John Bruton

Opinions & Ideas

Ireland Has The Most Progressive Income Tax System In The EU

This note examines the latest OECD data (Taxing Wages 2017) on the progressivity1 of the Irish income tax system in comparison with other OECD countries. It finds that according to OECD measures the Irish system is the most progressive and that taxes in Ireland are relatively low on those with average incomes and below.

Income Tax

Ireland has the most progressive income tax system (including employee social insurance contributions) in the EU. The tax paid by a single person on two-thirds average earnings(average earnings are just under €35,600) is the fifth lowest in the OECD (out of 35 countries) after Mexico, Chile, Korea and Israel. If raised to Danish or German levels, a single person in Ireland would pay over €5,000 more in tax on an income of about €24,000.

The tax paid by a single person on average earnings is the 28th highest in the OECD. A single worker on an average income pays about €14,500 in income tax and social insurance contributions in Belgium compared to over €6,830 in Ireland a difference of over €7,650.

The tax paid by a single person on one and two-thirds average earnings (€59,400) pays €18,660 in tax which is slightly above the OECD average. A person at the same income level in Belgium would pay €28,800 in tax- just over €10,000 more.

A major reason for the relatively low direct tax burden in Ireland is that PRSI is lower here. In many higher tax countries PRSI funds pay-related unemployment, pension and health benefits while the Irish system provides flat-rate benefits only. Irish employees (and their employers) have to fund supplementary pensions separately. For example, Irish employees pay about €2 billion (after tax relief) towards their pensions annually. In many higher tax countries, these are funded through the tax system.

If we look at the tax payable (excluding PRSI), the tax paid by a single person on one and two-thirds average earnings is the 10th highest in the OECD .

Marginal Tax Rates

How do marginal tax rates in Ireland compare with other countries ? For a single person on two-thirds average earnings, the marginal rate in Ireland is 29.5 per cent compared with an OECD average of 32.1 per cent. The UK rate is 32 per cent. We are the 20th highest in the OECD at this level of income where rates range up to 54.6 per cent found in Belgium.

At average earnings a single person in Ireland faces a marginal tax rate of 49.5 per cent: the third highest in the OECD (average 36.2 per cent). Again Belgium is the highest at 55.9 per cent while the UK rate is 32 per cent.

At one and two thirds average earnings, the marginal rate of tax in Ireland (49.5 per cent) is the 9th highest in the OECD and above the OECD average of 43.4 per cent. Sweden is highest at just over 60 per cent and the UK is at 42 per cent.

Conclusion

Compared to other OECD countries

  • The level of direct tax paid in Ireland is low particularly for those below average earnings
  • Employee PRSI in Ireland is less than half the OECD average2
  • The Irish system is the most progressive in the EU
  • The top marginal rate is not particularly high but it applies at a relatively low level of income

 

Source: Taxing Wages 2017, OECD 2017

________________________________

Notes:

1 The measure of the progressivity of the tax system is obtained by comparing the tax due by a single person on 67% of average income with that payable on 167% of average income. Tax includes income tax, universal social charge and employee social security contributions.

2 In many higher tax countries PRSI attracts pay-related unemployment, pension and health benefits while the Irish system provides flat-rate benefits only

 

 

 

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THERESA MAY’S ELECTION

Theresa May has decided to call an early election, before the practical outworking of her Brexit strategy becomes obvious to voters. She wants to be free to modify her strategy, and ,for that, she needs a bigger parliamentary majority.

She claims otherwise. Instead she says she is calling the election because Opposition parties oppose her Brexit strategy. They don’t oppose it, actually. They have cooperated with it, to a point that makes little of parliamentary sovereignty.

The only opposition party that opposes her strategy outright are the Scottish Nationalists, who take that position because that is the way Scotland voted in the Referendum. In any event, the Scottish Nationalist Party could not bring Mrs May’s government down on Brexit, unless Labour, the Liberal Democrats and, most importantly, a significant number of Mrs May’s own Conservative MPs, voted with them, which is not at all likely to happen.

Rather more bizarrely, Mrs May justifies her call for an immediate General Election on the ground that the Labour Party has threatened to vote against the final agreement she may come back with, in two years time. What does she expect? That the main opposition party would give her a blank cheque on the terms of Brexit?!

Usually negotiators actually find it useful to be able to say, when looking for a concession, that if they do not get it, the overall deal might be opposed in Parliament .  If she is to be believed, Mrs May apparently wants to give up that negotiating chip.

Mrs May ostensibly defend the sovereignty of the UK Parliament. But now she is calling an election because the opposition will not promise not to exercise their sovereign parliamentary rights.

My own sense is that none of the reasons she has advanced are the real ones for which she has sought an early election.

She is seeking an election to increase her overall majority, so she will no longer be dependent on a hard core group of around 60 Euro hostile Conservative MPs, who hold disproportionate power at the moment because the Conservative overall majority is so small.

For these MPs hostility to the European Union has become a religion, a religion which brooks no argument, and a religion for which any economic sacrifice can be justified, even the sacrifice of the livelihoods of their own constituents. Mrs May does not want to find her day to day negotiations with the rest of the EU subject to the whim of these people, by whom the slightest compromise  with the EU 27will be portrayed as a betrayal.

It is important to remember that Mrs May, like the rest of her Party, have never taken much interest in how the EU works, in its procedures and rules, and in the compromises that underlie its very existence. She has this in common with many politicians in bigger European countries, who treat the EU as a sideshow to national politics.

