Slí Eile: The next time you hear a politician or economist saying that our current public borrowing deficit ‘has nothing to do with NAMA’ show them the Red Card as follows:
Department of Finance Press Release 2 October 2009
At end-September 2009, the Exchequer deficit is €20,158 million, compared to €9,404 million at end-September last year. The year-on-year deterioration in the deficit of some €10.8 billion is primarily explained by a decline in tax receipts of €4.8 billion, the €4 billion payment to Anglo Irish Bank and €1.7 billion in respect of the frontloading of the annual contribution to the National Pensions Reserve Fund (NPRF).
Non-voted capital expenditure at end-September was €7,026 million. This compares to €1,270 million in the same period of last year. The year-on-year increase is due to the payment of €4 billion to Anglo Irish Bank in 2009 and the increase of €1.7 billion in the payment to the NPRF (a total of €3 billion has been paid to the NPRF in 2009 as part of the bank recapitalisation programme, at this stage last year some €1.3 billion had been transferred to the NPRF).
In plain English what this means is that the infamous €400m a week that we are borrowing is associated with payments to Anglo-Irish and the collapse in tax receipts (which in turn is greatly exacerbated by the bursting of the banks-induced property bubble over the decade to 2008).
The astonishing conclusion to be drawn is that the €4bn payment to the zombie Anglo – a bank that is very unlikely to serve a useful social role by way of lending ever again – earlier this year matches exactly the estimated ‘fiscal adjustment’ proposed in the December 2010. So, welfare recipients, children waiting for CF treatment, public sector workers etc are directly paying money to a zombie bank. And that’s not all. We have another major bank or two waiting in the wings for fresh recapitalistion and possible State takeover if that doesn’t work (which it probably will not in the case of AIB).
The other interesting twist to this sorry tale is that Eurostat have just ruled that money borrowed by the commercial banks from the European Central Bank will not be counted as national debt. This is off-balance sheet borrowing on a massive scale (up to €54bn in bond issues used as collateral by the commercial banks in exchange for capital from the ECB) which will not be counted in that terrifying figure of €400 million a week paraded, daily, in the media.
So, there is one solution for the banks (borrow up to 33% of annual GDP and divert €4bn of precious tax payer money as ‘cash for trash’) and one solution for the rest of us who use public services (must cut back to level of taxes available we are told).
There are three fundamental problems with this strategy and mindset:
1 It is completely unethical to condemn this generation and the next to a massive bail out of bankers, some developers (more than we thought judging by the proposed seed of repayment in the NAMA business plan) and a few politicians who would rather face the electorate later rather than sooner.
2 The clumsy and reckless NAMA solution (described less charitably by Joseph Stiglitz) is very unlikely to achieve its aim of cleaning bank sheets and freeing up credit
3 Deflation won’t work – with an additional deflationary shock in store this December – retail sales in the domestic market together with tax receipts from income and consumption are likely to continue falling and pressure on welfare payments will mount (even if rates are cut) because more and more people will require medical cards, ‘back-to-school’ allowances and other services.
For every person made unemployed as a result of fiscal contraction there is a direct financial cost of some €20,000 per annum in addition to other costs associated with health, housing and education public spending. Not to mention the profound impact on personal and community health and well-being – especially for a new generation that expected more than the Celtic Tiger could promise.
Instead of wage cuts we need to hold the real value of wages for most workers – to do otherwise is to add to the deflationary spiral;
Instead of cuts in welfare to the old, the sick and those not in the labour force we need cuts in welfare to those big cats who played – recklessly – by the rules of capitalism only to be compensated, rewarded and bailed out by Government in a massive exercise of risk-socialisation (essentially Government has nationalised risk in the banking sector and privitised most of the gains to be had from any partial recovery in asset prices in the future).
Instead of cuts in public expenditure we need redirection of spending from unfair subsidies and waste to areas of greatest need (early childhood, social housing and community health services)
Instead of retrenchment in public services we need to expansion to prepare Ireland for the eventual upswing
Instead of no hope and no-other-way mindsets we need to let loose a new wave of entrepreneurs, thinkers and leaders in the public, private and voluntary sectors less oriented to short-term gain, position or income/profit maximisation.