Inside the world of business...
Is €45bn enough to tide Greece over?
AS WAS always likely, Greece and its reluctant backers have found that they cannot beat the market. It didn’t help that the European Union – and most particularly its largest economy, Germany – dithered for so long before putting concrete shape on its proposals to bail out, if necessary, its errant peer.
Investors scented blood and duly drove the yield on Greek sovereign bonds to unsustainable levels. By Thursday, it was clear that the efforts of Greece and its allies to buy time had failed. The major issue now is whether even the promised rescue will be sufficient to underpin the Greek economy while it struggles to get its finances back in order. While the euro zone/IMF package promises about €45 billion in assistance, some commentators believe Greece might need close to double this.
Then there is the question of Greece’s willingness to see through the necessary austerity regime. The cuts already imposed have triggered street protests. The IMF, in Athens to discuss the reform measures needed, and the EU are likely to seek even more severe cuts.
Greek leaders may indicate their willingness to comply, but can they deliver? And, given recent history, how credible are Greek assurances anyway? As recently as Thursday, Eurostat expressed doubts about Greek figures for 2009, raising its deficit and suggesting it might need to do so again.
In the meantime, the bond market moves on – at least for now – looking for other weaknesses.
Our squeaky clean bankers
JUST WHEN we got comfortable with blaming the bankers for all of the country’s ills, proof emerges that they are (almost) whiter than white when it comes to tax compliance.
Excitement was widespread last year when it emerged that Revenue had written to some 300 top officials in our beloved financial institutions asking whether they had paid their due to the State. Lips were licked in anticipation of the results, which (admit it) were not expected to be good.
It was a case of mild disappointment then on Thursday when Revenue chairwoman Josephine Feehily revealed that the trawl had so far unearthed the massive total of . . . €1.4 million. That came from 160 individuals, leaving the average unpaid tax per top banker at just less than €9,000.
In these straitened times, €9,000 is better in the State’s pocket than in the bankers’ wallets, but all the same.
We can take some comfort from the knowledge that at least lawyers (the public’s next favourite professional category) have provided a little more fruit for Revenue.
The commissioners looked into the tax affairs of 170 barristers and solicitors last year and uncovered €8.6 million in unpaid tax. That translated into €51,000 per lawyer, which by our sums makes bankers almost six times more tax compliant than lawyers. Who’d have thought it?
What to tweak to find the peak
THE BALANCE between tax rates and tax revenue is always hard to reach, as evidenced by the Government’s flip-flop on VAT. Food for thought may come from a paper by an ECB economist and a Chicago academic.
The research, from Mathias Trabandt (the economist) and Harald Uhlig examines how the financial boost from higher taxes could be outweighed by damage to an economy. It is not exactly light reading, but the conclusions are nonetheless noteworthy.
In the case of the Republic, it finds that we could raise our tax revenues by (wait for it) 30 per cent if we had the stomach to increase our labour taxes to 68 per cent. This conclusion comes at the end of a statistical analysis using what those in the know call Laffer curves, which illustrate the elasticity of taxable income. The curve was named for economist Arthur Laffer, who remarked in 1974 that “there are always two tax rates that yield the same revenues”: both 0 per cent and 100 per cent will deliver no revenue – the experts try to find the peak spot in between.
The Irish result is starkly different to those for the rest of the European Union, with the research concluding that the 14 strongest EU states as a group could raise tax revenues by 8 per cent by raising labour taxes. In fact, our situation is closer to that of the US.
The only other European country to come close to Ireland was Spain, which is told it could raise 13 per cent more in tax by increasing labour taxes. Denmark and Sweden on the other hand would lose money if they raised taxes, according to the research. See ecb.int.
Next week
Bank of Ireland is expected to announce details of a plan to raise €3.3 billion in capital
