Budget 2015 – the end of austerity?
To listen to Government ministers and various media commentators on the upcoming budget you would get the impression that Ireland has now turned the corner, that a strong economic recovery has taken hold and that the period of austerity is coming to an end. The Minister for Finance, Michael Noonan, says that that there will be no need for a new round of tax increases and spending cutbacks next year. Labour party leader Joan Burton declares that the 2015 budget will put “the historical period of austerity arising from the [bailout] behind us”. While public spending minister Brendan Howlin trumps both of them with the claim that the Irish Government has “broken . . . the cycle of boom and bust”.
Much of the optimism surrounding the 2015 budget and beyond arises out of the early repayment deal on the IMF portion of the bailout debt. Ireland is currently paying an interest rate of 5% on a loan of €22bn from the IMF and this had been due to increase in January. Now, with the agreement of the ECB and the EU, Ireland will repay its outstanding debt to the IMF by borrowing on the financial markets. This effect of this “debt swap” is to lower the interest rate on this outstanding debt from five to two per cent - saving the Irish state €3bn (€300m a year) in interest repayments. The assumption is that such savings will enable the Government to ease its austerity programme.
However, when we examine the deal, and what remains of the bailout, the foundation for such optimism is not so strong. Firstly, the savings produced by the IMF deal are small compared to the overall bailout costs. The €67bn bailout is still in place and it must be paid in full. While the EU and ECB may allow reductions in the interest rate attached to it they have firmly rejected any form of debt forgiveness. Indeed, what variations may been made to the bailout terms - lowering the interest rate and extending the period of payment - are to ensure its payment rather than provide any relief to the Irish people. And it’s not just the bailout costs that have to be paid. Under the terms of the EU Fiscal Compact, Ireland also has to start paying down its national debt (which currently stands at 117% of GDP). This means that from 2019 onwards the Government will have to find additional year on year savings of €5bn.
Secondly, there is no guarantee that reductions on the cost of the bailout will mean an easing of austerity. For example, the annual saving from the deal on the IMF debt is the equivalent of the bill for water charges, but there is no suggestion that this should be eliminated. The indications from Government ministers are that any saving will be used to pay down debt or even finance tax cuts for those on the highest income tax rate. That only 17 per cent of income tax payers pay anything at all at the higher rate clearly shows the class basis of the Irish government. It also shows the degree to which austerity is about transferring wealth from the poorest to the richest. One of the main mechanisms for this has been the privatisation of public services and utilities such as waste and water. These have been moved off the public balance sheet but the cost is still borne by the public in the form of charges imposed by private companies. A cost is also borne by workers in these privatised companies (such as Greyhound) in terms of a drastic deterioration in wages and working conditions. There is no end to austerity for working class people who are facing the double whammy of higher charges and falling wages.
Despite recent variations the bailout and its basic conditions are still in place. The reality is that the Irish state (whatever Joan Burton says) has not exited from the bailout. It is still subject to its conditions and is also completely dependent on the financial support of the ECB and EU. The IMF debt deal makes this very clear. The claims of recovery, the squabbles over tax versus services are all related to the electoral needs of the governing parties - rather than any fundamental change.
The workers are still being asked to pay
every red cent and to adjust to a new regime of low wages and all-out privatisation.