Tacking the two crises facing government

A Submission to the Irish Government From the Members of the Environmental Pillar 16th March 2009

1

Tackling the Two Crises

Facing the Government

A Submission to the Irish Government From the Members of the Environmental Pillar

16th March 2009


2

Contents

1.0 Introduction 3

1.1 Towards a truly Sustainable Society 3

1.2 Resilience 4

1.3 Objectives 4

2.0 Proposed Measures 6

2.1 Taxation 6

2.1.1 Tax and Share 6

2.1.2 Land Value Tax 7

2.1.3 Taxes on environmental “bads” 7

2.1.4 Water Service Charges 8

2.2 Reduction of recurring expenditure 8

2.2.1 Income tax relief 8

2.2.2 Public Private Partnerships (PPPs) 8

2.2.3 Rationalisation of the National Development Plan 8

2.3 Local and sustainable food procurement policies for all

public authorities.

9

2.4 The Financial System 9

2.5 Air Travel 9

3.0 Promote and protect employment and volunteering 10

3.1 Social Capital and Social Inclusion 10

3.2 Special Emergency Employment Scheme 10

3.3 A major Drive to Insulate 1 Million Homes 10

4.0 Specific measures 12

4.1 Cost cutting 12

4.2 Revenue Generation 14

5.0 Glossary 15


3

1.0 Introduction

The rapidly collapsing world economy and Ireland’s particular condition within it present profound and immediate challenges both to the Irish Government and the Irish people. In addition, with our national focus on crisis management we are failing to engage with the near-to-medium term risks of an energy-induced systemic crisis that will dwarf the current economic crisis in both consequences and complexity. In the meantime, the risks associated with climate change are rising, and at the same time our effort to manage those risks is under increasing strain. There are then two crises facing the government. This submission attempts to address these looming and overarching risks to our future as a stable society with a functioning economy based on sustainable practice. This requires a deep rooted understanding that the concept of an unrestricted growth economy is what has got us into this predicament, and only by moving to a sustainable1 model based on an ecosystem management approach2 can we have hope for the future. You cannot fix a problem using the very tools that caused the problem in the first place.

1.1. Towards a truly Sustainable Society

Short term measures to stabilise the economy by perpetuating the current global economic model are failing due to an inherent fault in this model. This can be summarised as follows:

• The current economic model is one in which finance is based on debt and interest payment on this debt. • Servicing this debt requires a continuous expansion or growth of the economy. • All economic activity is ultimately based on extraction and manipulation of natural resources for raw materials and energy. • Since we live on a finite planet with finite resources, infinite growth that surpasses the resources of a finite planet cannot be maintained and it is therefore a matter of ‘when’ and not ‘if’ the current model fails. A model

1 Sustainable development is maintaining a delicate balance between the human need to improve

lifestyles and feeling of well-being on the one hand, whilst preserving natural resources and ecosystems, on which we and future generations depend. "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs" Bruntland definition 2 An approach to natural resource management which aims to sustain ecosystems (see glossary on page 15) to meet both ecological and human needs in the future


4

based on unrestricted economic growth that relies on the depletion of our natural capital and threatens our ecosystem services3 is just not sustainable. • Given that we are approaching oil and gas peak it would appear that we have entered into the inevitable contraction of our growth economy.

The only feasible response is to move to a ’steady-state economy’. This will be based on non debt-based currencies (see glossary page 15) and renewable fuel sources. Radical times require radical solutions and the signatories to this submission urge the Government to take a strategic look at the problem from a global systemic perspective. Much work has been and is being done on models for sustainable economics. This document outlines some of these models and makes concrete suggestions as to how to proceed.

1.2 Resilience

Our economy needs to focus strongly on creating resilience to outside forces of global change. In this context the budget must support sustainable management of our natural resources to strengthen food and energy security and mitigate the impacts of climate change. Fundamental to this is the need to employ for example land use grants to promote carbon sequestration, sustainable forestry and farming, flood mitigation and indigenous food production. By protecting our terrestrial and marine natural infrastructure jobs will be created, imports reduced, energy saved, and the economy strengthened for both the long and short term.

