Cool heads needed to stem the financial incontinence
JONATHAN Swift was on to something when he said that a wise person should have money in the head and not in the heart. Unsurprisingly, as a clergyman he knew that the proper handling of hard currency demands restraint and utter clear-headedness. Trouble is, there hasn’t been much evidence of either restraint or clear-headedness about money in these parts for decades now.
Last December, before the coronavirus pandemic knocked us all off our centre of gravity, Ireland was already swimming in a sea of debt, €204bn and rising. And, according to CSO figures, virtually nothing has been paid off our gross national debt in the past six years despite the huge economic uptick that produced full employment.
A Houses of the Oireachtas report in April put us in the EU dunces’ corner when it comes to net wealth – ninth from the bottom and behind places such as Bulgaria, Romania and Poland. This report makes for sober reading, with the only redeeming feature being the historically low interest we pay on our mountain of debt.
LAST year, we were expecting to fork out €6.7bn in interest – in fact we paid €4.7bn (still an eye-watering amount of money). Add household debt (€28,000 per person) and corporate debt and it’s the stuff of nightmares, and more than double that of Germany. (We must be twice as rich!)
Then to complicate matters further, over in China some bat, riddled with a virus deadly to humans decided to relieve himself in circumstances that breached the species barrier – and, as they say, the rest is history.
Now, according to the European
Commission, Ireland’s economy will shrink by at least 8.4% this year as a direct result of the virus.
In April, the Central Bank warned there would be a €22bn hole in public finances by the end of this year. By June the CSO was saying the deficit would be €28bn while a University of Limerick economist predicted a ‘large fiscal deficit in excess of €30bn’.
MEANWHILE, massive Covid payments to employees and companies are continuing to bleed billions from the exchequer, accompanied by commercial rates write-offs, health spend increases, less income tax and plummeting VAT receipts as consumers save billions.
Unemployment should fall to 12.5% by the end of the year, down from over 22% in June – 9% next year and 7% in 2022, according to the Central Bank’s Quarterly Bulletin. That’s if things go well.
Now, as the economy attempts a return to something like normality, the virus is threatening us again with a catastrophic second wave.
In the UK, people are being asked to ‘eat out to help out’ and chancellor Rishi Sunak is chipping in with a maximum £10 per head for those having meals in restaurants from
Monday to Wednesday. That’s a measure of how bizarre this Covid19 economic disaster has become.
And here, despite knowing there’s no such thing as a free meal, pressure is mounting for the same voucher system and for a reduction in VAT down to 5% from 13.5%.
Clear-headedness asserts itself, however, every so often. The EU Commission has made it perfectly clear that every cent borrowed by member states from the €750bn Covid emergency fund will have to be repaid.
Still, the gaslighting goes on – with ever-strengthening demands for more borrowed State cash to be splashed on creches, shops, factories, sports, hotels, restaurants, the arts and more besides.
And Pearse Doherty wants the banks to forego about €150m interest due from mortgage holders who took a break because of Covid-19. Taoiseach Micheál Martin, Leo Varadkar and Eamon Ryan agree a deal for housing, health and reduced carbon emissions in a programme that doesn’t contain a single forecast of cost.
All ruled by the heart, not the head.