So, even though her Party sponsored the idea of holding a Referendum on leaving the EU, she did not give much thought to what leaving the EU might actually mean, until the last few months, when it suddenly became something real, something that was going to happen. In a sense, she and her party, are now finding out a lot about the EU for the first time, just as they are leaving it!

Her first reaction to the Referendum was to get her Party behind her as their new Leader. So she told the Conservative Party Conference last year that she would go beyond the mere terms of the Referendum.

She would not just leave the EU.  She would refuse to join the European Economic Area (unlike non EU member Norway), and also refuse to join the EU Customs Union ( unlike non EU member Turkey).  This hard line bought the temporary quiescence of the Euro hostile MPs, up to and including on the  terms for triggering of Article 50.

But now come the actual negotiations.

This is where Mrs May’s rhetoric at the Conservative Party Conference, meets the reality of a rules based international trading system. In a rules based international trading system, unpleasant compromises are essential if  you are to persuade others are to open up their markets to your exporters,  to your bankers,  to your planes,  and to your people.

In a rules based international  trading system, you cannot, unilaterally, make, interpret and enforce the agreed rules, in a way that suits only you. There has to be a common system, which involves some concession of sovereignty.

You often have to accept an external enforcer, like the European Commission or an International Court.

And you often have to accept an external body interpreting the meaning of the rules, someone like the European Court of Justice, or a Disputes Panel of the WTO.

But this is unacceptable to those who have made national sovereignty into a religion. It is unacceptable to some of Mrs May’s Euro hostile MPs, and also, incidentally, unacceptable to some of the supporters of Donald Trump.

I have been reading publications of Conservative supporting think tanks, like the Bruges Group and “Leave means Leave”, and they are discovering now, how costly it will be for the UK to leave the EU Customs Union.

The UK will have to introduce Customs controls on the goods bought and sold between the UK and the EU. This will involve checking where the goods came from, if they are properly labelled, if they are safe, and if the tariffs due have been paid. The delays will be horrendous.

Customs clearance alone will add 8% to the cost of goods arriving by sea from Ireland or the rest of the EU.

At the moment  90million customs declarations have to be checked in the UK for goods arriving from outside the EU. Once the UK itself leaves the EU Customs Union, UK customs officials will have to check 390 million documents!

By leaving the EU Customs Union,  the UK will not only exclude itself from duty free access to the EU market, which represent over 50% of UK trade, but it will also lose the benefit of Trade agreement the EU has negotiated with 60 other countries, which account for a further  17% of UK exports.

For example, since the EU negotiated a trade deal with Korea ten years ago, UK exports to that country increased by 110%. Leaving the EU means giving that up, temporarily, and, perhaps, permanently.

Mrs May is also beginning to discover that her hard line on immigration will have costs. 20% of employees on UK farms, and 29% of employees in UK food processing plants are EU nationals, who will lose their right to live and work in the UK.   When the UK tries to negotiate trade deals with countries outside the EU, like India, it will find that it will face demands for more Indian migration to the UK.

UK Airports will find themselves losing business when the UK has to leave the EU Open Skies Agreement with the United States. More US transit traffic will be routed through Dublin. The UK will also have to try to join the European Common Aviation Agreement as a separate member, if UK owned airlines are to have the right to fly passengers between EU airports. Rivals will not make it easy for them.

UK farmers and food producers will find themselves facing tariffs of 35% on dairy exports, 25% on confectionary, and 15% on cereals. UK lamb production will be hard hit.

If Mrs May wants to be able to make deals to avoid some of these bad outcomes, she will need the sort of flexibility, that her Euro hostile backbenchers would not allow her.

That is why I think she is calling a General Election now.

The strategy may backfire.

If during the election, she is forced into explicitly ruling out various possible compromises with the EU, she will end up with LESS flexibility that she has now. .

A lot will depend now on what the Conservative Party manifesto says about how the practical problems of Brexit will be tackled. Will it deal with these issues specifically at all?  Will Theresa May be able to get through to 8 June relying on reassuring generalities about problems like customs delays, bureaucracy, higher air fares, the end of farmer income supports, migration policy after Brexit, and the loss of access to markets for British exporters?

Given that Mrs May is avoiding taking part in debates she may be able to avoid these questions, but six weeks is a long time in politics!

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BALKAN GHOSTS

While all eyes are on the looming conflict between the United States and North Korea, it is worth remembering that sources of conflict are still to be found in Europe, notably in the Balkans.

Mercifully these do not involve the possible use of nuclear weapons, but have the potential to take many lives, as did the war that followed the breakup of Yugoslavia.

I have just finished reading “Balkan Ghosts, a journey through history” by Robert D Kaplan.  Kaplan, an American, spent many years of his life in the Balkan peninsula, including Greece.

This book is a look at the roots of the many and varied conflicts in the Balkans, through the eyes of some of the vivid personalities Kaplan met in his travels through Croatia, Serbia,  Macedonia, Albania, Romania, Bulgaria and Greece in the 1970’s and 1980’s.

In the last few days, I met some politicians from the former Yugoslavia, and was struck by how concerned they are at the possibility of military conflict in one the countries on the list, Macedonia.  

Macedonia is a country shared between a Slav majority and an Albanian minority.

They had an ethnic civil war in the early 1990’s, but were able to put together a power sharing administration after the war, which was something of a miracle.

The two communities are divided by religion and by language.