1.3 Objectives

This submission contains both short term and long term proposals. Some of the proposals presented will require a good deal of practical preparation and others much less. The overall objective is to present realistic alternative models to our current disastrous way of running our economy. The development of these models will require the Social Partners working together with Government and the wider society. In some cases the models are not fully formed but are intended to initiate the debate, in others all that is required is the political will to implement them. In this submission we propose prescient, adaptive, and resilient policy that serves the following objectives: 1.3.1 Common Purpose

The proposals recognise that in times of increasing social stress there is need for policy that cultivates social cohesion and common purpose through fairness and transparency. There is an understanding here that whilst economic stability is essential, the development of sustainable communities

3 The benefits people obtain from ecosystems. These include provisioning services such as food and water; regulating services such as flood and disease control; cultural services such as spiritual, recreational, and cultural benefits; and supporting services such as nutrient cycling that maintain the conditions for life on Earth.


5

where people have a good quality of life should be the central aim of the policy. 1.3.2 Security

The proposals aim to support human security in all its facets, including economic, physical, and environmental. A creative vibrant society needs all these aspects to be protected. 1.3.3 Realism about Ecological Limits The proposals acknowledge that human welfare, the economy and civilisation, are on the cusp of major change arising from the unsustainable use of environmental resources and sinks upon which they depend.


6

2.0 Proposed Measures

The measures below are proposed as part of an integrated whole, with crossover checks and balances between the different mechanisms.

2.1 Taxation

In general what is needed is a shift from taxes on income and profits to tax on consumption of natural resources. Where taxes are applied they must be progressive and just. Any new taxation should not be based on cyclical sectors of the economy that leave the exchequer vulnerable.

2.1.1 Tax and Share

This mechanism involves taxing carbon entering the country, and dividing the income two ways, a percentage going to each of:

� A flat level dividend to every person in the state � Investing in the transition to a low carbon economy

This system rewards those that use the least carbon, is largely beneficial to urban dwellers and promotes public transport use. It is easy to administer as there are only a small number of energy importers, as is the distribution of a flat rate benefit. This will also help to achieve our climate change goals and reduce any requirements to pay for not meeting our Kyoto targets. In the longer term as both the use and cost of carbon begin to rise, a national and gradually decreasing cap would be placed on the importation of carbon. This would have the effect of increasing energy efficiencies, promoting alternative energy systems and through the “cap and share” 4 mechanism protecting the fuel poor and rewarding those that reduce their use of fossil fuels. The sharing of the income from both ‘tax and share’ and ‘cap and share’ will enable a buy in of the public to the higher fuel prices that would result. As low carbon users tend to be poorer it is very likely that they will spend the revenue straight back into the economy. Mechanisms for distribution of the dividends are being explored and will be presented later. That said the simplest mechanism would appear to be the issuing of an annual cheque/voucher that is cashable through a bank or post office to everyone with a PPS number.

2.1.2 Land Value Tax

The introduction of an annual Land Value Tax (LVT) at the earliest opportunity is essential to the long-term well-being and control of our land usage. It is also a revenue resource that is fair, transparent and reliable. It will however

4 http://www.feasta.org/documents/energy/Cap-and-Share-May08-summary.htm


7

require considerable research to set up a register of land ownership, and so would have a lead in time of about one year, given the political will.5 The precipitous loss of revenue from the transaction-based taxes in the downturn has created an urgent need for a sustainable replacement that will not impede productive investment and economic recovery. Only annual land value tax has the potential to deliver this result. This will be based on higher taxation linked to the provision of greater public services. Most taxes distort economic decisions.6 If labour, buildings or machinery and plants are taxed, people are dissuaded from constructive activities, and enterprise and efficiency are penalised due to the excess burden of taxation. This does not apply to LVT, which is payable regardless of whether or how well the land is actually used. Because the supply of land is inelastic, market land rents depend on what tenants are prepared to pay rather than on the expenses of landlords, and so LVT cannot be passed on to tenants.7 Transaction taxes such as stamp duties, VAT and sales taxes inhibit proper market functioning; are an inducement to the grey economy and should be phased out and replaced with annual land taxes. LVT could immediately raise desperately needed revenue for local authorities to provide energy, waste, educational and transport infrastructure for local communities. It would also reduce pressure on elected representatives to over-zone or rezone prematurely for development. LVT is based on the value of land, depending on parameters such as type, zoning, location, and connectivity. Thus the LVT on a Dublin 4 detached house would be high and that applied to a rural dwelling with no services would be low. Owner-occupants of a multi-story residence in a town or city would divide the LVT between them. In this way increased residential densities are encouraged whilst rural dwellers are not penalised.

