Colm’s columns

Colm Rapple
Irish Mail on Sunday, 25th May 2008

Tánaiste Mary Coughlan has undoubtedly done as she was told by her boss in the Dáil, and has done a ring round of “those f***ers” to try and get a handle on the rip-off of Irish consumers. The message she’ll be taking back to the Taoiseach will be short and sweet. Blame the public. They simply can’t be bother to shop around.

If they did, then competition would send prices tumbling. Or so it is claimed. And competition is the only acceptable form of price control in Ireland today given EU regulations and the pervading free-trade liberal philosophy that dictates government policy.

But we badly need to give competition a boost and not by simply exhorting consumers to shop around. “Shop around “ are the most overused words on the website and in the publications of the National Consumer Agency (NCA). But consumers need help in shopping around and that’s where the NCA is falling down on the job.

Consumers need information. They need price comparisons and not on an occasional, basis, but up-to the-minute information on who’s charging what. It would, of course, require a bit of work and, no doubt, extra resources, but gathering and disseminating such information would provide the NCA with a meaningful role.

It could start by publishing weekly comparisons of supermarket prices for a range of basic food and household products, quickly followed by a full listing of motor and heating fuel prices. Once-off surveys are no good. Consumers need to have up-to-date information on actual prices when they are going out to shop.

There is no good reason why retailers should not be required to feed the information directly into the National Consumer Agency’s computers where relatively simple software could collate it and publish it on its website and, ideally, also prepare it for newspaper publications for those without internet access.

That way competition could be made to work a little better than it is at present.

The liberal economic ideal is free competition. But it is too often forgotten that perfect competition only works when there is perfect knowledge among both sellers and consumers. Of course, we can never have total perfection but with modern communications and information technology, it would be an easy enough task to gather and publish nation-wide price information.

Thirty years ago we had specific price control. In the 1970s practically every price increase had to be approved by a National Prices Commission which published monthly reports outlining its decisions. Each application was very specific and assessed in detail. For instance in April 1977 (I happen to have a copy of the May 1977 report) an increase of 101.34% was sought in the price of Irel coffee but only an increase of 48.54% was granted. Other applications that month covered hairdressing charges, paper bags, taxi fares and motor fuels. As a note for the nostalgic, the cheapest petrol at the time was selling for 94p a gallon equivalent to about 26c a litre.

We’re hardly going to return to such specific price controls. Free trade and competition are now the order of the day but, despite the amount of lip service given to the benefits of both, businesses tend to do their utmost to protect themselves from them. By promoting brand names or unique products, they try to create their own little monopoly. Every effort is made to ensure the consumers can’t compare products and prices on a like-with-like basis.

Maximising profit is the name of the game while the Government and its agencies have been very lax in preventing obstruction and distortion of competition.

There is no such thing as “over-charging”, not in a legal sense in any case. It is perfectly legal to rip-off consumers. Sellers can charge what they like although competition is supposed to keep greedy urges in check. Consumers are expected to shop around for the lowest prices, taking some account of other factors such as levels of service, convenience etc.

The trouble is that it hasn’t been working like that.

It is increasingly clear that in many areas of the Irish economy, competition just isn’t working as it is supposed to. At the extreme that may be due to an element of price fixing, a practice which is illegal but can easily escape detection. In some cases it arises from perfectly legal constraints on entry, such as exist in many of the professions. But in most cases it does come down to the unwillingness or inability of the consumer to shop around for the best deal.

We can complain all we like. The politicians of all shapes and hues can wring their hands and accuse the supermarkets, pubs, hotels, entertainment promoters and what have you, of greed. But with a few honourable exceptions, they all subscribe to the free market model which sees greed as the driver of economic fortunes.

Competition can help to hold that greed in check but it must be made to work by empowering consumers. That what the f***rs should be told to do.

By the way, the extent of the rip-off was highlighted this week in new CSO indices which revealed that wholesale prices FELL by 4% over the past year – that was up to April. Consumer prices ROSE by 4.3% over the same period. That’s according to the latest CSO indices. Those wholesale prices, admittedly, don’t include services, the price of which have been rising faster than goods, but neither do they include imports, the price of which have benefited greatly from the strengthening euro.

