Francois Hollande simply can not get a break, on the same day, that he once again criticised the tax arbitrage strategies, employed by the big multinationals. Yahoo moved their French operations to Ireland. Hollande has been one of the most critical of these strategies, as it costs France in particular a lot of tax revenue. Their 34% rate of corporation tax, would draw billions more, if only they could nail down the likes of Yahoo, Google, Apple etc. Thus, he is off to America to discuss the problem with Barack Obama, his thinly veiled barbs at low tax countries like Ireland, left for the media to digest.
However, the reason for Yahoo's move, on the face of it at least, is not purely due to tax efficiency. It was revealed that French secret service had access to all data held by Yahoo, in France. This is a highly contentious issue for the likes of Yahoo, and they have been very quick to condemn these intrusions. Ireland, a small neutral country with very few 'natural enemies' has little reason to snoop, thus making it an attractive location to store data.
Let's not delude ourselves here, the tax rates in Ireland are comparatively low, and that makes it a highly attractive country to invest in. If however, France was to drop it's rate to match ours, would the likes of Yahoo return to our Gallic neighbours?
I don't believe they would be in any rush, and these are the reasons.
France is a socialist leaning country, with a big government footprint and a generous welfare state. In order to pay for this, the government needs to charge high rates of tax, and is particularly keen on squeezing high earners. With a top rate of income tax - mooted but yet to be implemented - of 75%, it is not the kind of place, where rich people are too keen on domiciling.
Even taking tax out of the equation, Ireland still has the advantage. French labour laws are incredibly restrictive, making it very hard to fire people during down turns. This in turn, means companies are loath to employ people on permanent contracts, instead they often employ them on a yearly rolling contract. Hardly a model for stability.
Added to this is the power of the unions, they have the ability to bring the country to a stand still with a well organised strike. Air traffic controllers, railway unions, all have immense power. Thus when Hollande tries to push through painful reforms, the unions threaten to bring the country to a halt and the reforms tend to be watered down or abandoned altogether.
Worse yet are the infamous "boss-nappings", which were frequent during the financial crisis. The most recent example occurred, when the CEO and Head of HR at Goodyear France, were held hostage at their Amiens plant, in retaliation for the closing down the factory. None of these kidnappings has lead to a jail sentence, or any kind of judicial follow up. When the head of Titan International - a rival tyre manufacturer - was asked if he would consider buying the Goodyear plant, he laughed and questioned why anyone would invest in France.
Even if one avoids being kidnapped they might not dodge the state burglars. When ArcelorMittal decided to close part of their factory, the French government threatened to nationalise it to keep it open.
How could any CEO invest in such an uncertain environment, especially given the alternatives? The truth is they are not, last year Foreign Direct Investment in France fell 77%. To put this in context last year was the IDA's - the body responsible for FDI in Ireland - most successful year in Ireland.
Hollande may have reason to be angry, but before he starts criticising the neighbours he should tidy up his own back yard. Businesses need stability and in a globalised world, the French way of doing things won't cut the Dijon mustard.
Tuesday, 18 February 2014
Wednesday, 5 February 2014
The Grey Vote - Pump Parish Pothole Politics
How often do we hear that Ireland is dominated by 'Pump Parish Politics'? It seems to be a constant affliction in our country. In fact, I would go so far as to add the word pothole to the phrase, we consistently choose the politician who will fix the pothole outside our front door, rather than the one who is best placed to drive forward the country and by extension their local constituency as a whole.
Young people who tend to migrate towards cities, and tend to be more modern in their views may wonder why this is the case. Why are politicians always outside mass shaking hands, why do they promise us the sun, moon and stars, when they call to our doors? If someone is going to put a pylon on my land because it happens to be on a predefined route, can any one politician really stop this? More importantly, does the fact that I vote for someone else even matter in the grand scheme of things?
The answer to this really depends, it depends on your age, sex, where you live and so on. This all comes down to demographics.
Old people vote en masse. They are singularly the most important cohort of any election, whats more they will vote for the person who delivers the most for them, as is their right. As people live longer this is cohort is only going to become stronger, and the stronger they become the more influence they will have.
Think about this for a moment, if you are 75, you may expect to live for another 5-10 years. You've worked hard all of your life and have saved, you own your house and have a generous pension. You also live in a rural area, where the vast majority of people are over 50. Now suppose the government decides that they want to lower the rate of your pension increase, at the same time they want to build a very expensive motorway, linking 2 parts of the country, which will benefit you as you live close to the route. In your mind you might think that the reduction in your pension is paying for this motorway, and you might be right. The motorway will be completed in 8 years, the pension cut will be immediate. There is a general election in 3 months, and a pothole outside your driveway.
