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

Sunday Independent (Ireland) - - Cabinet Reshuffle - Bren­dan Burgess is the founder of Ask­about­money

‘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.

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.