In Ireland, a Picture of the High Cost of Austerity
On Tuesday June 29, 2010, 4:30 am EDT
DUBLIN — As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But
the once thriving nation is struggling, with no sign of a rapid turnaround in sight.
Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity
measures that financial markets are now pressing on most advanced industrial nations.
“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international
investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and
Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”
Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper
than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent
last year and remains in recession.
Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those
out of work for a year or more — have more than doubled, to 5.3 percent.
Now, the Irish are being warned of more pain to come.
“The facts are that there is no easy way to cut deficits,” Prime Minister Brian Cowen said in an interview.
“Those who claim there’s an easier way or a soft option — that’s not the real world.”
Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and
Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear
that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to
pay its bills rather than easier.
Other European nations, including Britain and Germany, are following Ireland’s lead, arguing that the only way to
restore growth is to convince investors and their own people that government borrowing will shrink.
The Group of 20 leaders set that in writing this weekend, vowing to make deficit reduction the top priority despite warnings
from President Obama that too much austerity could choke a global recovery and warnings from a few economists about the possibility
of a much sharper 1930s style downturn.
“Europe is in a tough bind,” said Kenneth S. Rogoff, a former chief economist at the International Monetary
Fund and now a Harvard professor. “If you want to escape default, the Irish path is the only way to go. But the Ireland
experience points to the profound challenges that the current strategy implies.”
Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent.
About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing
loans on developers.
The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last
year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust,
Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.
“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said
Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus
now. There’s no one who is even arguing for it.”
Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as
one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent
of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.
These troubles sting many Irish, given the head start Ireland has on most members of the euro club. Its labor market is
one of Europe’s most open and dynamic. After its last major recession in the 1980s, it lured knowledge-based multinationals
like Intel and Microsoft — and now Facebook and Linked-In — with a 12.5 percent tax rate, giving Ireland one of
the most export-dependent economies in the world.
Now, the government is pinning nearly all its hopes on an export revival to lift the economy. Falling wage and energy costs,
and a weaker euro, have improved competitiveness.
Turning statistics into jobs, however, will be a herculean task. “Exports alone don’t drive a significant number
of jobs,” said Paul Duffy, a vice president at Pfizer in Ireland.
Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s
last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece
would only delay a recovery.
But pay cuts have spooked consumers into saving, weighing on the prospects for job creation and economic recovery. And
after a decade-long boom that encouraged many from the previous years of diaspora to return, the country is facing a new threat:
business leaders say thousands of skilled young Irish are now moving out, raising fears of a brain drain.
David Stronge returned to Dublin in 2006 from an architecture job in Britain. “I wanted to come back here and get
a piece of this action,” he said. “And I did for about a year. But then it started to tank.”
He moved to reinvent himself, returning to school with thousands of other Irish, in hopes that a higher degree would lead
to better prospects. Mr. Stronge plans to seek alternative energy jobs in Britain once he gets his master’s degree in
August.
“Ireland isn’t going to spend on infrastructure probably for another 10 to 15 years,” he said. “So
you have to go to where the opportunities are.”
At the D Café, a sandwich shop facing a stretch of empty buildings in Dublin’s Docklands enclave, even that dream
seems impossible. “If you’re self-employed and lose your job, you’re entitled to nothing, not even the dole,”
said Debbie, the owner, who would only give her first name.
She transformed her convenience store into a deli when Liam Carroll, a property baron, threw up the nearby developments.
But the tenants never came, and her business evaporated.
“It’s so destroying,” she said, gazing out the window. “We all live day by day, and we don’t
know when it will ever pick up.”
Signs of the decline encrust Dublin’s streets. Boisterous crowds still mash onto the cobbles of Temple Bar. Yet farther
out, “To Let” posters obscure the hollowed shells of once-vibrant cafes and clothing shops.
Fifteen minutes north of the city center, hulks of empty buildings form stark symbols of why Ireland must now hunker down.
At Elm Park, a soaring industrial and residential complex, 700 employees of the German insurer Allianz are the lone occupants
of a space designed for thousands.
In the impoverished Ballymun neighborhood, developers began razing slums to make way for new low-income housing. Halfway
through the project, the financing dried up, leaving some residents to languish in graffiti-covered concrete skeletons. “Welcome
to Hell,” read one of the tamest messages.
Now the government is debating whether to demolish developments it inherited from the banks it nationalized, and restore
them to green pasture.
