With all the noise, spin, political point-scoring and special interest lobbying over the past 24 hours, it is difficult to assess where exactly this Budget is taking the economy and, more significantly, what is the overall game plan.
In terms of the latter, Michael Noonan said: “One of the primary tasks of this Budget is to lay down the conditions for a successful exit from the bailout programme at the end of this year . . . We are well on course to do this.”
But we are well on course to do what exactly? Over the past four years, economic policy has been reduced to targeting the budget deficit as a percentage of national income. This can be achieved by either raising the growth rate or by reducing expenditure and raising taxes.
Given that raising taxes and reducing expenditure reduces the growth rate, the Government needs to have to do something extra to push up the growth rate of the country. This means deep and meaningful changes to the way the country does its business, changing areas that are underperforming and driving up productivity in key sectors.
Much of this means taking on vested interests in the economy, whether that is from restrictive practices on the left and/or the banking elites on the right.
In short, it means weeding out the ‘insiders’ who want the economy – and by extension the society – to remain just as it was before the crash. This implies acceptance of the fact that borrowing from tomorrow to pay for today is not an option, particularly if it is borrowing just to maintain the status quo.
Many countries have used their crises to change fundamentally the way they did business. Finland is a great example of a country that used a banking/housing/fiscal crisis to change its education system, to demand more from its public service and to change its banking culture profoundly.
As a result, in social terms, Finland has shifted from a lowly position in education to being the best in the world today. In corporate terms, this intensive focus on changing the old ways, resulted in the emergence of Nokia as one of the premier telecom manufacturers in the 1990s and early 2000s. (Nokia has now fallen victim to the relentless cycle of competition but that’s the way the big, bad world works.)
In the past few years the Irish economic establishment has had a choice: it could have focused on the growth rate, but it didn’t; instead, it replaced economics with accountancy and focused on cutting and taxing.
As a result, here’s the deal today: Ireland will exit the bailout in a few months most probably with the benefit of another €10bn standby facility which, though not specified, must be a precautionary measure in case the banks haven’t enough money to cover expected losses from mortgage defaults as more and more people are unable to pay their loans.
So we will still end up borrowing more money next year. The target for the budget deficit will be 2.9pc of GDP in 2015 (plus the €10bn standby facility). The Irish economic establishment’s objective is to continue borrowing – rather than balancing the books and paying our way – because we can’t generate the growth to achieve the standard of living that the politicians think we deserve.
This type of prosperity is rented, not earned. Instead of emulating the Finns we only did half the job.
After three years of a bailout, nothing significant has been done to change the way we do business. Without these basic changes, the economy is not on a higher growth trajectory. The growth rate will still fall short of the economic vibrancy needed just to eliminate government borrowing. We simply add to tomorrow’s debt burden to live above our means today.
Ultimately you have to earn your prosperity, yet the stated ‘success’ of Irish policy, as seen by the ‘exiting the bailout’ mantra, will be to borrow from respectable pension funds to pay back hedge funds based in tax shelters who took a gamble on Ireland’s attitude to economics in 2011. That’s what ‘getting back into the market’ means in plain English.
So let’s think about it. We exit the bailout simply to borrow from different people to maintain a lifestyle we patently can’t afford and nothing has been done to drive growth or productivity.
Take our education system, which yesterday got a boost. But who will get the benefit? The public who are served by the system or those who work in the system itself?
In Ireland, 80.56pc of all education costs are wages. This compares with 60.7pc in the UK. How can you change an education system if you can’t touch four out of every five euro spent?
If we were getting profoundly better results than our neighbour on even the most basic metrics, we could possibly justify this disparity. But that is not the case.
Figures produced last week show that in terms of literacy for all adults, Ireland is ranked 19th, while the UK is 14th in the OECD. And, in terms of numeracy of all adults, Ireland is again 19th, while Britain is three points ahead of us in 16th place.
The UK is paying much less on educators’ wages and getting better results. Across all metrics on this study Britain beats Ireland on every score, meaning it beats Ireland big time in the public benefits of the education system – using less money.
Wasting money is everywhere in Ireland and nothing has been done about it. Think about the citizens paying bank bondholders in full but the State – the owners of the banks on our behalf – can’t even enforce a €500,000 salary cap for banking’s top dogs.
Without deep changes to the way the economy is run – across the board – Ireland joins one of those nations that didn’t use the crisis to dramatically change itself.
