Pat Byrne: Forget politics, here are 10 things to help us all
For economic recovery, consumers must start spending and our businesses must have funding
Published 09/12/2012 | 05:00
I am not an aspiring politician but an Irishman deeply concerned at what is happening in my country, and like many other busy people caught up in the everyday challenge of trying to make things work in 'our own world', I am growing increasingly upset by a lack of action to tackle basic issues that continue to drag down the domestic economy and create an unhealthy division within our society.
Of course there is a better and decent way of dealing with the problems that afflict 'the middle', but the problem is we don't do protest very well in Ireland, though we're brilliant at doing blind acceptance. However, a mobilised and articulate Middle Ireland commands voting power, which is the only currency politicians understand, and after last week's Budget they need to be reminded once again, how much we have been utterly failed by a party political system that has been exposed for the time-warped dinosaur it is.
There are two very basic problems with the domestic economy, a catastrophic lack of money in circulation and the lack of sufficient bank funding to help businesses withstand this dramatic drop in activity. Banks don't do charity and won't lend until they see an improvement in the 'ability to repay' from business customers, who depend on their customers to oil the engine. The lack of cash doing the rounds is due to a very large section of every local community having little or no money to spend after discharging their domestic bills, living expenses and mortgage repayments. Discretionary spending power for many is something they even find hard to remember.
The second block to spending is a deep-rooted fear which comes from a total loss of confidence. Despite record levels of savings, these people are reluctant to part with cash locally because they are uncertain of their futures.
We need to take a number of steps to overcome these blocks.
'Save as you Spend' – shoppers VAT rebate scheme
This can be based on you, the shopper, getting back 25 per cent of all VAT you will be charged on your purchases over the next three years. The more people spend, the higher the overall take for the VAT man so the refund in itself will become largely self-funding and have a positive effect on employment.
Yes, it would be far easier just to lower the VAT rate but the Department of Finance chooses to ignore the historic, universal data which proves that every time you lower the tax rate you increase the tax take. The logistics/processes/IT etc on this can be worked out.
Personal property bond
The second spending fix is for the very large number of people who are still in employment but barely 'economically alive'. These people make up the tax-generating and tax-paying engine that keeps everything going. They are the economically paralysed who bear a personal debt burden which they will probably never shed unless something happens. With such a large number of people, who are technically termed as 'economically alive' but in reality are 'economically paralysed', our domestic economy continues to be a 'dead man walking'.
Maintaining the pretence that the debts of many of Middle Ireland's households are sustainable and that eventually things will work out for the banks and the borrowers is naive. Just like in business and just like what happened with our banks, there needs to be a recalibration of debt for these people. Businesses that get into trouble have the facility of restructuring by going into examinership. Such mechanisms are designed to recalibrate and get entities that have demonstrable potential to get back in business. Huge numbers of Middle Ireland households are indeed potentially viable, and must be afforded the opportunity to also recalibrate their finances to enable them to fulfil their potential for the sake of their families, themselves and the nation.
We need these Middle Ireland householders to get back in the game. The banks actually need to get these people back in the game. The domestic economy, most desperately of all, needs these people back in the spending game.
A personal property bond, funded by Irish pension funds and other Irish investors, to compete with the foreign-owned debt purchasing firms now actively purchasing tranches of Irish-property-based loans from banks, at significant discounts, is the solution. This personal property bond could acquire a book of mortgage loans from a bank at a discount of say 35 per cent of the value of the outstanding balances. The property bond entity will then invite each mortgage holder to purchase their own loan back at, say, a discount of 25 per cent. To finance the purchase of their own mortgage or loan, the property bond entity will grant a fresh mortgage to the borrower (subject to credit-worthiness, etc) and in effect this will mean a much lower monthly outflow for the household as the mortgage balance is now only 75 per cent of what it was with the bank. This 'liberated' cash will fuel the local economy. Refinancing of mortgages is going to happen anyway. All I am advocating is we bring it forward on an organised and mass scale, make it real and keep it Irish.
End the big lie that we can afford Croke Park
The ATM for public servants to which Joe O'Toole made such a legendary reference can't continue to be restocked at the expense of the private middle sector who generate the bulk of the tax that feeds the machine.
The Fianna Fail government swallowed the line that keeping public servants off the streets and out of of high-visibility protests was critical in keeping up the big lie that 'Ireland can take' whatever extreme measures of austerity are asked of us as Europe's 'best boy in class'. The price of 'buying street peace' has been insanely high, and is perpetuated by the Labour Party, which has embraced this instrument of national divide.
Croke Park makes it harder to balance the books, and remains a massive impediment to getting resolution on Ireland's sovereign-versus-bank-debt debate, while our higher civil servants and politicians continue to be paid on the basis of an enormous premium compared to their EU counterparts.
Very specific surgical strikes need to be made on Croke Park through the invoking of the 'inability to pay' clause, which this Government pretends to forget is enshrined in this wretched agreement. Take the knife and cut ridiculous allowances, suspend incremental payments and redress the inequity of public sector pensions.
Simplify the personal tax code
Abolish all forms of tax credits, allowances and exemptions. Personal income tax should be paid at a stepped level that increases with earnings.
Abolish tax shelters
Eliminate by statute all tax shelters, with the exception of pension contributions, EIS investment in bone fide job enterprises that sustain employment, and health insurance contributions.
Public sector pensions reform
Remove the public sector pensions levy and introduce a 'benefit-in-kind' (BIK) personal income tax charge based on an additional notional 20 per cent of salary, which in effect means public servants would be taxed as if they had received an additional 20 per cent in salary. Alternatively, public servants would be allowed 'opt-out', whereby they would avoid the BIK, and their pension entitlement would be based on defined benefit up to the point of opt-out and all further benefits would accrue on the basis of a market invested defined contributions basis, as pertains for the majority of those in the private sector.
On the basis of a public tender competition, enter into a 30-year PPP management contract with a leading global health care agency to take over the management of our public health services. Phase out the HSE over five years.
Enlarge the Army
Increase the size of the army and offer 20,000 young people with no jobs the opportunity of a short-service contract in the military, become productive, develop skills and recover their esteem. Train loads more pilots and engineers in the Air Corps on short-service commissions and encourage the aviation industry to invest in the future of high standards in commercial air safety.
Tell the Government to get tough
Tell this Government to inject some steel into its negotiation style on the separation of bank debt from the sovereign. There is no better time to loudly declare we're done with being Europe's 'teacher's pet' than during Enda's presidency of the EU and ahead of the March payment of €3.1bn to the bust bank, IBRC.
Decide on action
There are a growing number of Irish people who want Action not Politics. Decide if you are one of them.
Pat Byrne is founder and current chairman of Cityjet and CEO of Rainmaker Business Technologies