Economic outlook - People have had enough austerity

According to Goodbody Stockbrokers, no new austerity measures will be required in the next budget for the Government to hit its deficit target of less than 3% of GDP.

That should be good news for all of us — but only if the Government is listening to reason and common sense and not slavishly committed to following the diktats of the troika.

In its quarterly economic commentary, Goodbody said water charges will bring in about €500m, leaving the Government room to introduce measures to improve growth, such as an increase in capital spending and a cut in income tax.

Since 2008, successive governments have introduced a shocking array of welfare cuts and tax increases that have driven more and more people into debt and poverty.

The current coalition has been particularly vigorous in pursuing an austerity policy which has included cutting deficits, lower spending, a reduction in benefits and public services, as well as increases in personal taxes.

Under the Government’s current policy, a total of €33bn will have been stripped from the economy between 2008 and 2015. That amounts to 18% of GDP, an amount that is simply neither sustainable nor sensible.

It is little wonder that tens of thousands of people have, as a result of austerity, been driven to poverty and despair. A study conducted by Oxfam shows the measures have had a devastating impact on people already struggling with rising unemployment and levels of personal indebtedness.

Enough is enough — even the economists are saying it.

Goodbody forecasts domestic demand to grow by 2.9% this year and 3.1% in 2015. Average GDP growth will be 3.5% this year, 3.6% in 2015, and 3.4% in 2016. And it expects the Government deficit this year to come in at 3.7% of GDP — well below the budget target of 4.8%. It further forecasts that the deficit will fall to 2.5% next year and 1.5% in 2016.

This challenges the Government’s slavish commitment to austerity. It also challenges the unduly pessimistic view of former Taoiseach John Bruton who only last May predicted that Ireland might need another 10 years of cuts and higher taxes in order to get out total debt burden under control.

Warning that the EU fiscal compact treaty commits Ireland to reducing the debt/GDP ratio from 120% to 60%, Mr Bruton said that budget surpluses will have to be run over the next few years to get the debt down.

He said that unless economic growth “accelerates incredibly”, Ireland will have to run budget surpluses in the coming years. Yet, that growth is precisely what Goodbody predicts. Indeed, it is already under way. Goodbody chief economist Dermot O’Leary said “Ireland’s cyclical recovery has recently regained momentum, leading to an upgrade to our economic forecasts”.

The Government needs to recognise that the nation is suffering from austerity fatigue and there is only so much people can endure. It also needs to press the case with the EU that austerity has its limits and that foreign banks were at least partially responsible for the Irish bubble and should share some of the burden of its devastating consequences.