JK Galbraith, the great American economist, said that the key job of a leader was to “understand the anxieties of the people, and do something to ease these anxieties”. The Budget is an opportunity to set out the stall of any leadership, to articulate a coherent policy and to get on with those policies that might assuage the anxieties of the people.
When judged from this standpoint, this Budget is an extraordinarily confused piece of financial gymnastics where the gymnast performs all sorts of tiny contortions, unconnected moves and ultimately lands unbalanced, pleading that the judges see some choreography after all the clumsy footwork.
If anything, it heightens the anxieties of the people because the people who have been hit most are mothers dependent on child benefit, homeowners already in huge negative equity and those who are paying PRSI which has been increased. In fact, one of the greatest myths from yesterday is that income tax has not been increased. What is PRSI, if not a tax?
The Government does not seem to understand that the ticking time bomb in this country is the problem of mortgage arrears, which is primed to go off as taxes rise and incomes fall. This Budget makes the average young worker considerably worse off. These are the very people who are part of the 128,000 who are in arrears, unable, not unwilling, to pay their mortgages. This figure is rising. Their anxieties must be heightened this morning.
There is a real sense that yesterday’s Budget was a botched job coming from two discordant partners that ends up satisfying no one. One measure pulls bits of the economy one way and then, just when you felt there was momentum in that direction, another measure pulls other bits in the opposite direction. For example, raising PRSI, which increases the cost of labour and will act as a disincentive to employing people, runs counter to any measures which may encourage SMEs to take on more people. These are basic things which any joined-up government would see straight away.
That said, it is not as if the Government has an easy task. The choices facing it are not between good and bad ones, but between bad ones and worse ones. Once it accepted the notion of five austerity budgets without mortgage debt relief or any concomitant link to a debt deal in Europe, it tied its hands behind its back. When it comes to the really big decisions, rather than respond to the anxieties of our people, the State responded to the anxieties of our so-called partners.
Ultimately, the Cabinet is responsible for this choice and this fundamental choice leaves the Government impotent.
An economy can only grow if its own people spend more or if foreigners spend more on goods we produce.
There is no way any informed economist can argue that this Budget will contribute to economic growth in any meaningful way. The opposite will be the case; the ongoing fiscal contraction at a time when there is a vicious “liquidity trap” allied to a massive debt overhang in the economy will lead to higher unemployment, higher emigration, lower economic activity and ultimately, as we saw on Tuesday night, lower and lower revenues, demanding yet more cuts and tax increases next year.
The anxieties of the people — centred on huge unsustainable mortgage debts and squeezed incomes — remain unaddressed.
In short, in terms of who is paying what, mothers, the average worker, their families and homeowners will have to cough up, while developers and land speculators get off scot-free.
The property tax, based on the value of homes, targets people’s dwellings while the thousands of hectares of zoned land, the developers’ legacy, gets away unmolested. So the property tax is limited to the small fry, while the big guys get away. Labour voters are entitled to feel uncomfortable because if anyone tells you there is no wealth in the country, just examine the deposits in the banking system.
Given that we are dealing with bad choices and worse choices, can we say with any certainty which way the Budget will nudge an already battered domestic economy? What will this Budget do to incentives?
Last night, hours after the Budget, there was a long queue at the till of the local off-license worthy of a particularly jittery Holy Thursday night. What that tells you is that people respond to incentives and if a government hikes up excise duty on booze, and wine in particular, people will bring forward their purchases to avoid the tax.
So expect long queues outside Sainsbury’s in Newry this Christmas, expect fewer houses to change hands, expect people to spend less because taxes on labour have increased and so too have taxes in the average home. Richer workers, who tend to spend more on imported goods, have been, despite all the conflicting leaks, left largely unscathed.
This is another deflationary Budget, which will take more and more money out of an already weakened economy. In terms of the split between tax hikes and spending cuts, we got €1.43bn in new taxes and revenues and €1.94bn in spending cuts. Both will drag demand.
In terms of “understanding the anxieties of the people”, the most charitable analysis would be hard-pressed to find the political leadership in this, the one chance a government has every year to set out its vision.
