Saturday 18 January 2020

Dan White: A Romney win would've been better for Irish

Dan White

BARACK Obama's success in winning a second term as US president was widely welcomed on this side of the Atlantic. But, with US taxes now set to rise, would this country have done better under a Romney presidency?

With his soaring rhetoric and rock star charisma, President Obama was always going to be a more attractive candidate than the buttoned-up private equity ("asset stripper" to his opponents) veteran Mitt Romney. Following the excesses of the Bush years, it will be a very long time before the rest of the world gives a Republican presidential candidate a fair crack of the whip.

Which is a pity. While Governor Romney may have lacked the star quality of his rival, the odds are that he would have made a pretty decent president. His record, first at Bain Capital and then as the person who rescued the 2002 Salt Lake City Winter Olympics before going on to serve as governor of Massachusetts between 2003 and 2007, was that of someone who was good at solving problems and working with his political opponents.

Now that President Obama has been re-elected and his Democratic Party has increased its Senate majority, stand by for tax increases Stateside. The probable template is the 2010 report of the Simpson-Bowles Commission, which proposed narrowing the US budget deficit through a mixture of spending cuts and tax increases, with the rebalancing skewed 3:1 in favour of cuts.

After campaigning against any and all tax increases, accepting at least some increases will be a bitter pill for the Republicans to swallow. Fortunately Simpson-Bowles proposes a possible way to spare some of their blushes. At present, the US corporate tax rate of 35 per cent is one of the highest in the industrialised world. Simpson-Bowles proposed cutting it to 26 per cent.

However, a second Obama administration would surely demand a trade-off for any cut in business tax rates. That trade-off is most likely to be a serious clamp-down on the use of offshore tax havens by American companies to reduce their overall tax bills.

Which, of course, is where we come in. Even during the depths of the worst economic downturn for over 80 years, this country has continued to attract overseas, mainly US, companies here.

While it would have been pretty much business as usual for Ireland under a Romney presidency, the second Obama administration will have this country firmly in its sights as it cracks down on offshore tax havens.

Burlington sale points to €5bn black hole in hotels

THE sale of the Burlington Hotel, which is set to be sold for €70m, is bad news for the banks

If the Burlo is sold for anything like this, the banks will almost certainly have to write off an even greater proportion of the €6.7bn they've lent to the hotel sector than had previously been feared.

Last week it was reported that the Burlington, for which Bernard McNamara paid €288m back in 2007, was close to being sold once again. Front-runner is US private equity group Blackstone, which has bid close to €70m -- a massive 76 per cent write-down on the price five years ago.

Which raises the obvious question: if a well-located hotel with a thriving trade has lost over three-quarters of its value, then what are the less well-located hotels that sprung up in the Celtic Tiger era now worth?

Not an awful lot.

In a report for the Irish Hotels Federation published last month, economist Alan Ahearne calculated that the Irish hotel sector owed a total of €6.7bn and that €2.5bn (37 per cent) of this debt needed restructuring.

The likely Burlington sale indicates that Dr Ahearne was way too optimistic.

By applying a 76 per cent haircut to total hotel bank debt, we get a total figure for likely losses of €5.1bn. Clearly the banks are going to suffer far more pain before they can finally check out of these hotels.

Inflation's two-tier economy

THE most recent figures from the CSO, which showed prices rose by just 1.2 per cent in the year to October, reveal that outside the public sector, domestic prices are flat or falling.

Over the past year the price of food, clothing and footwear, restaurants and hotels rose just 1 per cent, the cost of communications fell by 1.2 per cent and that of furnishings and home equipment by 2.7 per cent. It was, however, a different story in the public sector, with education costs up by a hefty 6.7 per cent.

In Ireland's two-tier domestic economy the public sector can still push up its prices to mask its inefficiency while those of us in the private sector continue to be mercilessly squeezed.

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