Croke Park II preliminary Talks started today

sharper · 29-05-2013 1:47pm

ardmacha wrote: »

Nonsense. If you are going to give €50 to yourself, you borrow €50. Whether there is a bookkeeping transaction that calls it €100-€50 is neither here nor there. Cash is the issue here.

Yes cash is the issue. At the end of the transaction the government has €50 in tax income and the person has €50 in wages both need to really exist. You are proposing that somehow only the wage part has to exist but the tax income side comes from...somewhere.

Tax income is ultimately used for something, where are you proposing that money comes from? You've just taken €50 that never existed and called it "tax income" because you were paying it to yourself. If you want to actually use it to pay for something, where do you get it from?

OK, what proportion is deducted from social welfare and we'll add it to the discussion.

Ok, how about you do your own homework and complete your own analysis.

Glasshouses and stones comes to mind here.

I insist you show where I have cherry picked criteria to produce an answer I wanted.

ardmacha · 29-05-2013 1:53pm

Yes you do. The government can't just magic up the money needed for gross salaries, it has to really exist and really be available. Your starting premise is just wrong.

It doesn't. When you are in a hole stop digging.

sharper · 29-05-2013 1:54pm

Another hypothetical example:

The government creates a new tax that's 500% of current wages and applies it to public sector workers only. Each public sector worker has their pay adjusted so their take home pay will be the same before and after the new tax (i.e. the pay bill after direct taxes remains unchanged).

The new gross pay bill increases by 5x to €65bn (I'm going with) a current gross bill of about €13bn) and generates €52bn in new tax income.

Since a couple of posters are proposing the government doesn't really need to have money it pays to itself anyway, how does this not immediately fix the deficit and then some?

vinylbomb · 29-05-2013 1:57pm

ardmacha wrote: »

It doesn't. When you are in a hole stop digging.

Truly amazing denial of simple accounting principles going on here.

I'd say you would give arguing against the existence of gravity a good go.

Jawgap · 29-05-2013 2:25pm

sharper wrote: »

Yes you do. The government can't just magic up the money needed for gross salaries, it has to really exist and really be available. Your starting premise is just wrong.

......

.....unless its for a bank.....

Anyway, the government can't pay out cash it hasn't got (which is different to money).

Accepting that, why can't they cut a little bit of all outgoings including public sector pay and take in a bit more through a modest increase on the marginal rate of income tax, or even by being a bit more imaginative and reducing VAT or changing the tone of the debate so people are encouraged to spend more?

I'd say if CP2 had been handled in a much fairer way the deal would have got through with a lot less friction.

sharper · 29-05-2013 2:28pm

Jawgap wrote: »

.....unless its for a bank.....

Only the ECB can create money, whether for a bank or anyone else. The Irish government cannot.

Accepting that, why can't they cut a little bit of all outgoings including public sector pay and take in a bit more through a modest increase on the marginal rate of income tax, or even by being a bit more imaginative and reducing VAT or changing the tone of the debate so people are encouraged to spend more?

Income taxes have increased, VAT has increased, property tax has been created and brought in this year, water rates (which are effectively another tax) are coming soon. You're acting as if the tax side of things has been left alone when it hasn't.

sarumite · 29-05-2013 2:34pm

creedp wrote: »

I know it doesn't suit the argument but then again it appears nothing suits unless it support the argument - but if you pay out €100 to a person and that person immediately hands you back €40 - what is the net cost to you? Why would you be only interested in the €100?

It doesn't suit the argument because its based on flawed logic. The government give you a gross salary. You then hand back the government x amount of that salary in taxes in exchange for government services. Your argument would only hold if you weren't receiving anything in return for your taxes, which isn't the case.

Jawgap · 29-05-2013 2:41pm

sharper wrote: »

Only the ECB can create money, whether for a bank or anyone else. The Irish government cannot.

Income taxes have increased, VAT has increased, property tax has been created and brought in this year, water rates (which are effectively another tax) are coming soon. You're acting as if the tax side of things has been left alone when it hasn't.

