Bill of wrongs

With a regressive attack on welfare and little to generate domestic demand, the budget has militated against a sustainable recovery, writes Ray Kinsella

THE social welfare bill is among the most regressive pieces of legislation enacted in modern Irish history.

That is surely not the intent of legislators. But it is the reality.

It is not alone the measures themselves. It is the context in which they are being imposed — a backdrop of unprecedented pressures on homes and households which are at the heart of the domestic economy.

The budget, with the notable exception of the SME package, further undermines the capacity of the economy to recover while, at the same time, the social welfare provisions strain at the whole fabric of solidarity. It makes no sense.

Irish homes have been deeply impacted by the rise in long-term unemployment and negative equity. The case for a property tax has long been debated. There are merits to the right kind of property tax, but hardly in the middle of the greatest property collapse in Irish history. It won’t solve, and it will exacerbate, the whole process of adjustment.

On top of this, there are individual measures impacting on parents and especially mothers that, again, make no sense at this time. Begin with the infant and the decision to tax maternity benefit. Then consider how difficult it is to send young children back to school — and the decision to reduce the back to school allowances.

Consider young adults aiming for college, and the increase in fees at a time when getting a part-time job is exceedingly difficult and the prospect of a career at home at the end of the studies is problematic. Then consider the elderly living at home and the measures that impact on them and their carers, against the background of the pressures on the public health system and the catastrophic rise in the cost of private health insurance cover.

There is no painless way to claw back the social welfare largesse, distributed from Leinster House in the last two decades. But there is a better way of going about it.

A benefits culture makes individuals, and a country, dependent and therefore vulnerable. It buys fleeting political popularity and extends the reach of the State into lives and relationships. Both are profoundly unhealthy in a properly functioning democracy.

But it is clear that the kinds of measures included in this welfare bill do not move the country in a sustainable direction.

There is, for example, little indication that the social welfare benefits are being used proactively. Instead, the measures appear short-term cuts dictated, at least implicitly, by the troika and reflect bartering between ideologically different members of a coalition. No family, or company, could hope to achieve stability from this approach. It is difficult to see what makes it likely to work for a country.

There two conditions necessary to return the country to some kind of sustainable path.

The first is trust. The Irish philosopher Onora O’Neill wrote a short insightful book on trust. She recalls that: “Confucius told his disciple Tzu-kung that three things are needed for government: weapons, food, and trust. If a ruler cannot hold on to all three, he should give up the weapons first and the food next. Trust should be guarded to the end: Without trust we cannot stand. Confucius thought still convinces.”

Neither the measures on welfare nor on the economy are calculated to rebuild trust.

Equally, rhetoric about taking “hard decisions” misses the point. There is no merit in taking tough decisions if they are wrong. And the data and recent experience points to them being wrong.

The second relates to economic growth. This is the sixth austerity budget. There is no indication that this strategy is working. The reduction in the current deficit has been achieved not alone by necessary deleveraging but through a growing gap between potential and actual output.

Two key components of domestic demand — government and investment — continue to contract. So is personal consumption, which fell sharply in the second quarter.

What growth there is comes primarily from exports of multinationals; these are vital to the economy but they are not labour intensive, which matters at a time when unemployment is expected to remain at 14%.

The eurozone, which has seen sovereign downgrades and a first downgrade of the ESM debt over the last year, is in recession and unemployment hit record levels in the second quarter. The US faces a difficult climb back up the fiscal cliff of its indebtedness.

In these circumstances, it’s not clear from where the growth to reduce the debt/GDP ratio by an additional five percentage points is going to come from, all the more so since the same strategy that shaped this year’s budget will be repeated next year… and the year after. Debt repayments over the foreseeable future will amount to some 16% of total revenues.

The maths are quite simple: No growth — no additional revenues. Equally, no growth — no reduction in the debt GDP ratio to anything approaching the 3% target by 2015.

Common sense should indicate that a sustainable recovery cannot be achieved on the back of idle capacity and emigration. In these circumstances, the Government’s projected growth rate of 2.9% by 2015 seems fanciful.

Some of the measures in bailout programmes are sensible and were overdue. It is a sad commentary on our political system that we have been forced by strangers to do for them what should have been done in our own interest. Other measures have been shoehorned in to an impossibly short timeframe, so that they are clearly counter-productive.

Three years ago, the argument was made here and elsewhere that the only way forward was to grow the economy so that the burden of debt could be progressively reduced and the necessary structural and social adjustments could be accommodated. The eurozone and the IMF came belatedly to the same conclusion. This was always going to be difficult for an incoming government — and one which was perhaps too accommodating to eurozone authorities that had their own priorities.

What was possible three years ago is much more difficult now. It would be close to impossible by next year. The best any government in these circumstances can hope for is by the time 2015 comes around, Ireland will be so deeply embedded in the fully federalised Europe that is being constructed, that the people will have forgotten the pledges, and all the rhetoric, that have taken a sovereign nation into the anonymity of dependence.

It is an ill service to the whole vision of what the EU was created to be. There is, however, an alternative trajectory.

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