Their neighbours are not much help to them. Bulgaria originally claimed the country as part of Bulgaria and fought a war to achieve that goal in the early years of the 20th century. Some Albanians feel part of Macedonia should be part of a greater Albania, and Greece vetoed Macedonia’s membership of NATO, simply because the country calls itself Macedonia.

The current crisis in Macedonia has arisen because the President refuses to appoint the Prime Minister because the proposed Prime Minister’s coalition is based on concessions to a party representing the Albanian minority, which were negotiated at a meeting in Albania rather than in Macedonia itself.

Kaplan’s book explores Croatia’s troubled history in World War Two and the case of Cardinal Stepinac.  Stepinac was accused of collaboration with the Nazis but  his record seems to me to have been a lot better than that of most German bishops at the time.

He chronicles the decline of the Romanian monarchy under the playboy King Carol II, and the subsequent Iron Guard and Communist regimes. He visited Transylvania(part of Romania) where German, Hungarian, and Romanian speaking communities uneasily co existed.

He writes about the appalling treatment meted out to their Turkish speaking minority by the Bulgarian Communist regime, revenge perhaps for Turkish atrocities against Bulgarians a century earlier.

Finally he deals with the extravagances of the Greek Prime Minister, Andreas Papandreou, in the 1980’s and 1990’s.  He sees Greek politics as an expression of its Byzantine and Balkan heritage rather than as a reflection of the supposed glories of ancient Greece. Many of the policies that made the Greek state financially unviable in 2008, were introduced by Andreas Papandreou twenty years earlier.

All of this history is brought alive through the personal stories of individuals in each of the countries, which adds colour and human interest to what would otherwise be a depressing tale of nationalist over reach, religious bigotry, and avoidable conflict.

 

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“THERE IS NO SUCH THING AS FREE WATER”

I visited Washington this week and was here for an eventful week.

At a time when there is persuasive evidence that drought is causing a huge famine in East Africa. Yet the Trump Administration is announcing plans to scale back America’s already modest contribution to the battle against man made global warming.

Under the Paris Agreement of 2015, the US committed itself to cutting its CO2 emissions by 26/28% compared to 2005 levels.

The new Administration wants to increase fossil fuel production in the US.

The limitations on CO2 emissions by US power plants will be cut.

Coal production will be boosted .

One study suggests that the policy changes will mean that the US will only cut its CO2 emissions to 14% below  2005 levels , rather than  26/28% below as it had promised under the Paris  Accord.

Meanwhile in East Africa, lack of water is causing crops to wither and animals to die of thirst. I heard former Vice President Al Gore claim recently that a similar drought in the Middle East contributed to the start of the Syrian Civil War because of the hardship it caused. Lack of water leads to poor sanitation. This, in turn, leads to diseases like cholera.  This risk is especially high in camps, where climate refugees congregate.

A human being can survive for weeks without food, but can only survive for five days without water.

And global warming evaporates water. That is the price paid for  CO2 emissions in wealthy, water rich, countries.

As Isaac Nur Abdi, a nomad in Southern Sudan, said

“There is no such thing as free water”

A FAILURE ON HEALTHCARE

Meanwhile President Trump has had to withdraw his Health legislation because of a lack of support.

There is no doubt that US health policy is in need of reform.

It is exceptionally costly.

The incentives in the system are often perverse.  Over prescription of painkilling pharmaceuticals is generating major addiction problems.

The proposed reforms would have put some check on the open ended growth of the cost of Medicaid, a health programme for lower income families. There would have been losers from this.

But the cost of Medicaid has risen from $180 billion in 2005 to almost $360 billion today, but without any clear evidence that it improved health outcomes.

The cost of providing health care for ageing populations will eventually pose a threat to western democracies, because democracies have difficulty making choices in this field, as demonstrated again in Washington this week.

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SAUDI ARABIA

I visited Saudi Arabia recently on business. It is a country that is going through a fiscal crisis because of the fall in the price of oil, the main source of government revenues. As a result the government’s budget deficit reached 15% of GDP in 2015. That said, the country has large financial reserves.

Salaries have been cut and subsidies on fuel, food, water and electricity are also being reduced. VAT and a tax on undeveloped land are being introduced.

The State sector is 60% of the economy and the government is committed to increasing the role of the private sector.

 It is also committed to increasing the proportion of women in the paid workforce from 22% to 30%. The position of women is anomalous. They are not allowed to drive a car, but make up more than half of students in higher education.

Meanwhile Saudi Arabia is the third biggest military spender in the world, and is engaged in an expensive civil war in neighbouring Yemen.

In the longer run the prospects for Saudi Arabia are good.

As well as oil, it has large untapped reserves of aluminium, gold, copper and uranium.

It has a very large immigrant population. Only one fifth of the people working in the retail sector are Saudi natives. But the question must be asked if Saudis would work at the prevailing wage level in the sector, and , if not, if Saudi consumers would willingly pay the higher prices that would arise if immigrant workers were replace by Saudis. A similar debate is taking place in the UK and the US, where curbs on immigration are being advocated.

Immigrants in Saudi Arabia send home $38 billion in remittance to families in their home countries,. So a downturn in the Saudi economy is keenly felt in countries like Egypt, Yemen, Lebanon and Jordan.

Saudi Arabia is a relatively recent creation, dating from the early 20th century.

The Al Saud family were dominant in the peninsula in the 18th century, and were at the time allied itself with the Wahabi branch of Islam which came into being around then, an alliance that continues to this day.

 But the Al Saud family lost their strong position in the 19th century, eventually finding themselves exiles in the British protectorate of Kuwait. It was from there that they launched their comeback in 1902.