2.1.3 Taxes on environmental “bads”

The acceptance of taxation for carbon emissions sets the scene for the introduction of a range of taxation measures that will lead ultimately to serious savings for society and improvements in the quality of life, as well as the creation of a revenue stream for government. These should include taxes on:

• All products that cannot be fully and easily recycled. • Pollutants emitted from industrial facilities and on emissions from mobile

telephone masts. This may reduce long term health costs. • PVC, polystyrene and plastic in food packaging as these all have serious

health implications as endocrine disruptors. • toxic chemicals, including pesticides and herbicides • All one-way drinks containers. The recycling industry is slowing down

due to lack of demand, and even if it wasn’t we should be moving to 5 A cadastre (register of the extent, value and ownership of land) should be immediately developed as required by the UN CSD 16 and the EU INSPIRE Directive. All property should be registered according to fixed GIS locations; all transactions notified to a central resource; inputted into real time land value map to assist market functioning, prevent fraud, planning corruption and establish the basis for annual land value taxes. 6 Coughlin (1999) p.263-4 7 Adam Smith, The Wealth of Nations Book V, Chapter 2,


8

long-life reusable containers as soon as possible. • Excessive packaging of products. This will be a difficult measure to put

in place but one that merits attention at the EU level. • All food additives that have little or no food value but are known to

cause obesity and other medical conditions.

It is essential that we initiate more stringent polluter pays policies across the whole economy. It will broaden the tax base, help put the public finances on sound footing for the longer term, and begin the process of shifting taxation from goods (such as paid work) to bads (such as resource use and pollution). Just how much has the ‘pig crisis’ cost the country in cash and reputation?

2.1.4 Water Service Charges

These are essential to fund the necessary infrastructure work on water services as well as to curtail the levels of wastage. There should be no charge for per-capita consumption below a certain cut-off, and then progressive charging above that level. It costs the taxpayer €650/ year to supply each one of us with potable water8.

2.2 Reduction of recurring expenditure 2.2.2 Income tax relief

Any tax relief should only be in investments that prepare for a low-carbon, low-energy future. A review of current pension systems and tax reliefs on this basis should be part of the deliberations of the Commission on Taxation.

2.2.3 Public Private Partnerships (PPPs)

There is a great lack of transparency in these “partnerships” and this problem needs to be addressed now. On-balance-sheet accounting should be an essential part of this, and there should be no securitisation of debt. There should be no passing off of debt to the public purse.

2.2.4 Rationalisation of the National Development Plan (NDP)

An immediate stop should be put to the rush to sign contracts on all NDP projects. A moratorium for re-evaluation should also be put on all projects that are not already underway. It is proposed here that the NDP be reviewed and subjected to strenuous cost benefit analyses that include carbon accounting, and that rationalisation of the plan takes place based on a set of transparent sustainability criteria. These criteria should include:

8 Sue Scott. ESRI. Presentation Liberty Hall 10th January 2009.


9

• Transparent cost-benefit analyses including the carbon and ecological footprint

• Full compliance with: o environmental and planning law (including independent, rigorous

and effective Environmental Impact Assessments and Strategic Environmental Assessments) and

o international conventions including the Convention on Biological Diversity and the Stockholm Persistent Organic Pollutants.

• All projects must be considered and implemented in accordance with the ecosystem management approach.

• All projects related to non-viable settlements should be abandoned. Examples of where these criteria might result in substantial economic savings might include major road projects, incinerators and Metro North. In addition to meeting these above criteria, the NDP needs to be reprioritised to focus on the building of sustainable communities through investment in renewables, next-generation broadband, green infrastructure, sustainable planning.

