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Budget 2015 - an end to austerity?

J M Thorn

22 October 2014

Budget 2015 has been hailed as a turning point in the period of economic emergency that has prevailed in Ireland over the last six years.  It is the first budget since the financial collapse and subsequent bailout that hasn't contained substantial spending cuts and tax rises.  Instead Budget 2015 contained a package of tax cuts and spending increases totalling almost €1bn.  While this figure is very modest it does reinforce the mainstream narrative that the country is finally on the road to recovery and that austerity is at an end. 

A number of factors have contributed to this apparent turnaround.  Firstly, over the the past eighteen months there has been relatively strong growth (expected to be 4.7 per cent in 2014) in the Irish economy which has generated higher tax revenues that expected. Secondly, the recent IMF debt swap deal has reduced the repayment costs of the bailout (by about €300m a year).  This has given the Irish government some scope to ease the programme of austerity.  

However, this does not mean that austerity is at an end.  That would be dependent on continuing strong growth in the Irish economy and further concessions from the EU on the terms of the bailout.  Yet these are far from assured.  With the world economy slowing down again, and the major Eurozone economies falling back into recession, the highpoint of the recovery may already be past.  Also, there is no indication that the EU is ready to concede on the debt forgiveness measures that would make a real difference to Ireland.  Quite the opposite - it is adamant that the costs of the €67bn bailout be paid in full.  What “concessions” may have been made - on interest rates and time scale - are to ensure repayment.  Whatever the Irish government may say the fundamental terms of bailout are still in place and will be in place for many years to come. Indeed, under those terms, which demand not only the payment of interest but also the reduction of total national debt, the level of austerity is due to intensify in the coming years. 

Even under the best case scenario - of strong economic growth + debt forgiveness - working class people in Ireland people are unlikely to see much benefit.  Budget 2015 is a strong indicator of this.  For despite the claims of broad relief, meant to bolster the position of the Labour party, it is actually very regressive. What benefits it does contain - particularly in terms of taxation - are heavily skewed towards the wealthiest section of the population. The greatest benefit in cash terms is for the top 10% (above €70,000), and the benefit in percentage terms increases steadily from those on minimum wages to those on €70,000.  People from Minimum Wage levels (€17,576) to €33,800 gain €174, whereas people on incomes over €33,800 gain €384 or more, and people on incomes above €70,000 gain the maximum benefit of €746.  An unemployed single person gains just €0.90 a week while single person earning over €70,000 gains €14.30 a week. Overall, the combined impact of the tax changes in the budget amount to a redistribution of wealth upwards. When water charges are taken into account the reality is even starker with most people on incomes under €30,000 being left as net losers.

Indeed, into the future, it is these off balance sheet measures (as typified by water charges) that are likely to become the dominant features of austerity in Ireland.  A second element of this is privatisation of utilities and public services and the escalating charges imposed by the private companies that run them.  While not technically taxes they are no less a drain on the incomes working class people.  Another disguised element of austerity is inflation, with wages, benefits and spending lagging behind the cost of living.  For example, since 2010 increases in primary social welfare rates have been well below the rate of inflation.  This trend, according to the government’s own figures, is set to continue across all categories of public spending up to a least 2018.  In cash terms spending will remain the same or even rise slightly but it will be nowhere near the projected rate of inflation.  So in real terms (factoring in the rate of inflation) spending will fall by over six percent by 2018. Spending on public services will fall five per cent while capital investment will be down by nearly 13 per cent. 

The third element of this “stealth” austerity is the continuing depression of wages. There has been already been significant reductions in public sector wages – through the      Croke Park and Haddington Road agreements – and there is no indication that this will change.  The Minister for Public Expenditure and Reform Brendan Howlin has already said there is no provision in Budget 2015 to meet any rise in public service wages.  Also, the legislation (the Financial Emergency Measures in the Public Interest Acts 2009-2013) which allows for the imposition of wage cuts in the absence of trade union agreement is still in place.  This is supposed to lapse when the “economic emergency” is at an end but when that point is reached is a decision for the Irish government and the EU which can be prolonged indefinitely.
Despite the claims made for it Budget 2015 is a continuation of the programme of austerity - albeit in a different form.  The modification of the bailout conditions and recovery in the economy have allowed for a slight easing.  However, this will be no more than a pause as the factors than allow for it are only temporary in nature, as shown by the fact that the Irish government claim economic recovery while the press is full of reports about a further collapse in the eurozone economic region that it is part of.  The political factors are also temporary with the governing parties trying to put themselves in a more favourable position ahead of the general election.  There has been no fundamental change.  That the Government should use its better financial position to shift even more resources towards the wealthy demonstrates this to be the case.   Even the much heralded abolition of the so called “double Irish” tax avoidance scheme turns out to be a fraud with it being replaced by the slightly less outrageous “patent box” scheme.  

As the one and only strategy of the Irish ruling class is complete subservience to international capital the war on workers cannot end.      

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