VAT should be imposed on food and children's clothes, says IMF

Think this could happen in Ireland?

VAT should be imposed on food
and children's clothes, says IMF

By By Edmund Conway, Economics Editor
Published: 9:30AM BST 15 May 2010
Telegraph.co.uk

David Cameron should use this summer's emergency Budget to raise VAT on a host of excluded products, including food and children's clothes, the International Monetary Fund signalled yesterday.

In an unusual intervention, the IMF said one of the best ways for the coalition Government to raise money and repair the public finances would be to remove the zero-rate that excluded a number of goods from VAT.

The recommendation came amid suspicion that the Government would also have to raise the level of the sales tax from 17.5 per cent to 20 per cent if it was to afford the tax pledges it made in its agreement earlier this week.



Although the IMF's suggestion, published in a comprehensive survey of public finances around the world, was less eye-catching than raising the headline rate, it would potentially have a greater impact on the price of goods, and on families' living standards.

The document, signed by Dominique Strauss-Kahn, the IMF's managing director, said: "There is substantial scope for improving the revenue performance of the VAT in almost all countries, including by eliminating exemptions and reduced rates."

VAT is not charged by HM Revenue and Customs on certain items, including food, children's clothes, domestic passenger transport, books and prescription drugs.

The IMF said Britain could raise 3.3 per cent of its economic output – about £50 billion a year – merely by halving the number of exemptions.

It added that despite having among the highest levels of petrol duty in the Western world, Britain could afford to increase fuel taxes slightly more, raising a further £3 billion.

The suggestions were likely to fuel suspicion that George Osborne, the Chancellor, would raise a series of taxes, including VAT, at the emergency Budget, which is due to take place within 50 days.

City commentators, including Robert Chote, the head of the Institute for Fiscal Studies, and 24 of the 28 economists regularly surveyed by the Treasury, pinpointed the sales tax as the most likely candidate to rise in the Budget.

However, few suggested that the Treasury should lift the exemptions, which also included financial services fees. Some warned that increasing VAT on zero-rated items would affect the finances of lower income families in particular.

The IFS calculated in its Green Budget earlier this year that such a move – even at a more limited level, raising only £24 billion – would account for about 7 per cent of the income among low-paid workers.

The increases may be necessary if Britain was to start reducing its deficit, the IMF said.

It pointed out that, over the next few years, Britain would need to reduce its deficit by 9 per cent of gross domestic product – equivalent to £130 billion.

The Government has yet to specify how fast it intended to cut the deficit, although it pledged to cut spending by more than it raised taxes.

Half of inmates jailed for non-payment of fines

A lovely state of affairs we have here in Ireland: debtors prisons. When half the prison population is there for non-payment of government fines, me thinks that history is repeating itself in Ireland. Instead of the English jailing us, we just jail ourselves.

Fair play to Sunday Business Post and Richard Curran/John Burke for bringing the story to light.

If you live in the USA, don't feel left out. Apparently the majority of prison inmates there are guilty of smoking pot.

Read and weep.

Half of inmates jailed
for non-payment of fines

02 May 2010
By Richard Curran and John Burke
Sunday Business Post

Half of all the people who were sent to prison last year were incarcerated for non-payment of fines, new figures reveal.

In the first ten months of 2009, 3,300 people were sent to prison for failing to pay fines.

A continuation of that pattern for the final two months of the year would leave the full-year total equal to half of all those placed in prison last year, according to Professor Ian O’Donnell of the Institute of Criminology at University College Dublin.

O’Donnell said that the number of people in Irish prisons was set to top 100 per 100,000 of the population for the first time since the foundation of the state. When remand prisoners are included the figures are even higher, according to O’Donnell.

‘‘The numbers in prisons have been creeping up, and it is part of an alarming trend," he said.

Breaching the 100 per 100,000 figure crossed a ‘‘significant threshold, taking Ireland from a comparatively low prison population to a middle ranking level by EU standards’’, added O’Donnell.

The growing numbers in prison for non-payment of fines reflects the economic downturn, ac cording to O’Donnell. He condemned the trend, which ‘‘breaks up families, while failing to recover the fine, and costs the state a lot of money’’.

Meanwhile, a previously-unpublished report has found that diseases such as hepatitis C are ‘‘endemic’’ in Irish prisons.

The examination, carried out by public health experts, found that medical infrastructure at more than one-third of the state’s 14 prisons was ‘‘unsuitable’’ for meeting patient health needs. Some equipment in use was found date back to Victorian times, the experts concluded.

Related: Prison population increased in '08

Number of committals for non-payment
of fines and RTA offences 1990-2006

Source: http://www.crimecouncil.gov.ie/statistics_cri_prison_table3.html

IMF says 'Suck it up, the party's over.'

