail-out (as attempted by the US administration for Wall Street and rejected by the US Congress yesterday).

This is indeed - as David suggested - an Irish solution for an Irish problem.

The government guarantees the money we have in the banks 100%, but only for two years and not for free. The banks will be charged a fee for this high grade of security (the amount of which is not known yet), so the government creates some extra income for itself. That's rather clever.

And the guarantee is not given willy-nilly to just everyone who happens to have a branch office on the Emerald Isle. Only the six Irish-owned banks will receive the full guarantee, and that is not more than fair. They are: Allied Irish Bank, Bank of Ireland, Anglo-Irish Bank, Irish Life & Permanent, which owns permanent tsb, Irish Nationwide Building Society and the EBS (Educational Building Society).

For all details of the new guarantee rules, and how it affects all banks operating in Ireland, have a look here: http://www.itsyourmoney.ie/index.jsp?1nID=93&2nID=100&nID=153&aID=620

Specific subsidiaries that may be approved by the government following consultations with the Central Bank and the Financial Regulator are also covered under the guarantee.
It also includes all money borrowed by Irish banks from other financial institutions and the statement from the Department of Finance says that all deposits, bonds and debts will now be covered by the State.

Pessimists are already crying 'blue murder' from the roof tops and predict the eventual end of the Republic of Ireland in total state bankruptcy and under a cloud of shame and chaos. Well, in a theoretical way this is quite possible, as much as it is possible that an asteroid falls onto Ireland and makes us all perish in a giant puff of smoke. But realistically you have a better chance to win the Lotto jackpot or even the top prize in the Euro-Millions lottery.

Our bankers - and a lot more so those in the USA - might have been reckless and very greedy in recent years, but they are neither complete fools nor suicidal. So they will recognise what a great and rare gift Brian Lenihan - on the advice of David McWilliams and with backing of Brian Cowen - has bestowed on them. By now they have also realised that they made terrible mistakes, and that they will not have a third chance should they blow this one. So I am with David McWilliams on this, and confident that it will work.

With a little bit luck (of the Irish) thrown in, it might even attract extra money from abroad and perhaps lead to another period of growth and prosperity. By this evening the government will have introduced the necessary legislation in Dáil Éireann, and I can say that I will sleep a lot more sound and confident tonight.

A well-known proverb advises that one should stop digging when finding oneself in a hole. This is - translated into financial terms - exactly what David McWilliams advised on Sunday and Brian Lenihan did today. In fact, it is even a bit more than that. The government is not only telling the banks to stop digging, it is declaring the hole to be a building site.

If we all keep a cool head and use common sense, look out for each other and stick together at all times - hard and easy - the future will be bright again for Ireland in years to come. I am not the kind of person who bestows praise easily, and I have very few heroes. But I want to say today that there is always hope and a future as long as we have people like David McWilliams on the Emerald Isle.

The Emerald Islander