Saturday 24 March 2018

Richard Curran: The national debt bogeyman hasn’t gone away, you know

Back in 1985, when Garret FitzGerald was Taoiseach, Ireland spent 35pc of everything raised in taxes on interest payments to the national debt. Today we pay 18pc — but it’s still far too much Photo: Camera Press
Back in 1985, when Garret FitzGerald was Taoiseach, Ireland spent 35pc of everything raised in taxes on interest payments to the national debt. Today we pay 18pc — but it’s still far too much Photo: Camera Press
Richard Curran

Richard Curran

Despite the economic bullishness of our recent general election campaign, with an expanding “fiscal space”, we were reminded of a very simple truth during the week: Ireland has the second-highest national debt per head of any country in the world.

Our economy may be growing. The size of our national debt compared to the size of our economy may be moving in a positive direction. But we still owe around €213bn or just over €43,000 per person.

That is more per head than the US, Argentina or Greece.

Back in the depths of our economic malaise in the 1980s, I remember learning in economics class in school that every man, woman and child owed about IR£4,500 through the national debt. Coming from a pretty big family, I was wondering at the time if someone would arrive at the door and try to collect it from us.

The situation now is not nearly as bad as it was then. Back then, the debts were lower, but our ability to service that debt was a lot weaker. Back in 1985, Ireland spent 35pc of all of the tax it collected paying the interest on the national debt.

Today, that figure is about 18pc. It is still far too high, at nearly one in every five euro paid in tax. We are also paying a higher average rate of interest than our EU colleagues do — with ours averaging 3.3pc and the EU averaging 2.2pc. This is another leftover from the Troika bailout deal, which ripped us off nicely on rates.

The scale of our debt leaves no room for complacency. Our debt-to-GDP ratio is improving at a rapid speed, but only because of very positive GDP growth figures in 2015, which may neither stand up to scrutiny, nor continue over the next few years.

It’s a bit like an individual having large personal borrowings on credit cards, personal loans, overdraft etc. Instead of focusing on paying down the debt, he gets complacent because he gets a pay rise. The debt looks more affordable — but it isn’t being paid down.

Goodbody economist Dermot O’Leary put it nicely during the week when he said a lower debt-to-GDP ratio helps from “an aesthetic perspective”.

Our interest bill is about €7bn per year, greater than all of the corporation tax paid by every single business in Ireland last year.

Figures from the Irish Strategic Investment Fund have shown that it recouped around €6.4bn of the €20.4bn it put into bailing out AIB and Bank of Ireland.

The total cost of bailing out the banks was around €64bn. Some has come back from the sale of shares, fees and charges for the State guarantee — but the net loss is still expected to be around €32bn.

That will just sit on our debt.

The National Pension Reserve Fund was raided to the tune of €20bn during the crisis, leaving a massive financial black hole when it comes to financing future state pension needs — the original intended use for the money in the fund.

The national debt was once the national obsession. It was even the great bogeyman of the 1980s. A few good years of GDP growth should not shift the focus away from it.

Not only has it not gone away. In real money terms, it is still getting bigger.


Paddy Power executives all hold winning dockets

Andy McCue has decided to move on from his role as chief operating officer at the merged Paddy Power Betfair Group, having announced that he will leave the bookies in April.

McCue has done a hell of a job for the group during his 10 years with Paddy Power. He built up and ran the UK retail division, which has 300 shops (they are the most profitable per shop in the industry).

He was a well-paid chief executive of Paddy Power; since taking the top job at the start of 2015, he earned a salary of around €700,000. Breon Corcoran, head of Betfair, got the top job at the merged entity and clearly McCue wants to do something else.

The company was aware of the importance of retaining McCue and that he should not be side-lined in any way on becoming chief operating officer. Under the terms of the merger deal, his salary and pension benefits were to be no less than they had been when he was CEO of Paddy Power. And if after 12 months he had reasonable grounds to believe there had been an unacceptable diminution of his duties since becoming COO, he would be entitled to two and-a-half years’ salary.

Instead, McCue seems happy to move on, and one wonders what kind of new venture or job he has up his sleeve.

He was on a very nice remuneration package as COO and stood to earn around €2m this year in salary, bonus and shares if the group meets targets. His shares in the group are worth around €2.5m and his options are worth around €4.7m.

It’s a nice position to be in — but it is dwarfed by the financial position his predecessor Patrick Kennedy and his successor Breon Corcoran find themselves in.

Assuming Kennedy hasn’t sold shares since he left, his stake is worth around €55m and he would have bagged a total of €5.1m in special dividends and ordinary dividends over the last 18 months.

Corcoran landed a great package when he left Paddy Power to join Betfair as chief executive. He has re-joined the enlarged Paddy Power group as CEO and has shares worth around €16.5m, having cashed in €5.2m worth just two weeks ago.

The real megabucks shareholdings are with founders David Power, John Corcoran and Stewart Kenny. Power has sold the least number of shares — and since 2013 alone he has collected €45m from dividends, special distributions and merger dividends. His remaining stake is worth around €440m.


Boris’s Little England bluster on Brexit deflates

Mayor of London Boris Johnson was spectacularly ambushed at a British parliamentary committee hearing on Brexit during the week. The most senior Tory advocating a Brexit was intellectually ill-equipped when he came up against committee chairman Andrew Tyrie.

He spoofed at length about how the hearing was going on longer than an EU fisheries meeting. He complained about EU bureaucracy, which had prevented children under the age of eight from blowing up balloons and directives that meant councils were unable to recycle teabags.

“This is all very interesting, Boris,” said Mr Tyrie. “Except none of it is really true, is it?” was the response.

Tyrie pointed out that no such balloon directive existed and a British council had requested the teabag recycling ban.

Tyrie knew the examples Johnson would bring up and blew him out of the water.

The Brexit camp appears to be losing every single economic argument about the UK leaving the EU. Unfortunately, they may win the argument — but not the referendum.

Economic arguments will not carry much weight with a huge swathe of British voters whose primary concern is migration.

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