I think you're confusing balances, money and cash - the ECB creates balances (which can go on to be cash or currency or a different instrument altogether), governments - as the promissory notes demonstrate - can still create fiat money.

.....and if your argument is that taxes have been 'touched' and are now immune then why not extend to PS pay - it's been 'touched' and if its back on the agenda, then all government expenditure and income should be up for consideration.

ardmacha · 29-05-2013 3:00pm

The new gross pay bill increases by 5x to €65bn (I'm going with) a current gross bill of about €13bn) and generates €52bn in new tax income.

Since a couple of posters are proposing the government doesn't really need to have money it pays to itself anyway, how does this not immediately fix the deficit and then some?

You are proposing that the government increase its expenditure and increases its taxation in a bookkeeping sense. The money it spends is the same, i.e. the PS net salaries and so the deficit remains the same. This is precisely my point, the cost of the PS in this scenario is exactly the same although the government has dicked around the bookkeeping.

sharper · 29-05-2013 3:03pm

Jawgap wrote: »

I think you're confusing balances, money and cash - the ECB creates balances (which can go on to be cash or currency or a different instrument altogether), governments - as the promissory notes demonstrate - can still create fiat money.

I'm not familiar with the word "balances" in this context.

What's being confused here is money and currency. Most appear to be referring to currency as "cash" which is fine but there's a suggestion that the Irish government can create money and only needs whatever amount of currency on hand. This is not correct and even if you think about logically the Euro system could never survive at all if member governments could create money - Greece would just create whatever amount it needs and devalue the whole thing.

In the promissory note example nobody is allowed to use the money, it ceases to exist when it's paid back. It's not something that would have likely been allowed outside of a crisis.

.....and if your argument is that taxes have been 'touched' and are now immune then why not extend to PS pay - it's been 'touched' and if its back on the agenda, then all government expenditure and income should be up for consideration.

I am not claiming tax is now immune. I'm pointing out that taxes are increasing this year and will likely increase again next year or the year after under current plans.

You are saying "they should tax a bit and cut a bit". They are taxing, it's a thing that's actually being done right now and is planned to increase again.

sharper · 29-05-2013 3:04pm

ardmacha wrote: »

You are proposing that the government increase its expenditure and increases its taxation in a bookkeeping sense. The money it spends is the same, i.e. the PS net salaries and so the deficit remains the same. This is precisely my point, the cost of the PS in this scenario is exactly the same although the government has dicked around the bookkeeping.

Ok and the government now has €52bn in tax that it paid itself. If the cost is exactly the same, where did that €52bn come from?

Godge · 29-05-2013 3:05pm

sharper wrote: »

Yes you do. The government can't just magic up the money needed for gross salaries, it has to really exist and really be available. Your starting premise is just wrong.

The government only needs the cash to pay the net salary.

Notional monthly gross salary of €1,000, less deductions of paye, usc, prsi, pension levy and superannuation, gives a cash wage of €500 (figures only illustrative). The government only needs to find the €500 as that is the cash amount paid to the employee.

This is why it is different to the private sector. In the private sector, the employer needs to find the gross salary plus employers PRSI. It then pays the net salary in cash to the employee and pays the deductions plus employers PRSI to the government. In the public sector, the second part of this transaction does not need to exist - sometimes for accounting purposes and separate payrolls it does exist but it can be eliminated by the creation of a single public sector payroll.

sharper · 29-05-2013 3:10pm

Godge wrote: »

The government only needs the cash to pay the net salary.

In this context you are wrong. The government does not deal in "cash", it does not move pallets of currency around and distribute it to people.

It needs to transfer money to people's bank accounts and then transfer money to its own income tax accounts. Someone will go an ATM and then have currency.

The cash/currency versus money argument is irrelevant. The money in the income tax account will then be transferred to someone else who will use it to withdraw currency.