Starting in Riyadh, the family, led by Abdul Aziz, gradually conquered most of the peninsula by a combination of force, guile and religious fervour.

The only areas they did not eventually take over were Yemen and the British protectorates along the Gulf (now UAE and Oman).

Then oil was discovered and their position was immensely strengthened. Initially much of the benefit of the oil discoveries went to the US investors, but following the oil crisis of 1973, Saudi Arabia took control of its oil.

Saudi Arabia, is a mix of tradition and modernity. There are brutal aspects to its traditions, like the extensive use of the death penalty. It has a very youthful population, some of whom have been attracted to terrorism. The country needs to find a more constructive outlet for their energies. So the country’s successful economic transformation is politically important for the world.

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WHAT LESSON TO DRAW FROM THE NORTHERN IRELAND ASSEMBLY RESULTS?

In the recent Northern Ireland elections, the Democratic Unionists got 28.1% of the vote, Sinn Fein 27.9%,the Ulster Unionists 12.9%, the SDLP 11.9% and the Alliance Party 9.1%.

The fact Sinn Fein increased their share of the vote by a substantial 3.9 percentage points has led some commentators to  interpret this as a mandate to start negotiating towards a united Ireland.

There is some wishful thinking going on here. Of the 90 seats in the new Assembly,

  • 49 were won by parties that broadly support the continuation of the Union with Britain, while only
  • 39 were won by parties who want to replace that with a union with the rest of Ireland.

Incidentally the Alliance and Ulster Unionist Party, both moderate parties, but supportive of the existing constitutional position, increased their vote shares too,  by  2.1 and 0.3 percentage points respectively.

Putting a choice between the two unions, at the heart of the current political debate in Northern Ireland is likely to deepen sectarian divisions there, and make day to day compromise even more difficult to achieve.

To use a word Gerry Adams often used in another context, it is

“not helpful to the peace process”,

if , by ”peace process” we mean, in the first place, a reconciliation between the two communities in Northern Ireland.

Centering debate around whether one is for against a united Ireland, would make any attempt at creating an alternative to the Sinn Fein/DUP duopoly of power in Belfast, like the one attempted without success in the recent elections by the Ulster Unionists and the SDLP, next to impossible.

FREEZING THE SECTARIAN DIVIDE

Indeed that may be one of the reasons the drum is being beaten for a united Ireland.

It is a good way of freezing politico/sectarian divisions. And that suits both Sinn Fein and the DUP.

Of course, as a tactic, it may also help Sinn Fein electorally in the Republic, because distant, unattainable, objectives, like a united Ireland or the restoration of the Irish language, have been useful, and reusable, rallying cries for other parties in the Republic in the past(notably by Fianna Fail when Mr  de Valera led them).

The case that Sinn Fein is making, for immediate agitation towards a united Ireland, was summed up in an article by an Irish Independent columnist, Martina Devlin.

She said

“The Border has to go. The case for Irish reunification is overwhelming – over time, the two parts of this island will be more prosperous together than apart.”

REPLACING THE UK SUBSIDY?

This seems to ignore the huge subsidy Northern Ireland receives from the UK (20% of its GDP), which the Republic, with a much smaller population and tax base, could not replace, especially if it itself  is suffering the huge dislocation of its trade pattern that will result from the island of Britain leaving the EU

Martina Devlin continued

                 “A united Ireland is the clearest way to minimise the fallout from Brexit, provided it can be handled sensitively and a carefully plotted, long-term approach taken.”

I fear this is not so.

A United Ireland would, in the context of Brexit, simply move the border from Newry to Larne. The costs on East/West trade between Ireland and Britain, caused by Brexit would all remain, but the British subsidy to Northern Ireland would be gone.

A UNITED NORTHERN IRELAND MUST COME FIRST

Now I know money is not everything. If the people of Northern Ireland are united in wanting to make new constitutional arrangements (whatever they are) work, they will work.

But Irish unity imposed by a simple majority of the population, overruling a large minority, who still want to stay in the UK, would NOT leave behind a united people, willing make big sacrifices for the common good of a united Ireland.

In my view, a united Northern Ireland must come first, and only when we have such unity can wider constitutional options be considered in a pragmatic way.

The recent Election did not help in that regard, and a Sinn Fein campaign for a united Ireland, will deepen divisions further.  We should recall the futile anti partition campaign of the late 1940’s, which did just that.

WOULD UK REALLY SUBSIDISE SECESSION?

Martina Devlin does try to address the financial problem of replacing the UK subsidy in the event that Northern Ireland  left the UK and joined a united Ireland.

She says

                                       “ An economic stimulus package needs to be put in place and Britain would have a responsibility to contribute. But, however expensive,  there would be an end in sight. The EU would have financial obligations, too. Perhaps Irish-American well-wishers might also put their hands in their pockets. The financial support package would need to cover at least one decade and possibly two, with a variety of targets including reorientating the entire business culture in the North.”

Given the current attitudes in Britain, this seems to me to be wholly naive.

The UK is reluctant to pay its share of the EU bills, contracted while the UK was a full voting member of the EU.

A post Brexit UK will, I believe , be a poorer country than it is today, something Ms Devlin does not address.

So it is hard to see it contributing for years to a place that had seceded from the UK, at the very time when the UK was also trying to prevent the secession of Scotland.

If the UK is unlikely to subsidise the secession of Scotland it is also unlikely to subsidise the secession of Northern Ireland.

