Colm’s columns

Colm Rapple
Irish Mail on Sunday, January 31, 2010

British supermarkets are set to comply with Government guidelines that will allow consumers to identify Israeli products originating from illegal settlements in the Occupied Palestinian Territories. In launching the guidelines the Secretary of State Hilary Benn pointed out that there is currently no way of knowing whether products labelled “West Bank” were made by Palestinians or by illegal settlers.

A similar move is expected this side of the Irish Sea. Taking time out from his Northern endeavours, foreign minister Micheál Martin, said that he supported improved labelling of Israeli products. According to some reports he has asked officials in a range of Government departments to draw up guidelines similar to the British ones.

The easiest option would be to copy the British guidelines, given that Mr Martin is possibly anxious to move as quickly as possible. Last month, having been refused permission by Israel to visit Gaza, the Minister urged the EU to push for a lifting of the Israeli blockade so that delegation of European foreign ministers could visit the Palestinian area.

The labelling issue is important for those urging a boycott of Israeli products mainly in protest at the attacks on the Gaza Strip. But a report published by the OECD this week highlights massive inequality and discrimination within the Israeli State itself. Arab citizens and migrant workers are the prime sufferers.

Israel has been anxious to gain the acceptance of the OECD for some time. A decision on its membership is to be made in a few months time, and reports on its economy, employment and social policies have been prepared as part of the decision making process.

Some of those reports were published during the week. They reveal an economy that is already climbing out of recession after a relatively short and shallow downturn. But they also reveal a country riddled with poor social services, with very unequal access to education and jobs and totally inadequate labour protection laws.

Arabs comprise about 20% of the population. These are Israeli citizens unlike the Palestinians of Gaza or the West Bank. They should not be second-class citizens but they are. There is no doubt about that.

About half of them have disposable incomes less than 50% of the average Israeli income. That’s the definition of poverty used by the OECD in this instance.  There is a similar high poverty level among the ultra-orthodox Jews, the Haredim whose men folk, by tradition, value study above work. They comprise about 8% of the population. Their poverty is seen as arising from their cultural predilections rather than any positive discrimination.

Less than one-in-eight of the remaining population are defined as poor.

So while about 20% of the total population live in poverty, the bulk of those are Arabs and, to some extent, Haredim. There is little sign of social policies aimed at redressing this inequality. The earnings of Jewish workers are more than 40% higher on average than those of Arab workers.

There are clear signs of discrimination in access to education. Public spending on children is far lower in Arab than in Jewish localities. Inadequate transport facilities particularly limit the employment opportunities of poor Arabs. They are twice as likely as Jews to be in low-level manual employment in competition with a large pool of about 200,000 migrant workers.

These migrants, many of whom have come from far afield to replace workers who used to commute from Gaza, are particularly poorly treated according to the OECD report. Apart from the closing of the border, employers have to pay levies and fees including an 11% wages tax when employing Palestinians rather than Israelis. But Israeli Arabs are also discriminated against as a result of poor labour protection laws that are inadequately enforced.

Farmers, according to the report, prefer Thai workers “whose unpaid and undeclared hours reduce their effective real wages below the minimum wage”.

Abuse of care workers is rife, the report adds, especially in terms of unpaid hours for live-in carers. Workplace supervision is poor and abusive employers face little or no sanctions.

The full extent of the discrimination against the Arab population is highlighted in some of the OECD’s recommendations. It urges greater investment in public infrastructure and childcare in Arab areas. It wants action on the barriers that many Arabs face in getting jobs, and equal education opportunities and the setting and enforcement of minimum educational standards for all children.

It highlights the need for urgent action to tackle the abject poverty of many Bedouin Arabs whose settlements, in the Neveg desert area, are not connected with the electricity, sewerage, transport and education systems.

The list goes on. It’s a sorry tale of discrimination and, resultant, inequality. The only good news is that the Israeli economy is expected to grow by 2.2% this year and 3.3% next year having emerged from the recession in the second half of 2009. But as the OECD points out in no uncertain terms, the benefits of growth are shared unequally.

The Israeli economy seldom comes under the spotlight but the image that emerges of its economic and social policies from these reports does nothing to boost its international standing.

Colm Rapple
Irish Mail on Sunday, January 24, 2010

When it comes to formulating pensions policy, Ireland doesn’t have a monopoly on stupidity, nor on accepting inequity, nor on too readily accepting the self-serving arguments of the pension industry. That much is clear from a comprehensive study of personal pension provision in some nine European countries and the US published during the week.

Edited by Jim Stewart and Gerard Hughes of the School of Business, Trinity College the study “Personal Provision of Retirement Income” comprises the contributions made by a range of international experts at a conference in France in December 2007.  Far from negating its relevance the global economic melt-down that has occurred since only adds weight to many of the issues raised.

It’s a depressing read, outlining how all too many countries have been cutting back on both public and State pension entitlements in the mistaken belief that personal pension plans can provide the top-up necessary to ensure adequate income in retirement.

Pensions are an essential social benefit and we have been moving backwards in its provision. There was a time, before the Celtic Tiger was a cub, when it was acceptable to promote the vision of a pension scheme that would confer on all citizens, the security of knowing that they could look forward to an adequate income in retirement.

As far back as 1976, the then junior minister at the Department of Social Welfare and subsequent Labour Party leader, Frank Cluskey, published a green paper promoting the concept of a national income-related pension scheme.  Unfortunately we have moved far away from that ideal and at an increasing pace in recent years.

The State is rowing back on the commitments it is willing to make with regard to State and public sector pensions.

Employers are no longer willing to accept the open-ended commitments inherent in defined benefit schemes where the pension is based on final pay and years of service. Even the best of employers no longer offer entrance to such guaranteed schemes to new employees and many have curtailed the entitlements of existing members.

