A plan to reign in out our spiralling deficit and national debt.
Why do it?
Because without this or something like it we are up $h1t creek royally (paddle optional).
Should you be happy about it?
If you are a masochist then yes, if you are a sadist then perhaps, otherwise no good news – except that with any luck we get economic growth back and sort out our mess once and for all. The big failure is the absence of a pain-plan for the bank, the taxpayers got one minus any anaesthetic, financial institutions once again (as always) are off Scott free.
GDP expected back on moderate increase this year due to strong export growth of 6% in real terms (real: considering inflation/deflation so +2% in a -4% deflationary environment = 6%).
Numbers losing jobs is slowing down – in Govt. speak they call this ‘stabilization of the labour market’. Deleveraging (paying off money) and high savings are causing a drop in domestic demand (we are not spending).
Balance of payments (the accounting of all transactions between Ireland and the world) will record a small surplus in 2011 – ‘meaning we are starting to pay down debt’ (my personal take on that bit is that we’ll be importing less).
We’ll export our way out: because we have good human capital (although you have to question the intelligence of a nation who allow a government to do what they have done to remain in power), good infrastructure, tax policies that favour entrepreneurship (like an absence of welfare for the self employed/company directors) and credit availability for viable businesses (yes, they are having a f”£king’ laugh at this point).
Real GDP expected to be 2.75% from 2011-2014, 90,000 new jobs (net) created from 2012-2014 (because at this rate we’ll be cheaper than the Chinese) and unemployment below 10% by 2014.
How Much Adjustment is needed?
€15 billion over the last two years, and an additional €15 billion now to bring the deficit back to 3% of GDP by 2014 (this doesn’t regard the ‘total debt’, merely the difference between what we earn and what we spend).
Expenditure/Tax will be 3:1, €6 billion front loaded, deficit to reduce to 9.2% of GDP in 2011. Debt/GDP ration will peak at 102% in 2013 and fall to 100% by 2014. Note: Debt/GDP is a pointless metric, perhaps even Debt/GNP is too, it has to be Debt/Actual Revenue you have to pay back with after all other costs.
Will this kill recovery? No, we are Fianna Fall and never get it wrong ‘I don’t accept that’ as either of the Brian’s are prone to say. Despite developed countries historically not trending over 2% growth Ireland will be different, to say ‘It’ll be different this time’ is an understatement ‘f”£kin€ horrific’ is far plainer English and conveys the point more accurately.
Adjustment will weigh on domestic demand (already suppressed as mentioned earlier), effectively dropping imports (much of our retail) and in effect, we hope people buy from us and that we don’t buy from them and the difference can go to the state to support this plan.
How can the Government boost growth? (in genuine God’s honest truth they can’t, they can only try to create conditions that allow it to happen).
Minimum wage of €8.65 is no more, we have reached a new low of €7.65. Reform of the welfare system to incentivize work. Promote rigorous competition in the professions to help bring prices down (I wonder which consultants they paid handsomely to come up with that one?).
They also want to reduce waste, energy costs faced by businesses (ESB you are about to take a hay-maker to the face), and reduce office rents.
Why do we have to reduce spending?
We spent like morons in the boom and a lot of the spending ideas made then still exist now (for the same reason that a person who earns €2,000 per month cannot continue to spend €2,500 per month and not get into trouble). Day to day expenditure went from 28% of GNP to 44% of GNP from 2006-2010 (partly because GNP took a beating)
Reduce cost of public sector wage and pensions bill, social welfare and public service programmes. Social Welfare €2.8 billion, Public Sector payroll €1.2 billion by 2014, this will be mixed with redeployment of staff, better efficiency and by cutting wages for new entrants by 10%.
Student contributions for 3rd level will go up. A water charge will be introduced.
Taxes in 2010 will be 35% less than in 2007 (new normal reality v.s. pants-off madness of 3yrs ago) because the bubble (along with my faith in our state) has subsequently burst. We need more taxpayers
(The Numbers: Ireland, population 4.4 million, workforce 2.2 million, people working 1.9 million, people paying tax c. 950,000. Everybody who isn’t in the 950,000 is a net recipient rather than contributor).
Everybody will be asked to grab their ankles according to their ability to do so, suck it up.
12.5% corporation tax remains.
€1.9bn more via income tax
pension related tax changes €700m
Tax expenditures (allowances) gone/curtailed yield €755m (so they’ll get this money instead of somebody being able to avoid paying it).
VAT from 21% to 23% in 2014 (blatant sop to the UK there methinks – but given that they pledging to bail us out too I figure fair enough). Although it will hurt domestic demand of services, and remember: we are now a ‘services nation’, this won’t reduce professional services costs, it will increase them, its a contradiction to the statement made earlier.
Carbon tax from €15 to €30, will bring in an extra €330m
CGT/CAT reform to bring in another €145m
BES will now be for targeting job creation.
Nice interesting article, what the country needs to do now is get on with it and sort it out.
my apologies in advance as i know the reality is very dark, indeed..
however, never forget who put the the Irish economy into this turmoil, i would say not necessarily the government, although it is the least-resistant-path to blame at this very juncture.. Look government debt/GDP ratio and you will see it..
also, i dont happen to agree that public should not suffer and share the burden of this mess through austerity program, because it is the very same public who indulged into the booming housing market and kept fueling the bubble by pushing the prices higher and higher.. nobody forced them to do so.. nowthat party is over, the officials are doing their best to keep Irish economy open to international market (you call it exporting its way through exports, but whatever).. who do you think that should pay for this mess, USA?? EU? Germany?
again, my apologies but the truth is the truth.