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Business Today: the best news, analysis and comment from ‘The Irish Times’ business desk

Wed, Oct 11, 2017, 07:14

Michael McAleer

Minister for Finance and Minister for Expenditure and Reform Paschal Donohoe’s budget offered few surprises, which was perhaps a surprise in itself




Budget 2018 spread the jam thinly. The winners are middle-income earners, writes Eoin Burke-Kennedy. The losers are sun-bed loving smokers with a taste for sugary drinks, writes Conor Pope. The big news for business was the new rate of stamp duty of 6 per cent now applicable to sales of commercial property.

Amid the in-depth analyses and commentary of Budget 2018, Cliff Taylor warns that the Government is left hoping that the threat of Brexit does not upset the sums, while Chris Johns says it’s important to remember that the next economic crisis is waiting in the wings. You can also use our Generation Game and see what all the changes mean for your family.

And in a Budget 2018 Podcast, Business Editor Ciarán Hancock is joined by Fiach Kelly and Cliff Taylor of The Irish Times, Peter Reilly, tax policy leader with PWC, and Marian Finnegan, chief economist with Sherry Fitzgerald.

With property a hot button budget issue, it was timely for Irish housebuilder Glenveagh Properties to enter the market. Shares rose 14 per cent as Singapore’s soveriegn wealth fund GIB emerged as a major shareholder.

No day would be complete without a Brexit mention and Peter Hamilton assesses why Frankfurt appears to be winning the race in relocating banks and financial institutions from London. He argues that the price stability of rents for prime office space may have been a factor.

In commercial property, meanwhile, Jack Fagan reports on how the Avoca chain is to open a food hall at a new centre to be unveiled shortly by the Comer Group in Ballsbridge, Dublin 4.

Finally, back on the Budget trail and Miriam Lord reckons if there was any surprise at all, it was the fact people were surprised that there was no surprise.

If a big jump in inflation would be destructive, so would excessive tightening

Wed, Oct 11, 2017, 06:57

Martin Wolf

Fed chairwoman Janet Yellen: she has demonstrated why she is, of the known candidates for next Fed chairman, the outstanding one. Photograph: Reuters/Joshua Roberts




Is a surge in inflation a significant threat to sustained recovery? The likely answer is no. But the proposition is no longer absurd, as it was when Kevin Warsh, then a governor of the Federal Reserve and now a candidate for chairman, stated in March 2010 that “I don’t think we should be complacent about inflation risk”. That misjudgment should rule out his candidacy.

Yet times have changed. This explains the Fed’s commitment to gradual monetary tightening.

The European Central Bank is planning to withdraw stimulus. The question is whether this tightening cycle will be smooth or bumpy. Inflation would make the difference.

Even a broken clock will be right twice a day. Austrian economists and goldbugs have warned of an imminent upsurge in inflation for years. Maybe they will be right – at last.

The consequences would be highly disruptive. If inflation rose really rapidly, monetary policy would have to tighten significantly. That would trigger fears of a recession. Moreover, even if long-term real interest rates did not rise, risk premia on inflation, expected future short-term interest rates and the uncertainty surrounding those expected future rates would all jump, raising yields on conventional bonds substantially.

All this would undermine elevated asset markets and might trigger worries over debt sustainability. In a still fragile world economy the results might be ugly. One might even see a return to the stagflation of the 1970s, with far lower inflation but also far higher indebtedness.

The focus of attention is on the Fed. The US is still the world’s most important economy, and the Fed the most important central bank. The US is also far more advanced in its return to normal economic conditions than other large, high-income economies.

Next chairman

In a lucid recent speech Janet Yellen laid out the issues. She also demonstrated why she is, of known candidates for next chairman, the outstanding one. Donald Trump would only choose one of the others if he were as determined to destroy the Fed as he is to ruin the state department and other agencies.

The starting point is a puzzle: why is inflation so low when the rate of unemployment is already a little below the level the Fed (and most economists) consider to be “full employment” (the rate at which inflation should start to accelerate upwards).

The Fed’s analysis suggests that labour market slack is no longer an important downward factor, while a series of temporary downward shocks are also now in the past. So, the Fed believes, inflation will soon move back towards its target.

Why might this view be wrong?

One possibility is that more labour market slack still exists than the unemployment rate suggests. The ratio of employment to population for those aged 25 to 54 is still well below previous cyclical peaks. The rate of part-time employment is also somewhat elevated.

