Budgets can be progressive, but it is unlikely that the recession will be, writes VINCENT BROWNE.
THE COMMENT was made by-the-way. “The contraction [ie collapse] of the Irish economy is the worst anywhere since the Great Depression. Well, not anywhere, anywhere among the industrial countries since the Great Depression. You have to allow for countries like Zimbabwe.”
The casual comment was made at a low-key briefing on the spring 2009 economic commentary of the Economic and Social Research Institute (ESRI) yesterday morning. It was Alan Barrett, programme co-ordinator of Migration Research and co-author of the Institute’s Quarterly Economic Commentary, who said it.
The “contraction” will be a minus 9.2 per cent “growth” rate this year. A total “contraction of 14 per cent over the three years 2008-2010”. Unemployment around 450,000 (366,000 seeking jobs, the others not seeking jobs or employed part time). Nothing like this anywhere else.
The “contraction” in the UK this year will be minus 3.7 per cent with unemployment at 7.7 per cent; Germany minus 5.3 per cent and unemployment at 8.9 per cent; France minus 3.3 per cent and unemployment at 9.9 per cent; the euro zone minus 4.1 per cent and unemployment at 10.1 per cent; the US minus 4 per cent with unemployment at 9.1 per cent; Japan minus 6.6 per cent with unemployment at 4.9 per cent. And Ireland: minus 9.2 per cent and unemployment at 13.2 per cent, rising to 16.8 per cent in 2010. The differential is all our own doing. Quite an achievement.
There were 11 journalists there and three ESRI people in a small room at the ESRI offices in Whitaker Square, Dublin, just off the docks. The tone was conversational, even amusing at times. The Government deficit will be worse than the Government says it will be for this year. It will have to take another €4 billion in spending cuts and increased taxes next year. But, the ESRI fellows were saying, it wasn’t all bad news because of the “corrective” action taken by the Government in the October, January and April “corrections”.
Actually, “fellows” is the wrong appellation, for one of the three ESRI people presenting was Jean Goggin, ESRI research assistant.
The discussion meandered around to the banks and, oh yes, the calculations did not take account of what might be the impact of the banks’ “corrective” and, yes, that would make matters worse, actually much worse. For a start, it would add to the debt interest payments annually about €2 billion, but we can’t be certain about that until it is known what the deal will be with the National Asset Management Agency (Nama).
There was a consensus among those present that, whatever happens, whether nationalisation, which Barrett suggested might be the preferred option right away, or just Nama, it was certain the banks would cost us a lot. The idea that the banks would be required to pay back any digout they get was meaningless. The point of the exercise was to offload liabilities from the banks and let them get on with it. Was the Government guarantee to the banks last September a good idea? Barrett offered the response: “It was not necessarily a bad idea but I am not a banking expert.” Some endorsement!
We were assured that the recent budgets have been “progressive” in character, in other words they have hit the rich most, but then the recession is unlikely to be “progressive”.
Not many of the ultra rich will experience unemployment and it is evident the Government is shaping up to cut social welfare payments in the December budget. No one mentioned the Sunday Timesrich list and how the top names on that list have been faring. Not too well, indeed, but not too badly either. Poor Seán Quinn lost €1 billion, now down to just €2.55 billion. Denis O'Brien is down around €240 million to just €1.9 billion. Dermot Desmond lost a mere €12 million, however, down to €1.56 billion. I did an analysis of the 50 top names on this list – people who live in the Republic, plus the notorious tax exiles. I reckon that the combined wealth of this 50 is €19 billion, an average of €382 million each.
Suppose we put a wealth tax of, say, 10 per cent on this 50: it would give us almost €2 billion. These guys and gals having to pay out on average €38 million out of their average of €382 million is not asking a lot, is it? There would be a little difficulty in trying to corral these wild geese and, no doubt, a few more of the earls would depart or pretend to. But we could probably nail most of them and most of another 150 or so of the rich boys and maybe get around €3 billion a year from them. After all, they got it from us (it is not possible for anybody to make wealth outside society; it is social co-operation that generates all wealth, and society, therefore, has an entitlement to determine how the proceeds of that social co-operation should be divided).
But there was no talk of that at Whitaker Square. Instead it was proposals to cut public expenditure. It’s the zeitgeist.