A sitting TD comes by your house and knocks on the door. You quiz he/she on the pension rate reduction, why is it happening? Why should you loose out? The politician explains that they plan to vote against this issue, they think that someone who has worked all their life, should have a comfortable retirement. You mention the motorway, they again say that they are against that. Pollution, noise, traffic, all bad. Finally you point at the pothole, you get a smile. 'Ah yeah we'll have that looked at ' they say. Guess who's getting your vote in a few months!
Now imagine this happening all across the country, in cities the conversation will be different, as the priorities will be different. The pension 'cut' will still be a big factor. Politicians will promise to fix it. More votes will be decided, a general election won. The motorway plan scrapped, kudos handed out at the next mass. You get the idea.
But wait you say, this isn't how a democracy works. What about all the young, hard working people, the people who have no pension, are drowned in debt, and who need that motor way to reduce their commute?
These people will of course vote, but in far lower numbers. This cohort feels a lot less connected to the government, to them their vote is just another drop in the ocean. They know the power of the grey vote or else do not realise the power of their own vote.
The grey vote could also be extended to include the NIMBY class, the Not In My Back Yard crew. They are happy for the motor way to be built... so long as it doesn't affect them in any way. If the route suddenly changes and its running right through one of their front gardens however, they might start getting upset.
In Ireland the pylon debate has been put on the back burner until after the local elections, due to this very problem. This vitally important piece of energy infrastructure, is being delayed because of the government playing politics. By delaying the decision they don't have to face angry voters in the run up to an election and potentially lose votes. I'm not saying that people should have no say in the matter, however a decision must be made. Should a pylon be built on your land, adequate compensation should be provided. Holding the entire state to account however can not be permitted. The country and its people as a whole, must come first.
To prove the power of the grey vote I will cite 2 examples. One in Ireland and one in Britain (it's not just an Irish issue).
In 2009 during the height of the global crisis the Fianna Fail coalition government had to make some drastic cuts and tax rises, to stem the state's massive overspending. This was a highly unpopular budget and caused outrage amongst many. A pensioners march was declared and a protest was formed. The result of this was to roll back some of the cuts that had hit the elderly.
The UK pension system is triple locked, this means that the pension will increase by either the rate of inflation (has been up to 5% in the past 3 years), the average rate of earnings increases or 2.5%. The highest value of these 3 will be used. That means that in 2011, pensioners got a 5% increase in their pension while average earnings increased at less than 1%. Furthermore, this has been approved for continuation into the next parliament. At a time when every department's funding (health and education aside) is being slashed, this is an incredibly generous offering.
I could cite further examples, but I think you've got the picture. The question is what can be done about it?
We could decide to bring in compulsory voting, as they do in Australia. This would have the benefit of making all cohorts equally important. Politicians would have to create a mandate, that was good for everyone in society. The motor way would most likely be built under this scenario, the pylons erected etc. Nobody could complain about the decisions being made being undemocratic, as everyone had their fair say. Politicians would be held to account by the population as a whole.
There is one problem however, Ireland fought long and hard for a democracy, we even shed blood in doing so. A democracy means everyone has the right to vote, however it similarly means everyone has the right not to vote. It is up to each and every person eligible, to make that decision. Forcing people to vote because you do not like the status quo, is not an answer. It may also lead to extreme parties picking up more seats, as they promise populist ideas that sound good on paper, but would be bad for our economy and reputation.
The best way to change the current system, is to engage with all voters. Restore faith in politics, show younger people that it's not just an old boys club. The government has made some moves towards this - the latest move is to stop the appointment of judges based on political grounds. This is to be welcomed but more needs to be done. While John Tierney may prove to be an excellent CEO of Irish Water, the process of appointing him was too opaque, and his track record has some notable blemishes (the Poolbeg incinerator). These kinds of moves do not engender the public to politicians.
Another issue I have with the political system, is that the term of government is too short. Is 5 years really enough time to make a radical change, which may in the short term be painful but in the long term beneficial? I have thought about this at length, and there is no easy solution. I have considered a situation where governments create a manifesto for a 10-15 year plan. The manifesto should then be implemented by the government, over the 10-15 years the benefits would have time to become apparent. The government would be allowed to stay in office for this period, but only once a certain % of this manifesto had been met by year 5. Lets say the figure was 80%. An external organisation such as the IMF could oversee this, and after 5 years say whether the government had met its targets. If it had not done so the government could be dissolved, and if it had done it could continue. A serious event like the financial crisis could lead a government to manually dissolve, as the manifesto would no longer be fit for purpose. The balance of power would rest with a governments TD's, who would have the power to switch allegiance should a government go 'crazy with power'. It's not an ideal solution but I feel it's a better way of making real reform and making decisions for the long run, and not constantly seeing oneself through the 5 years, until the next election. An obvious drawback is that opposition TD's would have very little power, aside from adding their weight to a debate. The system would be open to abuse, but thats currently the case anyway.