Exiting the bailout therefore simply means making legitimate the status quo. The insiders are protected and the outsiders – those without a stake in the economy – suffer.
This is why the Budget doesn’t have any coherence. In terms of where it is driving the economy, there is no evidence of any direction.
Bits are pro-business and bits are pro-taxes, bits are pro-welfare and other bits seek to take away. The banks will now be used as an instrument of tax collection, snatching Dirt from depositors and passing on levies in the guise of a ‘banking tax’ on charges. It is one step in one direction, followed by a little nudge in the other.
It is difficult to expect anything different from a Coalition pulling in opposite directions to satisfy ideological and party-specific biases. That’s what they do.
However, failing to make deep changes and rendering legitimate the failed status quo (at a time of global economic transformation) doesn’t roar ‘success and courage’ – rather it shrugs ‘cynicism and a lack of ambition’.
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Morning Adam,
Nothing is going to change as long as the sheep keep voting for the Muinteoir (civil service wolves). When I see Muinteoir Noonan giving any kind of speech, lapping up the attention I an baffled. He is an ex school teacher, with a part time degree in economics, with no experience. Of course lets not forget the hordes of “just behind the scenes mandarins, with equally few qualifications.
Than look at the “opposition”, Muinteoir Martin another school teacher.
It’s a farce. Move along people, your leaders have spoken, now pay and obey.
I don’t have much time for Irish teachers, however: The figure for all adults is a deliberately misleading. If David is comparing the education levels now achieved he should compare 16-24 year olds with 16-24 year olds in the UK. In that case, while hardly spectacular, the Irish figures beat the UK. He maybe should have chosen some other country. Probably fewer people over the age of 50-60 went to secondary school back in the day. http://www.theguardian.com/education/2013/oct/08/italy-spain-oecd-literacy-numeracy-league-table The UK showed a relative decline over time, Ireland didn’t. However relative decline is not actual decline ( the UK actual results stayed… Read more »
Spot on, David.
Question: I heard on the radio yesterday that 50% of the country’s total future budgets will go to pay debt repayments. Is this figure true? And if so for how many years? The interviewee described this figure as ‘borderline sustainable’. Sustainable for whom? What’s the correct figure?
Thanks for any clarification.
Noonans Kids
The Popes Children written by David explains the population boom that followed the visit by the Pope.
Later this year …9 months and thereafter to be precise the new population boom will kick-start again .Why ?
Increase prescription charges will prevent Irish girls/ladies from buying birth control tablets because they will not be able to afford them and thus forego them .Blessed he that Cometh.
The muinteoiri can’t think outside the curriculum! According to J.K. Galbraith we should pay attention to achieving social balance by investing in public services, such as education. This can be a great driver of the economy. Politicians often give lip service to this idea, but when the chips are down, and we have a full blown crisis, they falter.
Multinational investors often cite the level of education as a reason for relocating to an area. Similarly infrastructure and other public services.
With their eyes glued to the accountancy books, the muinteoiri have lost sight of the objective, as you say.
Being the first EU bailout success story and re-entering the open market gives us back a little sovereignty. Mostly, it gives us leverage. Should we make it out of the bailout despite being in dire straights, Europe then has a vested interest in keeping us out. Needing another bailout would amount to a massive failure of the flawed austerity married to debt socialisation dogma; they really won’t want that to happen. At that stage, our weak politicians will have a strong hand to seek debt write downs. Will they know how to play it and have the nerve to do… Read more »
DMcW:In short, it means weeding out the ‘insiders’ who want the economy – and by extension the society – to remain just as it was before the crash. yes…but DMcW:Think about the citizens paying bank bondholders in full but the State – the owners of the banks on our behalf – can’t even enforce a €500,000 salary cap for banking’s top dogs. Above is your explanation, isn’t it? Allow me to get to the nitty gritty for a second using our national parks just as an example. In a nutshell, back in 2009, I made a written business proposal to… Read more »
Incidentally, I agree with this article, as depressing an indictment as it is, it is important that we remind ourselves of how little was achieved when we had the opportunity. This recession has been a nightmare for Ireland and will continue to be. The silver lining could have been tackling the waste and inefficiency endemic in this country, letting it bounce back fitter and stronger. Alas turkeys don’t vote for Christmas and our politicians have allowed the private sector to be gutted. The result is 300,000+ educated private sector votes offshore leaving 400+ thousand voting to keep their benefits and… Read more »
