Skip to content

Wednesday, Oct 13th 2010


October 29th Lunchtime: The Recession Diaries

Sarah Carey suggests the Government listen to the Opposition. Agreed. As a rule, we should all listen to each other. Of course, Sarah employs a sleight-of-hand. When she says ‘opposition’, she specifically refers to ‘Richard Bruton’ and ‘Fine Gael’. I guess Labour doesn’t count. But there you are - already commentators are laying down tasks for the ‘opposition’ to replace the current Government. What they are really referring to is a Fine Gael-Labour coalition. And guess who’s going to lead that formation?But let’s take up Sarah’s suggestion. What are Fine Gael proposing? What would their alternative look like? Fortunately, Fine Gael is quite open about what they would do differently - they published a pre-budget analysis and have been quite vocal in critiquing the Government’s budget. So let’s take a quick run-through.

First, there are things Fine Gael wouldn’t do. They wouldn’t have introduced the 1 percent levy and Air Travel Tax, nor would they have increased the standard rate of VAT by 0.5 percent. They opposed increases in DIRT, motor tax and capital gains. Further, they want personal tax credits to be increased. Fair enough. That’s €1.9 billion of revenue they would forgo.

Second, they opposed the cut in capital investment. That’s about €800 million to add back on.

Third, they have demanded extra expenditure: doubling of the support for debt-distressed home-owners, a doubling of the fuel allowance, extending the back to education allowance, numerous off-sets against employers’ PRSI, etc.

Fourth, they have opposed numerous cuts the Government has made: withdrawal of medical cards from the over-70s, education cuts, social welfare cuts, cuts in farm supports, etc. Further, they opposed the increases in college registration fees, hospital charges and medical expenses, etc. Hard to estimate the cost of all this but it does add up.

So we have a lot of money Fine Gael either wouldn’t have raised or cut - well over €3 billion. But here’s another stinger: they would have reduced borrowing. They have demanded the Government only borrow 5.5 percent of overall wealth, rather than the Government’s 6.5 percent. This would amount to a loss of €1.5 billion. So, in total we have an ‘opposition’ that would reduce the budgetary arithmetic by a staggering €5 billion. How would they make it up?

They do have some ideas: a carbon levy on electricity generators (under the misguided notion that the ESB sets its own tariffs) and a higher charge on banks arising from the guarantee. This could claw back about 16 percent of the money Fine Gael is demanding be cut from the current budget.

Their proposal to divert money from the Pension Reserve Fund into commercial infrastructural projects (e.g. the UK electricity inter-connector, Next Generation Broadband, Metro North and social housing) is good idea - and would allow for an increase in capital investment.

But Fine Gael itself admits all this isn’t near enough. So their bottom is: freeze current Government expenditure at the 2008 level. There are a couple of points about this - something that the media has missed and missed badly.

  • Freezing voted expenditure would ‘save’ about €1.1 billion. In effect, this would mean further cuts over and above what the Government has enacted. Now put this against the backdrop of extra spending demands they have made, the current cutbacks they are opposing - and we are right to demand: where would the cuts come from.
  • Here Fine Gael falls back on freezing public sector pay above €50,000. Sarah Carey specifically talks this up. The claim is that it would save €260 million a year, but it wouldn’t and Fine Gael knows that. The net figure, after tax, would be considerably less. So where is the rest going to come from?

Let’s be clear: the Government is in a total mess because they restricted current public expenditure growth (they didn’t actually cut it). What Fine Gael is demanding is further cuts. Were they in power, the current protests outside the Dail would be like a summer stroll through the meadows compared to what would happen when Fine Gael got through with the budget.

And after all that cutting and pain and sacrifice, there would be a huge hole in the budgetary arithmetic. Because the numbers don’t add up. At best, Fine Gael could only make up about half of what they are demanding. They would need to make further cuts of €2 to €3billion or raise that in taxes - a massive deflationary burden on society - and that would only get us back to where we are now.

