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Brian Cowen Announces Mini Budget to take place on April 7th
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A good ol’ Tuesday Budget according to tweets from the Dail this morning. Cowen was speaking during leaders questions and revealed there will be a mini-budget on April 7th (nowhere near April fools day). There is still no sign of the kind of economic expansion that the rest of the world is banking on to get it out of the hole. Could taking money out of the economy in droves be the nail in the coffin?
Cian,
Tax revenues for this year will, on current trends, amount to not much more than 33bn euro. Costs projections for running this State in 2009 are of the order of 49bn euro. With the increase in unemployment, expenditure on social welfare alone this year will be 20bn euro. The increase in unemployment in recent months has been almost as dramatic as the fall in tax revenue, not surprisingly since the two are intimately linked. Every 100,000 persons added to the Live Register costs an additional 1bn euro in social welfare payments.
That’s the problem as I understand it. Please correct me if I have got it wrong?
If no action were taken then the budget deficit for the rest of this year would be of the order of 12 or 13% of GNP. We can’t run deficits for the next three years of the order of 12-15% of GNP, which is where we are heading, because we can’t borrow that kind of money on the international markets since no-one would lend it to us, nor could we afford to pay it back even if we did. In short, we tackle the problem or we go bust.
There’s a lot of bull being talked about elaborate ‘stimulus packages’ – not appropriate to our small open export led economy in the first place and simply unaffordable in the second – by people whose main interest seems to be in further boosting public spending while simultaneously opposing any public sector cost cuts in any shape or form.
All of the make-work schemes that could possibly be conceived of were tried out in one form or another in the 1980s. And all of them made damn all difference to the economy or to unemployment levels – non-productive employment schemes will not solve our problems, we should have learned that by now. In any case, back in the 1980s the EU stumped up half the cost of these schemes. They can’t, and won’t, do so again.
As for stimulus through infrastructure spending, the hole in the public finances is now so large that the capital budget will have to be severely pared back from the current projected level. Many of the more extravagant projects in the NDP were conceived of when it was anticipated that we would have economic growth rates of circa 3% into the foreseeable future. Some of these projects can be delayed indefinitely, or dropped altogether with no long term economic detriment. As for the rest of it – like new school buildings etc. – only those initiatives that make economic and financial common sense in the medium term should proceed.
The real crux for our society is rising unemployment and the human misery it drags in its wake. I believe that should be the political priority and that we must do our utmost to support people who are losing their jobs in droves whilst making whatever sacrifices are encessary, as individuals and a community, to recreate the conditions within our economy that will provide people, especially young people,with opportunities for new jobs as quickly as possible. Most sensible economic commentators seem to be agreed that the key to stopping the rot lies in restoring competitiveness to our economy and, whether people like it or not, that involves cuts across the board in public service costs and an end to spiralling public service inflation. The much derided pensions’ levy is only the start of it.
Right now it is unfortunate to have to increase the general tax burden, for the reason you mention, but it appears to be unavoidable. Incidentally, the scope for bridging the gap by ‘taxing the rich’ is a lot less than some populist politicians would lead us to believe. But then, they have other more important considerations on their minds than what happens to the rest of us!
I also think it would be helpful if all politicians dropped the word ‘fair’ from their vocabulary for the rest of 2009. The situation we are in, and the solution to it, is neither fair nor unfair, it’s just something we’ve all got to deal with on its own terms, not in line with our individual ideological preferences.