Thursday, March 5, 2015

Exaggerating the Irish-US economic relationship

Here is a link to a report published today on the Irish-US economic relationship with a particular emphasis on FDI.  The report has attracted some attention.

  • The Irish Times: “Ireland is the number one destination in the world for US foreign direct investment (FDI), according to a new report.”
  • Irish Examiner: “Ireland is now the number one destination in the world for US Foreign Direct Investment.”
  • Irish Independent: “Ireland is the number one destination for US foreign direct investment”

We’ll start with a couple of charts from the report.  First the total US FDI stock in Ireland.

Total US FDI

There are a couple of things that should cause doubt about the above chart.  The first is that the data appear to be nominal so is not comparing like with like.  The second is the extra-ordinary increases that have occurred in recent years (when inflation was low).  The FDI stock rose from $130 billion in 2009 to $240 billion in 2013.  Just what did US companies invest in in Ireland over those five years?

The most notable concern is the source of the data: the US Bureau of Economic Analysis.  The problems with this data are a well-worn path.  In their FDI data the BEA assign companies to countries on the basis of their place of registration or incorporation.  The activity can happen anywhere but is assigned to the country where the company is incorporated.  There is no restriction on the activity taking place within the assigned jurisdiction.

The above chart refers to the investment stock of Irish-incorporated subsidiaries of US MNCs.  It does not refer to the investment stock in Ireland of US MNCs. 

There are also issues when it comes to the definition of FDI.  One would assume it involves flows inwards but buried in the glossary at the end is this:

There are three components of foreign direct investment: equity capital flows, intercompany debt, and reinvested earnings.

The last part of this is crucial.  The definition of FDI includes retained earnings that are not repatriated to the US parent.  Therefore there are two reasons why the FDI flows to Ireland are unusually large in this data:

  1. It includes all the activities of Irish-incorporated subsidiaries of US MNCs, not just their activities in Ireland
  2. It includes the retained earnings of these companies, some of which are part of the most profitable companies in the world.

The tax strategies of some of the most high profile US MNCs in Ireland have attracted a lot of attention in recent years.  Schemes such as the “double-irish” and “stateless income” have achieved notoriety.  The whole purpose of these schemes is to trigger the deferral provisions in Subpart F of the US tax code for profits earned outside the US.  This deferral is maintained as long as the profits are not repatriated to the US parent, i.e. as long as they are retained in the non-US-incorporated affiliate.

We know that many US companies use Irish-incorporated companies as part of their global tax structures.  These companies have been accumulating massive retained earnings and these retained earnings are counted as FDI flows to Ireland – even though the money may never even pass through Ireland.

Apple is a case in point.  We know that Apple has Irish-incorporated companies at the centre of its global tax structure.  We don’t need to rehash it here.  Three of the key companies,  ASI, AOE and AOI, were subject to a US Senate investigation where the committee chair, Sen. Carl Levin concluded:

In short, these companies’ decision makers, board meetings, assets, asset managers, and key accounting records are all in the United States.

These companies are Irish-incorporated so are included in the BEA FDI data but almost everything about them happens in the US.  Ireland gains nothing from the accumulation of profits in these entities.  And later this year the European Commission will conclude that their worldwide profits are not subject to Irish Corporation Tax.  We should not count their retained earnings as FDI inflows to Ireland.

Apple’s most recent SEC 10K filing shows that Apple has huge sums of retained earnings in these companies with the US corporate income tax deferred until the funds are transferred to a US-incorporated entity within Apple’s structure. 

Apple has around $130 billion of profits retained offshore.  Of this they have made a tax provision to reflect the possibility that they may repatriate around half of it:

As of September 27, 2014, the Company had [.] deferred tax liabilities of $20.3 billion.

Apple reports a similar deferred tax liability for funds that it has not declared a intention to repatriate.  Apple may decide to repatriate these profits to the US but on their balance sheet have not set aside the funds to cover the payment of the (indefinitely) deferred taxation.

As of September 27, 2014, U.S. income taxes have not been provided on a cumulative total of $69.7 billion of such [foreign] earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $23.3 billion.

We know that Apple is accumulating most of these funds in Irish-incorporated companies.  These funds are counted as an FDI inflow to Ireland in the BEA data. 

