Cliff Taylor: Young people not on board Varadkar’s economic rocket

The economy may indeed be about to take off like a rocket, as Leo Varadkar observed this week. The gross domestic product (GDP) figures published on Friday – for all their much-discussed flaws – showed remarkable strength in the export sector, and tax data earlier in the week showed VAT and income tax holding up through the lockdown way better than would have been anticipated. The short-term outlook for the economy and the public finances is strong, even if the longer term remains uncertain.

But will many younger people be left on the ground as the rocket heads into economic orbit ? As high-tech sectors forge ahead,the domestic part of the economy – where many of them work– has been battered.

To take just one example from Friday’s figures, the output of the information and communications sector rose by 19.1 per cent in the first three months of this year compared to the previous quarter,while the domestically dominated sector including hotels, restaurants, transport and distribution dropped by nearly 10 per cent. Over the last year, exports grew by 18 per cent and the domestic economy contracted by 5.5 per cent.

The Government deserves credit for the extraordinary measures it put in place to protect the domestic economy over the past year, without which things would be a lot worse. But as these are slowly withdrawn, you can see the risk of the economic divide turning into a chasm. Most exposed are younger people, some of who will find their jobs gone in the bumpy reopening to come, where there will be skills shortages in some areas alongside joblessness in others. And many who do go back to work will return on poorer terms and conditions – just look at Aer Lingus where management is proposing a pay freeze for five years, cuts in sick pay and lower pay rates for new cabin crew and ground staff.

They aren’t going to raise income tax again – are they?

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As Ireland reopens, the Government faces a treacherous balancing act

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Cliff Taylor: There is a reckoning coming and big decisions lie ahead

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Property ownership

Of course many younger people work in the thriving sectors too and are doing well. But many will face difficulties. A recent Economic and Social Research Institute paper by Dr Barra Roantree and colleagues found that employment among 15-34 year olds dropped 14 per cent from the start of the pandemic to December 2020, while for over-35s the fall was a more modest 6 per cent.

Most exposed are younger people, some of who will find their jobs gone in the bumpy reopening. And many who do go back will return on poorer terms and conditions

The research found, crucially, that the pandemic added to the economic difficulties already experienced by this group as a result of the financial crash of 2008. The crash left a third fewer 20-24 year olds in employment, education or training compared to 2007 – and workers in their 20s earning less than they did in the 1990s or 2000s, after adjusting for inflation. Meanwhile only one-third of 30 year olds own a property, leaving the rest depending on a hugely expensive rental market.

So we have a short-term crisis added to a longer-term problem. The Government couldn’t have done much more to protect people during the crisis, but the really difficult job is to tilt the balance in the longer term in favour of the younger generation.

It was good to see new money for training, education and job placements in the economic plan announced this week. But we need to see a concerted drive to get unemployment down after the crisis given a real priority. In public policy, what gets the focus can get the resources and get done, and the rest can wither away in committees and task forces.

Let’s hope strong growth in the economy will do a lot of the heavy-lifting on jobs, including in the damaged sectors. Already the numbers on the pandemic unemployment payment have fallen by almost 100,000 in recent weeks, as the economy reopens, to just over 300,000. But these sectors will be smaller too and retraining and reskilling will be vital, starting with basic digital skills for all and moving on to a host of specific areas and opportunities. This is a massive mobilisation of a State training and job placement apparatus which hasn’t had too much to do in recent years because unemployment has been so low.

Increasing taxes

The Government has to turn the dial on housing, of course, the totemic issue in the generational divide and this has big implications for regional policy and city planning. And much of this will discommode the older generation. Making progress on the housing crisis means more supply and lower prices. And while the State may be able to borrow to build, as the ESRI suggested, there seems an air of unreality in at least some parts of the Government about the need to raise cash to pay for longer-term spending plans.

There seems to be an air of unreality in some parts of the Government about the need to raise cash to pay for longer-term spending plans

So who will pay?Well there was a fuss about the local property tax this week. But abolishing this, as Sinn Féin suggests, would put the most money back into the pockets of the settled generation in their more expensive homes. No one has paid a penny extra since 2013, despite the big rise in house prices.

Elsewhere, the economic plan mentions higher PRSI payments to fund new entitlements – a reasonable idea in theory but more cash out of the pockets of younger, financially stretched, people. And over-65s don’t pay PRSI. There is also talk of a new auto-enrolment plan for pensions – again pensions are vital but can lower-paid younger people afford to take the hit of contribution and still pay the rent?

Most other groups in society have their representatives arguing for them in these debates to come – not least the troops lined up to oppose any increase in the pension age, at a cost of some €500 million a year. Why not direct this to a subsidy for younger people starting pensions?

Established and better-off groups have the influence to make sure their side of the argument gets heard. But who will argue the case for the younger generation in the fractious debate to come, especially when it becomes clear that resources are starting to tighten and priorities have to be chosen?