Inside the world of business
Noonan has crossed a line with decision to raid pensions
IF NOTHING else, the Government’s proposal to fund its Jobs Initiative has succeeded in bringing together a broad coalition of views. Unfortunately for it, that coalition seems trenchantly opposed to its intention to raid private pension funds to the tune of €1.9 billion to deliver a scheme that may, or may not, deliver 100,000 jobs.
Everyone, from the union Unite to employers’ group Ibec, has come out against the plan in fairly plain language. The point has been made that the requirement to turn to private pension savings is illustrative of the dire financial straits in which we find ourselves.
The Government has been quick to state that the levy will not be extended, nor are there plans to repeat the exercise.
Two issues arise. First, if, as Minister for Finance Michael Noonan said in announcing the levy, it was being chosen because “the alternatives for increases in taxation elsewhere at this time would be more damaging to the economy”, it bodes ill for our immediate future.
On the Minister’s logic, it is difficult to see how the Government intends to secure net savings of €3.6 billion in the next budget, or the €3.1 billion in net savings required under each of the following two budgets.
Second, while it is right that all sectors of the population should play their part in attempting to extricate ourselves from the morass, a line has been crossed with this decision. Notwithstanding Government avowals, by this decision pension savings have become a source of exchequer fundraising. The minister could, for instance, just as easily have brought forward the water charges he will have to introduce in the budget.
Alongside other recent attacks on pension-related tax reliefs and the fact that any pension funds are taxed in full as income on drawdown, it can only serve to undermine confidence in private pension savings. That raises the longer term prospect of increased poverty in retirement and the likelihood of further pressure in that regard on the public purse.
And, for all that, even if the jobs initiative is successful and if no other jobs are lost in the economy, the unemployment rate would still hover around the double-digit mark.
Little hope for this cause
BANK SHAREHOLDERS have lost virtually everything but some aren’t giving up without a fight. Investors in Irish Life Permanent are the last across the six banks to feel the pain with a €4 billion capital bill set to wipe out their equity.
One shareholder, Scotchstone Capital, an investment fund based in Malta, is seeking to rally fellow investors to action. The company argues that because the Government is forcing the sale of Irish Life Assurance, which it is estimated will make €1.7 billion, shareholders should not be diluted any further. Piotr Skoczylas, managing director of Scotchstone, has encouraged shareholders to write to ILP to encourage it to lobby Government for one of two other options to protect investors.
They involve the Government being issued with preference shares or a call option where Permanent TSB would get an opportunity to buy back the State’s stake.
Undoubtedly, both will be raised by shareholders at the annual meeting next Wednesday. Many investors have been contacting ILP on the back of Scotchstone’s rallying call.
ILP is heavily dependent on ECB funding so is not in much of a position to negotiate a better deal for investors. Skoczylas declined to tell us how much stock Scotchstone has but estimated that the firm is among ILP’s top 100 investors. He said the firm started buying up ILP stock last September intent on holding it long term, believing it was undervalued.
The company misses two key points. This bailout is non-negotiable given that it is a condition of the EU-IMF loans to the country. Even after the sale of Irish Life – a subsidiary of Permanent TSB – the company will still need more than €2 billion which, at a market value of €36 million, will dilute investors to zero. It seems shareholders will have to face the music.
The trouble with tourism
IN THE dying days of the Fianna Fáil-Greens administration, no shot-in-the-dark “recovery” document was complete without a reference to the importance of tourism, which usually amounted to little more than a fervent desire to improve how Ireland is marketed abroad. Tuesday’s Fine Gael-Labour Jobs Initiative has corrected the second part of this by announcing concrete VAT-reduction measures, largely aimed at the labour-intensive tourism industry.
Unfortunately, pinning the hopes of Ireland’s unemployed on resurgent tourism is far from an exact science. As the ESRI noted this week, tourism receipts are difficult to anticipate. Critically, the success of the Government’s plan to boost visitor numbers is largely beyond its control, depending as much, if not more so, on the global economy as it does on the price competitiveness of the Irish “tourist product”.
In this environment, piggybacking on the London 2012 Olympics is a relatively cheap way to capitalise on visitors who already have a reason to come to this part of the world. However, Olympics organising body Locog has said that 95 per cent of the applicants for the 6.6 million available public tickets are from the UK. The much smaller number of Games visitors from further afield won’t solve Ireland’s tourist woes all by themselves, even if Irish tourist agencies can distract their attention from the promotional efforts of Visit Britain.
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Dominic Coyle and Barry O’Halloran discuss the Government’s jobs initiative; Cian Blackwell from Grant Thornton addresses corporate governance and Maeve Kneafsey, chairwoman of the Irish Internet Association, talks about its annual conference.
