Spring Statement – Back to the future

Posted: May 4, 2015 in Austerity, Debt, Economy, Elections, Fiscal Rules, Inequality

One thing is clear from the Governments much hyped Spring Statement – they have learned nothing from the mistakes of the past.

Reading through the two Ministers’ speeches you get the impression that the starting point of our current social and economic crisis was the giveaway McCreevy budgets of the early 00s.

These budgets were indeed badly designed. They contributed significantly to the subsequent collapse of the economy in 2008.

But the causes of the crisis lie much deeper than the brown envelope economics of Ahern era Fianna Fáil.

They are to be found in the model of social and economic development which has underpinned the policy of every Irish Government since the late 1980s.

The refusal of Fine Gael and Labour to understand this crucial point means they are focusing on the symptoms rather than the causes.

The consequence of this refusal is the two tier recovery now underway – embedding a deeply unfair distribution of resources and opportunities into the fabric of our economy and society.

Tuesday’s Dáil statements were like a badly produced amateur dramatic society rehash of the 1980s Spielberg classic Back to the Future.

The eccentric Doc Brown had a Limerick accident. The ebullient Marty McFly a Wexford swagger.

Their plan was to fire up the DeLorean, go back to the 90s and undo the damage of a decade of Fianna Fáil fiscal indiscipline.

The intrepid time travelers are betting that tax cuts, below inflation spending increases and enduring fiscal discipline will transform the McFly family fortunes.

The question is, if this policy mix failed so badly in the 1990s what makes anyone think it will work today.

Noonan’s promise of year on year income tax cuts is a recipe for disaster. The majority of the benefits will go to higher earners as they have done this year.

Meanwhile the State’s tax take as a percentage of GDP will decline as will Governments ability to invest in social and economic recovery.

Social and economic inequality will increase as in turn will the need for public services.

But public spending will lag behind not only the rising level of need but the now well documented demographic pressures of a growing and ageing population.

Contrary to Noonan and Howlin’s claims there will be no expansionary budgets. Rather the economy will be running to stand still and for many people will continue to slip backwards.

Crucially, unlike the 1990s, we won’t have the benefits of EU Structural Funds, historic levels of foreign domestic investment swirling the globe looking for a home, or lose Eurozone monetary policy.

Instead we will have a weak state, crippling public and private debt and inadequate public services.

There will be more people at work but a growing number of these will be on low paid insecure contracts. In-work poverty will rise as will social dislocation.

This is the future that Fine Gael and Labour want to take us back too. This will be the consequence of the Noonan and Howlin Spring.

Just like Doc Brown’s DeLorean it may look good on the outside but when get beneath the bonnet you can see it is badly designed, destined to break down and unable to get you where you want to go.

Of course there is an alternative. But it starts from a profoundly different proposition.

It argues that a recovery is only meaningful if it is fair and provides for those in greatest need.

To achieve this Government must have the resources to invest.

This means not only growing the economy but increasing the tax take as a percentage of GDP towards the EU average.

It means adopting a fiscal policy that is socially, economically and fiscally responsible. This means re-negotiating the existing EU expenditure rules and deficit reduction targets.

It means dealing with the unresolved levels of public and private debt caused by the crisis – reducing the debt and its cost for the State and for families.

These three measures would ensure Government could invest in an alternative model of social and economic recovery.

A greater focus on supporting the capacity of indigenous businesses to thrive would increase their profitability and their ability to create more and better jobs, including west of the Shannon.

In work poverty would be challenged through legal protections to combat low pay and precarious hours and through the right to collective bargaining.

High quality universal public services would reduce social and economic inequality and create a fairer society.

The weak, vulnerable and unequal State created by decades of failed Fianna Fail, Fine Gael and Labour economic policy would be replaced by a strong, sustainable and equal society in which no family is left behind.

A fair recovery can-not be achieved with tax cuts, below inflation public spending and rigid adherence to EU fiscal rules.

It requires a change of direction, not back to the future but forward to a better, fairer Ireland.

The Government can talk up the recovery all they want. But people aren’t stupid. They know how much money is in their pockets. That’s the reason why the Government’s poll numbers give them so little cause for comfort.

This article was originally published in the Sunday Business Post on 3.5.15

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