The money still has to come from somewhere. The government is explicitly prohibited from just inventing it. Otherwise the government could just pay itself enough money to wipe out the deficit.

Godge · 29-05-2013 3:13pm

sharper wrote: »

In booking terms you still need to have the money in the first place.

If you borrow €100 and then pay €50 back to yourself you still have borrowed €100, pay interest on €100 and have to repay €100.

.

Completely wrong example as it based on a lack of understanding of how a budget deficit and financing of same would work.

If you have projected expenditure of €100 on the gross pay bill and projected income of €50 in the taxes from that pay bill, you only need to borrow €50 to pay the public servants.

sharper · 29-05-2013 3:15pm

Godge wrote: »

If you have projected expenditure of €100 on the gross pay bill and projected income of €50 in the taxes from that pay bill, you only need to borrow €50 to pay the public servants.

Then address the examples above and explain how income tax receipts increase by €50 when the government never had that €50 in the first place.

Godge · 29-05-2013 3:19pm

sharper wrote: »

In this context you are wrong. The government does not deal in "cash", it does not move pallets of currency around and distribute it to people.

It needs to transfer money to people's bank accounts and then transfer money to its own income tax accounts. Someone will go an ATM and then have currency.

The cash/currency versus money argument is irrelevant. The money in the income tax account will then be transferred to someone else who will use it to withdraw currency.

The money still has to come from somewhere. The government is explicitly prohibited from just inventing it. Otherwise the government could just pay itself enough money to wipe out the deficit.

Nobody is saying the government doesn't need money from somewhere, all they are saying is that government only needs to fund the net pay element as the rest comes back to it.

As for your 500% tax example, you wonder why it doesn't solve the budget deficit, that is because you made a nonsensical assumption that the net pay of the public servants would be adjusted to compensate. That negates the 500% tax.

This is how a 500% tax would have to work in reality.

Government applies 500% tax to public servant on gross wage of €1,000. Public servant receives no pay from Government but has to pay €4,000 to government out of income from second job in the private sector or savings.

Result: Government has income of €5,000 and expenditure of €1,000 on public service pay, giving a surplus of €4,000 which can be spent on student grants and the construction sector.

sharper · 29-05-2013 3:24pm

Godge wrote: »

As for your 500% tax example, you wonder why it doesn't solve the budget deficit, that is because you made a nonsensical assumption that the net pay of the public servants would be adjusted to compensate. That negates the 500% tax.

It does not negate the tax, it simply creates an enormous gap between gross and net pay as a thought experiment to test the concept the government doesn't have to borrow for gross pay only net.

Clearly a 500% tax makes no sense but you can construct the scenario any way you want but ultimately you need to explain why the government can't just pay itself all the money it needs.

Godge · 29-05-2013 3:27pm

sharper wrote: »

Then address the examples above and explain how income tax receipts increase by €50 when the government never had that €50 in the first place.

Deficit requirements and cash payments are not the same thing.

Again, to give another example.

Currently, public servants are paid €10,000 per year. Income tax is set at 50%. Public servant gets €5,000 income and pays €5,000 tax. Government needs to raise taxes from private sector or borrow money to fund the €5,000. Let us say that it manages to raise €4,000 in taxes from the private sector.

Tax income is €9,000, Expenditure is €10,000, deficit is €1,000, government needs to borrow €1,000.

Now, let us say government triples public service pay to €30,000 but introduces a special pre-tax 66.66% public service levy. Everything else remains the same. The private sector pays €4,000 in tax and the public servants get €5,000 in income.

Tax income is now €29,000, expenditure is now €30,000 but the money the government needs to borrow remains at €1,000. What is therefore important to the budget arithmetic is the net pay paid to the public servants versus the income gained from the private sector.

The gross pay paid by the government to the public service is irrelevant in determining the budget deficit or the government borrowing requirement.