David McWilliams’ new book ‘The Good Room’ is out now.
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Governments don’t do ‘the vision thing’ anymore, if they ever did. They are simply not allowed to. They are pawns in the service of bigger players and don’t expect that to change any time soon. It’s not just Ireland either. In the world of today, any country that tries to act independently – even if it is to save its own skin – will be immediately isolated, removed from the fold and ‘dealt with’ by some method until they come crawling back. It’s all a bit like something from a Victor Hugo novel where a man can be sentenced to… Read more »
David I totally agree with everything you said. I would love to disagree with you, say you are being a gloom and doom merchant but no I agree that the country will continue to detract and suffer terribly. What really sickens me is that the government have picked on the weakest sections of society again whilst those who caused the damage get away. This budget is another nail in the coffin and what makes me spitting mad is when I hear Eamon Gilmore tell the media that the burden has been shared fairly with the biggest shoulders carrying the burden.… Read more »
W Edwards Deming’s recommended approach was to view business as a system. It is the job of management to understand the system and ensure it is continuously improved over time. In order to be an effective manager you must understand the system. The same model applies to government. Government is a system. However, if any one person understands the system I would be very surprised. As a consequence, you get this non-joined up “thinking” where policies conflict with each other. The management (in this case, the ministers and their civil servant minions) does not understand the system. Clearly management (political… Read more »
The country needs a left/right divide now more than at any other time in the state’s history. The big beneficiaries of this all things to all men populism has always been Fianna Fáil, and the new beneficiaries may well be Sinn Fein (a working class party supported by anti trade union magnate Sean Quinn), but the opportunism of Fianna Fail has always been the fault of Fine Gael (to some extent) and Labour (to a massive extent). It is labour that will pay the price at the next election, and deservedly so. “Gilmore for Taoieach” may well have been a… Read more »
“The choices facing it are not between good and bad ones, but between bad ones and worse ones.” This is certainly the perception but there were things that could have been done which would have led to a more balanced budget which were not mentioned, instead they opted for a sledgehammer blow to struggling people which you have highlighted while protecting their own salaries, expenses and massively overpaid advisors. They are as feckless with political optics as they are with the management of the economy, they have simply made a bad situation worse but are so protected, operating in such… Read more »
Hannibal Budget
Leeches and Blood letting agents sucking the decaying national corpse of a dying vision of old Ireland
You are right that spending is the key. In order to put purchasing power back into the economy the totality of private mortgage payments must be reduced. There is no other way. Mortgage payments are the real impediment to growth. There is not enough spending/ revenue capacity in the entire Budget to offset the drain of mortgage payments. It is already clear that there will be no “Promissory Note” deal with Europe. Waiting for one is like waiting for Godot. Instead of looking to Europe we must look to our own legal system for legitimate ways of mitigating the effects… Read more »
[…] davidmcwilliams.com There is no way any informed economist can argue that this Budget will contribute to economic growth in any meaningful way. The opposite will be the case; the ongoing fiscal contraction at a time when there is a vicious “liquidity trap” allied to a massive debt overhang in the economy will lead to higher unemployment, higher emigration, lower economic activity and ultimately, as we saw on Tuesday night, lower and lower revenues, demanding yet more cuts and tax increases next year. Share this:EmailPrintTwitterFacebookLinkedInPinterestLike this:LikeBe the first to like this. […]
As always, your article is very interesting. I worked in a large Irish company that went bust a few years ago, and leading up to insolvency, it seemed to me that the senior management of that company were living day-to-day trying anything to extend their grip on power and, more importantly, their incomes. The most important decision factor was the desire to keep their gravy-train running as long as possible. As a result, all decisions seemed potentially suspect and not made in the interests of the company, it’s employees, customers or suppliers but in the interests of the individuals on… Read more »
Having just read this article, I am glad that I emigrated to the UK in 2011. It just seems that the mandarins in the civil service are the ones who are really pulling the strings in Ireland. They seem to know the cost of everything and the value of nothing! Without hope of a better tomorrow, Ireland will descend further into darkness. I know that some may argue that the corporation tax remains very low and that Ireland is a great location for foreign direct investment. However, one cannot ignore the SME sector and the local economy. If you have… Read more »
David let me quote you two far more fitting Galbraith quotes “The Process by which bank creates money is so simple that the mind is repelled” and “The only function of economic forecasting is to make astrology look respectable” These go straight to the root of our problems. We have a privatised money system which creates perpetual debt and we have the “snake oil” economic profession, a profession that perpetually have failed. Steve Keen sums it up Quote “we don’t need to have economists to have an economy, but you do need an engineer to build a bridge”. Until we… Read more »
To Sum up therefore , A botched job indeed and the can is kicked on down the road. Status Quo at all costs ( for those people in high places) and thats not the rock band. We are all getting worse off gradually as a nation and we limp along to the next election hoping for a messiah.
