The household charge

The household charge of €100 was introduced in the last budget as an intermediary step towards a property/council tax being introduced in the coming years. Based on there being about 1.5M houses in Ireland, some of which will be eligible for waivers, the measure will bring in about €100M or so in this year. That is, if everybody pays it and that is looking less and less likely.

What is surprising is the massive campaign against the household charge, while hundreds of other measures that have had a much greater impact (USC, Tax Credits, Social Welfare payments, health and education cuts) have been accepted fairly easily. One of the biggest scams of all was the setting up of NAMA and only about 400 people turned out at the rally against it.

What is even more surprising is that it is the left groups who are objecting most strongly. One of the key ideals of socialism is taxation of assets and wealth rather than labour. So how can people like Joe Higgins and Richard Boyd Barrett honestly stand up and say the household charge is bad? Sure, in its current form as a flat charge it is not equitable, but they are arguing against charges on property as a whole. "No tax on the family home" seems to be the mantra. But if most houses in Ireland are family homes then any property tax will not be deemed acceptable to them which flies in the face of socialism.
This is similar to the problem I have with the anti bin-tax campaign. Due to it's "success" Dublin City Council ended up having to privatise the service and we're now left with the mess of Greyhound not doing the job properly. Parties of the left should be in favour of proper public services, but that campaign ended up displacing quality jobs in the council into poorer conditions with a private operator. And I don't see the SWP or SP orchestrating campaigns against payments to Greyhound and Panda now that the easy target of the City Council has been defeated.
Another current red herring is the exemption for property owned by Ministers. Like lots of other legislation, the state is exempted from paying itself taxes as it just turns into an accounting exercise. These properties are things like social housing, hospitals and army barracks. Personal, private residences owned by people who happen to be Ministers are just as liable for the charge as every other home.

One thing that I am not sure about is whether NAMA will have to pay the household charge on all the residential properties it has sitting on its books. While NAMA is effectively a state agency, it was set up with only 49% state ownership to avoid various issues surrounding state support and also to dodge the FOI act. Will the charge eat into any potential profits or will it just increase the losses incurred NAMA which then have to be born by the tax payer anyway?
To me it's simple - a property tax (site based or house based) is a good thing in that it provides a sustainable and almost guaranteed income stream either to local or central government. The alternative, if property taxes are ditched, is to increase income tax across the board (but mainly in the soft middle 50-80k territory) or cut spending in health, education and welfare. As a Labour person, I'm enjoying seeing Phil Hogan make an eejit of himself and having to hide behind Fergus O'Dowd. I'm also somewhat cynical that the closing date for the charge just happens to coincide with the €3.1B card monte. However, if property taxes are good enough for every other western country then they're good enough for Ireland too.

Dividing Anglo

I was always under the impression¹ that all the toxic bad debt in the Irish banks was being sucked into NAMA and that once completed the banks would be hale and hearty. There would be credit flowing, share prices would rise and dividends would be paid out to deserving pensioners.
Therefore Richard Bruton's good bank/bad bank suggestion was deemed completely unnecessary and the proposal was mocked and jeered by the government, Alan Dukes in Anglo Irish and the commentariat in the main stream media.

So how is it that 12 months on this is almost exactly the solution now being proposed for Anglo? Surely having had the poison sucked out into NAMA they should only have performing loans left in the bank? What is left to put into the Bad Bank? How many of the sub €5M loans still on their books are now classified as impaired? If it is a lot, then why are we continuing to bank roll this basketcase? If it isn't very many, then why do we need an extra entity to handle them? Won't this just create another expensive set of directors and senior management to run the hulk?

1. Not really but this has been the official position.

Day of Doom

Today, 30th March, is (un)officially the day of doom for several reasons.

• The NAMA transfers are announced
• Quinn Insurance is put into administration
• Some eejits in Switzerland finally make black holes

NAMA

I've written various bits about NAMA in the past and have always believed that it is a rotten deal that does nothing in the long term for the tax payer. Sure, it keeps certain financial institutions running and keeps the wolves from the door of certain developers for a while but how is that really in the state's best interest. Yet again Elaine Byrne says it far better than I can in today's Irish Times where she says we have been sleepwalking into NAMA. A letter in today's paper also sums up a lot about what is wrong with the Irish mentality where thousands march about hurling and hunting and only a few hundred (one of whom was me) marched against NAMA last September.