A bitter sense of regret punctuates chatter at any Irish bar, where the topic often turns to vilified bankers and politicians,
or the latest jobless figures.
While no one is marching in the streets, the Irish do have a tipping point: Prime Minister Cowen, whose popularity has
plummeted, agreed last week not to cut public wages again in the next budget. Many voters, having experienced the pain of
austerity, are expected to express their anger in the 2012 elections.
“Then,” said Paul Sweeney, economic adviser to the Irish Congress of Trade Unions, “the Irish for once
are going to have their revenge served cold.”
March 29, 2009
Albany Agrees on a Plan to Raise Taxes on Top Earners
Gov. David A. Paterson and leaders of the Legislature have reached a deal to temporarily raise taxes on New York’s highest earners in order
to close the state’s yawning budget deficit, lawmakers and officials involved in the talks said on Saturday.
The new plan, which would expire after three years, would represent the largest state income tax increase in recent history,
significantly larger than the surcharges imposed from 2003 to 2005, when the state last faced a major recession.
The plan would raise $4 billion a year by creating two new tax brackets, the highest one affecting those who earn $500,000
or more. If approved by rank-and-file lawmakers in the Assembly and State Senate, the tax increases would be a major victory
for unions and liberal advocacy groups and a signal of the new balance of power in Albany, where Democrats won control of
both houses of the Legislature and the governor’s office in last year’s election.
Although the proposed tax has been called a “millionaires’ tax,” it would affect those with incomes starting
at $300,000, who would be taxed at a rate of 7.85 percent. The highest bracket would carry a tax rate of 8.97 percent —
the same as New Jersey’s current highest rate.
Officials said that Mr. Paterson, who has argued for months that new income taxes should be a last resort in balancing
the budget, accepted the plan after winning significant spending cuts in areas like health care and education.
Mr. Paterson’s willingness to accept the new taxes reflects, in part, how rapidly the state’s finances are
deteriorating. Since proposing his budget in December, projected tax revenues for the fiscal year beginning April 1 have dropped
by $3.2 billion, while rising Medicaid caseloads will cost $750 million more than originally projected for this year and next year. That shift has left Mr. Paterson
and lawmakers with little choice but to employ every possible mechanism to shrink budget gaps.
But the deal also reflects the leverage held by Sheldon Silver, the powerful Assembly speaker, over both Mr. Paterson, whose public approval ratings are low, and Malcolm A. Smith, the Senate leader, whose 32-to-30 Democratic majority has proved difficult to steer.
Mr. Smith’s conference had hoped for a more radical overhaul of income taxes, one that would have created as many
as nine brackets and raised as much as $5 billion, some of which could have been used to offset property taxes for homeowners
— a major concern for upstate and suburban voters in swing districts. Senate Democrats said Mr. Silver balked at the
idea of using any income tax increase to offset property taxes, and Assembly officials said the Senate’s plan was not
workable and its financial projections were inaccurate.
However, in a concession to Senate Democrats, Mr. Silver agreed to allow the new taxes to be phased out after three years,
rather than the five years he had originally advocated — a time period that would have created enormous political pressure
to maintain the increase indefinitely. In a concession to Mr. Paterson, who favored a simpler structure, the three-bracket
rate favored by Mr. Silver was reduced to two.
“Raising the personal income tax is going to make it harder for New York to recover economically,” said Elizabeth
Lynam, the deputy research director of the Citizens Budget Commission.
Currently, New York’s highest tax rate, 6.85 percent, kicks in for couples and joint filers making more than $40,000.
“It’s a profound breakthrough for tax fairness,” said Dan Cantor, executive director of the Working Families Party. “The era of phony prosperity has ended, and a new era of real shared sacrifice must begin."
Crain's: Tax hike is
textbook politics
Working Families Party rallies popular support, legislative action in Albany
New York's chattering classes are no longer debating whether state income taxes will be jacked up on high
earners. Now the only question is by how much. And the credit-or blame-for successfully framing the debate goes largely to
a minor political party that's starting to have a major impact on state government.
The left-leaning Working Families Party has orchestrated a tax-reform campaign straight from the textbook
of retail politics. Last week, it staged eight simultaneous rallies that drew nearly 100,000 people statewide, including 50,000
at City Hall. It has knocked on 42,000 doors, generating 7,000 handwritten letters to lawmakers. Radio advertisements saturate
the airwaves in Albany. Its YouTube video "highlighting how easy the state's tax system is on millionaires," as a party spokesman
put it, is being watched a thousand times a day.
