What the austerity plan actual means to you and me.

So we now have some fairly solid information about what the next three to four years worth of budgets are going to look like.

It’s pretty fucking savage: To put it in easy to understand terms, take 60% of your current gross salary - that’s effectively what you will be earning in 2014 in todays terms.

Now I know that this is what is needed in order for this particular plan to succeed but I don’t think the average sod on the street understands precisely what that means for the amount of money they will have left if it does actually work.

Oh and that’s before we even begin to consider paying for the banks. This part is just about getting our current budget balanced.

There are actually some long overdue and good ideas for reform in the plan too, but I don’t think there will be anyone worthwhile left in the country by 2014 for them to matter.

 

The Numbers, for those who are interested.

Income Taxes: The plan outlines €1.5bn in tax increases from additional individual direct taxation ( ie you pay more tax, get lower tax credits or pay some new taxes ). Since there are about 2.2million individual tax payers in the country tat will average out at an extra €700 per annum. given the income distribution of those earners the _average_ PAYE tax payer will be paying around €1000 more in direct taxes next year. 

Spending Cuts: Then there will be €2.1 billion in spending cuts. A significant chunk of that will hit the less well off via social welfare cuts, and a nice chunk should be realised by trimming down the civil service numbers but at least €500m or so will come from reductions in general “benefits” – many things that are now free, or subsidized will have to be paid for adding up to another €250 or so per taxpayer. That’s money you have today that you wont have this time next year.

Where we have to get to: Now remember that we are €18bn or so out of balance and need to bring that down to about €15bn to hit the deficit target. This first step addresses €3.6bn of that. So by the start of 2014 every tax payer in the country will take home (on average) €4000 or so less than they do today on the same earnings. Those that earn around the average wages for the country will end up with about €5000 less net take home pay per annum.

Net Income per person: To put that in context someone on the average income in Ireland today (€35k) who will take home about €28k (after PAYE, USC, PRSI and the rest). Or in other words they will pay about €7k in tax. By 2014 the plan is that they will pay €12k in tax – an increase of about 71% in the individual direct tax burden.

Inflation: Meanwhile we have high double digit increases in Medical Insurance (20%+ so far), Electricity (Bord Gais 12%), Gas (Bord Gais again 22%), Petrol is up about 15% over the past 12 months and there is no sign that it will abate. These increases will continue and on average we will all pay about €1500 per annum more for these core necessities each year. Even if the now freeze those costs we are all going to be €1500 worse off per annum next year based on the increases that have already been confirmed.

Mortgages: A 20 year mortgage for the average house price as it was in 2008 ie €300k , calculated on a monthly repayment basis, at 4% costs €1812 per month. If the rate rises to 6% that increases to €2138 per month. The increase is €3920 per annum. The actual average outstanding mortgage is probably only €200k but even at that level your average punter will end up €2700 worse off.

Putting it all together: An average PAYE earner on €35k gross who has €28k to live on today will find that in three years they have the same buying power at that point in time that someone who earns €21.5k gross has today (about €19k net).

The Power, or something.

I was sitting on the bus this morning, giggling away to Gift Grub, and reading a pretty engaging book on my phone (Joe Abercrombie’s “The Blade Itself”, quite good I have to say) when I noticed that the bloke beside me clearly had just acquired a new phone. Glancing across I then noticed that he was wearing a pretty sharp suit, lovely shiny shoes and had an impressive briefcase tucked under his seat.

Good for him I was thinking, nice to see the mercantile classes roughing it with rest of us on the suburban bus run.

Then I noticed that he was reading something called “The Power!” or “The Power of You” . I’m not sure of the name, blue sky with clouds on the cover, tag line of “Believe it and it WILL happen!!” or some such. I was having trouble not breaking down in fits of hysterics –– grinding my teeth and screaming “SAVE ME FROM TEH STOOPIDZ!!!” silently inside my head..

I could see that he was opening it for the first time and I developed the impression that this bloke had just landed a new job, after some level of desperation given the current climate, this was his first week and the new boss had given him his “favourite book”. So here he was trying to read some of it to see if the success his new boss seems to be able to command could possibly rub off if he could just find the right set of instructions. He hadn’t been able to read it earlier because he was so busy making sure he was impeccably turned out, no doubt the boss also says things like you can judge the quality of a man by his clothes. At least that’s how it played out in my head.

