The job destruction budget
Budget 2012 will decimate employment in the State. Never mind the rhetoric. By Michael Taft.
Despite the Taoiseach’s 17 references to jobs in his national address last night, the budget presented this afternoon will cut between 15,000 and 20,000 jobs from the economy next year. In other words, there would be between 15,000 and 20,000 more people at work next year were it not for the budgetary measures announced this afternoon. This is, by any definition, a jobs destruction budget.
Let’s go through the four main elements that will lead to this job destruction.
First, capital spending cuts will on average, according to the Department of Finance, cut 7,500 direct jobs from the economy next year. These jobs are directly employed in construction, maintenance and repair work. In addition, there are ‘downstream’ jobs created as a result of the activity created by capital spending (sourcing and transporting materials, demand created by the employment, etc). Conservatively, this would mean an extra 1,000 to 1,500 jobs. In this area alone, then: between 8,500 and 9,000 jobs lost.
Second, the Government announced it would reduce public sector employment by a massive 6,000. Taking this many jobs out of an economy where unemployment is expected to rise is simply irrational. It will do little to cut the deficit but it will drive unemployment on a one-for-one basis, while substantially reducing consumer demand – thus hitting businesses and private sector employment dependent on that demand.
These measures alone will cut out 15,000 jobs out of the economy. But there’s more.
A large part of spending on public services goes on procurement from the private sector. While there is no data in the recent Government 4-year plan, the April Stability Programme Update estimated that expenditure on contracts from the private sector would be reduced by approximately €500 to €600 million next year.
It is not possible to assess the employment impact of this cutback. But there is little doubt that companies providing goods and services to the Government will be hit by the loss or reduction of contracts. This in turn will impact on wages and employment in these companies.
Fourth, the social protection budget will have to be examined in detail, but the full-year impact is substantial – over €800 million. Most of this will reduce payments to current social protection recipients and, as such, will hit demand. We can assume that the full year impact will reduce consumer demand by well over €600 million. This will lead to further pressure on domestic businesses and employment.
All in all, this will lead to job losses of well over 15,000. This, at a time when the ESRI has projected the domestic economy will return to recession next year, with rising unemployment, falling real wages (after inflation) and a continuing decline in consumer spending.
Don’t mind the rhetoric: watch the action. Employment will fall and this budget will be a major contributor.
Can’t wait for part two tomorrow.
Image top: Eadaoin O'Sullivan.