Overall politics needs to change, as globalisation spreads, and the developing nations rise there will be nowhere to hide. Those countries that have made the tough decisions will prosper, those who have not will flounder. The status quo will be nice and comfortable, until it's not. By then it will be too late to change. The hard choice is often the best one, that's why it's hard.
If you are to take anything away from this post, let it be that you have the right to vote and you should exercise this right!
Some proposals, that will never happen under the current setup, or are severely contested.
Full abortion rights - The grey vote tends to be less liberal and more religious, they will never allow for abortion as the Catholic church does not allow for it.
The right for LGBT to marry/adopt - We live in a modern society no longer dominated by the Catholic Church.
The use of nuclear power - Cheap power is going to be a key competitive issue for all countries as globalisation grows. Nuclear can be cheap and is clean to generate, disposal is a different story.
Radical pension reform and large increase of pension age - Why would the grey vote change this when it works in their favour.
The legalisation of cannabis - Why not, it would raise taxes, could be regulated and would reduce proceeds to crime and the amount of people in jail. Other countries have started to look at this already.
The legalisation of prostitution - Again this would have benefits as per the cannabis argument and would reduce sex trafficking and exploitation.
Young people who tend to migrate towards cities, and tend to be more modern in their views may wonder why this is the case. Why are politicians always outside mass shaking hands, why do they promise us the sun, moon and stars, when they call to our doors? If someone is going to put a pylon on my land because it happens to be on a predefined route, can any one politician really stop this? More importantly, does the fact that I vote for someone else even matter in the grand scheme of things?
The answer to this really depends, it depends on your age, sex, where you live and so on. This all comes down to demographics.
Old people vote en masse. They are singularly the most important cohort of any election, whats more they will vote for the person who delivers the most for them, as is their right. As people live longer this is cohort is only going to become stronger, and the stronger they become the more influence they will have.
Think about this for a moment, if you are 75, you may expect to live for another 5-10 years. You've worked hard all of your life and have saved, you own your house and have a generous pension. You also live in a rural area, where the vast majority of people are over 50. Now suppose the government decides that they want to lower the rate of your pension increase, at the same time they want to build a very expensive motorway, linking 2 parts of the country, which will benefit you as you live close to the route. In your mind you might think that the reduction in your pension is paying for this motorway, and you might be right. The motorway will be completed in 8 years, the pension cut will be immediate. There is a general election in 3 months, and a pothole outside your driveway.
A sitting TD comes by your house and knocks on the door. You quiz he/she on the pension rate reduction, why is it happening? Why should you loose out? The politician explains that they plan to vote against this issue, they think that someone who has worked all their life, should have a comfortable retirement. You mention the motorway, they again say that they are against that. Pollution, noise, traffic, all bad. Finally you point at the pothole, you get a smile. 'Ah yeah we'll have that looked at ' they say. Guess who's getting your vote in a few months!
Now imagine this happening all across the country, in cities the conversation will be different, as the priorities will be different. The pension 'cut' will still be a big factor. Politicians will promise to fix it. More votes will be decided, a general election won. The motorway plan scrapped, kudos handed out at the next mass. You get the idea.
But wait you say, this isn't how a democracy works. What about all the young, hard working people, the people who have no pension, are drowned in debt, and who need that motor way to reduce their commute?
These people will of course vote, but in far lower numbers. This cohort feels a lot less connected to the government, to them their vote is just another drop in the ocean. They know the power of the grey vote or else do not realise the power of their own vote.
The grey vote could also be extended to include the NIMBY class, the Not In My Back Yard crew. They are happy for the motor way to be built... so long as it doesn't affect them in any way. If the route suddenly changes and its running right through one of their front gardens however, they might start getting upset.
In Ireland the pylon debate has been put on the back burner until after the local elections, due to this very problem. This vitally important piece of energy infrastructure, is being delayed because of the government playing politics. By delaying the decision they don't have to face angry voters in the run up to an election and potentially lose votes. I'm not saying that people should have no say in the matter, however a decision must be made. Should a pylon be built on your land, adequate compensation should be provided. Holding the entire state to account however can not be permitted. The country and its people as a whole, must come first.