Now he might have been a journalist struggling through this drivel so he could write a really compelling critique on the stupidity of this type of self help book and I’d love that to be true but I strongly suspect my first impression is closer to the mark.

I mean even if you were such a journalist you wouldn’t be caught dead reading something from the inner circle of literary hell on Bloomsday, of all days. Surely.

Anyway I really wish I’d found this particular presentation yesterday because if I had I would have pulled it up on my phone, tapped him on the shoulder and told him that he would learn far more watching this for 5 minutes than from reading that whole book full of drivel.

 

Growth, Default and Pay in Ireland

I’ve been following some rather disheartening debates about some fundamental aspects of our economy over the past few weeks. The lack of joined up thinking, and the complete unwillingness of most of the players in this game to honestly explain their long term objectives says a lot about how dishonest those who have any power in this country actually are.

The recent debates have covered both the high level macro problems of balancing growth, total employment and deficit reduction, as well as the (more) micro issues of the individual effects of taxation (in particular the new Universal Service charge), minimum wages and unemployment. There have been some interesting ideas and observations made but I’m astonished at the lack of joined up thinking.

We have, for example, the various business groups calling for things like reductions in minimum wages and the removal of agreements that enforce premium rates of pay for Sunday work. The main thrust of their arguments are that our minimum wage is too high (compared to the rest of Europe) and the premium agreement is an anachronism. This is not that different to the popular German view that Ireland shouldn’t be bailed out because we pay ourselves too much. And there is some merit in these points when taken in isolation.

Say we were to remove the minimum wage and remove the sunday premium. I don’t know how much either actually contribute to overall employment costs but since the existing premium under debate amounts to 30% and a market driven drop in real minimum wages is unlikely to drop total wage costs by more than 50% for those on the margin I think it’s reasonable to assume that the overall effect on employment costs can’t really be more than about 10-15%. Those are not trivial numbers but they aren’t huge either. Still let’s take them at face value. Our total Income tax take is about €8bn (and dropping) at the moment at an average effective tax rate of 10% or so indicating total income (of employees) coming in at around €80bn or so.

So if we were to drop the two rates and delivered the savings that the business groups would hope to see we might be able to remove about €8-12bn of their cost base (bonus!) but also a reduction in net individual income of the same amount from the economy (hmmh).

For the people we are talking about here (virtually all minimum wage, low end jobs) the effect cannot be that the affected employees will compensate for the reduction by saving less: they have no effective savings for the most part. They will either consume less, or consume less expensive replacements. For the non-export part of economy it means that there will have to be a contraction, GDP will be reduced. And there will be a multiplier effect, all sectors that serve the poorer sectors of the economy will contract by at least as much, and possibly some multiple of that. And there will be an effect on Government revenue – the reduction in pay will reduce USC and Income tax revenue directly by 10% or so and again the multiplier effect of the loss of that expenditure will impact VAT, Excise and Corporate tax revenue (from those low end product\service providers). It’s also worth noting that such downward personal income pressures will typically push up import substitution, hurting local businesses, since we are stuck in a fixed currency zone and comparative advantage pretty much dictates that most things can be manufactured and served more cost effectively from other countries.

The other core argument, and it’s a good and valid one, is that reducing business costs will increase employment, in particular in the vulnerable lower end of the market and increase overall competitiveness. These too have significant multiplier effects, assuming they result in lower product\service costs, and they should certainly drive export competitiveness, which by the way includes domestic tourist and entertainment revenue. This is why we are seeing the real push for this change coming from the larger business organisations and the catering\hospitality sector rather than the broader smaller firm groupings.

How big each effect will be is an unanswerable question, and the argument about merit hinges on the final equilibrium state you believe would be reached. Such changes are not a universal win.

However what is certain is that such changes, if implemented, will drive down personal income across the board. This is the desired outcome and we need to be clear what that means. The reality is that larger businesses and certain sectors desperately need us to deflate the local economy severely (by 20-30% at least) in order to regain global competitiveness. If we had a universally fair reduction in income coupled with a reduction in costs of living then this could seem like a “neutral” change in the longer term but one thing this cannot do is reduce our debt. And if we reduce income (either personal, or government) then our debts become more of a burden.