So today we finally get to see some of the toxic loans transferred into NAMA from the banks. According to reports, after this exercise INBS, EBS and AIB will end up effectively in state ownership and the state will hold a substantial minority shareholding in BOI and we will be left needing to recapitalize them giving an overall cost of about €22,000,000,000. As Elaine Byrne puts it, that is about €6,000 per man woman and child in the country.

I still believe the fundamental flaw was the blanket guarantee of all the bank liabilities as opposed to just depositors. Bond and share holders were taking a punt, were drawing down the big returns and so when it all went wrong should not have recourse to get the state to repay them. A short nationalization of BOI and AIB to keep consumer banking functioning while the rest went to the wall would have been cheaper and quicker. Instead we're now up to our gills in debt for absolutely no gain.

Quinn

This story is only just breaking, but putting the Quinn group's insurance companies to be put into administration is a major step. With the regulator saying he had very serious concerns about the companies abilities to meet liabilities the sweetheart deals between Anglo and Quinn have come around to bite everyone concerned. One wonders if the large dividends recently paid by the Quinn group will be recalled or if there is in fact any mechanism to do this.

CERN

So not actually a bad story - the LHC finally got switched on today and collisions were detected. Unless black holes behave differently than expected, by my being able to type this the universe hasn't been destroyed. Now lets go see if we can find this Higgs Boson and use the knowledge to cure cancer or feed the world or at least come up with a new version of Teflon. Science FTW!

Iceland referendum

Yesterday's referendum result from Iceland shows what happens when the citizens of a country have had enough of being bullied by corporate and financial interests. About 93% of the ballots cast voted against the deal to repay UK and Dutch investors in Icesave, the Icelandic online bank. This follows the Icelandic President's refusal to sign into law a repayment deal that would leave the residents of Iceland responsible for paying back Icesave's debts.

About €4Bn was lost by investors from Holland and the UK when the bank went bust towards the end of 2008. The online bank was paying high interest rates on deposits which should have been a big warning sign to investors that the risk involved in depositing money there was high. This is the same situation that has existed with Irish banks for the last few years - they have had to pay high interest rates to attract deposits due to their shaky foundations.

When Icesave went to the wall, the Dutch and UK governments stepped in and repaid the depositors from their respective countries. They then demanded that Iceland repay them and in the worst case of international bullying, the UK invoked various anti-terrorism laws to freeze assets belonging to various Icelandic institutions and people.

To my mind, if you live by the sword then you die by it. Taking the reward of high interest rates should remove any responsibility for states to repay you if the bank folds. However, it appears that Iceland has agreed to pay back this money but just not under the terms of the deal struck by the government. It is now back to the drawing board to see how the €4Bn will be raised. For a country with a population of about 320k that works out at about €12,500 each, roughly in line with what NAMA is going to cost per-capita in Ireland. No sign of a politician calling for a referendum on that any time soon though.

For more column inches than you could possibly read on Iceland have a look at the Irish Economy blog.

Public Sector pay non-cuts

So yet again the people at the bottom of the heap are stiffed while those at the top are kept pretty. After the announcement just before Christmas that the top public sector workers wouldn't be suffering the 15% cut mentioned in the Budget speech, it now turns out that staff in NTMA, which raises money for the state on the international markets, are exempt from any pay cuts. Also covered by this exemption are NAMA staff.

Is it any wonder that Blaire Horan and Jack O'Connor were so cross when they appeared on Vincent Browne's show last night on TV3. The lack of equity in the system is starting to reach epic proportions. The sooner to debate turns from public versus private to haves versus have nots the better for all of us.

Hat tip to Irish Economy and Irish Examiner for the story.

AIB shenanigans

The row about pay levels for bank executives has raised its head in the last few days with AIB's appointment of a managing director. As part of the re-capitalization earlier on in the year, Brian Lenihan capped the pay for top bankers at €500,000. However it appears that AIB was unable to attract anyone from outside the organisation to run the place for such a paltry sum of money.

Therefore, AIB decided that they would have to appoint from within and came up with Colm Doherty as the man to do it. The problem was that Mr Doherty was already earning in excess of the €500,000 cap. After various back and forths it was announced this morning that he will take the job at the reduced rate. Of course it is unclear as to whether bonuses, options and other perks will be extended to Mr Doherty to bring his total package back up.

