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    Household disposable income up 2.5%

    CSO figures show wages are higher and profits of the self-employed have increased

    The disposable income of Irish households rose by 2.5 per cent last year as a result of higher wages and increased profits of the self-employed.

    Figures published by the Central Statistics Office (CSO) today show households’ gross disposable income rose to €86.27 billion last year, up from €84.19 billion in 2011.

    The institutional sector accounts, which bring together information on the financial activities of households, businesses and the Government, show household expenditure increased by €424 million to €77.92 billion in 2012.

    Household savings, which are primarily used to pay down debt and fund property investment, rose by €1.77 billion to €11.1 billion.

    The derived gross savings ratio, which expresses savings as a percentage of gross disposable income, increased from 10.7 per cent in 2011 to 12.5 per cent in 2012 as a result.

    Meanwhile, the gross savings deficit of the Government fell by €1.73 billion to €8.55 billion in 2012. This is mainly due to an increase in taxes on income and wealth, which rose by €1.85 billion to €20.9 billion last year, the CSO said.

    Capital investment by the Government amounted to €4 billion in 2012, according to the figures. When combined with the savings deficit, this pushes the net Government borrowing requirement for 2012 up to €12 billion.

    The gross savings of non-financial corporations rose to €16.38 billion, an increase of by €1.7 billion compared with the 2011 figure.

    Financial corporations, including banks, insurance companies and pension providers, had gross savings of €7.67 billion in 2012, up from €6.46 billion in 2011.

    The net borrowing by the rest of the world from Ireland amounted to €6.04 billion, compared to €1.52 billion in 2011. This increase is explained by higher levels of gross savings in the economy, the CSO said.

    Ciara Kenny, Irish Times

    Irish Liquidations


    Businesses deliberately loaded with debt rob the country of future tax income

    It is extraordinary the extent to which the banking sector is behind so many of the woes that litter the business pages of newspapers across the Western world.

    The issue of increased taxation is a similarly prominent story, not least because so many people are incensed at having to shoulder more tax so as to pay off the cost to society of the perfidious banking sector.

    Benjamin Franklin said the only certain things in life are death and taxes but people could be forgiven these days for tweaking the quote.

    Debt as equity
    What is particularly interesting about the issues of debt and taxes is how they are connected by the way a business can use its finance costs to reduce its tax bill. TheFinancial Times commentator, Martin Wolf, has proposed that debt should be treated like equity, by which he means – as I understand it – that you should pay your bank interest from your after-tax profits.

    People in charge of large, successful cash-generating businesses can be tempted to load them up with debt.

    By doing this, they can take the future profits of a company out now, (and bank them), and leave it to the business to pay off the debt that it has been assigned.

    The risk that is associated with the business is in this way switched from the owner to the lender.

    The owner has already banked the future profits and, if unforeseen events lead the business to crash, it is the bank that will take the hit. So the owner of the business gets his future profits, the bank executive who processes the loan gets his fees and the risk is left floating somewhere in the international banking system which, as we have seen, can be viewed as being the responsibility of the general population.

    All of this may sound somewhat academic, but consider the history of Telecom Éireann/Eircom.

    The following paragraph is from the 2002 accounts of Valentia Telecommunications Ltd: “Under the terms of the €2.4 billion facilities entered into between Valentia Telecommunications Ltd and Goldman Sachs International, Deutsche Bank AG London,Barclays Capital, The Governor and Company of the Bank of Ireland, and Allied Irish Banks plc and pursuant to which Valentia Telecommunications Ltd had financed its acquisition of the shares in Eircom, Valentia Telecommunications Ltd agreed to procure that Eircom would enter into an accession agreement pursuant to which Eircom would agree to become an additional borrower and a guarantor under the Facilities Agreement.”

    Valentia’s annual return for 2002 includes shareholders based in some of the world’s best-known offshore locations. Sir Anthony O’Reilly’s Lionheart Ventures had an address in the Irish Towers, NicosiaCyprus. Other shareholders were in the Cayman Islands and Bermuda.

    Such is often the case with large companies involved in such transactions. The companies’ profits, which formerly were taxed, now go towards servicing debts, while dividend and capital gains income goes to owners who have organised their affairs so they pay little or no tax.

    The point this column would like to focus on is the loss of tax involved. The sale of Telecom Éireann in 1999 netted the State €6.3 billion.

    But in the years since then, the eventually unsustainable levels of debt placed on its shoulders meant that the State’s largest telecoms operator, which was otherwise a profitable operation, paid very little tax.

    The State’s plan for dealing with the current crisis includes the intended sale of State assets with a view to raising €3 billion.

    It is not hard to imagine the type of corporate and financial structures that will lie behind any such purchase. An offshore entity buys a valuable State asset using a large amount of bank debt which is placed upon the shoulders of the asset purchased.

    Struggling to survive
    Untaxed income by way of dividends or capital gains accrues to the offshore entity or entities behind the purchase, while the actual business struggles to survive under the burden of its debt and all but ceases making any bookable profits that can be taxed by the State.

    No one is asking Enda Kenny’s Government to redesign the way the world works, but in deciding to sell off valuable assets, it should include in its calculus not just the loss of future profit but also the inevitable loss of future taxation that will arise.


    Colm Keena, Irish Times


    Irish Liquidations


    Bankruptcy expert takes over running of Detroit

    Michigan Governor Rick Snyder has announced a state takeover of Detroit's finances.

    He appointed a corporate bankruptcy expert who took a can-do attitude toward turning around the destitute US city, calling it the "Olympics of restructuring."

    Kevyn Orr is a lawyer best known for his work on the restructuring of Michigan-based car maker Chrysler.