This is the core problem. We might be able to reduce government deficit, and reduce average wage costs and costs of living. These are things that are technically under our control but we cannot reduce the lump sum of our debt in this way. And if we make this extremely hard changes, and are successful, we will effectively inflate our debts by the same amount. That €100bn to €200bn hanging over our heads effectively becomes equivalent to €150 to €300bn. A 10 year repayment and austerity environment becomes a 15 year trial.

Add to this the reality that our current austerity regime has already started to produce contraction – we’ve got 0% growth at the moment and facing into 2-3% over the next 12 months. Add in the above contractions and deflationary pressures and our ability to  service our debts, let alone repay them will disappear completely.

We’re living proof that for countries reducing expenditure when you are in a recession makes the recession worse.

We’re owed some better explanations about that the overall resolution plan actually is. The current platitudes about austerity, deficit reductions and returning to the market do nothing to explain how we can get from here (effectively bankrupt) to a viable end state in 3, 5 or 10 years time. Detailed analysis of how we can successfully reduce employee wage costs and cost of living in a sustainable way while not turning a horrific but arguably manageable national debt into something that will kill the country would be a good start.

And that’s before we start to talk about things like the effect on society of having 40% of the under 25 male population who are available for work being unemployed. That’s a social catastrophe of monumental proportions that would be very hard to deal with even if the economy was healthy. 5 years of those rates and you are breeding a widespread criminal or revolutionary class of the dispossessed – countries have fallen on a lot less.

The last few weeks have generated some positive buzz for Ireland with our high profile visitors and some interesting oratory by our glorious leader but I’m sorry to say that the big picture looks a lot worse today than it did three weeks ago.

iPhone Tracking–Apple’s Response

This statement from Apple is just about the only viable explanation for the data that I see on my own iPhone:

This data is not the iPhone's location data-it is a subset (cache) of the crowd-sourced Wi-Fi hotspot and cell tower database which is downloaded from Apple into the iPhone to assist the iPhone in rapidly and accurately calculating location. The reason the iPhone stores so much data is a bug we uncovered and plan to fix shortly (see Software Update section below). We don't think the iPhone needs to store more than seven days of this data.

The far more detailed “local” tables are probably the source for the “crowd-sourced” data referred to above but I’ll be digging a bit more to see if there’s anything else lurking in the system databases.

It’s still technically possible for Apple to be harvesting location specific data that could be used to track users but I really don’t think so in the light of their previous statements, the actual structure of the data* that caused this latest batch of seriously uninformed speculation, and the obvious legal risks (in California, where Apple is based) associated with tracking anything that could then be mapped to real people.

Hopefully some sanity will prevail about this issue from here on.

That’s not to say that there aren’t huge risks associated with using crowd sourced location data, as Apple admit to doing a number of times here, but at least at this stage Apple do appear to be aware of the risks and concerns and have been acting accordingly.

* So far almost nobody appears to have actually examined the data with a view to understanding [a] whether it could be used for tracking or [b] why there are so many entries with identical timestamps. I know it’s silly to expect signs of intelligence on the internet but most of the echo-chamber chatter about this was truly uninformed and pathetic.

iPhone Tracking.

The initial brouhaha has calmed down although the level of traditional media coverage was fairly awesome. I had a rather odd encounter with a strange woman on the corner of Green St and Barrack St in Cork on Saturday who felt led to [a] ask me was that an “I4” that I was using and [b] did I know that it was tracking my every move. Apparently she’d read about it in that well known tech journal, The Star, earlier and she was extremely concerned. She went on to explain to me that she used to work with US Intelligence, and to be fair her accent made that slightly plausible but I hope that US Intelligence agencies would hire agents that were less arbitrarily voluble and a lot more discerning in their sources than my over eager friend on Barrack St. Gotta love Cork though, it wouldn’t happen anywhere else.

Apart from that hilarious encounter I’ve had a chance to dig a bit further into the whole “consolidated.db” tracking issue. I have to say that the general commentary online is useless. Almost nobody has bothered to actually look at the data which is astonishing given how easy it is to find with the instructions provided.

