Welfare cut no remedy to public fiscal crisis

Tasc conference:CUTTING WELFARE payments will extend the economic slump into a depression rather than ease pressure on public finances, an economic conference in Dublin City University heard this weekend.

David Begg, general secretary of the Irish Congress of Trade Unions (Ictu), told the event organised by the think tank Tasc that deflation would not improve competitiveness in the Irish economy.

“What we will certainly get is a collapse in domestic demand,” Mr Begg said. “We would end up deflating into an already deflationary environment and get the kind of slump they saw in Japan,” he said, referring to the Japanese economy’s “lost decade” in the 1990s.

Speakers at the Tasc conference argued against the Government’s proposed plan to take €4 billion out of the economy through public service cuts and said the State could still afford to borrow to pay for a fiscal stimulus.

Mr Begg said this would “collapse the public service delivery system, it’s as simple as that”. Tasc director Paula Clancy called for the establishment of a national recovery forum to formulate how the economy could achieve what she termed “recovery with equality”.

Deflation is not a valid argument for cuts in welfare, Mary Murphy from NUI Maynooth’s department of sociology said. This is because low-income people do not benefit from falling prices to the same extent as the population as a whole, as they are less likely to have mortgages, she noted.

The latest data from the Central Statistics Office (CSO) shows that the price of a typical basket of goods and services has fallen 6.5 per cent over the past year. However, if mortgages are excluded from the basket, prices have only fallen 2.4 per cent.

“Cutting welfare is also deflationary because the poor do not save. The income they receive goes straight back into the economy,” Dr Murphy said.

Economists and policymakers who called for welfare cuts on the basis of falling prices were hiding behind an “ideological smokescreen”, as they wanted social supports to be curtailed permanently, not just in response to the economic crisis, she said.

Michael Taft, a research officer at trade union Unite, said extra income given to the poorest welfare recipients under the US fiscal stimulus programme was likely to have the highest “multiplier” or spin-off benefits for its economy.

“It’s amazing that the best thing for the economy happens to be the best thing for people. The proposed cuts will postpone the end of recession, postpone the beginning of recovery, without doing anything to lower the debt,” Mr Taft said.

“You can’t cut your way out of a recession,” he added.

Meanwhile, the Tasc conference, which took place in DCU’s Business School, heard that Ireland was sliding into depression, despite small pockets of growth.

Terrence McDonough, a professor at NUI Galway’s Department of Economics, said mainstream economics was “broken”. and disconnected from the real world, with economists hiding behind massaged mathematical models that claimed to tell the future but failed to predict or prevent the current crisis.

Paul Sweeney, economic adviser to Ictu, called on workers to support its plans to hold a national day of protest against cuts in wages and public services on November 6th.