To prove the power of the grey vote I will cite 2 examples. One in Ireland and one in Britain (it's not just an Irish issue).
In 2009 during the height of the global crisis the Fianna Fail coalition government had to make some drastic cuts and tax rises, to stem the state's massive overspending. This was a highly unpopular budget and caused outrage amongst many. A pensioners march was declared and a protest was formed. The result of this was to roll back some of the cuts that had hit the elderly.
The UK pension system is triple locked, this means that the pension will increase by either the rate of inflation (has been up to 5% in the past 3 years), the average rate of earnings increases or 2.5%. The highest value of these 3 will be used. That means that in 2011, pensioners got a 5% increase in their pension while average earnings increased at less than 1%. Furthermore, this has been approved for continuation into the next parliament. At a time when every department's funding (health and education aside) is being slashed, this is an incredibly generous offering.
I could cite further examples, but I think you've got the picture. The question is what can be done about it?
We could decide to bring in compulsory voting, as they do in Australia. This would have the benefit of making all cohorts equally important. Politicians would have to create a mandate, that was good for everyone in society. The motor way would most likely be built under this scenario, the pylons erected etc. Nobody could complain about the decisions being made being undemocratic, as everyone had their fair say. Politicians would be held to account by the population as a whole.
There is one problem however, Ireland fought long and hard for a democracy, we even shed blood in doing so. A democracy means everyone has the right to vote, however it similarly means everyone has the right not to vote. It is up to each and every person eligible, to make that decision. Forcing people to vote because you do not like the status quo, is not an answer. It may also lead to extreme parties picking up more seats, as they promise populist ideas that sound good on paper, but would be bad for our economy and reputation.
The best way to change the current system, is to engage with all voters. Restore faith in politics, show younger people that it's not just an old boys club. The government has made some moves towards this - the latest move is to stop the appointment of judges based on political grounds. This is to be welcomed but more needs to be done. While John Tierney may prove to be an excellent CEO of Irish Water, the process of appointing him was too opaque, and his track record has some notable blemishes (the Poolbeg incinerator). These kinds of moves do not engender the public to politicians.
Another issue I have with the political system, is that the term of government is too short. Is 5 years really enough time to make a radical change, which may in the short term be painful but in the long term beneficial? I have thought about this at length, and there is no easy solution. I have considered a situation where governments create a manifesto for a 10-15 year plan. The manifesto should then be implemented by the government, over the 10-15 years the benefits would have time to become apparent. The government would be allowed to stay in office for this period, but only once a certain % of this manifesto had been met by year 5. Lets say the figure was 80%. An external organisation such as the IMF could oversee this, and after 5 years say whether the government had met its targets. If it had not done so the government could be dissolved, and if it had done it could continue. A serious event like the financial crisis could lead a government to manually dissolve, as the manifesto would no longer be fit for purpose. The balance of power would rest with a governments TD's, who would have the power to switch allegiance should a government go 'crazy with power'. It's not an ideal solution but I feel it's a better way of making real reform and making decisions for the long run, and not constantly seeing oneself through the 5 years, until the next election. An obvious drawback is that opposition TD's would have very little power, aside from adding their weight to a debate. The system would be open to abuse, but thats currently the case anyway.
Overall politics needs to change, as globalisation spreads, and the developing nations rise there will be nowhere to hide. Those countries that have made the tough decisions will prosper, those who have not will flounder. The status quo will be nice and comfortable, until it's not. By then it will be too late to change. The hard choice is often the best one, that's why it's hard.
If you are to take anything away from this post, let it be that you have the right to vote and you should exercise this right!
Some proposals, that will never happen under the current setup, or are severely contested.
Full abortion rights - The grey vote tends to be less liberal and more religious, they will never allow for abortion as the Catholic church does not allow for it.
The right for LGBT to marry/adopt - We live in a modern society no longer dominated by the Catholic Church.
The use of nuclear power - Cheap power is going to be a key competitive issue for all countries as globalisation grows. Nuclear can be cheap and is clean to generate, disposal is a different story.
Radical pension reform and large increase of pension age - Why would the grey vote change this when it works in their favour.
The legalisation of cannabis - Why not, it would raise taxes, could be regulated and would reduce proceeds to crime and the amount of people in jail. Other countries have started to look at this already.
The legalisation of prostitution - Again this would have benefits as per the cannabis argument and would reduce sex trafficking and exploitation.
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