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The great jobs initiative hoax

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Finance Minister Michael Noonan at the Jobs Initiative announcement in Dublin last week.
This column comes to you from a city in lock down.  There are crowd control barriers across the center of Dublin, traffic is being diverted, and there are Gardai (police) everywhere.  

By the time you read this the reason for the security clampdown will be here. And no, it's not another IMF delegation sweeping into town in a motorcade to issue orders.

In fact the Queen arrived on Tuesday afternoon for her historic three-day visit.  We will be analyzing the significance of the royal visit on this page next week. 

My prediction is that all those crowd control measures will turn out to be unnecessary because there won't be enough people out to throng the streets to the point where barriers are actually needed.  No one seems to be that interested.  

Now, if it was Kate Middleton (or even better, Pippa) it might be different.  But let's face it, the Queen is like anyone's granny, except that she always dresses like she's going to a wedding. 

So no one is excited, and don't expect any thronging of the streets here this week.  We'll take her to see the horses on a few stud farms, and we'll be polite to her at a few major events and gala dinners.   But that's about it.   We've too many problems at the moment to have time for a distraction like this.    

In the real world, one of the main worries concerning a lot of people here right now is the government raid on private pension funds to pay for the so-called Jobs Initiative program announced last week. You will remember that the Jobs Initiative was a major plank in the Fine Gael election platform, promising radical action to tackle the huge number of people out of work. 

I did point out at the time that since we had no money and we can't borrow any money, it was unlikely to be quite as radical or extensive as Fine Gael were saying.

Well, last week we discovered the reality.  The great Jobs Initiative, which just a few weeks ago was being announced like something as magnificent as one of Chairman Mao's Five-Year Plans, turned out to be a bit of a hoax.  The reality is very pedestrian. 

And guess what? The reason is there's no money to spend on new projects.   Anything we do, the government admitted, has to be budget neutral. 

The Jobs Initiative plan was presented to the Dail (Parliament) last week by Minister for Finance Michael Noonan and Taoiseach (Prime Minister) Enda Kenny.  The aim, we were told, is to stimulate economic growth.

We have around 430,000 people out of work at the moment, and the plan aims to get 100,000 of them back into jobs over the next four years, or 25,000 a year.  

Now we all know that a government -- any government -- can't actually create jobs, unless they are jobs that are paid for by someone else's taxes in the real economy.  And we don't have any money left to spend here on big new state infrastructural projects, and we can't borrow money to do that either.

So the government is depending on the private sector to produce extra jobs, and the Jobs Initiative is a series of measures designed to stimulate the real economy in which real businesses make products and services that have a market and are not paid for by someone else's taxes.  

Despite this, Noonan did say that the initiative would quickly provide 6,000 new jobs in “shovel-ready” state construction projects, including badly needed road repairs.  But the government later admitted that this would be funded by shifting around or delaying other state infrastructure plans.   

So there's a bit of three-card trick stuff going on here, although in fairness the aim seems to be to get the bang for the bucks much faster than had been planned before. 

The main stimulants for the private sector where most of the jobs are to come are things like sales tax reductions in targeted areas which are labor intensive.  So the lower sales tax rate will fall from 13.5% to 9% for restaurant meals, hotel stays, entertainment and even sports match tickets. 

This is aimed at increasing tourism, an area where there has been a sharp decline recently.  Tourist numbers from Britain are down by almost half over the last few years, for example, and if we can get that business back it would mean a significant jump in jobs in the sector. 

Also aimed at giving tourism jobs a boost is the government's announcement of a new visa scheme to allow non-EU tourists visiting Britain to come here for 14 days with no visa requirement.  The target groups are the large numbers of Chinese and Indian tourists (and those from other emerging countries) who now visit London in their millions, with even more expected for the upcoming Olympic games.

The idea is that their British visa will be accepted here as well, and a campaign will be mounted to get as many of them as possible to come over here for a few days while on a trip to the U.K. 
Some of this makes a lot of sense, and it's possible that it will be successful and boost jobs here. 

