Economic realities?

A telling piece by Brendan Howllin in the Sunday Business Post this weekend. Strange too, because of one or two glaring logical inconsistencies. Not so strange in terms of the language used which appears designed shaped for at least one element of the SBP readership. So one will learn that welfare “may well be a trap, as well as a salvation – a ceiling on the aspiration of too many of our citizens”.

True indeed, except that we live in a period of unemployment at 14.5 per cent and having come from a time of near enough full employment – as the latter term is used by economists – during the boom. In other words when work was there there were people willing to take it up. And given the dearth of employment opportunities perhaps the Minister could explain how the trap of unemployment and welfare is to be avoided given that the government itself doesn’t see the figures dipping significantly across the next number of years (and indeed their projections are based on, frankly, fantastical growth figures). Granted Howlin mentions this in the context of discussions to be had after the crisis, but given the timescale on said crisis one wonders when that will be…

And then there’s his thoughts on taxation. As mainstream social democracy crawls away with a death rattle in its throat its plight could hardly be improved when it hears the following. “If we are interested in the welfare of the less well-off we must be as concerned by the size of the pie being created as its distribution … Ultimately, you cannot tax your way out of a recession.”. And yet what about cutting expenditures as a means out of a recession. How is that working out?

But it’s the following that I find most contestable.

Howlin insists that the budget was as fair as it could be, given the economic realities faced by the government. He points to the revision of previously-planned budget cuts to health and social protection budgets.

“The most significant choices made in the budget then were taken to protect the two government departments most synonymous with social equity issues. That neither area could be fully protected is not due to government choices but the extent of the crisis in the public finances.”

And he says:

It is a source of regret to the government that we were unable to protect all payments during this budget. But the decisions were taken in the interest of fairness. Were other decisions taken, no doubt we’d be talking about them now. Both the child benefit provisions and the treatment of carers by this state are among the most generous in the European Union – and rightly so, despite the fact that we are borrowing money from our fellow member states to pay our bills.

Of course it wasn’t ‘…as fair as it could be, given the economic realities faced by the government’. The Budget was a compromise between Labour and Fine Gael. A Labour government, however detached from social democracy, would have presented a rather different balance of cuts and taxes from one led by Fine Gael – currently in a particularly right of centre configuration – or the current dispensation. Those would be, naturally, political decisions as much as economic, so to present it as a situation where what is being done is the best possible approach is fundamentally incorrect. There was nothing inevitable about the shape of the responses political and economic to the ‘realities’. And it is hardly surprising that Howlin avoids pointing to this rather unpalatable truth. Although oddly it’s implicit in his text, as when he says:

This scenario echoes the debate that took place in the government on the proposed USC increase on high earners in this budget. Labour believed that this measure was required on the basis of fairness and proportionality. Fine Gael believed – wrongly, in my view – that it would be counterproductive in terms of wealth creation.
However, given that the proposed tax would raise only €70 million out of a tax base in excess of €36 billion, it would be wrong to exaggerate the difference between the two parties. Ultimately, you cannot tax your way out of a recession.

It’s interesting to consider another question in passing. Let’s take it as given that the LP would not have governed with SF – though it will be fascinating to see how things go if the chips fall differently in 2015/2016 in terms of that. But there’s a case that could be made that the LP governing with FF had the numbers of the latter party held up, or at some future point, would have seen a somewhat less rightward tilt in the context of FFs centrist populism. Granted few of us would welcome any such coalescence, but in terms of Labour’s own positioning and self-declared goal of protection of the vulnerable, which by the way in and of itself is enormously problematic as an objective for a supposedly left wing party, it is hard to see why it would rule that out. And it will be interesting, particularly if the FF figures improve over the next couple of years to see what the LP response is to that.