Looking beyond austerity
The price of austerity since the onset of the financial crisis has been some €25 billion, and reflects a combination of tax rises and spending cuts. The coming budget will see a further €3.5 billion added to that total, as more money is taken out of an economy that is struggling to grow.
The budget should mark another milestone on the slow path to economic recovery, as painful progress is made towards reducing the deficit, by narrowing the huge gap between spending and revenue. For the Government in framing the 2013 budget, the challenge remains a formidable one. How to minimise the impact of further austerity measures on those least able to bear that extra financial burden, while still achieving the targets set under the terms of the EU-IMF programme – which the Government hopes to exit next year.
The Government finds itself with little room for manoeuvre. The Department of Finance has lowered its growth forecasts for 2013. Export markets remain weak. The euro zone has slipped back into recession – its second in four years – and the UK economy has recently emerged from a double-dip recession. At home weak domestic demand, which reflects high levels of household debt and lower disposable incomes, has depressed economic activity. Further fiscal consolidation measures in the budget are unlikely to raise consumer confidence or boost personal consumption. With unemployment near 15 per cent, the Government will be concerned to avoid tax measures that prove a disincentive to job creation. A lack of certainty and “visibility” in terms of our collective future has compounded the sense of little else on the horizon other than more austerity.
Part of the Government’s difficulty is the lack of policy flexibility on budgetary matters. For this both Coalition parties can be blamed. The blanket pre- and post-election pledges made – first in opposition and later in the programme for government – not to raise income tax rates, bands, credits, or the 23 per cent VAT rate, or to lower core welfare benefits, were ill-advised given the state of the economy. These commitments have made the budget exercise harder to complete, given the scale of fiscal adjustment the EU-IMF programme requires.
That said, the Government must now operate within these self-imposed constraints. But in doing so it must also minimise the impact of austerity on the most vulnerable, by imaginative initiatives to accommodate, where possible, those in acute financial difficulty. On budget day details are expected of a property tax that some – notably those in arrears on their mortgages – will struggle to pay. For those “genuinely” unable to pay, Minister for Transport, Leo Varadkar, has offered a worthwhile solution, which would allow a temporary waiver to defer payment, or to have the payment attached to the value of their property. Such thinking is welcome.