Solutions for The Irish Economy Justifying and Outlining Elements of Fiscal Stimuli Tom O’Connor- CIT Lecturer in Economics & Public Policy
Table 1- Justifying Stimulus Date
Unemployment Tax Take
Exchequer Deficit
31st Dec 2007
198,000
47.8 billion
1.6 billion
May- June 2008
201,800
Down 1.45 billion 5.65 billion
31st Dec 2008
352,000
41.6 billion
12.7 billion
31st Dec 2009
436,956
33 billion
24.6 billion (Inc paid Anglo 4 billion)
Two Years 08+ 09
238,956
14.8 billion
20.6 (minus Anglo)
Comments on Table 1 Fall in taxes accounts for 14.8 billion of the 20.6 billion deficit (leaving Anglo out) Spending had slipped somewhat The Major problem was taxes based on dramatic increases in unemployment Government policy has ignored the unemployment the by far the single biggest cause of the exchequer deficit & falling taxes
Why is the government so Foolish? It wants to use unemployment to implement a ‘structural correction’ to the Irish labour market and economy High unemployment used as justification to drive down minimum wage and wages across the economy Government pinning hopes on lower waged workers becoming more ‘competitive’ incentivising employers to employ them more cheaply as part of an economic recovery
Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Unemployme nt 16.6 16.2 14.7 13.4 14.7 15.4 15.6 14.3 12.3 11.7 9.9 7.5 5.7 4.3 3.8 4.3
Real GDP Growth 4.7 5.2 5.7 8.5 1.9 3.3 2.7 5.8 9.6 8.3 11.7 8.5 10.7 9.2 6.2 6.1
Need for Stimulation Thatcherite government policies on wages and reserve army of labour will not work. They are a race to the bottom. Competitive advantage through higher education and training can sustain decent living wages through increased value added and productivity. This requires new targeted investment and re-skilling
Ahead of the Curve (2005) Sustainable
energy (govt cut SEI budget in
April!!) Telematics Biomedical devices Biopharma (govt cut funding for courses!!) High quality food exports Health and education services for export Ahead of The Curve (2005) for 15 years.
Package 1 Government needs 5 billion at least stimulus 2010 + 2011 Companies should be vetted and viable one’s aided within 3 months Government should give 50% grants in return for shares to be redeemed over 10 years and 50% in loans High quality retraining should happen in parallel through state training agencies to match the skills needs necessary
Package 1 Continues Re-training allowance of 330 Euros Priority should be given to indigenous Viable and strong State Owned Enterprises which would pay dividends to state and should be part of this A state Development Bank should be set and work alongside higher budgets for Enterprise Ireland.
Package 2 Schools building programmes (extra 400 million) Revolutionising mental health services as provided for in Vision for Change (2006) = 750 million. Publicly provided geriatric facilities (extra 300 million)
Package 3 Government purchases 50,000 housing units for 5 billion @100k each 35,000 sold to those on waiting lists at 100k each. 15,000 rented by local authority Banks finance the purchase of 35,000: Govt gets back 3.5 billion, saves 270 mill on rent allowance. Net cost = 1.23 billion
Social and Economic benefits 600 per month per 35,000 people released in to the economy where private rent payments are cut by half. Housing waiting list wiped out Unemployment traps where people fear losing rent allowance removed. Thank you.