Don’t let our economic history repeat itself

The prognosis for the Irish economy just continues to get better and better.
Don’t let our economic history repeat itself

Last week, we had the ESRI coming out with a very upbeat assessment of economic prospects, and hot on its heels this week, a leading stockbroker has produced an even more positive assessment.

There is a body of opinion out there at the moment that is tending to ridicule anybody with a sense of optimism about our prospects; perhaps driven by a sense of hurt that despite all of the very painful fiscal austerity since 2008, the economy has managed to stay afloat and is now poised for somewhat better times.

Despite what some are suggesting, the economic recovery story is not spin and is supported by very compelling evidence. Almost all Irish economic indicators have improved, markedly over the past six months and the good news is that the momentum is still improving.

That the economy has managed to withstand a fiscal correction of around €29bn since 2008 bears strong testament to the resilience of people.

While it is clear that the economy is in relatively strong recovery mode, it is also clear that the majority of people are not yet feeling it in their pockets.

That is not terribly unusual at this stage of what has been a very bizarre economic cycle since 2008. Wages have fallen heavily for many workers since 2008 and the tax burden has increased in pretty savage fashion. This year, people are being faced with the full-year’s property tax bill and shortly they will be subjected to a still unquantified water charge. Other essential cost-of-living items — such as health insurance and education costs — are still rising at an alarming pace.

For consumers to start feeling it in their pockets, we will need to see a further improvement in employment, productivity-driven growth in wages, and an easing of the draconian personal tax burden.

Based on current indications this should gradually gain traction from 2015. When these things happen, the feelgood factor will start to emerge and the recovery will become more real for people at work.

This is all good, but there is still a degree of fragility which should convince policymakers not to get carried away and start implementing policies aimed at the 2016 general election.

Over the past couple of weeks we have seen further evidence of just how weak the eurozone economy is. The Italian economy has slipped back into recession, business confidence in Germany is starting to weaken markedly, not helped by the Russian situation, Portugal is caught in a deflationary phase, as indicated by a decline of 0.7% in consumer prices, and the overall zone is itself dithering on the brink of deflation.

Domestically, it is very clear that there are still enormous challenges to work through, with sovereign, personal and small business debt the dominant theme.

This background suggests, to me, that now is not the time to lose the head.

I find it astounding that the Government would start to contemplate the possibility of reversing. The country is still borrowing too much and has a dangerously high level of debt.

The decision, back in 2001, to increase the public sector pay bill by almost 10%, at the stroke of a pen, was disastrous. Likewise, a reversal of public sector pay cuts would be disastrous at this juncture. Such a move would, of course, increase pressure for wage growth in the private sector and this would not be in the best interests of Ireland’s external competitiveness.

Government would be better advised to keep a tight control over all areas of public expenditure and, instead, put more money into workers’ pockets through an easing of the tax burden.

Please protect us from the politically motivated mistakes of the past.

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