Of course the real problem with the whole exercise is that we now have AIB being run by an insider - one of the very people who ran the bank into the ground over the last few years and forced the government to step in and prop it up. Is it really that difficult to attract someone half competent to run the company for less than a half million? Half competent would be infinitely better than the current group at the top table since they have shown themselves to be completely incompetent.

To my mind the thing that stinks here the most is the timing. With NAMA jst around the corner, AIB released an interim statement today which has been completely ignored as people focus on the pay dispute. In the section called Asset Quality there is an interesting table showing the breakdown of the €24B of property loans that will be transferred to NAMA. It reckons that €10.5B of those will be impaired by the end of the year. That is almost 44% of their NAMAbound loans in trouble which is hard to reconcile with Lenihan's continued insistance that NAMA will end up making a profit for the Irish taxpayer.

New Programme for Government

After Ciaran Cuffe's bluff being called, the Greens stayed at the table until just before last night's main evening news to agree the new programme for government. With the members' convention only 14 hours away you'd think that speedy dissemination would be key but instead nothing appeared over night. Tweets started appearing from party members who arrived at the RDS and still had no documentation to read. Eventually at 11:10 the document was released online and printed copies distributed to the masses shortly thereafter. Nice to see that an informed decision will be made having such a long period of time to digest the contents of the PfG.

The document itself is full of nice aspirations but short on detail. There are no costings anywhere and no indications of where the money might come from to implement any of the proposals. There are a lot of green agenda items ticked off - GM food, forestry, fur farming and public transport. Indeed it is interesting to note that one of the few firm deadlines in the document is 2016 completion of Metro North and the Dart Interconnector. However it is also worth noting that these have been key parts of PfGs and transport policies since the mid ninties so I won't be holding my breath on that.

The CIO role is a good idea, but some of the ideas are very wierd. For a country with some of the highest electricity costs in Europe, to set ourselves up as a Data Centre hub for cloud computing seems odd at best. Providing broadband to every house by 2012 (subject to EU funding) is also laughable. This should have been done at least 8 years ago if not longer. 100Mb to schools is great until you realise that the IT equipment in most schools is donated 4 year old computers that continually fail. Also the students will just use it to access Bebo and Facebook since there will be no investment in upskilling teachers to deal with the new medium.

Of course, all this is moot. The PfG will be accepted and NAMA will fail to be rejected. The NAMA legislation will then be pushed through and assets transferred from the banks before the budget. When the FF back benchers see the budget cuts that are announced the heave will begin and the government will fall. So all that will be achieved is putting the nation in hock for €50-€60B. Go on the Greens!

Timewasting in the Dail

During the opening of the Dáil today, Arthur Morgan of Sinn Féin was asked to leave the house, refused and thereby caused the house to be suspended on several occasions. Following that, there was a lengthy to and fro on the order of business with a vote called on each part.

All these activities took time, and now at 15:45 we still haven't started the debate on NAMA. The order of business will be passed by the government and will state that the debate must wind up by 8pm. The very people who wasted the time at the start will be the ones complaining about the lack of debate time on NAMA. These sorts of shenanigans drive me and probably lots of the public nuts.

NAMA and windfall taxes

During a discussion on zoning matters in the Pembroke-Rathmines ward at last night's branch meeting, two interesting issues came up with regard to the NAMA setup and one of the Green Party suggestions.

The first issue concerned how long planning permission last for. Say at the height of the boom I got planning permission for 100 units in three phases on a site. I started construction in 2006 and finished 25 units and then mothballed another 25 that were halfway there. Phase 3 of the final 50 units never started. How long do I have to turn the sod on phase 3 before my planning permission expires? And if NAMA have paid the long term economic value does that value include the completed houses on the site or just the lump of land?

Secondly we were disucssing the windfall tax on rezoned land. If such a tax were introduced, any profits on the sale of land rezoned by the council would be subject to an 80% tax, effectively implementing the Kenny Report of 1973. But what would happen the other way. Say the council rezone the land that phase 3 of my development back to Z9 to provide a local park, 20 years after I fail to build my houses. Can I now apply for an 80% rebate on taxes? Or would they have to purchase the land back off me at full market rate (whatever that is) before rezoning?