SAVINGS?

Ms Devlin thinks there could be savings

       “On the financial front, it’s not all a drain. Economies of scale and merged services could achieve savings – one parliament, one health service, one education service, and so on.”

This is theoretically possible, but it is contrary to the scenario envisaged in the Good Friday Agreement, which provides for the retention of separate Northern institution and guarantees, even if ultimate sovereignty  is transferred from London to Dublin.

THE COST OF SECURITY

One also needs to consider the potential security risks, and consequent increases in police and military spending by our state, if a significant minority in Northern Ireland decided to resist the arrangements Ms Devlin advocates.

Resistance would be geographically concentrated. For example, parties supporting a united Ireland  received

  • only 3% of the vote in East Belfast,
  • 10% in Strangford and
  • 14% in Lagan Valley and East Antrim.

These security costs would fall on the Irish taxpayer.

HOW NOT TO PERSUADE MODERATE UNIONISTS

Finally Ms Devlin  says

             “Meanwhile, there are moderate Unionists who could be convinced about the benefits from reunification. Some of them realise the British have no interest in Northern Ireland and, after all, why be loyal to a government which feels no loyalty in return?”

This is true. I do not sense a deep emotional commitment in Britain to any part of Ireland or to its interests, as the Brexit vote has shown.

Loud talk, and flag waving about a united Ireland by Sinn Fein will undermine these very “moderate” unionists, of whom Ms Devlin writes so hopefully.

One would not just be asking “moderate Unionists” to be reasonable about a pragmatic arrangement. One would be asking them to cease to be Unionist. That would be asking them to change their identity, as they see it. That is no small matter.  There is more urgent work to be done.

Let us hope, now that the elections are over, that a pragmatic and united case can be agreed between Unionists and Nationalists about how to deal with Brexit, and then put  by them to Brussels, London and Dublin.

That is the job of new Assembly, and it should get on with it.

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PETER  MATTHEWS RIP

 

I would like to join the many, well deserved, tributes to the late Peter Matthews. He was a brave, good humoured and principled politician.  He always had the best interests of his country at heart. He served as a member of  Dail Eireann for a relatively short time, but made a major impact.

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EAMON DE VALERA, A WILL TO POWER

I have just finished reading the late Ronan Fanning’s “Eamon de Valera, a Will to Power”, aided in part by an enforced day  long sojourn in Dublin airport, when my flight to Brussels  was grounded by Storm Doris.

De Valera has been the subject of many biographies, but this is the only one I have read. I met him once, shortly after I became a Parliamentary Secretary in Liam Cosgrave’s government, in 1973. He was totally blind at the time, but he knew who I was, and was encouraging to me in my commitment to political life, even though we were not of the same party.

Ronan Fanning’s book is very well written. It seems to me that it captures the essence of de Valera , without getting into excessive details about any of the transactions of his career.

As is well known he was born in America to a Limerick girl,Kate Coll, who became separated from her Spanish husband, Vivion de Valera, early in their marriage.

She had to work to live and this was not compatible with caring for her small two and a half year old son, who was sent to Ireland to be looked after by his grandmother and uncles. They were a farm labouring family and life was hard.

But Eamon was a bright student, and made a huge effort, and had to to overcome his uncle’s objections, to get to school in the Christian Brothers in Charleville, with the aim of winning a scholarship to a boarding secondary school.  He won one, to Blackrock College in Dublin, at the age of 14.

Blackrock College seems to have become a second home to him, and the priests in the college took the place of his absent parents. Thanks to Blackrock, he retained a love of rugby to the end of his life, preferring it to Gaelic football, a fact he did not advertise in nationalist circles.

Ronan Fanning believes de Valera first became the leader of Irish republicans when a prisoner in 1917 after the 1916 Rebellion.

His leadership style was not collegial. He listened but made the big decisions alone. This was a big problem with the Treaty negotiations of 1921. Because de Valera did not go to London himself, the Treaty was not HIS decision, and he was unhappy with any decisions that he himself had not taken.

His failure to lead properly on this matter contributed to  the Civil War and to his own temporary political demise.

When he came to power in 1932, building on the work of his predecessors, he set about removing the remaining limitations in the Treaty. These were mostly symbolic, apart from the return of the Treaty ports in 1938. If the Royal Navy still had those ports in 1939, Ireland would probably not have had the luxury of neutrality in the Second World War.

He was politically clever in setting the objectives for his party….the ending of partition and the restoration of the Irish language.

Both objectives stirred nationalistic emotions, and this were helpful in mobilising support at election time. But both were also practically unachievable, and thus could be re used, election after election.

De Valera had no interest in economics.  This explains why he started a ruinous trade war with Britain over annuities,  that were properly owing to Britain, for land purchase. De Valera was prepared to sacrifice the livelihoods of those engaged in Ireland’s largest industry for a point of nationalistic principle. Something similar is happening today, only now it is the British who trying to harness the nationalist horse for party political gain, without regard for the economic consequences for trade between our two neighbouring islands.

The opening up of the Irish economy in the 1950’s began while de Valera still led his party. Fanning credits this to his then Finance Minister Dr Jim Ryan, as much as to Sean Lemass. The contribution of Ryan’s predecessor, Gerard Sweetman is not mentioned.

 

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WHAT IS THE ALTERNATIVE TO A HARD BREXIT?

