Lost in translation

The Government may welcome talk of growth, but cuts in public investment and current expenditure along with tax increases will reduce GDP by over €6bn by 2015. By Michael Taft.

This debate – you wouldn’t know whether to laugh, cry or bang your head on the asphalt repeatedly. Following the rejection of austerity parties in Greece and France, the Taoiseach says:

“I welcome the fact that president-elect Hollande has been talking about growth and investment which is what Ireland has been talking about along with a number of other leaders for the last number of months.”

Indeed, since the treaty debate began Government ministers have been talking so much stimulus you’d fear that the economy will explode with all that dosh the Government intends to pump in.

The Government says one thing. And then it does the exact opposite. Let’s look at what the Government actually intends to do - it is anything but “investment and growth”.

First, the Government intends to continue cutting public investment.

cuts in public investment

The Government cut public investment by three-quarters of a billion euro last year. This reduced employment by approximately 7,000 direct jobs (and more when demand is factored in). Next year they’re going to cut over €500bn more from investment, and even in 2014, they’ll be hitting it again. In total, that’s another 7,000 direct jobs cut from the economy over the next two years.

Over the period of 2011 to 2015, the Government intends to cut investment in real terms (after inflation) by 32%. The Taoiseach welcomes ‘talk’ about investment – but at the same time his Government is gutting its own investment budget. I leave you to find the word to describe that.

Turning to current expenditure, we find even higher levels of austerity being planned. Please note there are primarily only two categories of current expenditure:  public services and social protection (there are also interest payments but there’s not much the Government can do about that short of debt restructuring). What has the Government in store for us?

cuts to public services and social protection 

In 2012, the Government cut €1,450m from the current budget. They intend to increase these cuts in 2013 and increase them yet again in 2014. Even in 2015 the Government will be cutting.

This will have a major impact on the economy. The ESRI found that for every job lost in the public sector, the Live Register rose by one in the short-term (with the hope that emigration would reduce that impact in subsequent years). Cuts in private sector procurement contracts could put more pressure on indigenous enterprise and their employees. Cuts in social protection could feed into rising levels of inequality and reduce demand in the domestic economy.

Using the Government’s own estimates, the cuts in public investment, current expenditure and tax increases will reduce GDP by over €6bn by 2015. Given that GDP is expected to grow by only €22bn, that’s a big hunk.

So let’s recap:  the Government welcomes French ‘talk’ of investment and growth. That’s because they, too, are ‘talking’ investment and growth.  Meanwhile, despite all this chatter, the Government intends to cut public investment by a third while cutting expenditure on public services and social protection by over €6bn up to 2015, resulting in a considerable loss of growth and employment creation.

That doesn’t sound like an investment and growth strategy. But maybe something got lost in translation. {jathumbnailoff}



Image top: dalbera.