With a march against austerity planned by the Dublin Council of Trade Unions this weekend Michael Taft, research officer at Unite trade union, writes for TN about the alternative to the next round of cuts and tax increases.
Even the government has accepted that 2013 is set to be another grim year.
Growth will be sluggish, there will be no increase in the numbers at work, consumer spending will fall again (and, with it, more businesses) and emigration will continue apace. We are just about to exit the great recession. The problem is that we are now entering the great stagnation: an extended period of low growth, high unemployment and high debt. We will have a statistical recovery; but the human recession will linger on.
Yet in terms of government policy, it is steady on. The 2013 budget will see even more cuts in public services and social protection than in the last budget. And the following year will be even worse again. And there will be even more cuts in 2015. To date, very few have stopped to ask: is this economically rational and socially sustainable? Fortunately, there is the beginning of a mood change, not only throughout Europe, but here in Ireland.
That is why the march on 24th November in Dublin is so important: to transform this growing mood change into actual change.
Proponents of austerity (or to be precise, “fiscal contraction”) will claim that we must cut the deficit. There is no argument there; there never has been. The issue is whether austerity is the most efficient means of doing that. After all, we have cut €24bn out of the economy (spending cuts, tax increases) since the beginning of the crisis. Yet the underlying deficit – when special bank payments and income are stripped out – has fallen by only €3bn. €24bn and €3bn; not much value for money there. Why?
It is simple: when the state cuts its spending, or cuts people’s disposable income through taxation, it reduces the economy’s ability to generate growth. Tax receipts fall, public spending rises (through unemployment and related costs), and what you think you are saving by cutting or taxing melts away. The deficit remains high, debt continues to rise.
Of course, if there is little economic logic to austerity (even the International Monetary Fund is starting to question it) there is always the political logic, and this is trumping all arguments. For instance, if you hold that the public sector should shrink; that people must be incentivised to work (that is, cut their social protection payments despite the fact there is only one job vacancy for every 30 unemployed people); that public services should be outsourced and privatised because private markets deliver better results; then austerity is an idea whose time has come. And what better time to pursue it than when austerity can hide behind the veil of “repairing our public finances”.
There are other benchmarks besides the deficit. Over one million people suffer multiple deprivation experiences as measured by the Central Statistics Office, over 335,000 of whom are children. We have one of the highest rates of unemployment and long-term unemployment in Europe. The number of young people who are not in employment, education or training is, again, one of the highest in Europe. Real wages after inflation are falling and will continue to fall until 2015 at least. And even the government has admitted its employment policies are failing; they project that dole queues will fall by only one percentage point over the lifetime of the current Dáil.
This is a high price to pay for a policy that is not even doing what it is supposed to do: namely, cut the deficit.
So is there an alternative? Oh, yes. There has always been an alternative to boost economy recovery and repair public finances. But you have to first realise these two goals are two sides of the same coin. How can growth and fiscal stability go hand-in-hand? Three steps.
First step: drive investment. Investment is not a cost. It is a down-payment on future revenue. Investment in a next-generation broadband network, a modern water and waste system, retrofitting our 1m energy-inefficient buildings; all these put people to work today and grow the economy tomorrow. They pay for themselves in the medium-term. But investment is not just about bricks, mortars or fibre-optic. One of the best investments we can make is education, from early childhood all the way through third and fourth level and beyond to adult and life-long learning, which is why the upcoming cuts in education are one of the more irrational we can make.
Second step: drive the budget with taxation on high-income groups and unproductive activity. The reason is self-evident. If you tax low-to-average income earners they will be forced to reduce their spending. It is tantamount to taking money out of the business tills and cash registers throughout the country. However, if you tax high-income groups – their capital and property – they are not likely to reduce their spending by much since they are savers. This is called “growth-friendly” fiscal consolidation.
Third step: stop cutting. The Economic and Social Research Institute, the Nevin Economic Research Institute and, recently, the European commission have all shown that spending cuts are more damaging to the domestic economy than tax increases; therefore, they are less efficient at cutting the deficit. So stop digging a bigger hole.Focus on creating efficiencies and then take the money saved and reinvest it back into growth; this is what successful businesses do during a downturn. If the government saves €400m through a reduced drug bill, reinvest that into rolling out affordable childcare centres. This would increase tax revenue, lower unemployment costs and provide a small stimulus to tens of thousands of households paying some of the highest childcare costs in Europe.
These three steps can be summarised as investment and smart fiscal consolidation. For the last four years we have been cutting investment and doing some dumb things in budgets. But it is not too late to change course.
That is why everyone who is concerned about unemployment, deprivation, education and health cuts and the loss of hope in society should come out on 24th November. It will be a long campaign; transforming mood changes into actual changes take time. But the sooner we start, the sooner we can change the debate and then the policy. Then we will finally be on road to economic and social recovery.
DCTU’s Anti-Austerity March, Dublin – 24th November, 1pm, Garden of Remembrance, Parnell Square.
Michael Taft is a research officer for the trade union Unite and blogs at Notes on the Front.