I believe  conditions can be created in which the UK voters could decide not to leave the EU at all.  Ireland should work to create those conditions. The terms for Brexit set out by Mrs May will  do incalculable damage to this island, politically, emotionally and economically.  We cannot simply wait for this to happen. While seeking to mitigate the effects of Mrs May chosen hard Brexit, we must  also do everything we can to ensure that there is no Brexit.

Apart from a few open questions, Theresa May has said what she wants. She wants out of the single market, out of the customs union, and “control” over immigration

The open questions she has avoided so far are about the financial terms of the divorce, the status of EU citizens living in the UK and vice versa, and two aspects of a future trade agreement (if there ever is one), namely arbitrating disputes, and  third country imports getting into the EU via the UK.

It is unlikely that the Article 50 letter, she will send to Donald Tusk next month,will us  tell much more about the UK negotiating position than the Lancaster House speech did. So it is time now to start thinking about how the EU will respond to Mrs May’s letter.

On the present schedule, the European Council would meet in April to agree the orientation it would give to the EU negotiators for the discussions with the UK that would start in June. These orientations would be agreed by consensus, so every EU head of government would have to be satisfied.  For Ireland, this April European Council meeting is potentially the most important European meeting a Taoiseach will ever attend.

In working out the orientation to be given to the negotiators, the crucial thing is for the European Council  to work out what would be it’s ” best alternative to a negotiated agreement” (BATNA). It is important to have an alternative ready because there is every possibility that no agreement will be reached within the two year time frame for negotiation, and ratification, of a withdrawal agreement.

Mrs May has  said that , for her , no deal at all  preferable  to a bad deal . Her BATNA, so to speak, is no deal at all.

“No deal” would mean the UK simply crashing out of the EU overnight, sometime before the end of March 2019.  This “no deal” scenario would be an overnight halt to flights, to trade and to commerce. There would be immediate, massive currency instability.

From the point of view of pure negotiating tactics, maybe it not surprising that Mrs May would threaten “no deal”.   But to do so, in the absence of a well crafted fall back position, is something  the UK cannot really afford.  It vindicates Tony Blair’s description of the UK government as “not driving the (Brexit) bus”, but rather “being driven” by partisan and ideological forces it has not tried to control .   In the absence of a real alternative to a hard Brexit, it  is on auto pilot heading towards a cliff.

The EU country that would be worst affected by the UK crashing out of the EU, with no deal  is, of course, be Ireland . So Ireland must use all its imagination and ingenuity to see if a creative way out for the UK and the EU can be found.

SHOULD THE EU OFFER UK VOTERS ANOTHER OPTION?

If the UK government is unable or unwilling, because of domestic politics, to work out a responsible “best available alternative to a negotiated agreement”(BATNA), then the EU side should do so for it.  It should adopt it alongside its line by line response the UK’s negotiating demands

Having a BATNA, would also strengthen the EU’s negotiating position. It would provide something with which an emerging deal could be compared. It would also provide a basis on which the UK could reconsider its decision of 23 June 2016, if it wants to do that.

As Tony Blair said, UK voters have a” right to change their minds”. After all politicians are allowed to change their minds, so why not voters?   If  UK voters, in a referendum,  sent their government on a mission towards Brexit, it would be reasonable that the same voters, rather than Parliament, tshould adjudicate on what will have been achieved (or not) by their delegates.

If UK voters ever do change their minds about Brexit, it will happen slowly and incrementally. Parts of the Brexit scenario, obscured during the Referendum, will become clearer during the negotiation. The unavoidable interconnections between EU freedoms, and EU rules, will emerge.   For this to happen, it will be in the EU side’s interest to ensure that there is maximum public understanding of the unfolding negotiation. Transparency will work in the EU’s interest.  A running commentary is exactly what is needed in the interest of public education!  

If the alternative to EU rules, is no rules at all, citizens, in both the EU countries and the UK, may come see EU membership in a different light. They may, for the first time in many cases, see the EU as something that simplifies their lives, rather than the reverse.

In my view, the “best available alternative to a negotiated agreement”, BATNA, that the EU side should adopt is an offer of continuing UK membership of the EU  broadly on the basis that the UK  was a member in 2015,  before David Cameron’s ill fated “renegotiation”.  

The 2015 terms were generous to the UK. They allowed it to opt out of the euro, of Schengen, of Justice and Policing cooperation, of the Stability and Growth Pact, and of  the justiciability in the UK of the European Convention. Furthermore, the UK itself had also decided, without Brexit, that it would have a referendum of any new EU powers. In that sense the UK was already having its cake, while eating it, before it ever decided on Brexit. These 2015 terms should be left on the table by the EU side, but without the unjustifiable UK budget rebate.

Of course, at this stage, the UK would reject such an offer out of hand.  But, as the inevitable consequences of  Brexit become clearer, UK public opinion might begin to see merit in it, particularly when it is compared with the costs of  simply crashing out of the EU, overnight,  with no deal at all, which is Mrs May’s fall back  negotiating scenario.

The resistance to keeping such an offer on the table is more likely to come from some existing EU member states. Some members will point to the UK’s insatiable demands, when it was a member , for opt outs, rebates, and exceptions.  Arlene Foster’s analogy about feeding crocodiles may come to their minds. They will recall General de Gaulle’s original veto of UK membership, and his foresight that the UK would never settle in as a member. They might also argue that offering the UK a way back, after it has triggered Article 50, might encourage others to try it on too.  

 But if they sit back and think about it, they will, I believe, conclude that a UK that inside the EU, is better for the EU, than a UK that outside. This will be so even if a trade deal is eventually concluded with the UK. Keeping the offer of resumed UK membership on the table would be good politics, and good economics for the EU.