A thorough study by the International Monetary Fund in its latest World Economic Outlook notes broadly that “while involuntary part-time employment may have helped support labour force participation and facilitated stronger engagement with the workplace than the alternative of unemployment, it also appears to have weakened wage growth”.

Yet most other measures of labour market pressure are back to pre-recession levels. So even if US wage growth is well contained, this might not last.

Inflation expectations

Another factor is inflation expectations. This cuts two ways. At the moment those expectations are well anchored, the only big worry being a decline in market expectations of inflation (or inflation risk) more than five years hence. Such expectations might feed into behaviour, generating a self-fulfilling prophecy of low inflation.

This would counteract the symptoms of the labour market pressure. At some point, however, the latter could boil over into rapidly rising wages, probably at rates well above those consistent with stable inflation. We have seen that before.

At present, however, the risks do not seem that great. But, as always, this is a matter of risk management. We can have little doubt that a substantial rise in inflation above target would create significant danger. Raising the target in such a situation would certainly destroy confidence in the Fed.

Yet trying to hit the target could, for reasons indicated above, be destructive, possibly tipping the US back into a recession from which it would be hard to exit. This would be particularly true if the damage to asset price effects was large and much bad debt re-emerged. Yet under this scenario short-term interest rates would at least have to rise substantially, giving the Fed more room to cut than it has now.

If a big jump in inflation would be destructive, so would premature, or excessive, tightening. That could further lower inflation, destabilising expectations further. It might weaken the economy so much that, given still limited room to cut interest rates without going into negative territory, it would be difficult to restore demand without going into negative territory.

Hugely desirable

Above all, after the huge and politically destabilising shock of the Great Recession, a lengthy period of strong labour markets would be hugely desirable, even healing.

The Fed has to balance between tightening too fast and too slowly. Nobody can be sure it is now wrong. My best guess is that an explosive rise in inflation is highly unlikely. The Fed can afford to take its time, while testing the capacity of the US economy to expand supply.

But risks are real on both sides. The Fed has probably been right to tighten a little. But it must be careful not to go too far. It has earned much credibility over inflation. Sometimes what one has earned should be spent. This is just such a time. – Copyright The Financial Times Limited 2017

London Briefing: Tesco and Poundland to defy deadline for recall of 500m coins

Wed, Oct 11, 2017, 06:35

Fiona Walsh in London

Royal Mint: the new pound coins are almost impossible to forge. Photograph: Jason Alden/Bloomberg




British shoppers will be checking their change very carefully over the next few days, as the deadline for the demise of the round pound approaches.

From midnight on Sunday the coin ceases to be legal tender after 30 years, so shopkeepers and other businesses will refuse to accept them. Or at least they should refuse. But with up to 500 million round pounds thought still to be in circulation, despite the Royal Mint’s efforts to recall them, a growing number of retailers plan to defy the authorities and continue to accept the old coins after the October 16th deadline.

More than a billion old pounds have already made their way back to the Royal Mint, where they are being melted down to produce their 12-sided replacement. One in 30 of those old coins will have been counterfeit, however, which is the driving force behind the switch.

The new coin, which came into circulation in March, is thinner, lighter and, for now at least, shinier than the original pound coin. More important, it has a number of security features, including a hologram that changes from a £ symbol to the figure 1, which makes it virtually impossible to forge.

Retailers appear to have had difficulty telling the difference between the old and new pounds. At one stage about half the coins being returned were new ones

With just days until the deadline, far too many of the old coins remain in circulation, hence retailers’ move to continue accepting them. Tesco, Britain’s biggest retailer, says it will extend the deadline for a further week; Poundland, which describes itself as the official home of the pound, will accept the old currency until the end of the month.

The retailers themselves are partly responsible for the slow progress in gathering up the old coins. Like other businesses, they were tasked with returning the coins to the Royal Mint but appear to have had difficulty telling the difference between the round pound and the dodecagonal version. At one stage about half the coins being returned were new ones.

Shoppers say they are still being handed old pound coins in their change, and some supermarket trolleys, vending machines and rail-ticket machines have yet to be adapted to take the new coins.

Banks, post offices and building societies will continue to accept the old pounds for a while longer, but it’s worth checking down the back of the sofa sooner rather than later.

Hammond’s multibillion-pound hole

The scramble to retrieve the old pound coins should spark a mini boost for the UK economy, as shoppers rush to spend what they’ve salvaged from their sofas or piggy banks. But it won’t be enough to dig Philip Hammond out of the multibillion-pound hole he finds himself in, just six weeks before he’s due to deliver his autumn budget statement.