Some of the best commentary I’ve seen so far has come from Frank Rieger here on his Knowledge Brings Fear blog. I think there is probably some truth to his assertion that this is the sort of thing that happens as a result of companies or individuals using a bug or bug like feature for plausible deniability but given the fact (as I’ll explain later) that the data is more or less useless for real tracking this is increasingly looking like a non-issue. Indeed if IT Forensics folks are using this to assert that they can covertly track iPhone users then I don’t think that sort of claim should be allowed stand up in court – the data is far to vague, and inconsistent for that.

As I said before there are four sets of tables. Within each group there are xxxLocation tables and xxxLocationLocal tables. All of the discussions I’ve seen talk about the Location tables and these are definitely the locations of cellular towers or WiFi Access points, not the location of the handset at all. It might be possible to deduce the handset location from these if the timestamps on them made any sense but they do not. The timestamps are grouped into batches with tens or hundreds of entries sharing the same timestamp which almost certainly corresponds to the time that Apple sent this location helper data down to the phone. I have 60k or so cell tower locations in my celllocation table but only a couple of hundred unique timestamps. This data might be useful in indicating that I had been within a few km of somewhere at some time but its so infrequent that I doubt that there is any “tracking” data that could ever be derived from it, even if the locations were reliable. And the locations aren’t “reliable” – more on that later.

You can broadly see where someone was over a timeframe of weeks, and by broadly I mean within a few tens of km or so, so I can see that I wandered over and back to Amsterdam, visited Eindhoven, Moscow and Bracknell over the past few months but there’s no way to tell where and when I was in the broader Dublin area on March 20th for example.

Anyway back to the main tables. One is CDMACellLocation and is used for CDMA Cell towers (indexed on MCC+SID+NID+BSSID , and dupes are not allowed by the index) Those are Mobile Country Code, System ID, Network ID and Base Station ID and they uniquely identify CDMA cellular towers globally. For the CellLocation table used for GSM Cellular towers the index uses MCC+MNC+LAC+CI and again duplicates aren’t allowed. The GSM keys correspond to Mobile Country Code, Mobile Network Code, Location Area Code and Cell Identity , again these uniquely identify a GSM cell tower globally. The WiFiLocation table is a lot simpler and it uses MAC addresses as a unique index.

Note that the indexes do not allow multiple entries – so these cannot be used for tracking for any practical purpose. They can be used to tell the last time that a particular cell was possibly nearby but the time resolution is a couple of days and the location is accurate to within a couple of km at best.

I’ve checked the data, not that I don’t trust the SQLite indexes but just to be able to say for certain, and all the tables contain only a single entry for each cell location.

Let me be 100% clear – the data in the CellLocation and Wifilocation tables on my iPhone are totally unusable for tracking, and any other advanced analysis of location patterns. As cached data to help speed up Celltower\WiFi AP based location triangulation they are quite useful though.

The spatial quality of these tables is quite dubious too. There are Celltowers in my table that are more than 100km from any location that I’ve been near in the last year and even one entry in Northern Italy that I know for certain I haven’t been near so even at that level this data is unusable in terms of telling where someone has been. For some reason my database also seems to have missed four days that I spent in Spain and I know I had my phone powered on there, and I was using it all the time although that trip to Spain might just be the one location where I never triggered any Location Aware apps.

In fact, given all of the above, I think that the issues with the temporal and spatial accuracy of the main tables, as far as tracking the user is concerned, make me think that someone decided to structure it this way so the data could not be used to track people.

Actual Tracking data.

Of far more interest to me is the user specific location info that seems to be logged in CellLocationLocal and CDMACellLocationLocal. There are far fewer of these 130 or so vs 60k in the celllocation table in my case, but they have accurate timestamps, locations that appear to be accurate to within a few hundred metres and speed\bearing data. There doesn’t appear to be any pattern to the logged data though so I need to do some more work there but at an average of 1 entry every three days isn’t a whole heap of tracking info. Even with location services enabled for 36 hours it only added an extra 20 or so entries.

Out of curiosity I enabled location tracking, and automatic updating, via Google’s native Latitude app for iPhone on Saturday. Google has now gathered a really impressive track of my movements since then that absolutely can be used to see where I’ve been at very accurate temporal and spatial resolutions – here it is catching a number of spots on my 18 minute walk from Hartlands Rd over to the The Evergreen just after 9:00PM on Sunday night. You can also see that I had a walk around the Lough earlier on, including a diversion that I took to get a cup of Coffee in a shop on Togher St.