The terms of the Lisbon Treaty do create some difficulty for this approach.

Article 50 (3) says a country that has sought to leave the EU under that article will be automatically excluded from the EU two years after it has triggered Article 50 unless the EU side “unanimously decides to extend the period”.

Article  50 (5) says that, if a state, that has withdrawn for the EU, asks to rejoin, it has to do under article 49, where the application would have to be ratified by all existing members.

Others may argue that the UK cannot withdraw its Article 50 letter once it has sent it.  This is a matter for the European Court of Justice to decide, but article 6.8 of the Vienna Convention on treaties explicitly allows revocation of a notice of intention to withdraw from a treaty.

These problems are real, but not insurmountable. A political declaration by the EU heads of Government in April  in favour of facilitating an eventual  UK resumption of EU membership, on its 2015 terms minus the budget rebate , would create a realistic basis for comparison in the debate  about Brexit that, in a sense  is only  now starting in the UK.  

 

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THE COMPLEXITIES OF BREXIT ……. CUSTOMS CHECKS, RULES OF ORIGIN, TARIFF COLLECTION…… DOING BUSINESS WILL BECOME MORE EXPENSIVE

Here are some extracts from a recent report by the Bruges Group, a UK think tank that has long favoured Brexit, which outlines some of the difficulties that will arise for UK exports to the EU (including Ireland), and probably for EU exports to the UK (including Northern Ireland) .

It was based on primary research carried out by the Bruges Group with managers in the logistics industry. It is long, but well worth reading in full.

It sets out, in alarming detail, the way in which the costs of doing business will be increased by the UK initiative to leave the European Union;

“Exporting into the EU requires a convoluted process to be completed. Goods must have assigned to them an identification number, inputted at the port of destination. The larger exporters find the process easier. They can make their declarations at the end of the month. Those who export less to the EU will, however, be faced with bureaucratic hurdles.

Clearance for use, allowing the product to go into circulation to be sold in the UK, or an EU country, needs to be obtained. The process for assessing this, even in the EU, will differ from country to country. Mostly, however, this is often just a theoretical problem, rarely do customs officials demand compliance with national standards and rarely do they conduct a strict examination of documentation declaring that an item conforms to national or EU standards.”

“ It is legally possible to detain goods on the grounds of differing standards, but in practice this only usually applies to items that are deemed to be dangerous, illegal, or subject to anti-dumping duty (a tax on products suspected of being sold substantially below their normal value in market in which it was produced).”

Still, the process of shipping goods to and from the EU is not without other bureaucratic impediments. The freedom of the items is also strictly regulated. From outside the EU, any goods entering the EU, if not cleared at port, which can be a laborious process, must be stored in a bonded warehouse, also known as an Enhanced Remote Transit Shed (ERTS) warehouse, until they are declared to customs for an approved treatment or use.

“ Transhipped cargo not in free circulation will also require what is known as a CMR document. The CMR is a consignment note with a standard set of transport and liability conditions, which replaces individual businesses’ terms and conditions. It confirms that the carrier (i.e. the road haulage company) has received the goods and that a contract of carriage exists between the trader and the carrier. It derives from the Convention on the Contract for the International Carriage of Goods by Road. The process of clearing customs is increasingly becoming electronic. Systems used by exporters that integrate with the British customs system are the CNS and Destin8 computer systems.

Value Added Tax (VAT) is often charged on imported goods,  that is in addition to any customs duties. The details must be entered onto the Customs Handling of Import and Export Freight (CHIEF) system. This system records the declaration to the customs authorities details of the goods whether they are transported by land, air and sea entering or leaving the UK/EU. It allows importers, exporters and freight forwarders to complete customs information electronically. This is not without charge.

“ If there is no prior agreement for each consignment, going to a specific destination, to clear customs the importer must produce customs records for each, pay VAT and the customs duty, if any. This will be calculated per the value of the item at its final point of sale. The VAT rate will differ from country to country, and even item to item. In some cases, a product will be exempt, VAT will not apply. In other cases, an item will be zero-rated, requiring the documentation to be completed but with no final payment. Even where tariffs are eliminated when importing from outside of the EU there is still the requirement to  pay Value Added Tax. If the exporter is registered for VAT then this can be claimed back but only if they registered. There is also the requirement for an input VAT certificate to be completed.

“ Remaining a part of the EU’s customs union (having its trade rules apply) without being in the EU, does not eliminate the requirement to complete form filling. The requirement to clear customs and complete documentation, known as an ATA Carnet, to validate the origin of goods and confirm that they are free from tariffs even applies to Turkey. This country is considered a part of the EU’s customs union and therefore has tariff free access for industrial products; but it is not bureaucracy free access.

“ David Davis’ Department for Exiting the European Union must focus on addressing the logistical trade hurdles of delays at customs posts. The alternative will be even worse congestion on the M20 after Brexit than that which exists at present. Concern five: There will be complex new ‘rules of origin’ and additional paperwork for British goods

Another area in which the EU could try to ‘punish’ the UK would be in the form of new red tape and potentially costly and complicated new ‘rules of origin’ (ROO) for British exporters. If a business is sending produce to the EU from a country that has a free trade deal it must prove that they were mostly manufactured or re-worked in a country that has such an agreement with the EU. If the business cannot confirm the origin of the goods, then the tariffs will apply. This can be sidestepped by making some modifications to the products in the exporting state, yet this may be subject to investigation. This is an infrequent occurrence, yet the need for paperwork to prove its provenance is not rare. If the goods are of UK origin and if Britain has a free trade agreement, namely no tariffs to pay, importing into an EU country will require a Certificate of Origin. Such documentation can be obtained from a relevant countries chamber of commerce, they are however, expensive.