For those of you who know what this means, read and weep. For those of you who don't, you soon will. It effectively means a democratic loss in creating fiscal policy. The people of the EU PIGS (Portugal, Ireland, Italy, Greece and Spain) countries will understand in short order that all their demonstrations against pay and service cuts, no matter how justified, will be for naught. How EU member states spend their tax money will be overseen by the IMF.

"You will see many headlines complaining and moaning and stirring the pot," Lagarde said, as issues such as pension reform are debated. But ultimately, she said, "there is no way out."

For nations living the good life, the party's over, IMF says

By Howard Schneider
Washington Post Staff Writer
Saturday, April 24, 2010

In the lingo of the International Monetary Fund, the future of the world hinges on "rebalancing and consolidation," antiseptic words that would not seem to raise a fuss.

Who doesn't want more balance in their life?

But the translation is a bit ruder, something on the order of: "Suck it up. The party's over."

To keep the global economy on track, people in the United States and the rest of the developed world need to work longer before retiring, pay higher taxes and expect less from government. And the cheap imports lining the shelves of mega-chains such as Wal-Mart and Target? They need to be more expensive.

That's the practical meaning of a series of policy papers and statements issued in recent days by IMF officials, who have a long history of stabilizing economies and solving global financial problems, as they plot a course to keep the world economy growing and reduce the risk of another "great recession."

That message has been delivered subtly, woven into documents with titles such as "Resolving the Crisis Legacy and Meeting New Challenges to Financial Stability," and justified by concepts such as "raising retirement age in line with life expectancy," as IMF economic counselor Olivier Blanchard put it this week.

But fully deciphered, it means a pretty serious reworking of expectations in the developed world: changes in labor rules, product prices, currency values and even the social contract between governments and an aging citizenry.

"It is not that living standards will lower, but they will not increase as fast as they have been," said Domenico Lombardi, a former IMF executive director. The ideas being discussed by world leaders "are coded words," he said. "They don't like words like 'imposing higher taxes' and 'cutting spending.' "

Rebalancing

The IMF has long had a reputation as a bearer of bad news -- it dispatches well-educated and diplomatically deft teams to tell economically troubled countries how many people they have to fire and which programs they have to cut to get financial assistance. But the IMF now finds itself in the odd position of having that conversation not with a single ailing sovereign but with the developed countries at the core of the world system, including the United States.

Its prescription is centered on two concepts.

"Rebalancing" is an idea that most everyone endorses -- including the technicians at the fund and President Obama and the leaders of the G-20 group of economically powerful nations. In broad strokes, it means curbing what has been a massive transfer of capital from nations that consume more than they produce, such as the United States, to nations that produce more than they consume, such as China.

The imbalance has been key to China's modernization: The country buys U.S. government bonds by the tens of billions to keep the dollar stronger than it would be and to keep its domestic currency -- and its exports -- cheaper. Looked at one way, the flow of U.S. debt to the People's Bank of China has acted like a giant, collective credit card, underwriting consumers across the United States and driving the business models of major retailers such as Wal-Mart.

The message from the IMF is that the card is about maxed out and that the imbalance in trade flows needs to be corrected.

How to do it? One way is for China -- or Asian exporters, more generally -- to let their currencies rise on world markets. The other way, which IMF economist Blanchard raised this week, would be to devalue the dollar, the euro and other developed-world currencies.

"The advanced economies as a whole may need to depreciate their currencies so as to increase their net exports," Blanchard said.

The less well-advertised side of the equation: If the dollar is worth less, then imports, regardless of their source, will cost more. U.S. exports will be proportionately cheaper -- a good thing for American businesses trying to become more competitive in overseas markets -- but everything from iPods to jeans to the latest Barbie doll would jump in price.

The ideas offered by the IMF "could certainly reorder the balance of the international economy, but not in a way that benefits the average person in the U.S.," said J. Craig Shearman, vice president of government affairs for the National Retail Federation.

He continued: "If a few factories have an increase in exports, that is good for them, but it leaves the vast majority of people paying more for consumer goods. Talking about consuming less and saving more is a nice, ivory tower approach. But it is not real world economics. People have to put clothes on their children's backs and food on the table."

Wal-Mart declined to comment.

Consolidation

"Fiscal consolidation" is another idea promoted by IMF leaders. Again, the aim seems unobjectionable: The United States and other developed-world governments ran record deficits during the crisis, both to pay for stimulus programs and because tax and other receipts cratered. Across the developed world, the IMF says, government debt will rise from about 80 percent of economic output before the crisis to roughly 115 percent of output in 2014.

That's considered a dangerous trajectory, and IMF officials say that by next year, governments need to announce "credible" plans to cut their annual deficits, turn them into surpluses and start paying off what is owed.