The massive profits that Apple has been earning recently (and it is just after reporting net earnings of $18 billion for Q4 2014) are a major driver of the increase of the “Irish” stock of FDI of US MNCs in recent years.

The report does account for some of this by stripping out the effect of holding companies (companies that own other companies) but this still gives an inaccurate picture. ASI is a trading company in Apple’s structure but does most of its trading in Cupertino, California; not Hollyhill, Cork.  The stock of FDI excluding holding companies will equally be skewed by the extent to which US MNCs retain earnings in their trading companies.

We can try to look at data from the CSO which use the source of the investment rather than the jurisdiction of incorporation in their approach.  But that is equally problematic.  At the end of 2013 the CSO but the end-year position of US FDI in Ireland at €18.3 billion.  For investment from Luxembourg is was €66.9 billion.  The CSO data does not break through to the beneficial owner of the investment; it merely gets to the next location in the chain.  FDI from “offshore centres” of Central America (aka Caribbean tax havens) was €20.7 billion.

Trying to establish economic relationships on the basis of official FDI data is close to impossible given the hugely complex operating structure of MNCs.  Collating the data on the basis of place of incorporation (as in the BEA data) does not reflect activities that happen outside of the country of incorporation.  While collating the data on the basis of place of origination (as in the CSO data) does not pierce through to the beneficial owner of the investment.

The claim that Ireland is the top destination of US FDI is bogus.

Top US FDI Destinations

This chart reflects little more than the fact that some of the most profitable US MNCs accumulate their non-US earnings in Irish-incorporated companies.  The impact of Apple has already been noted.  Google Ireland Holdings will be in the above chart but that’s little more than a brass-plate operation in Hamilton Bermuda, though crucially is Irish-incorporated.  The above chart reflects tax optimisation strategies to retain earnings outside the US rather than any substantive investment activity in Ireland.

There are other issues that should raise doubts in the report.  Here is a chart of the sales of “Irish” affiliates in the BEA data.

Sales of US Affiliates

For 2013, sales of around $340 billion are shown.  For 2013, the dollar/euro rate averaged 0.783.  This means the sales shown above correspond to something around €266 billion.  According to the CSO total exports from Ireland were €184 billion in 2013 (national accounting methodology).  Therefore US companies account for 145 per cent of Irish exports. Or something.

The something is that most of these sales are not made in Ireland.

Next, the report estimates that the gross value added of US MNC affiliates in Ireland was $85.5 billion in 2013.  Using the above exchange rate gives a figure of €67.0 billion.

The CSO tell us that gross value added for the entire Irish economy in 2013 was €159 billion (add in net product taxes of €16 billion to get GDP of €175 billion).  Anyway today’s report purports to tell us that 42 per cent of the added value in the Irish economy was generated by US companies.  Maybe Bono was right but this report isn’t.

There is one chart in the report that hints that all is not as it seems with the headline FDI, sales and value added data.  And this one really is the bottom line for us in Ireland: jobs.

Manufacturing Employment of US affiliates

Since 2009 the stock of US FDI is reported to have gone from $125 billion to $240 billion.  Unfortunately the trend for manufacturing employment has been somewhat different.

There are lots of claims in the report that do not stack up to scrutiny.  Many of these are usefully collected under ‘Chapter 1 highlights’.  They include:

  • Total U.S. investment to Europe in the first nine months of 2014 fell 19% from the same period in 2013, to $115 billion, while U.S. flows to Ireland surged nearly 42%, to roughly $37 billion.
  • U.S. direct investment stock in Ireland totalled a record $240 billion in 2013, a greater investment stake than Germany and France combined ($196 billion).
  • U.S. companies have invested roughly $277 billion in Ireland since 1990; the comparable figure for Brazil: $92 billion; for Russia: $10 billion; for India: $32 billion; and China: $51 billion.
  • US affiliate output in Ireland totalled nearly $82 billion in 2012, a five-fold increase from the start of the century. For the year, US affiliates produced more output in Ireland than in China ($46.4 billion) and India ($21 billion) combined.