So, let’s thank Sarah for her suggestion to listen to Fine Gael. Because now we know: Fine Gael is a cynical and opportunist party. They are engaging in the most populist opposition without a care of whether its’ good for the economy or not. Their programme would lengthen and deepen recession. Fine Gael should not be let anywhere near Government.

So now let’s tun to the other opposition. Labour, are you ready to speak?

Discussion

We welcome and encourage lively discussion from the public about articles on Irish Left Review. You can leave a comment using the form at the bottom of the page. Please read through the existing comments before posting your own.

No comments so far

Leave a Comment

(required)

(required, will not be published)

Best of the Web

  • The Majority of the World’s Countries Can Change the IMF

    By Mark Weisbrot, on Real-World Economic Review

    As finance ministers, bankers, and other interested parties from around the world flock to Washington for the semi-annual IMF-World Bank meetings, the Fund is experiencing its most serious infighting in decades. The fight is over how to give a bit more voice to governments representing the majority of the world’s people. Ironically, the quarrel is mostly between the United States and Europe.

    No comments »
  • EUobserver / Trichet puts dampener on financial transaction tax

    "The financial transaction taxation presents a number of disadvantages economically, financially, in terms of technical implementation and there is of course an element, which is extremely important: It has to be implemented, if decided, absolutely everywhere in the world," said the respected French banker.

    "Otherwise it only translates in displacing transactions out of those who introduce this, so I insist on that," he added.

    No comments »
  • globalirish.ie | Emigrant voting rights: a study of EU nations

    Notice that Ireland is the only country in the EU that doesn’t have emigrant voting rights and has no plans to change that. Once Ireland’s political class was shot of Ireland’s surplus labour during periods of economic contraction they wanted to make sure that they couldn’t complain about the fact that they were forced out by those who were protecting their financial interests. Would Ireland’s political landscape be different if emigrants were allowed to vote? More importantly, how would it effect any future election?

    European Country – Vote at national elections?
    AUSTRIA – YES
    BELGIUM – YES
    DENMARK - (YES) but with many restrictions
    ESTONIA – YES
    FINLAND – YES
    FRANCE – YES
    GERMANY - YES – but only within countries of Council of Europe
    GREECE – NO (subject to change following recent European Court of Human Rights decision)
    IRELAND – NO
    ITALY – YES
    LUXEMBOURG – YES
    SPAIN – YES
    NETHERLANDS – YES
    POLAND – YES
    PORTUGAL – YES
    ROMANIA – YES
    SLOVAKIA – YES
    SWEDEN – YES
    SWISS – YES
    UNITED KINGDOM – YES (Voting right is lost after 15 years abroad – this time limit is being challenged by a Spanish-based UK citizen.)

    4 comments »
  • Socialist Economic Bulletin | Local Impact of the Coalition’s Policies

    An analysis of the British governments plans to make local government implement many of central governments planned cuts. This, the article argues is not for economic but for political reasons.
    "One of the key areas targeted by the coalition is spending in the devolved authorities, regions and local authorities. Local government spending was cut almost immediately after the election, £2.8bn slashed from the devolved administrations, local government and Transport for London in the first £6.2bn package . Other cuts, such as to transport projects and flood defences will have a specific impact on local spending and services.
    Reactionary “Localism”

    This is a political choice. The coalition’s aim is twofold: to deflect criticism away from central government and to co-opt others, especially those outside the coalition parties into supporting or defending the programme of drastic cuts."

    No comments »
  • Number of ‘ghost’ estates four times initial estimate - Irish Independent

    The number of 'ghost' housing estates stands at 2,700 — four times higher than thought, according to the first official government estimate.

    This means that taxpayers face an even bigger bill for the mess caused by developers and the banks.

    Ghost estates are defined as those that contain unfinished, unoccupied, or partially occupied house and apartment blocks.