Colm Rapple
Irish Mail on Sunday, 13th May 2008

Housing is going to remain a buyer’s market for some time to come if this week’s forecast from the prestigious Economic and Social Research Institute (ESRI) is right. In the short-term at least, it is not going to get any better for sellers while buyers can afford to wait to pick up the best bargains.

That’s not a gloomy forecast. There’s no expectation that property prices will collapse but the recovery is likely to be slow and steady rather than quick and spectacular.

The ESRI’s team of economists led by John Fitz Gerald is predicting a very favourable economic future for Ireland over the next seven or eight years.  It will be a bumpy ride for the next eighteen months or so until the US economy starts to recover but thereafter we can expect to outdo our European neighbours in terms of both incomes and living standards.

How bumpy the ride will be depends on how deep the US recession is. But even on the basis of the most pessimistic scenario, the worse is likely to be over by the end of next year and the Irish economy is deemed to be well placed and resilient enough to benefit from the inevitable recovery.

Growth prospects are more modest than achieved during the boom Celtic tiger years but there is a real hope that we can combine higher incomes with much improved State services as the benefits flow from past and future investment in infrastructure such as roads, public transport, health and education.

Towards the end of the forecast period in 2015, the need for infrastructural investment will ease, just in time for resources to be diverted towards covering the retirement needs of our ageing population.

There is no boom forecast but there is no “bust” involved either. It’s going to be a steady progression with exports of business and financial services taking over from manufacturing as the main engine of growth. The population will continue to rise, so too will employment.

But net immigration is expected to fall from an average of almost 40,000 a year during the earlier part of the decade to about 11,000 a year for the immediate future. So that after the current blip, unemployment is expected to slowly decline again.

That same steady advance is expected in the housing market. On the basis of its forecasts for population growth, housing demand and house construction, it expects house prices to rise just about in line with incomes up to 2015.

There is no comment on how the present uncertainty will work itself out in the short-term and that’s anyone’s guess. Price trends are driven as much by sentiment as by real economic factors so much depends on people’s expectations. With the economic downturn expected to last for another eighteen months or so, the market is likely to remain depressed until at least 2010.

Demand is going to remain weak and with some developers under pressure to raise cash, prices seem set to fall further. But the ESRI expects the medium term price trend to be upwards.

It isn’t predicting any sharp recovery and certainly not a return to the rapid house price inflation of recent years but it is expecting house prices to have risen by an average of 3.2% a year between 2005 and 2010 and to continue to rise by about 3% thereafter.

We’ll be building close to 50,000 additional houses each year for the foreseeable future, according to the ERSI and that will just about meet demand. That’s well down on the near 70,000 new houses being built each year between 2000 and 2005 but it’s well up on past levels of activity. Between 1990 and 1995 the annual average was below 25,000, rising to just above 40,000 during the second half of that decade.
Demand is expected to be running at slightly over 50,000 up to 2011 dropping to slightly below 50,000 thereafter, so that supply and demand will be broadly in balance.

Population growth will account for the bulk of that demand, about 22,000 each year. Immigration will initially account for another 9,000 a year but that figure is expected to decline. An annual demand of about 8,000 is expected to arise from a shift in household patterns, an increase in the number of individuals choosing to set up on their own rather than live with parents, for instance.

The holiday home stock is expected to rise by about 7,000 a year  in the early years with the demand gradually declining while a further 7,000 homes will be needed as replacements for homes taken out of use.

What more could we ask for? It’s the dream scenario, supply matching demand and prices rising just in line with incomes. Homes will become more affordable as incomes rise and interest rates decline. The only bad news is that we’ll continue to be paying more for our houses than other Europeans.

Only Spain ranks above us in a league table of average housing costs, based on price per square metre, compiled by the ESRI from data collated by global estate agents ERA Europe. Prices in Britain are 25% lower while French prices are over 40% lower than they are here. Prices in Portugal and, surprisingly, Sweden are over 60% lower.

There’s no suggestion, however, that prices across Europe will converge, at least not for some long time, if ever.  So we’ll just have to live with high house prices and if the ESRI is right, we’ll have the incomes to afford them.