In the report the section that looks at FDI excluding holding companies includes the following claims:

  • In 2013, the last year of complete data, Ireland ranked as the number one destination in the world for U.S. foreign direct investment. U.S. FDI to the nation totalled nearly $19 billion, a record high. The figure was just over 12.2% of the global total.
  • Ireland accounted for 36.4% of total US FDI to the European Union in 2013, a record high.
  • In the post-crisis era (the 2008-13 period), U.S. firms have invested more capital in Ireland ($81.1 billion) than the BRICs combined ($52 billion). Corporate America’s investment in Ireland since 2008 is five times larger than comparable investment levels in China and 16 times greater than U.S. FDI in India

None of the above seven claims are true if one is interested in the economic impact of US MNCs in Ireland.  This is not to discount the impact of US MNCs in Ireland.  The ‘Chapter 1 highlights’ concludes with he following:

  • For decades, US firms in Ireland have been instrumental in creating jobs and income for Irish workers, profits for indigenous firms, and tax revenues for local and national governments. Due in part to the large presence of US affiliates, Ireland has been transformed from one of the more underdeveloped nations of Europe into one of the most prosperous over the past 50 years.

Ignoring the slight hyperbole there is truth here.  Unfortunately the report offers very little to actually verify it.  Can we do it here?  Well we actually have done it before.  See here and also elsewhere here.  Eurostat have added an 2012 update to the data previously used and here is the updated table.

Contribution of US companies to Ireland

The “business economy” is NACE Rev. 2 categories B to N excluding K (financial and insurance activities).  The contribution of US-owned companies to the Irish economy is immense.  The direct effects for 2012 are:

  • Compensation of Employees: €6.2 billion
  • Capital Expenditure: €5.3 billion (average €3 billion)
  • Corporation Tax:  €2 billion (estimate)

Some of the capital expenditure will go on imported plant, machinery and equipment but a large part of will be spent on Irish-sourced materials and, of course, labour. 

The Gross Value Added of US-owned companies in 2012 was €35.9 billion.  This is a much more reasonable, but still hugely significant, 22.8 per cent of total GVA for the entire Irish economy.  Of this, €6.2 billion went on the compensation of employees giving a labour share of value added of just 17 per cent for US-owned companies.

Gross Operating Surplus was €29.7 billon in 2012.  This is akin to EBITDA (earnings before interest, tax, depreciation and amortisation).  We would need to subtract interest and depreciation (capital allowances) to get taxable income.  This would probably come in at around €20 billion and with an effective corporation tax rate of around 11 per cent this would result in Corporation Tax revenues of around €2 billion, give or take.

There will also be indirect effects.  US companies in Ireland bought €90 billion of goods and services in 2012 for intermediate consumption.  Most of this will be imported (raw materials for pharmaceuticals, patent royalties and the like) but they also will buy a lot of goods and services in Ireland.  It is estimated that for every three direct jobs from US MNCs a further two indirect jobs are created from their expenditure in Ireland.

This will include expenditure on security, logistics, catering, cleaning and other services, as well as thousands of agency workers used by the companies.  There are also other largely unseen things like the outsourcing of manufacturing,  quality control and research activities, and, of course, expenditure on professional services from legal, accountancy and tax firms in Ireland. 

It is difficult to pinpoint the contribution these expenditures from US companies make to the Irish economy but it is a significant amount.  It is a finger in the wind but I would estimate the figure is in the ball park of €4-5 billion. 

The now-discontinued Annual Business Survey of Economic Impact from the now-defunct Forfás indicated that agency-supported foreign-owned firms bought €3.3 billion of Irish-sourced materials in 2012 (14 per cent of total materials purchased) and, excluding computer programming, €4.1 billion of Irish-sourced services (8 per cent of total services purchased).

As stated above the bottom line for Ireland is jobs.  The Eurostat data show that this was around 100,000 in 2012.  And this is for “the business economy” which excludes financial and insurance services (the IFSC and related sectors).  This would add to the employment total from US MNCs and bring the annual compensation of employee payments to close to €8 billion and add maybe another couple of hundred million to Corporation Tax receipts.  Around half of the Corporation Tax paid in Ireland comes from US-owned companies.

