We can cut the deficit AND boost spending

THE debate raging in political circles across Ireland at the moment is a simple one: do we use the ‘extra’ money we have saved on our debt interest to pay down our deficit, or do we spend it on boosting the economy?

As usual with questions of economics, every economist has a different answer. The Troika, of course, insists that we must spend the money on cutting our deficit – and it would appear that our Central Bank agrees.

On the other hand, however, the Central Bank has also just slashed its growth forecast for Ireland. This would strongly suggest that, as feared by many, austerity is actually choking growth. Not only will we not grow our way out of trouble if growth falls, but we will not take in as much tax as hoped – thus increasing the very deficit that austerity was designed to eradicate.

The truth is that no economist can say for certain which course should be charted. Certain principles, however, are clear: and the first is that this country cannot carry on spending each year €15billion more than it takes in. Such overspending would not only ruin us, it would also ensure that the rest of the world would not lend us money. The deficit must be cut.

So how, then, can we also stimulate an economy that is very clearly about to run out of steam? We cannot print money, which Britain has done successfully. We can reduce still further the cost of our debt repayments by insisting that our bailout terms are extended significantly – and we can use our veto on certain EU matters to insist on it.

Most importantly of all, however, we could actually reform the two great spending departments – Health and Social Welfare. As a nation, we are spending vast amounts of money paying people not to work, or indeed to contribute in any meaningful way to their communities. This is profoundly wrong.

The welfare system was only ever designed to be a safety net: instead, for many it has become a lifestyle. Yes, we must do everything we can to support the hundreds of thousands of people who have lost their jobs in this recession: but this should not be the same as offering a lifetime of benefits to anyone who chooses to opt for such a lifestyle.