THIS TIME NEXT week the budget for 2013 will be mostly (but for any big boo-boos) set in stone. We will have cut another €2.25 billion spending and raised €1.25bn in extra taxes. Column inches will be chewed up at a fierce rate condemning this cut or that tax. The trouble with it all is that we’re so deep in the hole that this budget, painful and all as it is, and the ones to come aren’t digging us out.
The government will still need to borrow €15.3bn in 2013, down from the €15.6bn it borrowed in 2012 to keep the lights on. Yep – That’s how impressively deep a hole we’re in, that the government can have a €3.5 billion austerity budget but only move the needle a notch, from a -8.5 per cent balance in 2012 to a -7.5 per cent one in 2013.
In November 2011 the government, compelled by the troika, published a medium term fiscal statement in advance of budget 2012 to outline their economic assumptions about how we get to the light at the end of the tunnel. They published an updated one this November, in advance of budget 2013; and it spells out precisely how well the plan is working.
A year ago the government estimated that employment would hold almost steady in 2012, at a -0.2 per cent contraction. Employment has fallen by -1.2 per cent, or six times more than they estimated. Just 12 months ago we were told that unemployment would fall to 13.4 per cent in 2013. Now they guesstimate that it will stay at 14.5 per cent, right about where it is today, through next year; and we won’t see 13 per cent until 2015.
Domestic demand was forecasted to fall by -1 per cent. It has fallen by two. GDP growth was forecasted at 1.6 per cent this year; now they think we’ll make 0.9 per cent. Next year they thought we’d get 2.4 per cent growth; now they reckon 1.5 per cent.
The interesting thing about the forecast is that the government reckons, for all that growth that isn’t showing up and all those jobs that aren’t being created, at the very top line we’ll hit right on our targets and sail out of our bailout without difficulty. It’s almost as if the forecast was built from the answer backwards, and figures coddled to make sure that – in the end – everything works out in the rosy model.
Even though the past five years of forecasts from the Department of Finance have been wrong on almost every major call, we have them asking us to believe that we will shoot right up into the 2.5 per cent and then 3 per cent GDP growth rates in 2014-2015. They tell us that just around the next corner domestic demand will shoot from a minus two to plus one per cent growth; despite their estimations to date being off by 100 per cent in the wrong direction.
Last year, the government estimated that investment in the economy would shrink by -0.8 per cent in 2012. It has shrunk by -3.8 per cent. But, they tell us that it will grow by 3.2 per cent in 2013 and then, amazingly, by 8.3 per cent in 2014. Last year they estimated that it would grow by 4.6 per cent in 2014… It almost seems as if they’re moving figures around to make sure they get to where they want to be.
The fiscal policy of the Irish government is to fly on a wing and a prayer. Eurozone economic growth is anaemic at best, limiting our chances at attaining the kind of average growth rates – in the 3 per cent range – we need to keep our heads above water. Debt interest payments are what keep our huge austerity budgets from actually decreasing our borrowing by substantial amounts, as we keep borrowing on one credit card to pay off the other ones.
The plan for our debt is to keep going to Europe, begging for write offs on our banking debt. We were told during the summer that a major breakthrough had been made. Then we heard from a bunch of finance ministers, including the German one, that our ‘legacy debt’ wouldn’t be covered by any deal designed to save Spain or Italy. And now the Taoiseach, so boisterous about it during the summer, tells us that – once again – we’ll get the jam tomorrow, with any deal pushed into next year. Even if we get a deal on the banking portion of our debt and avoid total implosion, we’ve borrowed so much to keep the quangos in business and the unions sweet that we’re still overburdened and future Irish budgets will have to reflect that.
The domestic economy – as evidenced by domestic demand and unemployment figures – is completely shagged. The government doesn’t appear to have put much thought in its forecasts this year – as last – to what all the new taxes they’re delivering in 2013 will do to depress demand further than they estimated for yet another year.
Pre-election Fine Gael was spouting on about research from Harvard University that shows tax increases, in general, harm the economy twice as much as spending cuts. We got €1.6bn in new taxes last year and look how well the economy did versus forecast. We are getting €1.25bn this year and €1.1bn again in 2014. It doesn’t take Kevin Cardiff to add up those sums and see how we’ll get along.
We’re living in a land of fictional economic forecasts and very real and damaging fiscal policies. Debt is mounting up. Growth is nowhere in sight. But we go into Budget 2013 on Wednesday for another pounding in the name of the electoral prospects of a government that is praying hard that something will fall from the sky (or be found under the ground…) and save them.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna.
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