Fiscal Treaty will consolidate inequality

Through the EU, we have bought into a system of inflicting the costs of austerity on to the poorer sectors. By Vincent Browne.

Michael Noonan was again expressing satisfaction yesterday with how the economy was performing under the aegis of this Government.

He was referring to tax returns about to be published for the January-March period. He did qualify his optimism by emphasising the results were only for the first quarter, but he was optimistic things were improving. While self-praise by politicians is commonplace, in our present circumstances it suggests disquieting denial, for the Irish economy has reverted again to another recession just a year after it emerged from the worst recession recorded since independence.

In 2006 the economy grew at a rate of 6.3%, as measured by gross national product (GNP). GNP growth in 2007 was 3.9%. It plunged to -2.8% in 2008.

But 2009 saw the worst performance ever, with GNP falling 9.8%, recovering in 2010 to 0.3% but plunging again last year to -2.5%.


The last two quarters of last year were awful: -3.8% in the period July to September and back into the alarm belt in the October-December period with a contraction of 7.1%*.

I heard an RTÉ presenter refer to this in the last few days as a “technical recession” – yes, that too, but a disastrously real recession also. And the indications from the retail sales index for January and February suggest it’s getting worse.

That we are back into recession again is hardly surprising, given the austerity budgets the economy has endured over the past four years, but the scale of the decline is alarming. And the congratulations resounding around the EU over our submissiveness to the austerity programme inflicted upon us is galling – even more so the evident satisfaction of our submissives-in-chief with the commendations.

In conjunction with these depressing figures we learn, again from the CSO, that inequality deepened here spectacularly in 2010, and the likelihood is that this worsened in 2011 and will again this year. What is startling from the Survey in Income and Living Conditions (SILC) data for 2010, published in final form last week, was how devastating the impact of austerity was on people in the lowest income decile (the 10% of households earning least) and the richest decile (the richest 10% of households).

The report states: “Those in the lowest income decile experienced a decrease in equivalised disposable income of more than 26%, while those in the highest income decile experienced an increase in income of more than 8%.” (Equivalised income is derived from weightings, whereby one adult in a household is rated at 1.0, other adults 0.7 each; children 0.5 each.)

The survey also showed the deprivation rate as 22.5% – that is nearly a quarter of all households.

And the forms of deprivation concerned is what most would surely regard as elementary: being unable to afford heating; a morning, afternoon or evening out over a period of two weeks; two pairs of strong shoes; a roast once a week; a meal with meat, chicken or fish every second day; new clothes; a warm, waterproof coat; an adequately warm home; to be able to replace worn-out furniture; to have family or friends for a drink or meal once a month; to buy presents for family or friends within a year.

But we remain a relatively rich country. The average income of a household of two adults and two children was €59,512 in 2010. That is after all taxes are paid and after social welfare benefits are received and, even though this showed a 5% drop from 2009, it is still a very adequate income.

The problem is that the income is so unequally distributed and the classic contemporary justification for using the income tax system to make appropriate adjustments to income is that income tax is a tax on jobs. But income tax is a tax on jobs only if people expect to be paid not just a fair income, but an income that additionally “compensates” them from the distribution of high incomes to people with lower incomes.

The primary reason for such a steep rise in the incomes of the highest income decile is because of the buoyancy of the stock market, and no doubt that is intensifying with the huge surge in stock prices in the last while. This stock market rise takes place at a time when there is contraction in Europe, declining growth in China and India, virtual stagnation in the US, and fiscal imbalances in most countries.

It would seem the buoyancy in the markets is driven in the main by the ability of governments to inflict the costs of the fiscal adjustments on the poorer sectors of society.

That’s the system we have bought into through the European Union, and which will be consolidated by the Fiscal Treaty. {jathumbnailoff}

* See table 1, here.

fisc-treaty-files-squareThis article is part of our Fiscal Treaty Files series. For more of our coverage of the Fiscal Treaty click here.




Image top: CSO Survey on Income and Living Conditions 2010.