    No comments »
  • WatsonMedia presents Mark Blyth on Austerity

    WatsonMedia presents Mark Blyth on Austerity from The Global Conversation on Vimeo.

    No comments »
  • Tax Justice Network: Message to the Irish government: European Solidarity is Not a One-Way Street

    Two EU Parliamentarians have issued a stark warning to the Irish government over its tax policies. Markus Ferber and Sven Giegold have released a joint statement to EU Tax Commissioner Algirdas Semeta calling for the Commission to ignore Irish objections and stick to its schedule for creating a common consolidated tax base for corporate taxation in Europe.

    “If the dramatic budget situation deteriorated even further and support from the EU became necessary, it is for the Irish government to make concessions in tax policy in return. European solidarity cannot be a one-way street.

    The MPs warn: it cannot go on like this: by adhering to a corporate tax rate of just 12.5% and the categorical rejection of proposals for a European common consolidated tax base (CCTB) the Irish government is blocking the situation. If Ireland needed the European Resolution fund the corporate tax rate has to be doubled. Moreover, Ireland had to give up its opposition to European cooperation in tax policy.

    No comments »
  • Michael Burke | Comment is free Dublin’s brave slashers have sent Ireland back into recession

    Michael Burke is writing in the Guardian about the Lib/Con coalitions plans to emulate Ireland and argues that by comparing the strategies of Spain, who initiated a stimulus before the EU Commission forced them to abandon it, to Ireland’s slash and burn shows how the outcome of both experiments illustrate what needs to be done to bring an economy out of recession.

    Their effectiveness is striking. The resurgence of the domestic economy has had a significant impact on public finances, as taxes have soared and the deficit has halved. This cannot be attributed to the austerity measures later imposed on Spain by a combination of the EU, IMF and the financial markets. The tax and deficit data are for the first seven months of this year, before the imposition of public spending cuts and tax increases.

    These very different outcomes to the economy and to public finances offer a rare, almost lab-like experiment in the role of government policy in response to the crisis. They also highlight the relationship between public spending, the real economy and the deficit. In 2009 the Madrid government invested its way to an economic rebound which led to tax revenues recovering and a halving of the deficit. The Dublin government’s programme of cuts has led to a depression, a collapse in tax revenues and a doubling of the deficit.

    No comments »
  • Ireland/Spain Update - Paul Krugman

    Regular readers may remember that I’ve written a few posts — here and here — about bond yields in Ireland and Spain. Both had big housing bubbles and busts; but their post-bust politics have been very different, with Ireland quickly adopting austerity, Spain being much more grudging. And for a while you saw many news stories asserting that Ireland’s virtue had been rewarded by the markets.

    But it was never true: virtuous Ireland never did better than malingering Spain. And now, Ireland’s risk premium has exploded, here; Spain’s not so much, here.

    Of course, it’s not at all a clean experiment; Ireland’s banks were arguably second only to Iceland’s in their irresponsibility, and the Irish government’s blanket guarantee has exposed it to huge losses. But bear in mind that when Ireland seemed, briefly, to have regained the trust of the markets, this was touted as proof that austerity will be rewarded. Funny about that.

    No comments »
  • Stephen Wilkinson | Are Cuba’s communist days finally over?

    Good analysis of the economic changes being made in Cuba, following the announcement that Cuba is to reduce its state workforce by 500,000 by the middle of 2011.

    "Cuba is to remain a one-party communist state for the foreseeable future.

    This leads some to suggest that the Cubans are following a Chinese or Vietnamese model. True, there are similarities between the two Asian tigers and what was announced yesterday.

    The Cubans have certainly studied both models closely. But my sources tell me that at a very high level, while the economic progress of the pair impressed, neither met with approval in their entirety.

    Cuba, they say, wishes to avoid the negative social consequences of the Chinese experience.

    A more laudable direction of travel is towards Latin America where Cuba recently announced that it was seeking to eventually form an economic union with Venezuela."

    No comments »

Link Archives »