All told the contribution of US-owned companies to the Irish economy is probably between €17 billion and €20 billion a year, every year.  Under conservative estimates it can be put as:

  • Compensation of Employees: €8 billion
  • Capital Expenditure: €3 billion
  • Corporation Tax: €2 billion
  • Expenditure on Goods and Services: €4 billion

As well as direct Corporation Tax from their profits, the government will also collect Income Tax and PRSI from their compensation of employees and a range of taxes from the indirect expenditure by the US-owned companies.  Government revenue probably benefits to the tune of €6 billion a year, every year, from the presence of US MNCs in Ireland.

The impact US MNCs make in Ireland is immense.  We have a class of high-performing rent-seekers who seek gain from the investments by US shareholders instead of looking for preferential treatment to gain from allocations by government.  We are all the better for it.  It is high risk but we are gaining from it (as are US shareholders).

There is no need for headline-grabbing efforts to exaggerate the impact US MNCs have on Ireland.  FDI data, and BEA data in particular, tell us little about what is happening in Ireland.  If they don’t tell us anything about effective tax rates in Ireland (and they don’t!) it’s a bit disingenuous to use them to say something about foreign investment in Ireland.  Maybe Finance will drop Foreign Affairs a note discouraging them from writing forwards (see page 7) to such reports.

Tuesday, March 3, 2015

Repossessions of PDHs

We now have five years of data on repossessions of primary dwelling houses (PDHs) from the mortgage arrears statistics published by the Financial Regulator.  The figures here are taken from the quarterly releases. 

In the five years since Q3 2009 there have been 991 court-ordered repossessions.

Reposessions 2014 Q3

There has been a slow increase in the rate of court-ordered repossessions.  The Q1-Q3 totals for the past four years are:

  • 2011: 146
  • 2012: 156
  • 2013: 188
  • 2014: 190

The trend line for court ordered repossessions shows a rise of about 2 per quarter.

Court Ordered Respossessions

There has been a notable increase in the number of PDHs that were voluntary surrendered:

  • 2011: 329
  • 2012: 316
  • 2013: 410
  • 2014: 692

Of PDHs that are repossessed 70 per cent are voluntarily surrendered and 30 per cent are on foot of a court order.  There remains a lack of data on the number of forced sales where the bank does not take formal possession of the property but forces the sale in order to use the proceeds to offset the mortgage.

The second set of figures in the table below relate to the number of court proceedings for repossession issued by lenders.  These jumped up considerable in Q3 2013 when the lacuna in the law known as the ‘Dunne Judgement’ was resolved.

Court Proceedings Q3 2014

It can be seen that around 48 per cent of concluded court proceedings result in the granting of a court order for repossessions.  The other cases are concluded by other means which include the lender and the borrower reaching an agreement on a revised repayment schedule.

The number of court proceedings issued has soared in 2014.  The figures for Q1-Q3 are:

  • 2011: 473
  • 2012: 1,089
  • 2013: 2,355
  • 2014: 8,882

Court Proceedings Issued

As stated this is partly related to the Dunne Judgement but also to the Mortgage Arrears Resolution Targets (MART) set for the lenders which count court proceedings as a “sustainable solution” for long-term arrears cases.  In the case of some non-cooperative borrowers this may be only option available to lenders.  There are still many borrowers in arrears who have not completed a financial statement for their lender.  It is likely that issuing court proceedings will see some non-cooperative borrowers begin to co-operate.

The number of repossession orders granted has increased but not yet to the same extent proceedings issued as cases work their way through the system.  The Q1-Q3 figures for court orders are:

  • 2011: 336
  • 2012: 287
  • 2013: 544
  • 2014: 654

Some repossession orders are not followed through on if the parties can reach agreement after the order is granted while some are the formal conclusion to what would otherwise be a voluntary surrender except that the borrower has ceased to participate in the process.

There have been 2,784 court orders for repossession issued over the past five years and 991 court-ordered repossessions have been followed through on.

Given the scale of the mortgage crisis the number of forced repossessions remains remarkably low.  It won’t stay below 1,000 for long and with the increase in court proceedings issued and the likely subsequent increase in court orders granted we will see whether this will translate into an increase in actual forced repossessions.

Wednesday, February 25, 2015

How deep is the hole?

