Honohan: Poor hit hardest by economic crisis

The governor of the Central Bank has said the poor of Ireland have suffered the most during the economic crisis, reopening the debate as to who has been worst affected by five years of austerity.

Patrick Honohan’s hard- hitting assessment will fly in the face of current Government thinking, which aims to provide income tax relief for the so-called coping classes whom many ministers, including the Taoiseach, have said suffered substantially following a series of tax increases.

In his speech to a European Commission conference in Dublin yesterday, Mr Honohan said while the downturn has had a broadly similar effect on incomes across society, an equally proportionate reduction in incomes hits the lower income groups harder.

“There has been a substantial increase in the proportion of poor households suffering deprivation in the years since the crisis broke,” he said.

However Transport Minister Leo Varadkar said the question of who suffered the most was still up for debate as a recent ESRI study showed it was the top 10% and the near-bottom 10% who were worst affected by the recession.

“But if you talk to people all around the country they’ll tell you it’s the middle [classes] so there’s a big debate to be had about the facts and figures around that,” said the minister, who maintains that while middle-income earners deserve some tax relief “everyone should benefit from the upturn”.

During his speech Mr Honohan asked what happened to all the money that flowed into Ireland during the 2000s. He said one view was that the money simply flowed back out of the country again when investors who bought Irish bonds were repaid out of borrowings from the euro system and the banks themselves.

The Central Bank governor said the three-year EU/IMF bailout programme “delivered exactly what it said on the tin” and looking to the future, he said “the rest is up to us”.

He said market confidence in Irish credit-worthiness was now higher than at any time since the Greek crisis of May 2010 and this had been achieved by rigorous adherence to fiscal goals set by the troika.

“My overall impression is that most of the specific measures urged on the Government by troika staff as the programme unfolded were sensible or inevitable; few were really bad ideas,” he said.

He said the growth in employment was probably the most encouraging indicator as it showed a decade-long trend before the construction-related surge during the 2000s.

That surge has left hundreds of thousands unemployed and more than 100,000 households in mortgage difficulties and yesterday Finance Minister Michael Noonan said the Government was trying to get rid of the red tape involved in the personal insolvency legislation in order to speed up the process.

The Government is overhauling the law, just three months after it came into force, because it is taking too long to resolve cases.

The move was welcomed by Noeline Blackwell of free legal aid service FLAC, who said people could not approach personal insolvency practitioners as debt solution depended on substantial levels of future income.