2.3 Local and sustainable food procurement policies for all public authorities.

The promotion of the Irish sustainable food sector is essential not only as an immediate economic stimulus, but also to act as a first step in addressing Ireland’s very poor food security. Climate change and peak oil are growing challenges to our ability to feed ourselves.

2.4 The Financial System

The government should nationalise the money creation mechanisms, and in future these should be non debt-based. The issuing of a non debt based currency in parallel to the Euro would provide a substantial economic stimulus, particularly in employment and the local economies. The rapid reduction in the money supply worldwide has created major challenges for business. Asset Securitisation through co-operative Limited Liability Partnerships (LLP's) would provide a mechanism for easing this problem. The LLP model should be used for the banks. Amongst its other benefits this would provide a mechanism for investment in green technologies.

2.5 Air Travel Remove all subsidies for air travel.


10

3.0 Promoting and protecting employment and volunteering

3.1 Social Capital and Social Inclusion

Volunteering in Ireland is seriously underestimated, undervalued and disincentivised. Volunteerism by those in work or out of work should be encouraged and resourced. The development of community based cooperatives should be strongly supported.

3.2 Special Emergency Employment Scheme

This scheme is designed to maintain employment, support employers, reduce the numbers of unemployed, keep money in circulation and raise the self-confidence of the public. This plan could be offered to existing employers. To register for the scheme an employer must declare how many employees he/she currently has (backed up by PRSI payments records). On condition that he/she agrees to continue to employ the registered number of employees for the duration of the scheme, the employer becomes entitled to employ new special scheme employees (SSEs). These SSEs receive a pro-rata wage (satisfying trade union standards and watchdogs) which is sourced 50% from Government and 50% from the employer. A cap should be placed on the Government contribution in order to not exceed 75% of average un-employment contribution. This figure is then to be matched by employer and the pro–rata number of hours to be worked to be agreed. Employer's PRSI arrangements for SSEs would be paid pro-rata. The scheme is designed to offer an attractive, opportunity for employers to increase their workforces thus reducing numbers on the unemployment register. The scheme should be kept simple and user-friendly, introduced rapidly and reviewed after 18 months.

3.3 A major Drive to Insulate One Million Homes

It is estimated that some one million Houses in Ireland are in need of upgrading to reach the BER standard A rating. Following the outline below, retrofitting these houses would:

• create employment in the depressed building industry, • address one of the underlying issues of fuel poverty, • dramatically reduce greenhouse gas emissions • and increase tax receipts • boost the wool industry, at present in dire straights, by promoting wool

insulation as part of this package


11

UK figures estimate an average cost of £25,000 per house for a full retrofit. Assuming a similar figure for Ireland, we are looking at a total of €25 billion at today’s prices. The proposal is to establish a system of rolling finance based on interest free loans to house owners to enable them to carry out the necessary work. The procedure would be as follows:

• The house owner would agree with the lending body, possibly SEI, to get the house retrofitted.

• The house owner would then request an assessment of the work needed to bring the building to the A-rating of the BER.

• The BER assessor then carries out an assessment and calculates the energy saving per annum that will be achieved by the retrofit, based on current energy prices. The repayments of the loan are then set at that amount per annum until the total is paid.

• The house owner would then be given a loan to cover the cost of the complete retrofit, which must be carried out in one go. The cost of the assessment would be included in the loan.

• The loan would be set against the deeds of the house.

The net financial effect being that the cost of the retrofit has no impact on the current expenditure of the house owner. Indeed as energy prices rise there will be a net saving. The occupier of the house will have a more comfortable home which has a much increased resale value. The above description relates to owner-occupiers, but it would be possible to adjust this for social housing. It is suggested here that a target of 40,000 houses a year would be an achievable target at an overall cost of €1 billion a year. In year one a good part of this would be needed to kick-start the project with focussed training, and supports to enable the gearing up of the relevant sectors of industry. Approximately €120 million would return to the government as VAT and perhaps another €100 million as income tax. This could either be used to fund other environmental projects such as public transport, or be rolled over into further funding for the retrofitting scheme for the next year. Approximately €50 million would be paid as interest by the scheme to the funding source. If the tax returns are rolled over, then the scheme will accelerate accordingly. In year two the borrowing could be increased if the capacity was there to do the work, and so onwards, and the repayments which would increase year on year could be fed back into the scheme. The source of the funding for this proposal could be one or all of the following:

• Government Borrowing • Ethical Investment Funds • The Credit Unions


12

4.0 Specific measures This list of measures is intended to deal with more specific issues but is not intended to be exclusive.