Colm Rapple
Irish Mail on Sunday 11th May 2008

The Revenue Commissioners this week secured major additional powers in their fight against tax evasion. As he was clearing out his desk in the Department of Finance, Taoiseach elect, Brian Cowen, gave the nod to new regulations that require deposit takers to provide the Revenue with details of the interest paid on deposit accounts.

Fed into the Revenue’s already extensive data base, this new mass of information will undoubtedly help in the identification of tax evaders, but it also creates a worry for many totally innocent individuals and for many more who indiscretions are of a relatively minor nature.

Among those who could be hit are people on means-tested social welfare benefit who may not have declared all of their savings. Some means tests are reasonable but others are so inequitable as to positively invite evasion. For instance the spouse of someone entitled to a contributory pension will only qualify for a full depenant’s payment if he or she has savings of less than €30,000.

So a stay-at-home housewife, as many current pensioners were in the past, of necessity if not design, can be precluded from sharing in a husbands contributory pension entitlement if she has saved a little over the years from her housekeeping money or perhaps received a small inheritance.

These are not the sort of people that these new Revenue regulations are primarily designed to target but they could well be identified by combining social welfare records with this new information on deposit accounts.

Mind you the Revenue should also be able to identify people who are entitled to a refund of DIRT because they are over 65 and outside the tax net. Hopefully, identifying people who are paying too much tax will be as big a priority as catching those paying too little.

By definition there’ll be no extra tax due on the deposit interest reported to the Revenue. The DIRT already stopped satisfies all tax liability. What the Revenue hope to identify are deposits built up from money that was itself never declared for tax.

Effectively these new regulations will give the Revenue details of all deposits held by individuals in the State. Under an EU Savings Directive it already gets details of interest paid in most EU countries. Instead of providing information to other countries Austria, Belgium and Luxembourg opted to apply a withholding tax which is to rise to 33% by 2011.

In the past it would have taken a court order to get the information on domestic deposits and heaven knows what to get information from abroad. But the Big Brother society has become a reality and modern computing power makes it simple to compile and co-relate information from a wide variety of sources.

The Revenue Commissioners already have a wealth of information on individuals, businesses and transactions. From stamp duty returns they have the definitive data base on property values. Income tax provides them with detailed information on all incomes and personal circumstances including health spending. Other tax returns provide facts and figures on business activity. In recent years they have been able to supplement their data base with social welfare files.

So there was plenty of information but it was not always possible to bring that information together. Newly appointed chairman of the Revenue Commissioners, Josephine Feehily, recently referred to an old internal sayings “if only the Revenue knew what Revenue knows” while outlining the growing sophistication of its Big Brother computer programme Risk Evaluation Analysis and Profiling System – REAP for short.

By enabling the automatic collation of all data held on individual taxpayers this system enabled inconsistencies to be identified. The details of interest payments, that are now to be fed in, will greatly add to its effectiveness.

So what information is the Revenue to get under this new regulation.

Initially it applies to interest payments made by banks, building societies and the Post Office Savings Bank during 2005 and 2006 from which DIRT was stopped. So it won’t apply to An Post Savings Certs or Bonds where the return is not liable for DIRT.

By September 15 next the relevant financial institutions have to make a return to the Revenue of interest payments in excess of €635 a year providing the name, address, and date of birth of the account holder and the gross interest paid or credited to the account..

That minimum interest payment represents a return of 3% of a deposit of about €21,000. So deposits of less than about €20,000 won’t be reported but it depends on the interest being earned.

Initially the Revenue won’t have a tax number to help match up the deposit information with their existing data base but the financial institutions are required to provide tax reference numbers for all accounts opened after January 1 next or else highlight the fact that no tax number was given by the depositor.

Returns for 2007 have to be in by October 31 next – only a few weeks later than the 2005 and 2006 returns – while returns for 2008 have to be with Revenue by March 31 next.

Credit Unions don’t have to make returns for 2005, 2006 or 2007 but will have to make returns for 2008 in respect of interest payments. From 2009 a return will also be required in respect of dividend payments.

