Consolidation bid ‘shared unfairly’

DECEMBER will see the first of the severest budgets the State has ever experienced: €16.35 billion in savings and tax increases must be found over four years to get the State’s finances back in order.

NCB Stockbrokers economist Brian Devine said yesterday it is often forgotten the fiscal consolidation effort is a multi-year project. “The €4.75bn in savings that needs to be generated in 2010 is just the start. A further €4.6bn, €4bn and €3bn needs to be found in the years 2011, 2012 and 2013 respectively. This equates to approximately 7% of 2009 GDP.

“These savings will need to be found; year-to-date Ireland has borrowed €28.6bn or approximately 16% of 2009 GDP.”

Mr Devine said Charles Haughey’s derided words of 1980, “As a community, we are living away beyond our means”, are once again apt.

“I do not mean that everyone in the community is living too well. Clearly many are not. But taking us all together, we have been living at a rate which is simply not justified by the amount of goods and services we are producing.”

The NCB economist noted that people are shouting “foul” that they did not cause the problem and never saw any of the benefits of the boom years. “Granted, a large part of the blame can be levelled at developers, bank directors, economists, regulators and the Government, but the reality is that nearly everyone was complicit. Free education, higher public service pay, lower taxes, no income taxes, increased welfare payments, higher return-on-equity, child benefit increases, larger tax credits, etc . . . all stemmed from an unsustainable property boom.

“Given the current operating system of Government, if these benefits had not been passed onto the public, the Government would have been voted out of office and replaced by the opposition who would have duly obliged the public.”

However, Mr Devine believes the burden of adjustment is not being shared fairly across the economy.

“The private sector has seen both large pay cuts and employment cuts. As we have said on numerous occasions, upward-only benchmarking is unjustifiable. Costs need to come down right across the entire economy. Public sector service and pay cuts will have a deflationary effect, but it would be less deflationary than going after taxes in Budget 2010 and such measures will improve competitiveness. Ultimately, this will be beneficial for growth and jobs. The unions, by opposing pay cuts in the public sector, are pulling up the drawbridge and protecting those with jobs to the detriment of the economy and, in particular, the young.”