So, how big was the budget hit?

Ireland’s 2014 budget was an ode to Janus, the two-faced Roman deity. Not only was it concocted and communicated to simultaneously placate different audiences, it was ostensibly designed to mark the so-called return of sovereignty – peace in our time.

To Ireland’s lenders, current and future, the budget was a clear statement of intent: that the government would continue to meet all its obligations, including a full €3.1bn adjustment in accordance with the letter of the Memorandum of Understanding signed with the troika.

To Ireland’s citizens, it was sold as an alleviation of austerity, a symbol that we will soon have of control over our own destiny. There was ‘only’ €2.5bn in permanent tax hikes and spending cuts, much worse than it could have been. In fact, Ministers Noonan and Howlin announced a mere €1.85bn in ‘new pain’ on budget day – €0.35bn in net new taxes and €1.5bn in spending cuts, a ratio of 4.3 to 1.

Which of these statements are true?

All of them.

Of the total €3.1bn budget measures, €0.6bn consist of one-off measures which will only reduce the deficit in 2013, like raiding the central bank’s coffers. By – somewhat arbitrarily – subtracting this, we get the €2.5bn figure widely heralded on budget day. A further €0.63bn is accounted for by measures announced last year, but which will only impact fully on the budget arithmetic in 2014 – like the full whack of the property tax. Subtracting this, and we get roughly the €1.85bn in ‘new pain’ announced on 16th October.

How big will the next hit be? Possibly bigger.

There were some in government eager to claim that this was the last of the austerity budgets. One more heave, we were told, and the pain will be over. True, the troika will be gone, but there is still the small matter of the European Union’s Excessive Deficit Procedure, under which Ireland must get its budget deficit below 3% of GDP by 2015.

Although this t is a legal obligation, it may be possible to negotiate an extra year to meet the target, as France and others have done (3% by 2016 was of course the target proposed by ICTU as realistic a number of years back), but ultimately it will have to be met, troika or no troika.

By their very nature, one-off measures cannot be repeated. There will also be much less in the way of pre-announced measures kicking in for 2015, so government will likely have to return to the well for something in the region of €2bn in next year’s budget to meet the 2015 target. Again, the vast bulk of measures are likely to consist of current spending cuts.

There is a small chance of one zero austerity budget before the 2016 election, but only if growth in Ireland and elsewhere doesn’t disappoint as it has done every year since the onset of the financial crisis.

By waving goodbye to the troika, Ireland is not waving goodbye to austerity.

2014 Budget measures €3.1bn
of which one off measures -€0.6bn
__________
Permanent tax and spending measures €2.5bn
of which announced last year -€0.63bn
__________
New measures announced on budget day €1.85bn
of which net tax hikes €0.35bn
of which spending cuts €1.5bn

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s