This is why, for example, I have been saying that the figures for Croke Park II are a sham, as the money is being taken off higher public servants who are paying higher marginal rates. Therefore while the figure for the public might be €300m, the real figure for the budget deficit is much lower.

sharper · 29-05-2013 8:10pm

Godge wrote: »

This is why, for example, I have been saying that the figures for Croke Park II are a sham, as the money is being taken off higher public servants who are paying higher marginal rates. Therefore while the figure for the public might be €300m, the real figure for the budget deficit is much lower.

This is true of any cut you make the government spending (same as the gross V gross, net V net argument).

If you cut €1bn from the capital spend budget then you lose X% right away in tax revenue depending on how much was going to pay construction salaries.

Then you have whatever goods and services were going to be consumed within the economy.

That's why a deficit the size of Ireland's is such a crisis, closing it is always going be extremely difficult and why I keep saying there's no such thing as "Cut this instead of increasing that" or "Tax that instead of cutting this"

sharper · 29-05-2013 9:57pm

Godge wrote: »

Currently, public servants are paid €10,000 per year. Income tax is set at 50%. Public servant gets €5,000 income and pays €5,000 tax. Government needs to raise taxes from private sector or borrow money to fund the €5,000. Let us say that it manages to raise €4,000 in taxes from the private sector.

Tax income is €9,000, Expenditure is €10,000, deficit is €1,000, government needs to borrow €1,000.

Ok let's imagine there's only two individuals involved here, one private sector paying €4k in tax and one public servant being paid 10k gross, 5k net.

The private sector guy pays his tax and lodges it in the revenue's account. They have now received 4k in tax and their balance is +4k.

They now pay the public sector guy his salary. They pay him the 4k from the income tax account + 1k borrowed, the other 5k doesn't really exist but is assigned as tax revenue anyway. The revenue bank account is at 0k even though income is marked +5k.

In other words tax income is not 9k, it is 4k because 5k of it does not exist and cannot ever be spent on anything.

If the government wants to spend that 5k it has to borrow it. Otherwise it just doesn't exist.

Going back again to the consistency argument, if you want to use public sector pay minus direct taxes you'll have to reduce income tax, GNP and GDP by the same amount when calculating taxable income, otherwise you're talking about taxing non-existant money.

Also again I'm happy to explore whatever set of criteria so long as it's applied consistently and used appropriately. It's not at all reasonable to apply special sets of criteria to subsets of government activity and then compare it elsewhere using different criteria.

For example, using this criteria the public sector pension bill is significantly more expensive than would be otherwise considered since it attracts little tax.

ardmacha · 29-05-2013 10:17pm

For example, using this criteria the public sector pension bill is significantly more expensive than would be otherwise considered since it attracts little tax.

It is not more expensive, it is merely not discounted as much.

However, public pensions are systematically overstated also as most persons employed before '95 do not receive the old age pension, and these are most of the people retiring now. If the public pensions were like private ones then the bill would be one third less. Oddly enough the high quality journalists in the Irish media never seem to notice this.

sharper · 29-05-2013 10:26pm

ardmacha wrote: »

However, public pensions are systematically overstated also as most persons employed before '95 do not receive the old age pension, and these are most of the people retiring now.

Pre-95 civil servants pay PSRI at a significantly reduced rate, consequently they are not entitled to full PRSI benefits.

If the public pensions were like private ones then the bill would be one third less. Oddly enough the high quality journalists in the Irish media never seem to notice this.

Private workers pay full PRSI consequently they are entitled to full PRSI benefits.

The reason they don't "notice" your distinction is that it's misleading and wrong.

ardmacha · 29-05-2013 10:36pm

Private workers pay full PRSI consequently they are entitled to full PRSI benefits.

This is the why, not the what. The why is not the point.

The reason they don't "notice" your distinction is that it's misleading and wrong.

The reason they "notice" my distinction
1. they are lazy and have low professional standards
2. they like to pander to PS haters

sharper · 29-05-2013 10:59pm

ardmacha wrote: »

This is the why, not the what. The why is not the point

The why renders your point meaningless. People that do not pay PRSI do not get PRSI benefits whether they are public or private sector workers.