Another part of the initiative is actually an upskilling plan designed to get more people who have lost their jobs into educational programs to give them the new skills that will be in demand as soon as today's depressed Irish economy starts to recover.   It includes an internship placement program for graduates. 

But of course these educational programs are no substitute for real jobs, even if they do get people off the jobless statistics and make the government look better.   The experience with these training programs up to now is that they do little to increase someone's chances of getting a real job.

All told, the Jobs Initiative announced last week was a bit of a damp squib.  Some people even dismissed it as a hoax.  It might have been ignored altogether, but in fact there was an overwhelming reaction to it -- of anger and outrage.

This had nothing to do with whether it would really create real jobs or not.  It was all about how the initiative, which is to cost over €2 billion over the next four years, is to be funded.  

And that is where the real sting in the tail came.  Bear in mind what I was saying about the IMF/EU insisting that the initiative would have to be budget neutral -- in other words, any extra spending has to be matched by extra taxation or cuts in state spending elsewhere. 

To pay the bill for the initiative that may or may not produce any real jobs, Noonan announced last week that he was immediately introducing a 0.6% annual levy on private pensions, and it would stay in place for the next four years.   It will bring in ****470 million euro a year at least. 

This was a real cheap shot by Noonan aimed once again at the coping classes, the people who work hard, pay their bills and their taxes and save to build up a fund to finance a private pension for themselves in retirement.  In other words, responsible people who do their best to pay their own way and not to be a burden on the state.

There are a lot of people involved in this, about half the private sector workforce.  They save and invest in a private pension so that they will have their own pension to top up what they get from the state pension, which they have also been paying into, of course, through a compulsory income tax add-on called Pay Related Social Insurance.

The pensions levy was clever because it avoided tax hikes, welfare cuts or reductions in frontline public services, any of which would have caused an outcry.  It appeared to have no immediate effect that you could feel. 

But of course it will have an effect in the long run adding up to over a 2% cut in the pension funds of individuals over the next four years.  And that will reduce the pensions people get when they retire. 

The government tried to justify this on the basis that everyone must make a contribution, and that people who save for pensions had got tax breaks because you could put money into a pension without paying income tax on it.  They were just taking a little of this tax break back, the government said. 

This is horse manure, of course, because although in the past you didn't pay income tax on income that went into pension contributions, you do pay tax on the income you have when you start to draw on the pension after you retire.  

The other obvious point is that pension funds have collapsed with the stock market, and in spite of the recent partial recovery in the global economy most of them are still down 40-50%.  So applying a levy to them is like kicking a man when he is not only down, but half dead.

That's not the only reason people here are mad about the levy, however.  Soon people woke up to the fact that it was called a private pensions levy because it applied to private sector workers only, not to state workers. 

The reason for this, the government said, is that state workers have already been hit with pension levies.  

But this was more horse manure, because not only are the contributions that state workers make to their generous pensions still very low in comparison to private sector workers, but the guaranteed pensions that state workers get are huge in comparison with what private sector pension funds now produce.   

If state workers were forced to pay the full market cost of funding their pensions, they would be paying three times what they are paying now.  Yet this new levy will not apply to them!

To make matters even worse for the government, it also emerged that company directors and others who pay into Approved Retirement Funds (ARFs) -- a kind of pension scheme for the better off in the private sector -- would also be exempt from the new levy.  

So the only guys who will be paying the new levy will be Joe and Josephine Average, the typical middle income, middle class people with a job in a private company with a pension plan for its employees. But there are tens of thousands of average citizens and they are easy targets for this government, which is why they are being hit.

The state workers, in contrast, are unionized and militant and they fight to hold on to what they have, no matter how unfair that is to everyone else. 

So the government -- and in particular the Labor side of the government -- is afraid to touch them and hits the private sector workers instead.

One effect of all this has been to shatter whatever illusion there was left that this new government might make courageous decisions in the struggle for the survival of the Irish economy.   

This episode has revealed the truth -- they're just as spineless as the last government.

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