Like any sensible chancellor, Hammond had amassed a war chest, a £26 billion, or €29 billion, buffer built into public finances that would have allowed him some scope for giveaways next month. But his numbers have been torpedoed by the government’s economic watchdog, the Office for Budget Responsibility, which admitted on Tuesday that it had hugely overestimated UK productivity over the past seven years.

A review of its own figures showed productivity has advanced by a meagre 0.2 per cent over the past five years, way below its forecasts. Last year productivity was reported to be growing at 1.5 per cent, and just six months ago the OBR was predicting an increase to 1.8 per cent by 2021.

Treasury officials are describing UK public finances as a bloodbath, estimating that up to two-thirds of Hammond’s £26 billion budget surplus will be wiped out

But on Tuesday it dismissed last year’s figure as “a false dawn”. Its new forecasts will be unveiled along with the budget, on November 22nd. It’s clear the figures will have to be slashed, with a disastrous knock-on effect on output growth and government tax receipts. Treasury officials are apparently describing public finances as a bloodbath, estimating that as much as two-thirds of Hammond’s £26 billion budget surplus will be wiped out as a result.

This puts Hammond in an extremely tight spot, particularly given the promises that his boss, Theresa May, made at last week’s Conservative Party conference of costly help for house buyers and students.

There was no sympathy for Hammond’s plight from unions or political opponents. The productivity downgrades were “a self-inflicted wound”, according to Frances O’Grady of the Trades Union Congress. “Years of cuts, low public investment and rising job insecurity have taken a heavy toll,” she said.

For the shadow chancellor, John McDonnell, the OBR report was “a damning indictment’ of the Tory government and its failed austerity programme. The November budget “cannot be another exercise in kicking the can down the road”, he said.

But that’s exactly what it will be. With little or no room to manoeuvre, the chancellor doesn’t have much choice.

Fiona Walsh is business editor of

The only surprise? That people were surprised there was no surprise

Wed, Oct 11, 2017, 01:00

Miriam Lord

  • Video
  • Images

Minister for Public Expenditure and Reform, Paschal Donohoe, outlines changes in USC and tax bands rates in his Budget 2018 speech. Video: Oireachtas

Raining maps and cogs: Minister for Finance Paschal Donohoe shows off Budget 2018. Photograph: Gareth Chaney/Collins




No fireworks, promised the Taoiseach. He was right. No need to wait for the smoke to clear after the Minister’s speech, because it barely managed a few sparks. This was not a big-bang budget. It was a keep-your-powder-dry budget, and it was carefully and colourlessly outlined to an increasingly drowsy Dáil by the Minister for Finance, Paschal Done-with-No-Hue-and-Very-Little-Cry.

If there was any surprise at all it was that people were surprised there was no surprise. But everyone expects at least one on budget day, even if most of the detail has already been leaked well in advance. It’s what ministers for finance are supposed to do in October. It’s like the ring in your barmbrack or the coin in your colcannon.

Except that Donohoe was remarkably quiet in the run-up. The kites that start flying from government circles weeks in advance of the annual financial statement didn’t get going this year. Those legendary “backchannels” between Ministers, mandarins and media weren’t really operating. There were slim pickings for the pol corrs and the pundits.

Then suddenly, in the final couple of days, the floodgates opened, and everything that had once been a secret was spewed across the airwaves and popular prints. Absolutely everything. Nothing was held in reserve, which made for a very dull speech.

It’s no wonder the Fine Gael backbenchers almost forgot to applaud after Minister Done-with-No-Hue-and-Very-Little-Cry finally resumed his seat after speaking for what seemed like a week. Then again, Paschal was speaking for two.

Last year both the minister for finance (Michael Noonan) and the minister for public expenditure and reform (Paschal) made speeches. This time Double Departments Donohoe had the floor to himself.

Photo-op splurge

Away from the soporific atmosphere in the chamber it was all go. So perhaps the Minister was tired following his prebudget video and photo-opportunity splurge.

On Monday night he released an online film with the broad outline of his budget; then, from the crack of dawn on Tuesday, his every move was captured by staffers who then posted the results on social media. We saw Paschal standing in front of a window, apparently rehearsing his speech; walking up and down corridors; sometimes walking and talking at the same time, with plinky elevator music in the background.

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He must have been glad of the chance to go into the Dáil to unveil his budget again, this time officially, and escape the cameras for a while.

Immediately after his stint in the chamber the Minister went off to talk to various radio stations and have his photograph taken in front of various microphones. And in between he was on the evening television news.