    He said he hoped to avoid a bankruptcy filing by Detroit, something that would rank as the biggest municipal bankruptcy in US history.

    "Let's get at it and work together because we can resolve this, people of good faith. Don't make me go to bankruptcy court," Orr told a news conference, where he was introduced by Snyder and flanked by Detroit Mayor Dave Bing.

    Snyder's move amounts to the biggest state takeover of an American city in over two decades.

    Orr, who was officially approved by a committee of state officials yesterday, is expected to assume financial management of Detroit on March 25. As the emergency manager, he will supplant the authority of Detroit's elected officials, both the mayor and the city council.

    Orr will have broad powers, including the ability to renegotiate labour contracts, privatise services and sell certain city assets.

    The dramatic move is the latest stage in the long decline of a city that was once the thriving centre of the US car industry and the birthplace of Motown music. Once the fifth largest American city, Detroit now ranks 18th with 700,000 people.

    In addition to his work with Chrysler - for which Orr billed $1m in fees during the first year of the restructuring of the smallest of the three major US car makers - Orr has other Michigan ties. He received both undergraduate and law degrees from the University of Michigan.

    The emergency manager will face the huge and controversial task of repairing the finances of a city in crisis. Detroit has run operating deficits for nearly a decade, is starved of cash and facing a crushing burden of debt from commitments such as pensions and health insurance.

    More than a third of Detroit residents are officially classified as living in poverty, and it has an unemployment rate of 18.2%, far above the US jobless rate of 7.7%, according to government figures. Basic services such as street lights and police protection have broken down, and the city has suffered from mismanagement and political corruption.


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    Cullen and Lavin hit out at bank as their luxury hotel is put into receivership

    A LUXURY hotel owned by troubled businessman Bill Cullen and his partner Jackie Lavin has gone into receivership.

    The five-star Muckross Park Hotel in Killarney, Co Kerry, was placed in receivership, following the appointment of RSM Farrell Grant Sparks as receiver and manager.

    The couple, who formerly presented 'The Apprentice' on TV3, lashed out at ACC/ Rabobank accusing it of acting aggressively.

    A statement released on their behalf last night said: "Bill and Jackie are very shocked by the aggressive action of ACC/ Rabobank who arrived into the hotel with absolutely no prior warning.

    "Only six weeks ago they congratulated us on an amazing job in turning around the hotel into profitability and indeed, that we were an example of how to make a success out of a hotel especially when so many were being closed."

    The statement added the couple was committed to the staff working at the hotel and would do all in their power to preserve the 105 jobs at the hotel.


    Declan Taite, of RSM Farrell Grant Sparks, was appointed receiver and manager to Muckross Park Hotel Limited, Boisdale Holdings Ltd, Silvermire Properties Ltd and certain assets of Bill Cullen, on Wednesday.

    A statement from the receiver said the appointment would not have any impact on current or future bookings and it would continue as normal and maintain employment in the area.

    It has also committed to honouring all deposits and gift vouchers and said the hotel would continue to grow its business and revenue over the course of the receivership.

    The luxury hotel and spa in Killarney National Park was bought by the couple 20 years ago. It had got into difficulty in recent years but had since turned a corner.

    In an interview on the 'Late Late Show' with Ryan Tubridy recently Mr Cullen had paid tribute to his partner, Ms Lavin, praising her business acumen and creativity in turning the business around.

    It's been a particularly difficult year for the couple. A receiver was appointed to his company Glencullen Holdings in October. Personal tragedy struck the family soon after with the sudden death of Mr Cullen's youngest brother, Aidan. This was followed a short time later by the death of his sister Rita.

    MAJELLA O'SULLIVAN, Irish Independent


    Irish Liquidations


    Repossessions will drive down property prices, say experts

    A HIKE in repossessions will drive down property prices further at a time when the market finally looked to be levelling off, a new report has concluded.

    The housing market has stabilised to such an extent that prices are beginning to rise in Dublin, according to an analysis from NCB stockbrokers.

    But there is a risk to the market from banks repossessing buy-to-let properties and releasing hundreds of them for sale.

    The new report came as state property agency NAMA said it added a further 100 properties to its deferred payment initiative.

    The scheme seeks to insure the buyer against a further drop in valueof their new home of up to 20pc.

    The properties – which range from two-bed apartments to five-bed houses – are located in Cork, Dublin, Limerick and Wicklow, and cost between €95,000 and €370,000.

    NCB said steep falls in prices of recent years have begun to be arrested, referring to the latest Central Statistics Office information showing that prices had their slowest rate of decline since March 2008.

    Excess supply in many areas, in particular the north and west, means that prices in these areas will keep falling.

    But Dublin and its surrounding counties should continue to do much better because of a shortage of starter and family-type homes.

    The key factor for the market is the expected move by banks to start repossessing homes of defaulting mortgage holders, particularly those with investor home loans.

    Legislation is due to be in place by the end of the month to restore the right of lenders to repossess.


    NCB analyst Philip O'Sullivan said: "A significant potential overhang for the housing market is the banks' approach to buy-to-let properties."

    However, Mr O'Sullivan said there were also other positive indicators that may lift the housing market. These include a gradual recovery of the domestic economy, along with improved credit availability.

    Property prices were also set to be buoyed by a shift in attitudes about home ownership.

    "Bringing it all together we believe the outlook for the Irish housing market has certainly improved," said Mr O'Sullivan.

    The latest figures from the Central Statistics Office show that prices jumped in Dublin in January to record their first annual rise in more than five years.

    CHARLIE WESTON, Irish Independent


    Irish Liquidations

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