A recent report on debt and deleveraging from McKinsey attracted some attention, due in part to the location of Ireland in a few of the key charts.  Ireland is shown to have had the largest increase in debt as a proportion of GDP since 2007 with the overall level of debt in the economy put at 390 per cent of GDP.

We have looked at the relevance of such statistics many times before – such as here, here and here.  We will do the same here but using data from the Institutional Sector Accounts and revised Balance of Payments statistics being produced by the CSO under BPM6.

The measured level of debt in Ireland rose steadily from 2003 to 2007 during the credit bubble but then somewhat counter-intuitively accelerated rapidly when the crash hit in 2008.

Total Debt

Obviously, government borrowing accounts for some of this but the scale of the increase is significantly greater than can be explained by the fiscal deficits.  As can be seen in the chart below the debts of non-financial firms also accelerated in 2008 which runs counter to the narrative of the busting of the credit bubble.

HH NFC and GOV Debt

The 2013 figures in the above charts are:

  • Household Debt: 96% of GDP, €168 billion
  • Non-Financial Corporate Debt: 174% of GDP, €303 billion
  • Government Debt: 132% of GDP, €232 billion
  • Total Debt: 402% of GDP, €703 billion

The measure of government debt includes the debts of the IBRC which was initially left in the financial sector when it was established but has since been re-categorised as part of the government sector.  This was a significant factor in 2011 and 2012 but the liquidation of the IBRC that began in February 2013 has reduced its impact on the government’s balance sheet.

Two key issues need to be addressed:

  1. Is the hole really €700 billion? If it is we’re goosed.
  2. What explains the rise of the red line (NFC debt) in the above chart?

We answered these questions before but here we will look at them using revised balance of payments and international investment data from the CSO. 

An important measure for any economy is gross external debt: the amount borrowed from foreigners.  For Ireland there is the complication of the IFSC (which has external liabilities – and assets! – of several trillion).  However, the CSO also provide this data excluding the impact of the IFSC.

External Debt

The updated data series is not lengthy but we can see what has been happening recently.  Ireland’s gross external debt is falling, albeit slowly, but is still around €465 billion.  That is a big hole.

The measure of net external debt accounts for the foreign assets in debt instruments held by residents.  That has fallen below €100 billion.  However, we cannot say that those who who have the foreign debt liabilities also hold the foreign debt assets. 

We can examine this by looking at the sectoral breakdown of the gross external debt.

External Debt by Sector

This is an instructive breakdown.  The continued increase in the external borrowings of the government sector well understood.  It can be seen that the external liabilities of the monetary authority (Central Bank of Ireland) and monetary financial institutions (the banks) have been declining rapidly as the banks deleverage and repair their balance sheets.

What is most notable is the increase in external debt associated with direct investment which has risen to €160 billion (almost 100 per cent of GDP).  This is the external debt of MNCs in Ireland.  This is the sector that has shown the greatest increase over the past few years and is what accounts for the increase in the red line in the second chart from the top.

So that answers one question. NFC debt is increasing because of the activities within the MNC sector – mainly intra-group treasury operations.

Using these we can reconsider the gross and net external debt figures but excluding the impact of FDI.  Doing so gives the following result.

External Debt by Sector ex FDI

Excluding the external liabilities of MNCs reduces Ireland’s gross external debt to around €300 billion (while excluding the external debt assets of the MNCs actually increases Ireland’s net external debt to €140 billion).  The downward slope of the blue here contrasts with the upward slope of the blue line in the first graph.  What we see here is a better indicator of where we are and where we’re going.

A gross external debt of €300 billion is around 175 per cent of GDP.  This is a significant external debt burden but is a long way from 400 per cent of GDP.  There has also been a rapid fall in this measure of external debt which has been reduced by around €100 billion in early 2012 when it was just over €400 billion.

Obviously the overall amount of debt in the economy is greater than €300 billion but the money owed to non-residents is a key indicator.  The banking sector in Ireland moved to a net international investment position of near balance after the collapse(though was largely replaced by an external debt by the Central Bank which has since reduced).  While we have unresolved domestic issues with household debt through mortgages and debts in the SME sector our external debt position has improved markedly (and probably wasn’t as bad as some headline figures may have suggested). 

