Sticking to €2bn in cuts will cripple people

This week the European Commission sent a strong piece of advice to the Government that it should press ahead with a budget adjustment of at least €2bn in the October budget.

Doling out this sort of advice is very easy, but takes no account of the economic, social, and political realities of coming up with a further adjustment, particularly as it is following the incredible €29.8bn or thereabouts that has been extracted from people since 2008.

The reality is that many hardworking people are now under severe financial pressure to meet the cost of necessities and are struggling to stay solvent.

A snapshot of price changes highlights the financial realities. In the two-year period to April the cost of health insurance has increased by 22.3%; education costs have risen by 9.5%; motor tax costs are up by 9.9%; gas prices have increased by 12.4%; electricity costs have risen by 11.8%; and private rents are up by 14.5%.

The only saving grace is that average food prices fell by 0.6% over the same period.

Personal disposable incomes have taken a serious battering since 2008 as the tax burden increased.

The items listed are necessities for many people and the magnitude of the price increases is coming straight out of people’s discretionary incomes.

It is not surprising that consumer spending in the economy is still much challenged and that the wholesale and retail sector shed a further 5,900 jobs over the past year. To compound the difficulties for people in Dublin in particular, house prices are now taking off again, with an increase of 17.8% in average prices in the capital.

Many people aspire to owning their own home once they reach a certain age. Some may view this innate desire to own their own residence and then spend 25 or 30 years paying the mortgage back as a bit irrational and point out that in many European countries in particular, this desire does not exist.

However, nobody should describe it as irrational, it is just built into the Irish psyche to own rather than rent. That is their choice. The problem is that given the massive financial pressures on people, the ability to build up a deposit and fund a mortgage is becoming more and more difficult due to the pressures on discretionary incomes, and now house prices are starting to move further and further away from them.

To compound all of these personal financial difficulties and realities, it is not clear to people where the extra money being taken from them is actually going. In theory one expects to pay tax to fund vital public services. However, the reality in Ireland today is that the quality of such public services is deteriorating at a marked pace. Accessing the public health service is a nightmare, the public education system is likewise being decimated, the quality of law and order is also deteriorating rapidly, and public roads are being seriously neglected. I could go on and on, but the reality is clear.

Many people are now under serious financial pressure, and it is not just those in mortgage or other loan arrears, and despite the massive increase in the personal tax burden, the quality of public services is deteriorating visibly. The unfortunate reality of course is that the extra taxes are being used to service the national debt, a significant portion of which is related to Anglo Irish Bank and Irish Nationwide.

Is it any wonder that people are angry and that the government parties got a serious slap in the face?

Yet in the midst of all of this the European Commission has the nerve to call for a further fiscal adjustment of at least €2bn.

So what if our deficit comes in at 3.2% rather than 3% next year? That 3% target was pulled out of the air and has no scientific basis. It should now be ignored in my humble view.