The progressive economy@tasc blog now have a number of posts up on the April Supplementary (or Emergency) budget, which might provide ILR readers with some useful analysis of its potential impact, strategy and what it might mean for the wider economy in the years to come.
His first impression is that the government’s approach has been more moderate than the predictions and recommendations seemed to indicate and he suggests that they were wise to ‘ignore some of the more extreme advice emanating from academia’.
However, despite the increases in the levies and the suggestion of future carbon and property taxes, it seems unlikely that the government will restructure taxation substantially. There is also little indication that adequate employment schemes will be implemented, which should be a central part of responding to this crisis.
Moving on to the ‘bad bank’ idea and the ‘startling’ figure of €80 to €90 billion in impaired loans in Irish banks (as provided by the Dept of Finance) he asks ‘how much of this is ultimately recoverable.
“This is, of course, effectively unanswerable because no one knows where the bottom of the property market is. It would have been far preferable for the government to create good banks under public control which would have retail lending as their purpose. This would have left the risk in private hands where it belongs.”
The productive Sli Eile has two posts providing some initial analysis. The first argues that while this is not the ‘slash and burn’ budget anticipated in the media and prescribed by some academic economists, it is still a deflationary budget that puts most of the tax increases ‘on PAYE earners including the working poor and those on the basic minimum wage’. The government also indicates that worse is to come in the next four years providing further deflationary pressure. According to the government’s own estimates the April budget will reduce economy activity by 1%. This estimate may be questioned, says Sli Eile. Listening to some of the commentary on Morning Ireland, it is already is being.
The underlying assumption of this budget, Sli Eile argues, is a projected unemployment rate of 15.5% in 2010. Without any alternative means of reversing this the social and economic impact of such a potentially prolonged level of unemployment could be devastating for Irish society.
“The implications for social well-being, social partnership, the state of public services, health, crime, civil unrest are profound. We should not panic but the scale of this downturn, its speed and its likely gathering impact on peoples’ lives is shocking.”
Sli Eile’s second post examines the budget under several headings, including: leading by example(with regard to politicians and pay), capital taxes, overseas aid, social welfare payments (citing Michael Taft’s open letter to Sarah Carey), pre-school provision, tax rates (citing Colm Keena in the Irish Times recently ’9,129 people, or 0.3 per cent of earners, between them earned €6.7 billion, or 6.6 per cent of all income’), public capital programme, tax base, public sector reform and banking
“So €80 billion is the book value of bad debts. Who knows? Who cares? The taxpayer in 2009 and 2059.”
Peter Connell, in a post title ‘A budget destined to deflate’, suggests that views expressed in the debate prior to the budget, about how much needs to be reduced in the deficit, ranged from those like Brian Lucey of TCD who recommended a reduction of between €6 and €9 billion to the Labour party who called for a €2.8 billion package. However, he observes, the government went for the middle ground, with a package of spending cuts and tax increases that amounts to €3.3 billion leading many commentators to suggest that this might avoid ‘killing the patient’.
This, however, remains to be seen, Connell says. With the impact of tax increases and cuts in Early Childhood Supplement scheme hitting middle and lower income earners significantly the returns on VAT and Excise duties may be lower than the government expects:
“We know that about 35% of all income is earned by those earning between €20,000 and €40,000 a year. And we can be pretty sure that most of that income totalling about €37 billion is spent – on food, rent, mortgages, clothing, transport, household goods.”
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