Reactions to the ‘Deflationary’ Budget, April 2009
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.
First to post was Terrence McDonough, who has written a couple of articles for Irish Left Review already, first as a response to Towards a New Economic Narrative and then on the banking crisis.
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.”
Discussion
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Comment by: Robert Browne
Apr 20th 2009 at 13:04
The elephant in the room in this budget is NAMA it will be the biggest gravy train to leave the station in the history of the state. It will make the tribunals look like a sunday picnic! NAMA doubles the national debt and sells the country into something a kin to debt slavery for the next 50 or so years. The country was borrowing 50 million a day for day to day spending and now intends to double the national debt, on the say so of Mr. Bacon who already produced two documents that were useless in preventing the economic crash. We are a nation of fools, who follow fools, who vote for fools, and who deserve fools!
Comment by: Robert Browne
May 15th 2009 at 03:05
” I see great potential for arguments down in the counts if we don’t get it right, there would be eating and drinking at the committees for decades over the set-up of NAMA as it was an extremely controversial issue. The implications of this are enormous and the and the legislation will be very complex”
So says none other than THE HEAD OF THE National Treasury Management Agency Dr. Michael Summers! See Above!
Think NAMA, think tribunals, multiplied by 50 times! We need to put our money into a good bank (A Canadian One) and let the dead men walking developers sort it out with their dead men talking bankers concerning their various states of bankruptcy. Meanwhile the Irish tax payer needs to show both of them a clean pair of heels. We have already lost the 7bn or so that we have put in! Not to mention the wipe-out of shareholders. Shareholders gone! Developers gone too! There should be no more raiding of pension funds or eying up of Credit Union 14bn savings!
Comment by: ROBERT BROWNE
May 23rd 2009 at 23:05
Harry Crosbie on the Late Late Show 22nd of May, told pat Kenny that he told Minister Brian Lenihan at a meeting, that he “must hold his nerve on NAMA.” Does that not say it all? One of the biggest property developers and speculators in the country telling the Minister For Finance that he must face down the Irish people so that the largest property developers can be rescued. When was the last time Minister Lenihan consulted with anyone on this site?
And what if, the 10 acres or so that Mr. Crosbie and friends speculated on lay idle for the next 10 years, would it make any difference to the rest of the country? No, because we already have enough apartments, music venues, conference centrers etc all over the place that cannot be sold or cannot get enough business to survive!
It seems some ideas despite having the political clout to get bridges built to them, Quality bus lanes built to them, Luas Lines built to them, and a major pedestrian bridges built to them, can still fail!
All because, we refuse to pay hundreds of thousands to live in apartments with balconies or to shell out Euro 100 for gigs! I notice Mr. Crosbie refers to world class artists and musicians as “product” which I think is very strange description. I think he may be holding on to his own “product” for quite a bit or at least until the man who must “hold his nerve’ comes to collect them on his NAMA vehicle for rescuing developers.
Comment by: ROBERT BROWNE
Dec 3rd 2010 at 04:12
15th of May 2009 “Think NAMA, think tribunals, multiplied by 50 times! We need to put our money into a good bank (A Canadian One) and let the dead men walking developers sort it out with their dead men talking bankers concerning their various states of bankruptcy. Meanwhile the Irish tax payer needs to show both of them a clean pair of heels. We have already lost the 7bn or so that we have put in! Not to mention the wipe-out of shareholders. Shareholders gone! Developers gone too! There should be no more raiding of pension funds or eying up of Credit Union 14bn savings!”
18 months later bang! Sovereignty gone, the IMF in the door. The public left staring at the Croke Park betrayal. Trade unions thought that if they clandestinely supported Lenihan they would do ‘nicely’ out of it? How wrong can you guys be and then of course what about the government get out of jail card the de jure clause in the Croke Park Agreement. Perhaps the IMF, bond lockouts and bank insolvency were all seen in advance by the “negotiating parties”?
Now here is what I want to warn about. The IMF in Britain in the mid 70’s presaged the Thatcher era and the unprecedented attack on trade unions. What does Michael think is going to happen here in dear old Ireland? Croke Park was a squalid attempt to circle the wagons and it is going to rob the trade union movement of vital public support in the battle ahead.
The recent march was an attempt to muddy the water some more but the boohs and jeers when O’Connor and Begg spoke said it all. Try and get your stimulus now from the IMF and did you notice the corners of his mouth when he spoke of “the pluck of the Irish” having just plucked the Irish clean?