There will be a heavy price to pay for boom-and-bust ‘Lotto’
Everyone’s a winner in the Budget — until lenders call in the country’s debts and then we could all be losers, writes Brendan Burgess
‘If we wait until the next recession, it will be far more difficult’
YOU are a high-earning couple with a family who seem to have unlimited financial demands. Your two salaries are just about enough to cover your outgoings. But you are a bit worried. You have a big mortgage. Repayments are manageable at the moment because interest rates are low, but you will be in trouble if and when interest rates rise.
You will be in even more trouble if one of you loses your job or takes a pay cut. And then, out of the blue, you win €20k in the Lotto. Do you pay down your mortgage or do you just meet even more of your family’s financial demands?
Well, Paschal Donohoe believes you should blow it on the family and that you shouldn’t worry about the mortgage.
Because that is exactly what is happening to the public finances. The economy is booming. Employment is at an all-time high. Anyone who wants to work can get a job. But we have a huge mortgage — €200bn of government debt. This huge debt doesn’t cost us much because interest rates are artificially low. And we have just won the Lotto in terms of the artificially high Corporation Tax take from the multi-nationals.
So do we use the Corporation Tax Lotto win to pay down our national debt and protect ourselves against the expected interest rate rises? No, we increase spending everywhere we can.
Increases in salaries for public sector workers? Check. Increases in social welfare rates? Check. Increases in pensions? Check.
Christmas bonuses for everyone? Check. Paid parental leave for everyone? Check. Social welfare for the self-employed? Check. Tax cuts? Check.
The Government is doing exactly the opposite of what it should be doing. It should be using the windfall from the booming economy and low cost of borrowings to pay down the national debt. Instead, it is using the windfall to increase government spending to an even more unsustainable level.
We should tell people that we simply cannot afford to continue paying the very high levels of pensions and social welfare payments.
When the next crash comes, we will need to increase government spending to boost the economy, but the cupboard will be bare. We should be cutting expenditure now so that we can increase it when we need to. We are making the exact same mistakes we made during the last boom and bust.
When the property market was driving the economy and the government’s tax revenues, we put none of it aside so we had to cut back when the crash came. These cuts made the recession worse.
It is extraordinary that there is no party in the Dail pointing this out. There isn’t even one TD pointing this out.
During the last recession, we were able to borrow to fill the gap between tax revenue and expenditure. But that option will not be open to us when the next crash comes.
We went into the last recession with just €50bn of national debt but now we owe €200bn. The international markets which are throwing cheap money at us now will stop lending to us when they realise the gaping hole in our national finances.
The people who will suffer the most will be those who have become dependent on high social welfare payments, free social housing and free health care.
All of this will have to be cut back dramatically, irre- spective of which government is in power. The money simply won’t be there and we won’t be able to borrow it.
We should wean people off the entitlement culture. We should tell people that if they choose welfare over work, then they are going to be poor and they are going to have poorer housing.
We have to tell people that if they choose work instead of welfare, that they will have higher incomes now and higher pensions in retirement. And we have to give working people, particularly those in low-paid jobs, priority in the allocation of social housing.
At the moment we give people social housing in their own community whereas workers will often have to commute long distances. We have to turn this right around. If someone is not working, they should be offered social housing wherever in the country it is cheapest. And housing in the areas of highest demand such as Dublin should be reserved for people working in Dublin.
Now is a good time to face up to this reality. The economy is booming and there are plenty of jobs. So people whose dole is cut will have the option of getting a job to increase their income and living standards.
If we wait until the next recession and are forced to cut welfare, it will be far more difficult for people to find jobs to make up the lost income.