Enda Kenny said today that they have changed the structures and the way we do business in this country. Now that is delusional, I could not think of one such change. The comments about developers are a bit of a throwback. I know a few developers and they have to a man lost everything and they employed hundreds and paid millions in taxes and levies over the years. Wasn’t their fault it was squandered on bench marking. Maybe others I don’t know are doing ok. We do not have leaders that requires right brain thinking and those were never popular… Read more »
What is most revealing of all, is the fact that the institutional state system has been left virtually unscathed. Also revealing was Phil Hogan living well off authority and enjoying himself while everybody else scampers around to figure out how to survive. A customer look at the increase in state expenditure since 1994, and the level of contraction of GNP indicates that we need to do something about an inefficient, ineffective, mismanaged, all over the place, state system. We are still an economy living high above it’s means. This is evidenced by the persistent dependence on accumulating debt to pay… Read more »
When it comes to mortgage arrears stories I am a bit tired of hearing the universal emotional whine about the stereo-typical young family under financial pressure, with a huge mortgage and negativy equity, etc…this is not the true overall picture. Here is the fact – buy to let speculative mortgages are in trouble at twice the rate of residential mortages. http://www.irishexaminer.com/ireland/buy-to-let-mortgage-arrears-hit-29-215411.html Speaking in financial terms only I think it is clear needs to be two different solutions for the two situations. They need to be seperated in any narrativ eon it too.. For me, houses should be homes not a… Read more »
There are only two real problems we face 1 DEBT – which is not ours and cannot afford. 2 Complaceny?,Inertia?, Cowardice?,Apathy? indifference?, You choose. As per Christy More below ”There’s no doubt they have us where they want us. We seem to have become a nation of docile, obedient shit-takers with a few exceptions the same galoots are in the driving seat, the banking elite have become, if anything, even more arrogant, the PAYE workers,the poor, the elderly, the infirm, the special needs, these are the ones paying for the sins of the greedy…for the laissez faire attitude of Bertie… Read more »
It just hit me last nigh, in an almost sleepy state. None of the morons in charge understand debt. All they understand is how to get their noses into the state system, and how to keep it there. They really have no clue what they are doing. And anybody who takes them at their word is in for an almighty amount of agony. Just ask anybody who trusted the Irish media or the Irish politicians in the boom era and who now has a mortgage. The budget was a mish mash of sops to various vested interests. Including the ECB,… Read more »
David in times like this, little people like us count on people like you with a high public profile, to give an honest and unbiased opinion. And it is obvious that unless you would be a bad person or a total ignorant, you would have gone along and said the silly things, that the well polished an unashamed charlatans of the Government are saying . We all know we have to make sacrifices for to bring the Country back on track. I do like wine a lot, and I don’t complaint about the one euro increase in excise, and even… Read more »
Make no mistake, this budget gives the Government’s NAMA machine more time to do its work. While ordinary decent working folks and decent citizens are trying to obey the law…not these guys. The taxpayer is funding a time delay necessary for this organisation (the biggest property company in the world) to avoid the mother and father of all fire sales. BANKS, LANDBANKS, DEVELOPERS and their ilk will be left alone to churn mega amounts of loot while earning half million salaries. If NAMA is destroyed/ dismantled, this country will settle down nicely. But of course, I forget, the very basis… Read more »
Good stuff. I know you echo the feelings of the majority by condemning this budget and recognising the anxiety of people up and down the country
The best way to overcome this anxiety is to look to solidarity and I think you will see a lot of this in 2013. People are turning left just like they did in South America after being subjected to brutal experiments in economic ideology
I predict in the end Irish people will put the common good before and above the selfishnes of the political classes. I smell a riot
Hillary Rodham Clinton praised the Gubment for doing a great job on this budget, and the Irish sheeple for, wait for it,.. “getting up every day and getting the job done” WTF? WTF I say? Did she actually say this bullshit? Who is she? Ross Perot? I read old items in the yesteryears papers and think Wow! they use to talk to the people like that? FLASHBACK! Hillary talking down to you, condescending. She has nothing but hatred and disrespect for you. AND she doesn’t know a damn thing about what is actually going on in Ireland and the economy,… Read more »
David, if you were in government, how would you do it?
