The economic crisis is beginning to look cataclysmic and may tip us into the abyss, writes VINCENT BROWNE
THERE IS a terrible despondency. Not just or even primarily about the financial and economic crisis, but at the seeming incapacity of the Government and the political system to respond coherently and purposefully to it.
The economic crisis is beginning to look cataclysmic. Goodbody’s latest forecast that the contraction in the economy this year would be 6 per cent is trumped by the expectations of respected economists who are projecting figures closer to 10 per cent. If so, unemployment will exceed half a million.
The fiscal crisis clearly is worse than was projected even a month ago and if there is a 10 per cent contraction in the economy, then the black hole between Government revenues and expenditure will be far greater than it has said – well over €20 billion.
The Government’s attempts to handle the banking crisis have failed, as the markets’ response to the €7 billion recapitalisation has indicated.
On Tuesday last, the day before the recapitalisation plan was concluded, AIB shares were at €1.17. At lunchtime yesterday they were at €0.63. In the case of Bank of Ireland the figures were €0.70 on Tuesday of last week and €0.39 at lunchtime yesterday. Investors clearly do not believe the recapitalisation plan can rescue the banks.
It is evident that Ministers did not know elementary facts about the banks’ indebtedness when the Government gave its guarantee on September 29th last. That reckless initiative may be the one to topple this country into an abyss.
Objectively, the situation is not hopeless. We remain a rich country, and the key advantage that brought us the Celtic Tiger is still around – the generation coming on to the workforce is better educated than the generation leaving the workforce, which means we are guaranteed, or should be guaranteed, greater productivity.
Almost no other European Union country has this advantage. We could get out of this crisis, albeit with some pain, but as a society that is fairer and more cohesive than we have known.
Our problem is political. There is no confidence in the capacity of this Government to get us out of this mess, and the political system is incapable of rectifying that by changing the government.
We, the electorate, can wait in the long grass until the next election and then take our revenge on Fianna Fáil and the Greens (remember them?) – that is if the long grass is not devoured in the meantime. But to what point? The whole country will be devoured by then, along with the long grass.
The way out of the crisis is blindingly obvious. Produce a clear plan that requires the rich to bear the burden of the adjustments required and protect the poor, the unemployed, the sick, the vulnerable and children, with the members of the Government leading the way by taking the first and deepest hit.
Instead, no plan. Just a first hit at public servants – low paid, moderately paid and rich public servants. And an attack on social welfare payments in the offing. Isn’t it shameful that we would even contemplate cutting the welfare of people who have lived on annual incomes that would hardly cover the cost of one hour’s flying on the Government jet?
Apparently, for the Government’s grand plan to emerge we have to await the report of the Commission on Taxation, due to be published by the end of September.
This commission has 18 members and is loaded (almost two-thirds) with people who have a vested interest in ensuring that the taxation system does not impinge unduly on the well-heeled.
I don’t mean to impugn the integrity of any of the commission’s members, but merely to draw attention to the reality that they represent and/or come from the wealthier wedge of society; accountants, tax experts, executives from the financial services, a solicitor and the head of the Stock Exchange.
No unemployed person. Nobody representing the quarter of a million (now probably a million and soon to go beyond that) who live on miserable incomes, who die prematurely because of their poverty – 5,400 of them every year, and that was during the good years. Nobody likely to think it obscene that some people here earn incomes in a single year that exceed the lifetime earnings of the average income earner in society.
To compound this bias, the terms of reference specifically require the commission, in its very first term of reference, “to keep the overall tax burden low”. Yes, there is then the incidental remark about “increasing the fairness of the tax system”, but you get the point, or rather the commission can be expected to get the point. High taxes bad, low taxes good.
In the remaining terms of reference there is no acknowledgment that the purpose of the tax system is to redress the unfair distribution of wealth and income that an unregulated market system throws up. This seems to me to be the principal point of a tax system, aside from providing for the elemental obligation of the State to keep the peace.
As we approach the inferno we see Dante’s injunction: “Abandon hope all ye who enter here.”