Tuesday, 7 April 2009

Budget 2009: Dept of Finance project 15.5% unemployment

Sli Eile: Some say a week is a long time in politics. Well, only a few weeks ago the Government was ruling out another budget (don't mention the B word) and any raising of taxes 'until the Commission on Taxation reports' (in September of this year).

That was then.

In this latest round to Budget 2009 the Government has gone for tax increases over further expenditure cuts and some softening on the borrowing line with a projected move up to 10.75% of GDP in 2009. Whatever comfort there is that Government did not follow a policy of 'slash and burn' quickly evaporates when it is realised that:

  • most of the tax increases fall on PAYE earners including the working poor and those on the basic minimum wage;

  • the Minister of Finance has clearly signalled that worse is still to come as he outlines a fiscal austerity programme for the coming 4 years to 'restore order to the public finances'.

According to its own estimates (Macroeconomic and Fiscal Framework 2009-2013) this Budget is deflationary – 'it is estimated that the level of economic activity will be reduced by about 1 percentage point on foot of the Supplementary Budget'. The realism of this estimate may be questioned.

So, no stimulus there.

The underlying assumptions and projected macroeconomic outcomes are chilling. From its typically conservative stance, the Department of Finance has moved to embrace a very pessimistic outlook projecting an unemployment rate of 15.5% in 2010 – up on a current level of over 11% and a projected figure of 12.6% in 2009. These figures are shocking. How many of the unemployed are at risk of becoming unemployable after years of being out of work? What about families dependent on social welfare with nobody in paid employment for prolonged periods and without the escape valve – for the foreseeable future – of emigration to the UK or the US?

The projected drop in GDP is now set at 7.7% for this year. The projected decline in GDP is increasing at a steady rate since last Autumn in each successive update of the figures. Have we seen the end of this upward slide? I think not, unfortunately. This is probably going to be the biggest (and fastest) drop in output of any advanced industrial country since World War 2. The implications for social well-being, social partnership, the state of public services, health, crime, civil unrest are profound. We should not panic but the scale of this downturn, its speed and its likely gathering impact on peoples' lives is shocking.

We are about to learn more hard lessons about the legacy of free-riding capitalism and its domestic application to Ireland in the last quarter century.

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