This is an example of pretty useful tracking data but it generated a huge number of entries (about 1000 over a day and a half). If someone really wanted to secretly maintain a useful tracking database then that’s the sort of level of detail they’d need. The main thing I noticed as a result was that my iPhone ran out of juice after about 3 hours which makes it a bit useless.

Quinn, a name that I hate more and more every day.

I was horrified to hear on the news today that the Government (with a straight face) has indicated that it would consider instituting a 2% levy _on consumers_ to pay for the €600m or so shortfall that Anglo Irish Bank (!) and Liberty Mutual say they will not take on board as part of their acquisition. The levels of crazy in this story are beyond belief.

For starters Quinn was one of Senior Demons on the the inner circle of the hell that brought us to where we are today. Sean Quinn’s insane CFD gambling on Anglo Irish shares was a significant trigger in the collapse. Of course there were many others in that same circle but the Quinn group was one of those sick beyond all belief organisations that frankly we should let die to serve as a lesson to all the others. I’ll admit that the jobs are important, but the blatant disregard for basic financial responsibility that the Quinn group practised for years is the sort of thing that needs to be eradicated with extreme prejudice.

The fact that Anglo Irish Bank are involved in this at all beggars belief. That they are doing so in this way is something I just can’t get my head around at all. Seriously WTF are Anglo doing buying an interest in any significant financial business? I thought they were on the road to structured euthanasia.

Who is owed this debt that is so important that I, someone who has never had a Quinn policy in my life, has to pay part of it? Why can’t they take they hit?. What happened the normal rules of capitalism? Did I miss some new government policy while I was flying all over the western hemisphere these past few months.

Seriously – my answer to this is no. You can’t have it from me, I’m not going to pay and if you want to you can put me in prison before I will allow any of my money to be spent to bail out yet another capitalist’s gambling debts. Sean Quinn may be a nice man but his addiction to high stakes gambling should not be my problem, or yours.

Restructuring (Again)

Richard Porte has a very balanced commentary up on VOX Eu that clearly outlines why a restructuring of our debt burden is inevitable, and shouldn’t be viewed as either a disaster or a failure of the system. In a very good overview of the situation he also makes the very valid point that some private burden sharing would go a long way towards countering the vast moral hazard situation this has been brought about as a result of the 100% guarantees that investors in Irish banking have been given by the government.

It’s well worth a read although he makes an odd point at the end about the current account deficit that I don’t really understand. We now have the odd situation that we have a current account surplus (Portes’ data is a little out of date) because it reflects trade balances and our export sector is doing particularly well. This helps avoid some liquidity problems depending on what the various parties do with it but that is not _our_ money, or at least not the Government’s money and it will have no real impact on the Government Deficit which is the thing that is giving me sleepless nights.

As I understand it we are currently running a Government Deficit of around €15-18bn a year. I’m not sure precisely because the numbers are hard to find but total annual expenditure is somewhere between €48bn and €51bn and total annual revenue is around €33bn. We have committed to reducing that difference it around €750m-1000m (2%) by 2014 (or thereabouts). That is on top of an existing fiscal adjustment that adds up to around €4.5bn between tax hikes and spending cuts.

Our progress so far has been pretty good – few other countries have ever managed to contract this fast while remaining stable – but the remaining gap is, as Portes points out, an heroically ambitious target. It might be possible but _even_ if we manage to do that we will still end up with a debt that is 120% of GDP and interest rates that are likely to be punitive. Future growth and our ability to maintain a stable society are certainly at significant risk if we do as we are asked, and then still find ourselves paying more to service debts than on anything else. 

The difference between what we spend now, and what we need to be spending is more than we spend on Health, Education or Social welfare. In effect we have committed to cuts that could be achieved by totally eliminating one of those. Obviously that wont happen but it is useful to clarify the scale of the heroic effort that we are going to have to put in in order to get out of this. Debt restructuring wont make that particular problem go away, but it will make it slightly less difficult to achieve, and it would at least make it possible that we could look forward to a future where a recovery was possible.