Anything that is already inside the customs union that has originated from a non-member will have been charged at its original port of entry and can therefore circulate freely within the EU. At present, as the UK is an integral part of the EU’s customs union, British exporters to the other 27 do not have to prove that they comply with the EU’s rules of origin. Goods entering the UK from outside the EU will have been charged the relevant customs duty when entering Britain. As supply chains are becoming increasingly globalised the need to demonstrate an item’s origins can be a complex burden.

The Trade Policy Research Centre argued that ‘the process of adapting to rules of origin based duty-free trade under a new UK-EU free trade agreement would be tedious, costly and disruptive to trade.

However, some developments are making this concern less relevant. The reduction in tariffs, where many goods are zero rated, reduces the need to complete the administrative duties. The EU has extended the area in which origin can be accumulated to not only cover more states but also to allow for an item to be obtained and manufactured in a number of countries without the final product losing the benefit of being tariff free when it enters the EU. This system has been in existence in the EU and European Free Trade Association since 1997 and for Turkey since 1999. Over time the EU does grant greater allowance to other countries to claim exception from rules of origin.

And from 2017 under World Customs Union rules the procedure declaring a products origin will be simplified. As WTO members, the UK and EU are signed up to the WTO agreement on Rules of Origin in which signatories ‘Recognizing that it is desirable to provide transparency of laws, regulations, and practices regarding rules of origin’ affirm that they are committed: ‘…to ensure that rules of origin themselves do not create unnecessary obstacles to trade. ‘Agree that: ‘Members shall ensure that their rules of origin are not used as instruments to pursue trade objectives directly or indirectly; rules of origin shall not themselves create restrictive, distorting, or disruptive effects on international trade.

‘They shall not pose unduly strict requirements or require the fulfilment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin. ‘The rules of origin that they apply to imports and exports are not more stringent than the rules of origin they apply to determine whether or not a good is domestic and shall not discriminate between other Members, irrespective of the affiliation of the manufacturers of the good concerned. ‘Their rules of origin are administered in a consistent, uniform, impartial and reasonable manner.’ Rules of origin disputes in the WTO system are overseen by the WTO Committee on Rules of Origin and the WCO Technical Committee.

The UK is also a member of the WCO (World Customs Organization) an international body which works closely with the WTO and WCO member countries to identify, minimise and resolve problems such as rules of origin and other customs issues.

The EU is also a member of the WCO, as are its member states. The European Commission website confirms that: ‘On 30 June 2007, the Council of the World Customs Organization (WCO) decided to accept the request of the European Union to join the WCO as of 1st July 2007. This decision grants to the European Union rights and obligations on an interim basis akin to those enjoyed by WCO Members. The EU is a contracting party to several WCO Conventions, and contributes to the work of this organisation.’

The EU cannot therefore; arbitrarily impose red tape or inordinate Rules of Origin requirements upon the UK and still meet its WCO obligations. The EU is also signed up to the GATT agreement which states that: ‘The contracting parties also recognize the need for minimizing the incidence and complexity of import and export formalities and for decreasing and simplifying import and export documentation requirements. ‘No contracting party shall impose substantial penalties for minor breaches of customs regulations or procedural requirements. In particular, no penalty in respect of any omission or mistake in customs documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence shall be greater than necessary to serve merely as a warning.’

When we combine all these points with the fact that the EU and its member states are also signed up to the WTO agreement on trade facilitation, the potential risks of additional red tape and paperwork for importers and exporters look less and less likely, post Brexit.

Even if the EU wished to try to impose trading barriers in this way, there would be a substantive knock-on effect to the EU-UK cross border supply chains as a consequence. They will be aware of this, and all sides will wish to minimize this possibility from occurring by ensuring ROO requirements and other forms of red tape are kept to a minimum.

Finally, imposing difficult new ROO procedures upon the UK would be going against the EU’s ‘direction of travel’ in this area, which is to simplify and relax their rules (with a special focus on simplifying them for developing countries)40. In 2010, the European Commission admitted that:

‘The present rules of origin are old and outdated, having been drawn up in the 1970s.”

These difficulties will impact disproportionately on Ireland, and on smaller firms who will not easily be able to spread these costs over a large volume of business.

It is remarkable that these matters are being brought to light by a group that favours Brexit.

One does not get the impression that Thesesa May, who seems to think the UK can have a “seamless” trade relationship with the EU after Brexit, has read this Bruges Group paper.

As the reader will have seen, the Bruges Group itself hopes that the difficulties it has identified will be overcome by non enforcement of the rules in some cases or by goodwill from the EU on the general issues.

As competing commercial interests will be involved, this seems to me to be unduly optimistic.

It is important that Ireland examine all these matters for itself.

It will be Irish Customs authorities that will have to implement these rules.

New facilities will have to built at Irish ports which do business with the UK, and along the land border.

Additional staff will have to be recruited . The cost will be substantial.

A fast track for shipments direct to the EU, not going through the UK, may have to be provided at Irish ports. This would reduce the cost for business but this will involve substantial infrastructure investment by the Irish taxpayer. EU funds ought to be deployed to assist this.

 

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