This is down to earth – it lays bare the total lack of forward thinking in our administration. All they’re doing is moving the same pieces around on the same table. They have analysis coming out of their arses but they haven’t a clue what to do with it. They haven’t a forward plan or the balls to manage on, all we get, is the same old, same old incompetence hidden under a mountain of political waffle. The future is bright, alright, but only for the administration and their rolls-Royce pay and pensions. To the ordinary joe, they’re now like… Read more »
Hi David, An important article which raises important questions the most important of which is the question which direction the budget is designed to take the economy in. If you take the view as you do of a classically trained economist your analysis is correct. However let’s look at the detail and we will arrive at a clearer picture. The most telling detail for me was the increase in Dirt to 41% on savings which gets minimal interest rates as it is. In other words if you save money you loose wealth especially with this new tax, the government is… Read more »
Turkeys do not vote for Christmas. But inevitably, Christmas comes. The thing about being a turkey is that you think every day is getting better. The grub keeps coming, the weight is on the up and up and all the trend lines are heading positively. Crisis? What crisis? It was just a matter of moving numbers around and squeezing a few people who were not important. All is good as long as you are not one of “them”. Lots of stuff looming and Ireland has no plan. How can it? It is a land of fraudsters and hoodwinkers. All are… Read more »
“Take our education system…” Education Farce, News for Parents : Anyone with children in secondary school should be aware of the following. My friend’s story should alarm all parents. She recently emigrated to Australia for good due to recent events. For the last 20 years she worked for the State in evolving Refugee programs, working her way to the top as she’s an extremely capable lady in her late 40’s. Anyhow, earlier this year the government closed down the body she worked for, laying off 200+ people. Those on CID’s (‘Contracts of Indefinite Duration’), she reckons about 100, were told… Read more »
I think, it is well worth remembering and those who know me, on rare occasions, I agree with DMcW. :) DMcW:In short, it means weeding out the ‘insiders’ who want the economy – and by extension the society – to remain just as it was before the crash. This is the crux of all things really, and without sorting that one out, all the rest remains nothing but a chat in the pub. Ditch the constitution and start from scratch, this would be a start in deed. The people of ireland deserve it, and we owe it to those who… Read more »
these selfsame Insiders prompted The Govt Of teachers Accountants To guarantee The Banks The few So called economists Were And Are Yes Men Or Insiders as you call em David. 80.59% Goes On wages as compared to Britain’s 60.7 But David That’s Only In Education the HSE Who Run a mickymouse Health Service are The same 80% Wages. the rot goes right through All Govt Departments A system where top civil Servants Set There Own and TDs Wages Is Flawed Surely, The more A TD gets The More These top dogs Get And If They make A balls up they… Read more »
“It is difficult to expect anything different from a Coalition pulling in opposite directions to satisfy ideological and party-specific biases. That’s what they do.” – that’s the way the Irish people voted – that’s the trouble with democracy…the will of the people…’take’…
If i was a Republican in the USA I might use the above DMW opinion to bash Obama and the Democrats.
It’s all very well to be making such comments on this site. The thing is is there and politician or politicians who’d have the ‘balls’ to do anything to change things????
There will be no change because to attempt to change things by the average punter means a loose it all and crushing defeat without making a dent. We live in a dramatically biased winner take all world (super rich, super affluent, super whatever that is magnified by media and our current tech). People naturally follow these winners. Winners are influencers and can lobby and they get the world they want by manipulating the weak representatives of our people. They put the small man’s skin in the game to their gain and they are helped because of the halo effect of… Read more »
We’re easygoing laid back people. We change once a century, 1690, 1798 , 1916. We’re overdue, it won’t be pretty but it is needed.
We’re easygoing laid back people. We change once a century, 1690, 1798 , 1916. We’re overdue, it won’t be pretty but it is needed.
We’re easygoing laid back people. We change once a century, 1690, 1798 , 1916. We’re overdue, it won’t be pretty but it is needed.
One of a couple of good articles since the first months of 2013. David, you appear not to be Tory and neither do the the people of Ireland but you are Tory. You would go for the suicide option in seconds if O’Leary and Bono told you to lead the charge. You made it very clear who your friends are You are a stateless Paddy preaching from the pulpit while the rest of us are playing the game and taking the punches. I am doing an internship and my partner is unwell with a heart condition and we were stripped… Read more »
Public sector IT departments are in a panic because Windows XP reaches ‘end of life’ next year.