Please have a little bit of respect for the intelligence of the readers of this forum.

creedp · 29-05-2013 11:54pm

sharper wrote: »

The why renders your point meaningless. People that do not pay PRSI do not get PRSI benefits whether they are public or private sector workers.

Please have a little bit of respect for the intelligence of the readers of this forum.

Post 95 PS pay full PRSI but their defined benefit pension includes the contributory pension, i.e. if they receive a €30k pension, €12k relates to the contributoy OAP which all workers (incl private sector workers) are entitled to and €28k is their defined benefit occupational pension. This has been explained ad nauseum at this point but it doesn't seem to matter.

skafish · 30-05-2013 12:04am

sharper wrote: »

Clearly public servants have whatever entitlements they obtain from their employment contract and other agreements.

Unfortunately, the government dont agree with this

Godge · 30-05-2013 12:29am

sharper wrote: »

Ok let's imagine there's only two individuals involved here, one private sector paying €4k in tax and one public servant being paid 10k gross, 5k net.

The private sector guy pays his tax and lodges it in the revenue's account. They have now received 4k in tax and their balance is +4k.

They now pay the public sector guy his salary. They pay him the 4k from the income tax account + 1k borrowed, the other 5k doesn't really exist but is assigned as tax revenue anyway. The revenue bank account is at 0k even though income is marked +5k.

In other words tax income is not 9k, it is 4k because 5k of it does not exist and cannot ever be spent on anything.

If the government wants to spend that 5k it has to borrow it. Otherwise it just doesn't exist.

Going back again to the consistency argument, if you want to use public sector pay minus direct taxes you'll have to reduce income tax, GNP and GDP by the same amount when calculating taxable income, otherwise you're talking about taxing non-existant money.

Also again I'm happy to explore whatever set of criteria so long as it's applied consistently and used appropriately. It's not at all reasonable to apply special sets of criteria to subsets of government activity and then compare it elsewhere using different criteria.

For example, using this criteria the public sector pension bill is significantly more expensive than would be otherwise considered since it attracts little tax.

You really don't get it.

Have you ever heard of the futiity of consistency? You can count out the distance from here to France in millimetres and take years to do it which is pointless but using millimetres to see if a small thing fits is a good thing.

You are at the same thing. You want the same measurements and ground rules no matter what is being discussed but they are not always appropriate.

Maura74 · 30-05-2013 6:58am

Wow, wish that scheme was available in UK, but no such luck, however the public section in UK are lazy and some of them get generous holidays and guarantee pensions as well as generous sick pay, unlike the private sector.

I know some large multinationals give their employee a career break but that is unpaid with the proviso of maybe not getting the same job you left when they return to work. Also you have to be employed with the company for at least 2 years before you can get the benefit if any career breaks and it certainly unpaid.

sarumite · 30-05-2013 9:59am

Maura74 wrote: »

Wow, wish that scheme was available in UK, but no such luck, however the public section in UK are lazy and some of them get generous holidays and guarantee pensions as well as generous sick pay, unlike the private sector.

You can't make a sweeping ignorant statement like that and expect to be taken seriously.

sharper · 30-05-2013 10:22am

Godge wrote: »

You can count out the distance from here to France in millimetres and take years to do it which is pointless but using millimeters to see if a small thing fits is a good thing.

If you measure the distance to France in millimeters and the distance to the moon in kilometers you cannot compare them directly without converting them so they're consistent with each other you certainly cannot say "It's more millimeters to France than kilometers to the moon, therefore the moon is closer"

You are at the same thing. You want the same measurements and ground rules no matter what is being discussed but they are not always appropriate.

I want the same criteria applied when comparing two things, it's that simple.

Your argument is "If you deduct something from public sector pay and not from anything else then public sector pay is less". That's just not useful of sensible.

Croke Park II preliminary Talks started today

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