4.1 Cost cutting

4.1.1 Cost cutting measures can be achieved in the short and longer term by ensuring the sustainable use of indigenous resources; this should be the basis of a Smart Economy.

4.1.2 Work to end the culture of profligate spending engaged in by certain

groups within public life. 4.1.3 Stopping water fluoridation would produce savings of €3million per year in

import cost of fluoride chemical (Dáil Answer of 12/6/06 stated cost of chemical in 2005 was €3.2million) and another conservatively estimated €33 million per year savings in other operating and capital costs (Based on UK cost of new plant of £270,000). These savings contingent on ending fluoridation in 360 drinking water treatment plants.

4.1.4 Public sector and semi state pay should not be frozen or cut without other

protected or relatively privileged sectors taking commensurate cuts particularly in the financial sector and in certain parts of the legal and medical sectors, even if in relative terms the savings are modest.

4.1.5 All Government buildings should at the least comply with international

Energy Management Standards.9

4.1.6 No serving TD/Minister/Senator should be receiving a pension from the state whilst still a national public representative.

4.1.7 The ratio between the entry level salary and the top level salary where

there is any public subvention at all should not be more than 10 (or even lower).

4.1.8 In recognition of the fiscal emergency, the government should aggressively

renegotiate contracts for goods and services from the private sector where 9 This is heavily promoted to large energy users in industry by Sustainable Energy Ireland (currently

over 70 companies have signed up for their Energy Agreements programme). It involves companies implementing and maintaining an energy management system compliant with IS393 as a published standard (it is very similar to ISO 14001 for environmental management - but with the focus on energy). It is likely that this standard will become a European standard this, possibly next year, with a full international ISO standard to follow. If every Public Authority implemented this standard, this would have the effect of not only reducing the state energy bill, but would also ensuring that the state sector contributes towards Kyoto targets which are at the current rate of consumption unlikely to be met by Ireland and will incur massive fines in 2020.


13

these have diverged from the European norm.

4.1.9 Fixed price contracts for infrastructure projects should be enforced - bring and end to ‘costs plus’ arrangements.10

4.1.10 Scrap the Homechoice loan scheme for first-time house purchasers - this

purely creates a developer subsidy by artificially creating a floor to housing prices and potentially is a Government invitation to immediate negative equity for purchasers.

4.1.11 There are many activities conducted at considerable cost to the state that

are counterproductive when considered in the light of its responsibilities for example to protect and promote biodiversity. Here is one example where the redeployment of resources can produce a win-win situation. Stop cutting grass immediately on all publicly owned land, except for ‘line of sight’ and safety reasons. Recycle and reduce costs each year by stocking much of the areas with hedging, native trees, shrubs and the odd strategically placed ornamental species. This cuts carbon emissions, employs displaced grass cutters into a more value added work, increases biodiversity and creates biomass to be harvested during maintenance for fuel.

4.1.12 Where feasible travel reimbursements should be at public transport rates,

and where private vehicles have to be used the rates should decrease with increased carbon emissions, the opposite to the current arrangements, with the current rate for the smallest car being the top rate of reimbursement.

4.1.13 Regarding travel and subsistence for both public servants and public

representatives the following should be banned: • private car travel and expenses (public transport and/or taxis

obligatory unless not possible) • Claimable travel on government business inside Ireland by plane and

helicopter. • Government or public representative make-up, hairdressing, clothing

expenses, etc. • For private use of vehicles provided for work - better enforcement of

benefit-in-kind regulations.

4.1.14 Regarding travel and subsistence for both public servants and public representatives the following should be a requirement: Agency-booked international air travel and accommodation for government representatives and civil servants (i.e internet booking at cheapest available rate only); Economy class allowed only.