They don’t know what to do. The backroom guys hate the web and are mistrustful and the front end gals are too lazy to use their imagination. They’d rather chat about Downtown Abbey
Internal politics is ripped apart and the cold wind of change meanders through the coffee corridor. Not many smiling faces and people get through the day alone or living in the 9 to 5 bubble
I then I saw the reason for it all
A game changer…A seismic event.. 21 June 2012 An Taoiseach announces retrospective capitalization of our Banks from E.S.M. 18 Oct 2013 Wolfgang “Amadeus” Schauble announces that this will not happen….. not a word from anyone,media,radio..nothing Nobody brought in from Government to explain themselves ……no accountability for these lies & spinning… Yet again more crap from Government who clearly have no fear of reprisals for their continued fraudulent announcements and acts of betrayal against the Young ,the sick, the elderly,women and small business Has a the file entitled “untermensch” been introduced to Government records ? The budgetary evidence from recent years… Read more »
Ok..great piece..but I have an observation. On DMW last article I posted the following on the 14/10/13 on his FB page. ” A much respected academic, Larry Greiner, in one of his organisational models, described how by going through a crisis organisations (or national economies) are spurred into revolution and then through an evolution of structure and mechanics. In other words..we move on to the new and improved version..hopefully a bit like our economy!” Its funny that the title of the subsequent article is as above. As someone completing a MSc if I ever wrote something without citing the author… Read more »
The only thing coming out of Finland is Olli Rehn and Liikanen Light, not beer mind you, rather utterly incompetent “proposals”.
What has got into DMcW’s bonnet?
Olli Rehn Admits New EU Law Will Steal Depositor’s Money
Why the Liikanen bank reforms fall short from FT banking ed.
Falling short of Glass-Steagall will meaning stealing deposits, after the budget.
Some here are falling all over the place.
What is going on here : none other than Daily Telegraph finance and economics expert AEP praises Gilmore?
Ambrose Evans-Pritchard: Europe’s debt crisis credibility hangs on thin Irish thread
The City speaks!
David. Cease and desist.
“End of the bust as shares hit a five year high”
Today’s Front Headline on The Independent
http://www.independent.ie/irish-news/end-of-the-bust-as-shares-hit-a-five-year-high-29673302.html
What a relief, the nightmare is over. Phew.
Swiss Author Gian Trepp: Our Anti-Oligarchical Tradition Is the Basis for Glass-Steagall
From 1291 Switzerland dealt with oligarchy. A very interesting comment :
“Prof. Mueller says: More regulation for large banks which are active internationally, and less for cantonal banks, which are active nationally. This is wrong, Trepp writes, because it would offer cantonal banks the possibility of turning into speculative banks.”
HYPERINFLATION IN STAY-OUT-OF-JAIL CARDS: JPMorgan Chase has just signed a deal with the Justice Department to avoid criminal prosecution for massive mortgage fraud. According to a news flash from Huffington Post, the price tag is $13 billion, including $9 billion in fines and $4 billion in compensation to mortgage holders who were ripped off. Do Obama and Holder really believe the American people are so stupid as to believe that a crime of such magnitude that it warrants a $13 billion penalty does not warrant jail time for Jamie Dimon and other top JPMC execs? This is sensational, yes indeed… Read more »
I wonder if Dimon’s Contingency Plan coffers are big enough? The other TBTF’s are sure now in a mad animal scramble to stock their war-chests. Imagine the behavioral scurrying, how they run! What rationality!
And this after giving Obama marching orders, replying “Yes we Can”.
Many here have noticed the potential of Thorium. CarAdvice did an interview :
The thorium-powered car: Eight grams, one million miles
“Limits to Growth” is a pagan religion. We have’nt even begun to use high flux-density energy. Some say Thorium was suppressed as Plutonium was needed for that pagan religion.
Exactly as Obamacare would do and as the new Dutch Royal Self proclaimed recently :
James Fitzsimons: This Budget is punishing the elderly for living too long – Indo today, quote :
“ALL eyes to the future, but if you’re elderly and can’t see too far ahead then Michael Noonan’s Budget just hammered another nail into your coffin – maybe the last one.”
—
This is now in full swing right across the Transatlantic. It is nothing else than a “useless eaters” policy. It is but a short lurching trot from behavioral economics’ “incentivizing health” to nudge-wink incentivizing short lives.