"It certainly has made a difference," says Assemblyman Jonathan Bing, D-Manhattan, pointing to identical
bills in the Assembly and Senate that would raise rates on people with adjusted gross incomes above $250,000.
Targeting opponents
It is not just the advocacy campaign, Mr. Bing says, but the Working Families Party's ability to oust incumbents
that grabs legislators' attention. Indeed, the party campaigned relentlessly for months before last November's elections to
evict state Senate veterans Serf Maltese and Caesar Trunzo, resulting in the Democratic takeover of the chamber. That, in
turn, has made the tax increase achievable.
The Working Families Party was founded in 1998 by labor unions and liberal groups with the goal of pulling
the Democratic Party to the left. The United Autoworkers, advocacy group Acorn, the Communication Workers of America, the
Laborers Union and Citizen Action were involved from the outset; health care workers union 1199 SEIU and the United Federation
of Teachers joined soon after.
The party secured its own ballot line, on which candidates from other parties can run. New York's unusual
fusion voting system allows votes from different ballot lines to be combined, so Working Families is not relegated to running
"spoiler" candidates, Executive Director Dan Cantor says.
The tax bills will almost certainly be folded into legislation establishing the next state budget, which
is due March 31. Revenue raised by the increased taxes will be used to fund education, health care, and other areas dear to
the party and other members of its "Fair Share Tax Reform" coalition-1199, the UFT and New York State United Teachers, Acorn,
the United Auto Workers, the Communication Workers of America, nonprofit social services providers and others.
"The Wall Street meltdown has permanently knocked several billion dollars out of the core of the state's
tax base, and threatened all of the money that flows to their programs," says E.J. McMahon, director of the Manhattan Institute's
Empire Center for New York State Policy. "They need a permanent replacement for that money."
To appease the more conservative Democrats in the Senate, a compromise is expected. The 10.3% top marginal
rate in the bill, which would tie California's as the nation's highest, could be lowered to 8.97%, matching New Jersey's.
Or the adjusted gross income that triggers a higher rate could be raised to $350,000 or so. But the current rate of 6.85%
on all income over $40,000 appears to be doomed. Once the new rates are part of a state budget agreement between the Legislature
and Gov. David Paterson, their approval will be assured.
"We haven't won anything yet, but I feel like we're winning the debate," says Mr. Cantor, who has run the
party since its creation.
State Sen. Eric Schneiderman, D-Manhattan, who is carrying the bill in the Senate, says: "They've been moving
public opinion. And they have been effectively reaching out to those of us in the Legislature to encourage us-to show that
not only is this the right thing to do, it's the politically popular thing to do."
The opposition has been meek by comparison. A conservative political action committee, New Yorkers for Growth,
started an online petition, and the Real Estate Board of New York put together a group called Taxpayers for an Affordable
New York, which includes the Business Council of New York State. The latter group sent a mailing to 125,000 high-earning households
and launched a Web site that has generated 1,000 e-mail messages to legislators.
Getting message out
The Fair Share site, meanwhile, has generated 25,000 e-mails in addition to arranging the rallies, letters,
commercials and personal meetings with lawmakers.
"They have a system, a very powerful system, for raising money and taking over the airwaves," says Kenneth
Adams, president of the business council. "Millions of average New Yorkers across the state don't have those systems-and frankly,
neither does the business community-to mobilize to oppose this."
Mr. Schneiderman says the Fair Share campaign has tapped into the growing public sentiment that "the redistribution
of wealth to the wealthy went too far." But Mr. McMahon says the Working Families Party and its allies have used "class warfare"
to "create the illusion of a mass movement."
Whatever the case, it's working.
"Lawmakers are very skittish and easily swayed by any sign of organized activity," Mr. McMahon says. "Especially
when there's no sign of organized activity countering it."
Having wealthy pay 'fair share' is center stage at community meeting Gerald McKinstry The Journal News
VALHALLA - Hey rich people, share the pain.
A coalition of civic groups, residents, nonprofits and those who would be affected by Gov. David Paterson's budget cuts
say New York's wealthiest should ante up to help close the state's budget deficit.
Dozens of people turned out tonight to protest those cuts, ask questions about how they'll be affected and learn more about
a movement that wants "Fair Share Tax Reform."