The level of the correction needed is large, perhaps 10 percent of gross domestic product. In the United States, that would amount to roughly $1.4 trillion annually, to be cut from government programs or raised through new taxes.

Better-than-expected growth would help, or increases in productivity, or even surprises in the form of new technologies. But what's on the horizon is, more likely, a difficult reckoning -- one that Greece is facing and that other developed nations know is in the offing, French Finance Minister Christine Lagarde said in an interview Thursday.

"We're all in the same boat," Lagarde said as she looked ahead to a tough debate in France over changes in pension rules that will make not just government workers but also many in the private sector add years before their expected retirements.
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The IMF is studying issues such as which taxes should be raised and which programs should be cut to make "consolidation" as painless as possible. But it views a longer working life as an important tool -- one that would save large amounts of money in the future without cutting spending and decreasing economic activity today.

In the United States, a new fiscal commission is beginning to study how to bring U.S. government debt into line.

"You will see many headlines complaining and moaning and stirring the pot," Lagarde said, as issues such as pension reform are debated. But ultimately, she said, "there is no way out."

It ain't over til it's over: and it ain't over.

For more than a year, many critics following the dollar have been warning of an eventual meltdown of the currency. Mostly, these predictions have been ignored and labelled as doomsday conspiratorial mumbo jumbo.

Most people in the US are still yapping about health care and Obama's birth certificate while the rest of the world tries to cope with austere fiscal constraints and unemployment. Yet there is a bigger picture which dampens the hope of all for a near recovery, more than most people want to be aware of.

I have posted numerous articles on this blog following the impending decline of the dollar as world reserve currency.

In the article below, this fear is expressed from a highly credible source. I would say the time is right to batten down the hatches for a currency storm that will rock the world.

‘The World Is in Trouble’:
Deutsche Bank Chief Economist

12 Aug 2009
By: CNBC.com
Source
The global economy still faces turmoil as governments try to figure out how to move out of fiscal rescue packages, which could lead to another two downturns, Deutsche Bank Chief Economist Norbert Walter said Thursday.

In addition, nervousness on the part of major dollar holders could pressure the greenback and lead to a very worrying 2010, Walter said.

Norbert said recently in research notes “the world is in trouble.”

“I believe that the rescue packages brought on have been so costly for so many governments that the exit from this fiscal policy will be very painful, very painful indeed,” he said. “Some of us are already talking about a W-shaped recovery. I’d probably talk about a triple-U-shaped recovery because there are so many stumbling blocks here to get out of this.”

“There are a few countries that have not dismissed people, they had a dramatic drop in their sales but they kept on people because they believed the recession would be very shallow,” Walter said. “They now have to fire people. That will increase unemployment and they therefore, of course, may be endangering retail sales in some countries.”

If Australia hikes rates in September or October, markets “will certainly shiver” and cause zig-zagging at the bottom of the recession, Walter said.

And while the White House struggles with issues like health care and puts a fiscal policy exit strategy on the back burner, there are big concerns of about the direction of the U.S. dollar.

“I’m deeply worried about the worries of those investors who have invested a lot, really a lot into the dollar” like the Chinese, Japanese, Arabs and Russians, he said.

“If they have second thoughts about the quality of this currency then the dollar is bound to weaken” which means higher long-term interest rates for a country where government debt is approaching 100 percent of gross domestic product, he said.

If that happens, “2010 could be a worrisome year for all of us,” he said.

Related

Ultimate Crisis Is Still Coming: Marc Faber

Roubini: Risk of Double-Dip Recession Not Quite Past Yet

Jobless spike compounds foreclosure crisis

More articles here.

When the Celtic Tiger is lost

by Sheilanagig
November 20, 2008
The Irish economy is about to take a ride down the greased chute of major economic recession; in short, it is fecked. The best thing from this is that at least the government and the business sector are no longer trying to razzle and dazzle the people about the future.

In 2009, unemployment to hit 8%, GDP to shrink by 4%, exports to decrease by 6%, consumer spending down by more than 8%; and of course, this does not even touch all the inevitable social consequences that will surely follow these grim predictions. Economic recovery now predicted to take as long as eight years. We can only hope that these projections are not optimistic; and as Margot Channing once said, "Fasten your seat belts, this is going to be a bumpy night."

Watching the Dail debate on the current crisis is a bit like watching siblings fighting over who did what and should be reprimanded. If finger pointing were money, our government would be in fine shape. In this respect, Ireland is no different than any other country and is totally in line with our historical traditions of infighting for the best part of 800 years, no matter what the problem.

