Our pro-business environment must remain
The exchequer returns to the end of July make for dismal reading, the redundancy figures for the first seven months are awful and arguably the most symbolically important employer in the country, Pfizer, has announced job losses.
On the plus side, oil prices are slipping back again, the euro has lost some ground and the Federal Reserve is reasonably upbeat about the US economy, although recognising that second-quarter growth was given an artificial boost by personal tax rebates.
The overall story is clear however, the Irish economy is on a declining path and the challenges for policymakers and the rest of us are intensifying.
The tax shortfall of €2.2 billion in the first seven months of the year is serious, and unfortunately the trend is continuing to deteriorate.
Consumer spending and the housing market are the two key contributors and it does not appear either sector is about to experience a revival in fortunes.
A few weeks back the Minister for Finance naively doubled the tax fall for the first six months of the year to come up with the projected tax fall for the full year.
It is now very clear the projected shortfall of €3bn will be up to €2bn behind the eventual outturn.
That is, unless of course, there is a sharp improvement in economic activity for the rest of the year. That does not appear likely.
This means the Minister for Finance will be forced to introduce much more stringent cutbacks in his December budget than most people envisage. The problem is that it is not obvious where.
There is no way that cutbacks in health or education should be contemplated or accepted by the electorate, so the knife will have to fall in other areas such as defence, social welfare and of course the much vaunted quangos, where an awful lot of money is currently being wasted.
The Pfizer announcement is not indicative of a company starting to contemplate its eventual exit from the country but is still sufficient to send a shiver down the spine. I have always believed the biggest risk to the Irish economy would be the exit of a big multinational such as Pfizer or Dell.
My mind has not changed one iota on that issue. It is anybody’s guess how close we are to such an eventuality.
One hopes that it is light years away, but we cannot become complacent and we need to do everything in our power to ensure that the environment for such employers remains as pro-business and generally supportive as possible.
Against this background, it is quite unbelievable to observe the posturing from the trade unions in the aftermath of the temporary failure to conclude a new social partnership wage deal.
Some of the wage demands being suggested are ludicrous given the challenges facing the economy.
Redundancies were up by 36% in the first seven months of the year and the trend is still in a deteriorating mode.
There is of course no guarantee that a sane wage settlement would arrest this trend, but it is clear that an insane settlement would definitely exacerbate it. Some of the suggestions currently being made could certainly be described as insane.
The choice for all of us is very clear and very stark; either we adopt a pragmatic approach to economic management involving sacrifice, or we risk turning the current transitory adjustment in the economy into something much more serious and longer lasting.
The stakes are now very high and if we underestimate and mismanage the challenges facing us, the results will not be pleasant.