Pause for thought: Taoiseach Leo Varadkar at the Lolly & Cooks coffee shop on Merrion Street. Photograph: Gareth Chaney/Collins

A good day’s work for the Government’s new strategic communications unit. And it’ll have to work even harder to help Leo Varadkar explain the contradiction that the unit he has been insisting would operate on a “cost neutral” basis was given a handsome €5 million in the budget. Perhaps Paschal didn’t tell him.

It was a happy day on a personal level for the Minister for Finance, with his mother, Cáit, wife, Justine, and two children, Oscar and Lucy, watching from the distinguished-visitors’ gallery. Also looking on, from four rows behind, was Michael Noonan. Enda Kenny wasn’t present.

Leo Varadkar seemed delighted for his friend on his big occasion, welcoming Paschal when he arrived in the chamber and then making a point of greeting his family. Then he led his Minister down the steps, moving aside so Paschal could occupy what is normally the Taoiseach’s chair.

My First Budget

There is something endearing about Paschal, despite reports from Finance of a very steely personality behind the genuine bonhomie. When he posed (yet again) for the traditional prebudget photographs it came as a bit of a disappointment to see he was carrying a bog-standard leather folder. We’d half-expected to see “My First Budget” emblazoned across the front in big colourful letters.

The afternoon began with the traditional budget gag from the Ceann Comhairle. The one where he pretends to be very serious and reminds TDs that on no account are they to reveal any details in the top-secret document they are about to receive until the Minister has spoken. Because it is all “confidential”. Seán Ó Fearghaíl got the biggest laugh of the day for that.

The Independent TDs Clare Daly and Mick Wallace arrived a little late. Mick looked a bit dishevelled, as one might expect of a man who was in Wales the night before for Ireland’s marvellous win in the soccer. He wore ripped and frayed denims, his knee poking out of a hole in one of the legs.

Leo Varadkar popped a sweet in his mouth before Paschal started talking. He spoke for an hour, or the time it takes to wear down an everlasting gobstopper. When he finally finished Leo appeared to collapse and slide to the ground. But he was only reaching down to a power socket for his mobile phone, so he could start scrolling and texting again.

Paschal introduced some great new initialisms. At Finance they never have enough. There was the MTO, or medium-term objective, which is to do with the economy, as opposed to the STO, or short-term objective, which is to do with winning the next election. This was followed by the HBFI, or Home Building Finance Ireland. Pronounced, according to Paschal, Hib-fi. It’s to finance house-building projects. All around the country delighted builders burst into happy choruses of The Hibfi Hibfi Shake.

The most contrived effort (the new spin unit must have had an input) is the new key-employee engagement programme, or Keep. Maybe annoying acronyms can be dumped into the National Mitigation Plan, which has something to do with climate change. Who knew?

Raining maps and cogs

Along with the videos and photographs in the interest of transparency and saying nothing, the new sharing government showered us with documents in a fat folder, each subdocument featuring this year’s budget cover design of Ireland made from little cogs. There was so much printed material it was raining maps and cogs.

The former senator Fidelma Healy Eames was above in the front row of the public gallery, taking lots of notes. Senator Catherine Noone was sitting at the rail above the TDs, where Senators sit. She punched the air when Paschal announced he was increasing the VAT on sunbeds. As this has been her pet project it was a tantaxtic result for her. But there was a glum thumbs down from the avid smoker Finian McGrath when the ciggies went up in price again.

At the end of his first budget Fine Gael TDs applauded Paschal politely. In the gallery his young daughter, Lucy, clapped with gusto. Or perhaps it was relief. It was a long hour.

But a strong, confident and competent performance from Paschal Done-with-No-Hue-and-Very-Little-Cry.

Cryptocurrencies have become the hottest of hot topics — it seems not a day goes by without some Wall Street VIP or financial luminary proclaiming their stance.

Is bitcoin

BTCUSD, +0.62%

  a “fraud” or the future? Are ICOs just a scam? Depends whom you ask. One thing’s for sure, there’s no shortage of opinions.

Here’s what some of the financial-world heavyweights have had to say Continue reading

Otherwise, Budget 2018 found a little – perhaps tiny – something for everyone

about 5 hours ago
Updated: Wed, Oct 11, 2017, 19:00

Conor Pope

Tan tax: VAT on sunbeds is rising from 13.5 to 23 per cent. Photograph: iStock/Getty




It proved to be a particularly savage budget for sunbed-loving smokers with a taste for sugary drinks, but for everyone else Paschal Donohoe’s first solo run as Minister for Finance could best be described as another mild-mannered Late Late Show budget. Just as Michael Noonan did last year, he managed to find a little something for everyone in the audience, although for many the something he has found will be very little indeed.