This is not our darkest hour because it is the beginning of something. Budget 2013 will go down as the day we crossed a line and said ‘Right that it is. This stops here!’
The Irish people will not take any more of this dictatorship. Of that I am 100% certain and the reason why is we have nothing left to lose
We are not the first generation to end up in a rage. Stay focused because we really are all in this together now. Stop taking shit. Please!
Here’s one David will know:
http://www.youtube.com/watch?v=oIiO8fX0pZM
It’s very strange how quiet it all is about the biggest winners in the last few years, the farmers particularly the big ones. Huge winners from rezoning of land over the years most rezoned land was agri before the maps were altered. Low rates of cgt at the time. No commercial rates on farms. Nothing negative in this budget for them and cap still rolling. Clever country boys being minded by Fine Gael nice and quietly.
I think that in order to rein in reckless politicans in good times, and to limit the damage they do in bad times is a slight refom in the political/government system is required. Remove their power to nominate persons to quangos (and especially their special advisors). Recruit an independent recruitment firm to get the best people on these boards/special advisors. Major recommendations from these new quangos must be debated as a bill at the Dail, whereby hopefully, cross party support is achieved. I say this in order for example to get good business people in the decision making process in… Read more »
Hannibal Noonan Th Dictat delivered by the Minister was not a budget as defined in the spirit of the original Finance Acts, that body of law he proclaims his his duties, and his enforcement of an alien concept . His actions do not fall under the word ‘intransigence ‘ because that is too kind to him .Instead we have to borrow from French Politics because the English language again fails us in the significant moments we now find ourselves in. We now see a character flaw in the Minister when he now resorts to ‘ jusqu ‘au – boutisme ‘.This… Read more »
David very well put . I am amazed when I watch the dail on tv and you see someone speaking from the opposition bench and while they make there point,you see the government ministers not listing ,playing with there phones ,looking at the ground ,letting on to read documents,picking there nose . It’s as if they hold the opposition in contempt ,like something you picked up on the sole of your shoe,the current government seam to forget when they where on the sideline ,what a bunch of tosspots. If we don’t get off our backsides and give them the gate… Read more »
Gerald.Nash@oireachtas.ie This is the response I received when I emailed and said I would never vote labour again Thank you for your email. As you will understand, I have been in discussions with Ministers in relation to the Budget, both in advance of Wednesday and since decisions were announced and communicated in the Dail. There is no doubt that this is a tough budget. As a Labour TD, it was my priority to ensure that the budget is as fair as possible under the economic circumstances and that those who have the most will pay the most. In that regard,… Read more »
Heard a story from a guy who works in a bank last week.
Client loan 15m security site in uk. site sold by receiver.
How much? answers on a postcard.
500k I kid you not. 3% of loan.
.
When FF were in power for years, FG and Labour voters waited and wished for the day “when we get in we’ll do it different”.Now that day has arrived. Anyone see any change?
Time for a whole new mindset, starting with pols who are not full-time liars!