Poor investment returns have completely undermined any trust that people might have had in defined contribution schemes where the pension depends on investment performance. The risks have been highlighted by the volatility of pension fund values over recent years. The massive gains of the early Celtic Tiger years have been totally eroded and average Irish fund values are back to where they were about ten years ago.

Risk engenders insecurity which reduces personal welfare and makes a nonsense of the notion that voluntary participation in personal pension plans can provide a solution to the problem societies face in providing retirement pensions for their members.

All of these issues are evident in the book’s studies of pension experiences across Europe. It is not a polemic and does not seek to even suggest solutions. But it is difficult to avoid the conclusion that for Ireland, at least, the solution lies in society as a whole accepting responsibility for pension provision.

It has become almost fashionable to demand that banks be nationalised, so let’s take it a step further and call for the nationalisation of the pensions industry.  It doesn’t have to be taken over or bought out. The development of an adequate national pension scheme would over time diminish the importance of the private pensions industry.

All of the elements of a national pension scheme are already in place. There’s the PRSI network for collecting contributions at little or no additional marginal cost. There’s a payment system in place. There’s also the national pension fund, if it is considered appropriate to pre-fund some of the future liabilities.

There is a case for widening the role of the fund to allow for investments that will boost the economic potential of the State rather than simply the direct return to the fund. But that’s already recognised in the use of some of the reserves to bail out the banks.

TASC, the independent think-tank, which hosted the book launch took the opportunity to launch a revision to its pension proposals. It’s advocating a significant increase in the basic social welfare pension financed by curtailing the tax relief on private pension contributions.

It wants the basic State pension increased to 40% of the average industrial wage over the next five years. This guaranteed income would replace both the current contributory and non-contributory pensions and be payable to everyone over 65 who satisfied minimum residency requirements.

A compulsory pay-related contributory State scheme would bring the guaranteed pension up to 50% of final earnings up to a specified maximum.

These improvements would be partially financed by curtailing tax relief on pension contributions. The Government is expected to standardise the tax relief at somewhere between the standard and top rates of tax with rates of anything between 30% and 38% suggested. TASC would limit the tax relief to the standard rate of tax up to an earnings ceiling of €75,000.

The Government is expected to publish its final proposals within the next few months. But it’s clear that the debate hasn’t really started.

Colm Rapple,
Irish Mail on Sunday, January 10, 2010
Health insurers are not allowed to vary their premiums on the basis of a customer’s age or risk of illness. That’s the principle known as “community rating”. It’s a principle that few are willing to criticise, certainly not in public. Yet it is coming under increasing pressure.  Announcing an 8% hike in premiums this week, Jimmy Tolen, chief executive of the VHI put the position very starkly.

“It is becoming inevitable,” he said, “that older members of society will pay significantly more than younger members of society for their health insurance”.

The VHI has a vested interest in raising the scare but Mr Tolen’s warning rings true. The trend has been obvious for some time. There is little doubt that private health insurers would like to see the end of community rating in favour of a market free for all. And there must be a suspicion that despite her public support for the concept of community rating, Health Minister Mary Harney, is ideologically opposed to it.

Unless she does something soon that ideologically driven alter-ego may win out.

Medical insurance claims rise with age. In 2008 VHI paid out an average of €745 per customer. But the average for those in their 60s was €1,678. That rose to €2,699 for those in their 70s and to €3,040 for those aged 80 or over.

A high proportion of VHI’s customers are elderly. Its overall market share is about 70% but it has a 90% share of those over 70 and 97% of those aged 80 or over.  Since it can’t charge extra to those customers who will, on average, cost it more in claims, it operates at a competitive disadvantage against the newer insurers who have marketed their plans aggressively at the younger age groups. Although they can’t turn anyone away and must charge all comers the same premium for the same plan, but they don’t go out of their way to attract older customers.

Initially it was planned to equalise these market forces by a system of “risk equalisation”. The new companies with a younger customer base would be required to pay a subsidy to the VHI which had an older and most costly customer base. It was a sensible, and market friendly idea, but the courts thought otherwise.

Recognising that “community rating” is not possible in the Irish market without some cross subsidisation of VHI, the Department of Health came up with a short-term solution. All insurers pay a levy on each customer and the money raised is returned by way of tax relief which is linked to the age of the customer.

It’s €200 for those in their 50s, rising to €1,250 for those aged 80 or over.

It is risk equalisation by another route but Jimmy Tolan claims that these extra tax reliefs would need to be more than doubled to fully compensate VHI for its older customer base. In the meanwhile it is losing money despite having raised premiums by 23% this time last year and now by another 8% this year. As a State owned company it can carry those losses but it is being groomed for privatisation and is being forced to become a profit seeking company.

That’s being blamed on EU requirements but the pressures from Brussels could have been successfully resisted by anyone with the vision, and lack of ideological hang-up, to see that Ireland’s medical insurance needs can best to served by a single State owned insurance company. It would easily be regulated, like Bord Gais and the ESB, while still forcing competition in the supply of medical services.   That’s where competitive pressures could yield sizeable dividends in lower costs and better services.

It’s not too late to adopt such a policy. The conventional wisdom with regard to banking is being rewritten so why not also rewrite that related to insurance and, indeed, pension provision.

The alternative at this stage seems to be the privatisation of VHI and the ending of community rated medical insurance as it used to be conceived. The law doesn’t prevent companies from segmenting the market and charging higher premiums for those plans specifically suited to elderly customers. It’s already happening.

VHI, for its part, has seen its reserves diminished and it needs over €200 million in additional capital to meet the solvency ratio being imposed by the Financial Regulator. It would be all too easy, in the current financial climate, for Mary Harney to use this as an excuse to privatise the operation. We’d all be the losers if she gets away with it.