In its monthly Irish Economy Monitor, published today, NCB Stockbrokers recalls the infamous words of former taoiseach Charles Haughey: "we are living away beyond our means."
In 1980, Charles Haughey said in a television address: “As a community we are living away beyond our means. I do not mean that everyone in the community is living too well. Clearly many are not and have barely enough to get by. But taking us all together, we have been living at a rate which is simply not justified by the amount of goods and services we are producing.”
NCB economist, Brian Devine, says today that it is often forgotten that the required fiscal consolidation effort is a multi-year project.
The €4.75bn in savings that needs to be generated in 2010 is just the start. A further €4.6bn, €4bn and €3bn needs to be found in the years 2011, 2012 and 2013 respectively. This equates to approximately 7% of 2009 GDP.
Devine says these savings will need to be found; year-to-date Ireland has borrowed €28.6bn or approximately 16% of 2009 GDP.
On Wednesday in Dublin, OECD Secretary General Angel Gurría, a former finance minister and foreign minister of Mexico, said Ireland cannot afford to go into another economic cycle, without the reform of property taxation. He said "government expenditure in recent years increased rapidly: spending was 50% higher in real terms last year than five years before."
Gurría said some of this was justified but, "this level of spending cannot be sustained and must now be adjusted."
Brian Devine says currently the burden of adjustment is not being shared fairly across the economy. The private sector has seen both large pay cuts and employment cuts. He said upward-only benchmarking is unjustifiable. Costs need to come down right across the entire economy. Public sector service and pay cuts will have a deflationary effect but it would be less deflationary than going after taxes in Budget 2010 and such measures will improve competitiveness. Ultimately this will be beneficial for growth and jobs. The unions, by opposing pay cuts in the public sector, are pulling up the drawbridge and protecting those with jobs to the detriment of the economy and in particular the young.
Unemployment for those aged 20-24 was 23.0% at the end of Q2 up 15.2% from Q2 2007. For those aged 25-34 the rate was 13.4% (up 9.0% from Q2 2007). In comparison the rate was 9.9% (up 6.2%), 7.8% (up 4.3%), 6.2% (up 3.5%) and 5.7% (up 4.2%) for those aged 35-44, 45-54, 55-59 and 60-64 respectively.
Devine said taxes will have to form a part of future budgets. The suggestion that a third higher marginal tax bracket be imposed is not practical. Only 10% of employees are currently paying tax at the higher level. Furthermore, the Minister for Finance has revealed that 50% of all earners are now out of the tax net entirely.