Most people have nothing to worry about but the net is closing ever tighter on the tax evaders, big and small. The Revenue won’t have the resources to zone in on them all but hopefully they will get their priorities right.

Colm Rapple
Irish Mail on Sunday, 4th May 2008

Over the next twelve years the population could rise by anything between 454,000 and 1,455,000 according to the Central Statistics Office. Yes, you read that right. There’s over a million in the difference between the high and the low estimates. The answer you get depends on the assumptions you care to make. So it’s little wonder that Government departments find it hard to plan for the future. The uncertainty doesn’t do much to help private sector businesses either but they can often take a shorter-term perspective.

The major imponderable is immigration. The high estimate for population growth assumes that immigration will continue at the high level of recent years. The low estimate is based on an assumption that there will be no net immigration – emigration and immigration will balance each other out.

Neither of those extremes seem likely. There has already been a decline in net immigration due to the slow down in the Irish economy but no-one if predicting a return to net emigration. But we can’t be certain. It’s that uncertainty that is most worrying.

If the high estimate proves correct, for instance, we’ll have 623,100 children of primary school age in 2021. On the basis of the low estimate there’ll only be 480,500.

What should we be planning for?

This week’s CSO report doesn’t provide too many answers but if nothing else it highlights the importance of migration trends to our economic and social well-being. It will hopefully prompt a deeper debate on the issue than has been evident up to this. There has been too little questioning, for instance, of the perceived wisdom that immigration is economically beneficial.

One of the problems has been that questioning the desirability of our past high level of immigration was fraught with danger.  There was, and still is, the risk of being branded a racist and there is also the risk of giving sustenance to those who do oppose immigration for racist reasons.

It is not immigration itself that should be questioned but rather the mad pursuit of economic growth that doesn’t take account of all the costs or consider how the benefits are spread.

Immigration has made a major contribution to our economic growth in recent years but we’ve been over estimating the benefits by looking at total national income rather than national income per head. We need to take account of the sharp rise in population.

National income is now 33% higher than it was five years ago but the extra wealth has to be shared among a larger population. The labour force has risen by 12% over the same period. If population has risen at the same pace, then income per head has only risen by 18%.

That’s a lot less impressive particularly since much of the improvement has been taken in profits rather than wages and a large proportion of it has gone on developing our infrastructure – housing, transport, health, education – a task made that much more difficult by the sharp rise in population.

Immigration is also exercising minds in Britain where the debate has been rekindled by a House of Lords report which concludes that the massive immigration into Britain in recent times has had little or no impact on income per head of population.

Immigration, the report points out, has benefited individual employers but the interests of individual employers don’t always coincide with the best interests of the economy as a whole. The biggest winners have been the immigrants themselves and their employers. The biggest losers are likely to have been low paid workers, a group that in Britain consists mainly of ethnic minorities and previous immigrants.

It’s a prestigious report,  the work of the Economic Affairs Committee of the House of Lords, the membership of which includes a number of ex-cabinet ministers and prominent economists, including a couple of ex-Chancellors and a former Bank of England governor.

Many of its findings are of a general nature that are as relevant in Ireland as they are in Britain. It reaches the fairly obvious conclusion that national income per head is a better guide to progress, than total national income and that, in considering the economic impact of immigration, the measure should really be the income per head of the resident population. That may seem like an overly selfish, chauvinistic approach but it is obviously the basic yardstick by which the economic impact of immigration on a country should be measured.

It makes sense. It doesn’t mean that other factors have to be ignored. Having calculated the impact on the existing population it is then possible to take account of other pluses and minuses, factors such as the interests of the immigrants themselves, the non-tangible benefits that can flow from promoting cultural diversity, the potential adverse impact on social cohesion, and the very real cost created by the increased pressure on our social and material infrastructure.

We can’t restrict immigration from most EU countries but we do need to have a better understanding of all the factors involved if the costs are to be reduced and the benefits enhanced. It would also help inform any input we might have into EU and global immigration policies.

By year-end we have to decide whether to open the doors to citizens of Romania and Bulgaria who, although EU citizens, currently need work permits to take up employment here. Some employers would obviously welcome a fresh supply of cheap labour but is that really in our best interests?