In reality, Ireland is a small open economy and can no more hide from global economic shocks than can any island in the path of a hurricane. Ireland has no natural resources to speak of and 90% of our export has been produced by American multinational companies who have located here to avail of low corporation tax. While this strategy may have worked for the past ten years, the affluence it has produced has cost Ireland in development of its indigenous business sector. Now, as the USA economy crashes, our dependence on it has become our greatest weakness.

In the mad rush to keep up with and even surpass the consumer materialism of our American cousins, the Irish have gorged themselves on credit to purchase all that 'stuff' their parents could never afford. Much like the post WW2 generation in the States, parents sought to give themselves and their children the consumer luxuries that were never available to previous generations. An entire generation has been suckled never knowing the hardship of want, able to splurge on any luxury, no matter how foolish, by using their plastic pass to Neverland, (credit cards financed by German money.) Ireland moved to the top of the EU as an economic success strategy; the future held the promise of more, more and more, as the population plunged deeper and deeper into debt.

The twenty something generation bought houses for a quarter million euros plus and all drove new 30K new cars, wore the lastest clothes and splurged on expensive vacations, all on credit. Every child had new mobile phones, designer shoes, the latest video games, personal computers and every other gadget the marketing machines said was needed to be 'normal'.

As the banks doled out money hand over fist, the property bubble inflated even larger than the American bubble, and still, the Celtic Tiger babies paid more and more for homes that were overpriced. All this revenue from property flooded the treasury coffers and the Irish thought they were now permanently among the richest countries in the world.

The Irish love affair with the American consumer lifestyle and business model beckoned us like the Pied Piper of Hamlet and we trustingly followed the tune right into the river. Razzle dazzle of American consumerism may have blinded traditional common sense; but surely few saw the underlying rotten structure of a lifestyle based entirely on debt and living beyond ones means. The Irish spent like drunken sailors with never a thought for tomorrow; but now the painful hangover has begun.

And 'begun' is the proper participle here, for property values have not hit bottom. In the USA, many properties have lost 30-40% of their value and are still dropping. Many states have enacted emergency legislation to give homeowners a chance before they are evicted from 'home sweet home'. Those who were the first victims of foreclosure often committed suicide, burned their houses down or simply walked away, homeless. Considering that Ireland's property bubble was even bigger than that of the USA, this hangover could be painful indeed, albeit on a smaller scale.

Besides blaming each other for our current state of economic decline, we could learn a few lessons with which to build a more stable future. The first lesson is, 'Monkey see, monkey do' is not the right strategy for a small open economy like Ireland. However desirable it is to liberalise trade, it cannot be done at the expense of our indigenous businesses. Our exports must reflect our comparative advantage which at present is the Irish brand.
Strategies that work for large industrial countries cannot be copied without sacrficing our political and economic well being.

The second lesson is one forgotton from centuries of oppression at the hands of the English: compassion, not material stuff, is the wealth of any community or country. There are values more important for the soul of a culture than the profit motive; the main goals of progress cannot be me, me and me, but rather, we, we and we. Marketing must be brought around to build prosperity on cooperation and community, rather than turning people into shallow images of consumer affluence emphasizing competing for self worth based on purchasing power. Any product that uses un-ethical marketing which harms the culture and people, must be boycotted; and as a people, the Irish must have the sense and courage to act. Nothing hurts a capitalist like raiding the profit margin; the system is easily controlled with the right whip and carrot.

The third lesson Ireland must learn has to do with debt. While debt can provide liquidity to small and medium size enterprises for growth, it can be a disaster when used to excess for personal consumption. The key word is here moderation; somehow Irish consumers must learn to balance their personal debt level and appetites for consumer purchases, with their long term ability to repay the balances. When personal debt level reaches 125% of income, disaster is not far away. The 'I want what I want when I want it' mentality leads only to consumers digging deeper and deeper debt traps which they will remain in for decades. Of course, since the banks have no self discipline to curb their own greed, they certainly have no desire to limit credit expenditures to a healthy level for individuals. This must be a lesson passed on from parents to children; obviously if parents become undisciplined borrowers to satisfy whims, the next generation will do the same.
The upcoming recession is a good time for Ireland to reflect on these lessons and to build again for the future, this time with more emphasis on who we want to be, rather than cloning ourselves after Americans. By building indigenous businesses and promoting our Irish products as our own brand of excellence, Ireland will again become prosperous, hopefully based on values other than crass consumer affluence.

All the right ingredients are present and the lessons to utilise them upcoming. With Irish courage and Irish heart, Ireland has the opportunity to lead the world in creating a more civilised economic model which honours both its heritage and other peoples of the world without imitating the failed American economy and culture.

Related Articles

http://www.finfacts.ie/irishfinancenews/article_1015305.shtml
http://www.independent.ie/business/irish/economy-may-shrink-by-huge-4pc-
http://www.finfacts.ie/irishfinancenews/article_1015273.shtml