Vichey Ireland During WW2 France was divided by the Germans into four parts Vichey in Northern France , Alsace annexed to Germany and Alpes Maritime to Italy and the South West Central to an exiled French Government . Ireland has been divided too . Vichey Pale ( Troika ) , Donegal ( Rebels ) , Shannon ( Ryanair & Aviation Moguls ) , Cork, Kerry & Westport ( Pharma Cuties all USA ) , The Fields ( Farmers & Foreign Whiskey & Dairy Companies ) . On a political level Petain = Brian Lenihan , Leval = Noonan .Don’t forget… Read more »
Who will inform I am in Resistance
TO THEW PRESIDENT OF IRELAND MICHAEL D HIGGINS . Dear Sir, . 1) I as an ordinary citizen wouldn’t mind paying a Solidarity Tax, that lets say would be the equivalent of what I’m going to have to pay for my Property Tax. But I’m totally oppose to the Property Tax because it is like putting a chain on the necks of people and families. And because people who is in negative equity, and already paid stamp duty, shouldn’t have to pay; not even rich people should paid it, because a home is a sanctuary for family life. Property Tax… Read more »
The Laws of Exclusion
During the Vichy Regime the French puppet government imposed the law of exclusion of Jews denying them of their rights and despoiling their dignity and fairness .
This budget does that too to The Poor and Vulnerable.
This is the first enactment only of many more.
Hannibal Noonan is the author .
Joseph Stiglitz:
http://www.guardian.co.uk/business/economics-blog/2012/dec/06/us-financial-system-tackle-inequality
The ‘Austrians’ are mentioned in this one:
http://www.guardian.co.uk/business/2012/nov/22/income-equality-killing-capitalism
I may have created a Monster!
Over to you Mr. bonbon…
Virtual cash exchange becomes bank
http://www.bbc.co.uk/news/technology-20641465
Sinn Féin will table a Dáil motion of no confidence in the Government next week.
“Fine Gael and Labour have broken their contract with the electorate and torn up their election promises. During the election these parties stood on a platform of standing up for Ireland’s interests in Europe; of ‘not one more red cent’ to be given to the banks; of protecting child benefit.”
Big public and political discussion concerning “the fiscal cliff” and the unsustainable trend in US Federal Debt Financing.
The debt picture in Ireland is way out of control.
And there is no debate concerning the issue.
We even have the news media in Ireland describing the US Fiscal cliff in such a way as to teach the Irish public that more borrowing is the solution. In the Irish context the borrowing is to carry the inefficiencies loaded into a wasteful, largess laden state system.
Something very familiar is going on in Iceland : The Iceland model was to refuse state responsibility for the international private debt of the banks. To keep the nation going, the domestic side of the banks was saved. It was an absolutely crucial decision, but it means that there is a lot of cleanup to be done left in the domestic part. Discussions with representatives from the organizations of debt owners on Iceland, bring out the point that more or less every middle-aged person or small business is in debt, which is out of control. The domestic debt problem for… Read more »
Finally they find the balls
“The fact of the matter is we can’t pay” says Min Rabbitte.
The key couple of words in the article is “Inpotent Government”. I wonder if the party based system is causing us and possibly many countries a lot of problems. Just to take an extreme, one observation about extreme decision making in combat and war (to commit any level of cruelty needed to get the job done – lots of historical examples abound) is that the motivation has little to do with politics or ideology but the devotion that exists for a soldier’s band of brothers. In times of extreme crisis the bonding among brothers is at its most intense. (The… Read more »
The mantra of most of this Government goes something like it: . “We are an island surrounded by water” (*of course, do you know of one that isn’t?), “cut off mainland Europe” (* you mean like Britain and Iceland?), “and we all agree we are not going to increase the lowest Corporation Tax in the World one iota, not even half of one percent” (* don’t you think you should, when it is several points below of what they pay in most Countries of the EU?), “and we are going to pay all unsecured bondholders up to the last penny… Read more »
My main issue with this article is the following sentence: ‘An economy can only grow if its own people spend more or if foreigners spend more on goods we produce.’ It’s not a completely accurate description of how an economy expands at all. Ultimately an economy expands because its own people organise loans from their banks and in doing so the banks create more money for the economy. Once again David, I know that when people save rather than spend there appears to be less money during a recession but again this is an incomplete description of how recession occur.… Read more »