A major determinant of any default event is external debt and outward interest flows. The reduction in external debt and the extremely low interest rates mean that this outflow is declining.

  • How do we make it fall further? There are four steps that can be taken.

    1. Stop borrowing more from abroad.  The government sector is the only domestic sector that continues to borrow more from abroad.  This may be drawing to a close.
    2. Repay debt from income.  Ireland is running a current account surplus which can provide the resources to repay debt.
    3. Repay debt by selling assets.  Asset sales to non-residents are likely a significant factor in the recent in the external debt fall. 
    4. Default. 

    Even if the rate of reduction moderates somewhat using steps 1, 2 and 3 our gross external debt should be down to 100 per cent of GDP by the end of the decade and may be even lower.  Yes, we’re in a hole (one that is around 175 per cent of GDP) but we’re climbing out of it.

    This improvement in our external position is also evident if we look at the net international investment position which accounts for all external assets and liabilities and not only those in debt instruments.  First, here’s the NIIP by sector (excluding the IFSC of course).

    Net International Investment Position by Sector

    The continued deterioration in the position of the government sector is evident as is the improvement in the external position of the Central Bank.  Financial intermediaries is likely dominated by the pension savings of Irish residents which are invested abroad.

    And finally here’s the overall NIIP for the Irish economy with the NIIP shown excluding NFCs also shown (as it is the MNCs that dominate the external position of the NFC sector).

    Net International Investment Position

    It can be seen that the NIIP excluding NFCs has improved by about €50 billion over the past 2.5 years. This is less than the €100 billion reduction in our gross external debt. This can arise if foreign assets are sold to repay foreign debt (meaning the NIIP is unchanged). Foreign assets by sector (bar NFCs) are shown in the chart here – yes, the banks have reduced (sold?) some foreign assets.

    Still a bit to go until we get to zero but we’re getting there.  I’d also guess the CSO still have a bit of work to go in moving to ESA2010 and BPM6 but they’re getting there too.

  • Thursday, February 19, 2015

    Core Inflation Unchanged

    The overall annual CPI inflation rate dipped down to –0.6% in January but the ‘core’ rate (excluding energy products and mortgage interest) was largely unchanged (0.8% in December versus 0.9% in January).  This was the result of the new inclusion of water and sewage charges to the CPI which added 0.4pp to the annual rate in January.

    Inflation Jan 15

    Thursday, February 12, 2015

    The same rates of tax? Yes, but for very few.

    On last Monday’s Claire Byrne Live, commentator Eamonn Dunphy made the following comment:

    “As we do in Ireland, the French pay a high rate of tax but in return they receive the kind of services that the average Irish citizen can only dream of.”

    The only evidence to support this was some limited figures from a two-earner family with children in both Ireland and France.

    CB Live Screenshot

    The top figure is each case is “joint income” while the bottom figure reflects “tax and PRSI after tax credits and pension contributions” for the couple living in Ireland (on the left) and “income tax and social insurance” for the couple living in France (on the right).  It is also possible that the comparison is clouded as being between public and private sector workers.

    A major issue is that these households cannot be considered representative – they are from the top of the income distribution and probably in the top decile of the distribution.

    Ros says:

    “I believe the taxes we are paying should be sufficient to provide a ‘world-class’ public service unfortunately it doesn’t seem to be that way it seems our taxes are being used to pay for other things.”

    The suggestion in the discussion was that earners in Ireland were paying similar taxes to those in France but getting far less in return.  The reality is somewhat different.  The truth is that most earners in Ireland pay far less income tax and make far lower social contributions than their French counterparts.  The only cases in which this is not true is high earners and that was the only “evidence” presented.  And this ignores employer’s social insurance contributions which are about three times higher in France than in Ireland.

    Here we will look at the impact of the tax and transfer system on eight household types using the Tax-Benefit Calculator of the OECD.  The latest year of the calculator is 2012 but there have not been fundamental changes in how each country tax income in the interim.  All the data used here is taken from the calculator so queries can be sent to the OECD!