There probably won’t be much by way of whooping among those earning €45,000 a year once they realise they will be better off by no more than €5 a week after all the numbers are crunched. And the response is likely to be even more muted among lower earners, who could be enriched by as little as €50 next year.

Perhaps the only real winners will be couples who both earn salaries of more than €70,000, as the widening of the higher-rate tax band and changes to the universal social charge will see their household finances swell by more than €600 next year.

People on the minimum wage may have some cause for muted celebration, with the rate climbing by 30c an hour, a step that will add €12, before tax, to the weekly wage packet of someone working a 40-hour week. Social-welfare recipients will see their weekly income rise by a modest €5, although they will have to wait until next March for the increase to be rolled out.

Old reliable

The old reliables have turned into the old reliable, with booze and fuel dodging the bullet and only cigarettes hit with a tax increase. For the third budget in a row a pack of 20 cigarettes, or a 30g pouch of tobacco, was slapped with a 50c increase, taking their prices to about €12 and €15.

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A new old reliable has been created in the form of the well-flagged sugar tax, which will add up to 30c to the price of a litre of some sugary drinks. (Fruit juices, wines and beer are exempt.)

Many people listening to Donohoe’s speech will have been surprised to learn that until now sunbeds attracted the lower, 13.5 per cent rate of VAT. Not any more: the tax for using them has jumped by almost 10 percentage points.

Income-tax changes

But for most it will be the income-tax changes that matter most. By widening the top tax band by €750, to €34,550 for single earners and €43,550 for married single-earner couples, Donohoe gave one in five taxpayers back €150 a year. People who do not reach those thresholds will see no benefit from this measure, although they will gain as a result of USC cuts.

Those changes to USC are a quarter-point cut, from 5 per cent to 4.75 per cent, in the main rate, attached to income between €19,372 (up from €18,772) and €70,044; and a half-point reduction, from 2.5 per cent to 2 per cent, in the rate that applies to income between €12,012 and €19,372.

When these changes and gains from the rate-band move are added, someone on €45,000 a year will be €266 – or just over €5 a week – better off next year. For someone on €75,000 the gain will be €328 a year, while a single earner on €30,000 will be enriched by €78 a year.

The Government has promised to raise the earned-income tax credit claimed by the self-employed to match the PAYE tax credit, which stands at €1,650. Last year it was increased to €950, and it will rise by a further €200 next year.

The Government made much of giving taxpayers something back. Many will still be a whole lot worse off than they once were. From 2008 a series of austerity-driven tax changes saw net income fall by about €2,000 for someone earning €40,000 a year, and €3,500 for someone with an income of €70,000. So even when the benefits from Budget 2018 are added to those rolled out in 2016 and 2015, most taxpayers will still be poorer than they were almost a decade ago.

Pathways to Progress initiative wants students to empower disadvantaged youth

about an hour ago

Peter Hamilton

Daniel Kyne, Aideen Foley, Matthew Hewston, Mairéad McDonough, Margaret Hanlon and Lucy Mangan at the launch of the Pathways to Progress initiative




Charity Enactus Ireland has partnered with global financial services company Citi in a deal worth more than €85,000.

The partnership aims to provide resources for students to “empower” people between the ages of 16 and 24 from disadvantaged urban areas around Ireland.

The Pathways to Progress initiative calls on students to develop an idea and apply to the programme. Successful projects will receive seed funding, intensive training, mentoring and guidance from Citi volunteers and Enactus Ireland staff.

The support will help scale projects to help the students maximise the “positive impact in disadvantaged urban communities”.

Once accepted to the programme, students will take part in a two-day project development event in Citi in November, and will ultimately present their final projects to a panel of judges at an event in April.

Entrepreneurial skills

“Every year, each student team involved shows tremendous understanding of how their entrepreneurial skills and talents can be used to bring about real change in their communities. We are very excited to partner with Citi to see this impact grow and scale,” said Terence O’Rourke, Enactus Ireland chairman.

Founded in 2011, Enactus Ireland develops talent by enabling third-level students to create and implement social entrepreneurial projects which positively impact communities.

Speaking on the announcement, Cecilia Ronan, Citi’s chief administrative officer for Europe, said: “It’s vital that businesses in Ireland continue to collaborate with organisations like Enactus to drive social change. We are looking forward to working with the students to support the development of skills to think innovatively and address the pertinent business challenges facing Ireland today.”