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News : Irish Economy Last Updated: May 30, 2014 - 10:00 AM


Irish economy and John Bruton's dystopia of 10+ more years of austerity
By Michael Hennigan, Finfacts founder and editor
May 29, 2014 - 8:22 AM

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Screengrab of John Bruton in a BBC Scotland interview, May 2014

John Bruton, former taoiseach/ prime minister and currently a lobbyist for firms in Dublin's international financial centre, on Wednesday added fuel to a raging political fire by suggesting that the Irish economy faces at least 10 more years of a dystopia following five years of austerity since 2008.

In Dáil Éireann goaded by Mary Lou McDonald of a triumphant Sinn Féin, Enda Kenny, current taoiseach, revealed how stung he is by the electoral pasting the Government parties incurred in last Friday's local and European Parliament elections.

Kenny dismissed Bruton's vision of a decade or more of austerity by alluding in pub-stool style to his former party leader's disastrous performance as finance minister in 1982 when a Budget provision for VAT (value added tax) on children's' shoes triggered a collapse of the Government.

The well-heeled Bruton is not the ideal spokesman for austerity having inherited with his brother Richard, currently enterprise minister, farms in Newtown, Dunboyne, Co. Meath and Woodtown, Drumree, Co. Meath, which have combined acreage of about 450.

Two Irish public pensions; a pension as a former EU ambassador to Washington DC; salary as head of IFSC Ireland; land rents and Common Agricultural Policy receipts, help to keep the wolf from the door.

This is relevant as the real austerity has been felt by the minority who lost their jobs, workers on low pay and the majority in the private sector who have no occupational pension.

According to Eurostat, the EU's statistics office, over 40% of Irish owner-occupied houses had no mortgage (40.8%) in 2009 compared with 9.2% in the Netherlands, 12.9% in Sweden and 13.5% in Denmark. The no- mortgage level was 25.5% in the UK.

“The biggest mistake you can make in politics is to promise something that you can’t or won’t deliver,” Bruton said in an RTÉ radio interview. “That’s why it is important to refer back to the limitations that are there.”

He warned about the obligations under the EU's Fiscal Pact and the need to have annual budget surpluses for many years.

If growth in the Eurozone continues to be low or dismal, the Fiscal Pact can be binned as Ireland would not be alone in struggling with debt as is shown in the chart below.

Pay

As the recovery takes hold, it's important that all citizens benefit with growth properly balanced across the UK, John Cridland, CBI (Confederation of British Industry) director-general, said on December 30 last in his New Year message.

Businesses must support employees in every part of the country to move up the career ladder, while also giving a helping hand to young people taking their first tentative steps into the world of work.

“As the financial situation of many firms begins to turn a corner, one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze."

John Cridland said too many people are "stuck" in minimum wage jobs, despite an upturn in the UK economy. He said most firms would expand their workforce in 2014 for the first time since the recession began.

His counterpart in Ireland, Danny McCoy of Ibec, is looking for tax cuts for his members but some of them surely can raise pay.

The lowest corporate and employer social security taxes in Europe are not enough?

There is an argument for adjusting income tax bands but not as an alternative to raising pay.

The CSO reported on Wednesday that average hourly pay has been stagnant in the four years to March 2014.

The number of Irish workers on low pay has been estimated at 21% of workforce and these workers typically have no occupational pension. They have the lowest job security and on redundancy, it would also be typical to be paid only the statutory entitlement.

The Nevin Economic Research Institute (Neri) said in its quarterly report last December that 20.7% of workers are classified by the EU as low paid (with the cut-off point being €12.20 per hour). They also generally work fewer hours per week, although they wish to work more.

Tax cuts will not help these workers who are on the breadline.

Despite a recovery in employment, most of it is in low-paid and non-regular paid sectors:

Irish Economy 2014: Number of employees remains below bailout quarter of 2010

Honesty about the challenges for a change

Nobody knows what the economic outlook will be like in a decade but unless the endemic spin at governmental level gives way to honesty on the challenges ahead, why would there be appropriate challenges to meet them?

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