    The following Average Industrial Wages (AIW) are used for 2012:

    • Ireland: €32,514
    • France: €36,248

    The household types for which a measure of “effective tax rates” are presented for incomes ranging from 50-200 per cent of the AIW are:

    • Single Person, 0 Children
    • Single Person, 2 Children
    • Couple, 1 Income, 0 Children
    • Couple, 1 Income, 2 Children
    • Couple, 2 Incomes, 0 Children (Income 2 = 67% AIW)
    • Couple, 2 Incomes, 2 Children (Income 2 = 67% AIW)
    • Couple, 2 Incomes, 0 Children (Income 2 = 167% AIW)
    • Couple, 2 Incomes, 2 Children (Income 2 = 167% AIW)

    First are two charts for a single person, one with no children and then with two children.  The income range in Ireland is €16,257 to €65,029 while for France it is from €18,124 to €72,495.  At almost all incomes levels the impact of the tax and benefit system is much less in Ireland than in France. 

    Up to 110 per cent of the AIW it means that net pay is higher in Ireland even though gross pay starts out lower.  For example at 110 per cent of the AIW, gross pay in Ireland is €35,766 and in France is €39,872.  Net pay is calculated to be €28,301 in Ireland and €28,131 in France.

    The progressive nature of the Irish system means that the gap between the rates narrows and is all but eliminated at 200 per cent of the AIW.

    Single Person 0 ChildrenSingle Person 2 Children

    For a single person with children the gap at lower incomes is even more pronounced.  For instances where the earner gains from the tax and benefit system (due to Child Benefit or the Family Income Supplement in Ireland) the rate is set to zero rather than show negative rates.  The gap below 100 per cent of the AIW is even greater than shown above.  Again the gap is eliminated at high incomes. 

    Next we look at married couples with one income.  The income ranges are as for the single person charts above.  The story is largely the same: a large difference at low incomes levels which is eliminated at high income levels.

    Married Couple 1 Income 0 ChildrenMarried Couple 1 Income 2 Children

    The next two charts concern a dual-income household where the second income is 67 per cent of the AIW.  For Ireland the combined income ranges from €38,042 to €86,814 while the French figures range from €42,410 to €96,781.

    Married Couple 2 Income (67) 0 ChildrenMarried Couple 2 Income (67) 2 Children

    At a gross pay level of €60,000 a 2-earner, 2-child couple with in Ireland will have a net pay around €6,800 lower after taxes and benefits.  In France the gap would be €13,600.

    60k comparison

    Finally we come to the higher earners.  Here the second income is 167 per cent of the AIW.  The income range for Ireland is €70,556 to €119,328 and €78,675 to €133,029 in France.  For both the no child and two children couples the rate in Ireland is lower and the gap is small at the upper end of the range.

    Married Couple 2 Incomes (167) 0 ChildrenMarried Couple 2 Incomes (167) 2 Children

    So, yes there are some people in Ireland who do pay a similar high rate of tax and social insurance to earners in France – those with high income.  The vast majority of people pay much lower rates than earners in France. 

    What do the French do with all this extra money they collect from people? They give it back to them in pensions, with those who paid the most getting the most back.

    The French health system also got an airing.  France has a universal health system.  This does not mean it is free; it means everyone is treated the same.  The French system can be summarised are “pay and get reimbursed”.  Everyone pays the (regulated) prices for medical services and then is partially reimbursed.

    A typical visit to a GP costs €23 up front with €16 later reimbursed to the patient.  The net cost is thus €7  - for everyone.  For medicines, the standard reimbursement is 65 per cent of the cost, though the reimbursement is applied by the pharmacist rather than subsequently.  Again everyone faces the same prices.  More details here.

    In Ireland we have a binary system where some patients face zero, or near zero, prices and others face the full prices (though can get some reimbursement through the tax system).  Free comes at a high cost as was usefully explained a number of years by a public health nurse in a letter to the Irish Independent.

    We can have a “French-style” system in Ireland but it must be recognised what it would entail:

    • The vast majority of people (i.e. except high earners) paying much more in tax and social insurance, and
    • A large amount of people (the 1.9 million with medical cards) facing a price for medical services that were generally “free”.
    • Using a good part of the social contributions from high-earners to fund contribution-based pensions which go largely to high earners.

    There was no mention of these details last Monday though.