'Hyper-austerity the wrong route to recovery' - TASC

In an initial response to the public spending cuts announced by Minister Brendan Howlin as part of Budget 2012, director of independent economic think tank TASC Nat O’Connor said that, although some individual measures announced by Minister Howlin yesterday were to be welcomed, the overall package of cuts announced represents a continuation of an economic strategy that has not worked.  O’Connor warned against embedding what he termed a “low-spend, low-tax economic model of economic development” which will render our economy less resilient and perpetuate inequality.

O’Connor praised the announced reforms of the budgetary process, saying “Multi-annual budgeting will allow for more long-term planning, better Oireachtas oversight and improved transparency; giving the public more opportunity to see how our money is being spent.

We also welcome the renewed commitment to evidence-based policy and revised performance information on the outcomes of public spending.”

A number of individual measures, including the decision to increase charges for private use of public hospital beds and the abolition of the existing system of designated private/public beds, which will allow hospitals to raise charges in respect of all private patients, were also met with approval by the think tank.

Overall, however, according to O’Connor, “The package of cuts announced represents a continuation of an economic strategy that has not worked.

“Since 2009, the underlying deficit has shrunk by less than 2%, falling from 11.8% to just over 10%. €20.6 billion has been withdrawn from the economy since 2008 through a series of spending cuts and tax increases. That suggests that the economic strategy of the previous Government has been a failure. Quite simply, while fiscal consolidation is required, the singular focus on cuts without consideration for growth has failed.

“The package of cuts announced today is the first installment in the Government’s four-year plan that will see a further €12.4 billion taken out of the economy over the next four years. However, there is no clear indication of any major shift in economic strategy. More cuts, in the same vein, affecting the same people, will not lead to a better outcome. Such ‘hyper-austerity’ is the wrong route to recovery.

“These spending cuts are set to embed a low-spend, low-tax economic model of economic development which will render our economy less resilient and perpetuate inequality. Instead, the Government should be safeguarding investment in Ireland’s long-term productive capacity, through spending on infrastructure and education. In addition, aggregate demand can be boosted by increasing the incomes of those with least, as this money would all be spent in local economies.”

TASC also expressed concern at the impact of the cuts announced yesterday by Minister Howlin on job creation.

“[This] package of measures, together with the taxation measures which have already been flagged, such as an increase in VAT, will further reduce demand and put yet more jobs at risk. The evidence suggests the Government’s decision to emphasise capital spending cuts in this budget will be particularly damaging to job creation.

Commenting on the equality impact of today’s announcements, TASC Head of Policy Sinéad Pentony said:

“Even with social welfare rates remaining static, an inflation rate of 1.9% will mean that those at the bottom of the income pyramid – whether social welfare recipients or low earners – will experience a real cut in their incomes. TASC’s research shows that low-income groups bore the brunt of the adjustment measures in 2011.

“While TASC welcomes the decision not to cut Child Benefit for the first and second child, families are already coping with the impact of previous cuts, and the cut in the supplement for larger families will have a disproportionate effect on low-income households. This, together with measures such as reducing the fuel allowance season and changes to the One Parent Family payment, will have a cumulative impact on households which will also be worst affected by continuing reductions in public services.

“There is a growing body of international evidence identifying rising inequality as a contributory factor to the economic crisis and that, conversely, more equal societies are better able to withstand economic shocks. These measures will do nothing to further economic equality and put our economy on a more sustainable footing,” Ms. Pentony concluded.

TASC’s Pre-Budget Submission, Towards an Equality Budget, was published on 1 November and is available for download here.

TASC’s analysis of the impact of budget 2011 on women and men, and on different income groups and household types (Winners and Losers? Equality Lessons for Budget 2012), is available for download here.