4.1.15 Review how much the HSE pays for its drugs. (the companies charge what

they can get so the same drug could be a third of the price in Spain) Use

10

http://valueireland.blogspot.com/2008/02/government-waste-taxpayer-to-foot-83m.html for details of how a €9.3m contract became a €86m bill to the taxpayer for a sewage scheme in Limerick.


14

generic drugs as much as possible.

4.2 Revenue Generation 4.2.1 Public assets should not be sold in current conditions. 4.2.2 One-off houses must pay full rate for connection to main services.

4.2.3 Annul all tax breaks on property/land/holiday home etc. In particular it is

essential to end the situation where a landlord receives tax relief on rent that has already been subsidized by the tax payer (Social Welfare), e.g. in Section 23 housing.

4.2.4 Remove the ceiling on PRSI. 4.2.5 Ensure that all outstanding planning contributions are paid. 4.2.6 Pursue developers for their loans and if necessary take into state ownership all

the land-banks that the loans were secured against, allowing us to properly plan in future.

4.2.7 Scrap the storage of the electronic voting machines and sell or recycle the

machines. 4.2.8 Count the days that tax exiles are allowed in the country as any part of a day

- removing the ability to fly out of the country before midnight and it not counting.

4.2.9 Implement and give teeth to the parking taxation announced in the last

budget. €200 is trivial when parking is €2 an hour in Dublin


15

5.0 Glossary

Brief explanations of some of the terms used in the text

Ecosystem

An ecosystem can be defined as the complex system of plant, animal, fungal, and micro-organism communities and their associated non-living environment interacting as an ecological unit. Ecosystems have no fixed boundaries; instead their parameters are set to the scientific, management, or policy question being examined. Depending upon the purpose of analysis, a single lake, a watershed, or an entire region could be considered an ecosystem.

Green infrastructure This is a term used to describe the networks of land and green space surrounding our towns and cities and threaded through them and which play a key role in sustaining environmental quality in the urban setting. Natural capital

This is an extension of the economic notion of capital (manufactured means of production) to environmental 'goods and services'. It refers to a stock (e.g., a forest) which produces a flow of goods (e.g., new trees) and services (e.g., carbon sequestration, erosion control, habitat). To refer to something as a capital asset is to imply it is useful in creating wealth, either in terms of well-being or in monetary terms.

Next generation broadband Essentially this is broadband with the capacity to enable very fast download speeds to everyone in the country, either through wireless, or a major upgrade of the cable networks. Non debt-based currency Conventional money is lent into circulation. People borrow it because they believe they will be able to repay it. In times of crisis or of recession this source of money is likely to break down. In these circumstances another method of issuing money is required, which is not based on debt. There are two main options:

• New money is spent into circulation by the Government • New money is given into circulation. The goes to the users who create its

value when they use it to trade with each other. It is the latter approach that the “Liquidity Network” is recommending. http://www.feasta.org/documents/liquidity_network/2009_liquidity_network.html


16

Resilience This refers to the amount of disturbance or stress that an ecosystem can absorb and still remain capable of returning to its pre- disturbance state, or the level of disturbance that an ecosystem can undergo without crossing a threshold to a situation with different structure or outputs. Resilience depends on ecological dynamics as well as the organizational and institutional capacity to understand, manage, and respond to these dynamics. In making economic decisions we need to understand that it is not just our short term economic resilience but our longer term, and this must be rooted in ecological resilience. Smart Economy “The Smart Economy combines the successful elements of the enterprise economy and the innovation or ‘ideas’ economy while promoting a high-quality environment, improving energy security and promoting social cohesion. A key feature of this approach is building the innovation or ‘ideas’ component of the economy through the utilisation of human capital – the knowledge, skills and creativity of people - and its ability and effectiveness in translating ideas into valuable processes, products and services. A second important aspect is the greening of the economy and the development of green enterprise.” Building Ireland’s Smart Economy – Department of the Taoiseach 2008, page 7

Tacking the two crises facing government

Documents

Transcript of Tacking the two crises facing government