It's not quite the so-called "millionaires tax" because the plan calls for raising taxes on those earning $250,000 a year
or more.
"That budget (deficit) shouldn't be solved by cuts and services that affect low- and moderate-income people," said David
Schwartz, vice chair of the Working Families Party of Westchester and Putnam counties. "You can't solve the problem by simply
making budget cuts. ... Everybody is going to have to bite the bullet in this economic climate. It's sharing the sacrifice."
The way Schwartz and other reform advocates see it, Paterson's budget cuts and new fees on sugary sodas, haircuts, movies
and the like unfairly target the poor and middle class.
"These are taxes that impact working people and not wealthy people," Schwartz said.
Because the tax rate is now 6.85 percent for all incomes, upping it incrementally for people earning $250,000 or more,
would generate $6 billion more to help bridge the state's projected gap, he said.
The meeting featured several speakers and a question-and-answer session with two state legislators - Sen. Suzi Oppenheimer,
D-Mamaroneck, and Assemblyman George Latimer, D-Rye.
It also broached how the governor's proposed cuts would affect health care, education, housing, social services, welfare
and other areas. It was sponsored by WestHELP, Mount Vernon United Tenants, Working Families Party and Hunger Action Network
of New York State. Pat Gray, of West HELP, moderated the evening.
"It's penny-wise, pound foolish," Dennis Hanratty, executive director of Mount Vernon United Tenant, said of the governor's
budget and its cuts to advocacy, tenant protection and homeless prevention programs. "People would much prefer to live on
their own, rather than in shelter. We should work on that. ... If we lose money, there's going to be a lot of homeless people."
Hanratty said it was far cheaper for nonprofit advocacy groups such as his to assist tenants rather than having tax-payers
pay for shelters.
Democrats Discussing Yet Another Minimum Wage Increase
Just days after the first minimum wage increase in ten years, democrats are discussing
yet another increase.
Senator Edward Kennedy announced this week his intention to propose a legislation for another
increase to $9.50 an hour. The proposal will aim to take effect in 2009. The Fair Minimum Wage Act of 2007 raised the federal
minimum amount to $5.85 up from $5.15. It also boosts the pay to $6.55 next year and $7.25 in 2009.
WHITE PLAINS - A federal judge has blocked this month's election for trustees in Port Chester, citing evidence that its
at-large system discriminates against Hispanics.
Judge Stephen Robinson took the unusual step by granting a preliminary injunction requested by the Justice Department,
ending a trial scheduled for this spring. He said he based his decision on the likelihood that the government would win the
trial, and that holding the March 20 election in Port Chester would cause "irreparable harm" to Hispanics.
There was no immediate word on whether Port Chester would appeal. The village scheduled a Saturday morning meeting of its
board "to consider the options," said spokesman Aldo Vitagliano.
The lawsuit against Port Chester was filed by the Justice Department in December. It alleged that allowing the entire village
to vote for each of six trustees diluted the influence of the growing Hispanic population, now nearing 50 percent in the village
of 28,000.
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We feel Portchester officials should face the reality of the situation and settle with the community.
It is just a matter of time and it would save the taxpayers so much money. Not to mention it is the most democratic
way to proceed. Every effort should be made to include all people in the democratic process.
Patrick Welsh (left) and Dave Schwartz (right) Meet with New Yonkers City Council President
Steering Committee Members, Deborah, Nadine and Darlene with Chuck Lesnick.
WFP Puts Chuck Lesnick Over the Top
Chuck Lesnick won the President of the Yonkers City Council in a close race with the WFP line giving him the
margin of victory. Chuck, a Democrat, defeated 10 year incumbent Richard Martinelli and pushed the Democrats to a majority
in the council for the first time in many years.
True to our purpose, we now expect big things from Chuck. Affordable housing and increase funding for
education are certainly on the priority list. Repairing the education system starts with a fair contract for the Yonkers'
teachers. But also, Chuck could be the leader in bringing back integrity to Yonkers' government which has deteriorated
to obvious nepotism and corruption.
Chuck Lesnick is an example of the WFP's use of fusion. Pick good candidates, help them get elected
and then hold them to our issues. Chuck certainly has his work cut out for him, we do not expect miracles, but we are ready
to work with Chuck and the rest of the Yonkers' City Council to help the fourth largest city in the state live up to
its potential.
