Reflections on The Supplementary Budget – April 12th 2009
This website was set up primarily to concentrate on local issues, but I know that many people are concerned about our current economic climate, particularly following the supplementary budget of April 7th 2009.
Most people are understandably unhappy to be living on a reduced income. I do not like these measures myself, but I do understand why the Government brought them in, and what they will ultimately achieve. It should be remembered that no Government politician actually likes having to bring in such measures (Despite emotive and populist claims to the contrary by the opposition) but in the current economic climate they are unavoidable. While such measures are undoubtedly tough, they are part of an overall plan that will lead us back to prosperity. I hope that any queries or concerns you may have will be addressed in the following supplementary Budget Q & A Guide:
Why was a Supplementary Budget brought in?
Basically, Ireland has been hit hard in the most serious international recession in 70 years and this Budget is a vital part of ensuring that we get through it and return to Economic prosperity. Events have moved fast and borrowing would reach a dangerous level without immediate action. Revenues are dramatically down on all forecasts from even late last year, prompting the need for urgent and decisive action.
What about accusations that the Government is responsible for the current situation?
Nearly every Government in Europe is facing similar problems – Just turn on Sky News , Euronews or the BBC and you will see stories about business closures, volatile stock markets and poor consumer confidence. The People making this claim – The opposition and certain irresponsible elements in the media – are the only ones with anything to gain from our current difficulties. Bad news sells papers, and troubled times for the country are being exploited by an opposition bereft of ideas to engage in cheap populism. Have you heard one opposition figure come out with a cohesive plan as to what they would do to fix things, and how much it would cost you, the taxpayer?
One criticism of the Government is that they failed to see what was coming, so they are responsible for our current situation. While some mistakes were made, it should be remembered that hindsight is a wonderful thing, and if the Government had more warning of the current situation, things would have been very different. While the downturn in the construction industry would have had an impact, it would have been much softer if it was not accompanied by the global economic crisis (Caused by events beyond our control in the US) and there would not have been a need for an early budget in October or a supplementary budget last week.
Why did the current crisis come about and will the Budget lead to economic Recovery?
Unfortunately, for a country like Ireland the global economy is like the weather – We cannot control it; we can only try and predict its patterns and plan our economic strategies accordingly. For ten years, our predictions were correct, and our country enjoyed unprecedented success. However, even the most successful of countries can be hit by the financial equivalent of a tidal wave that is impossible to predict, but leaves a devastating impact on its economy. This is what happened to Ireland.
In the weeks before the Budget, many elements in the media were calling for tough, decisive measures. ‘Give us leadership!’ was the clarion call from a number of quarters. Yet when the Budget was announced, many of these elements lost no time in voicing their criticisms of the measures taken. The opposition have been equally disingenuous in their approach. Fine Gael wanted even more cuts in spending, which would have meant reduced funding for Health, Social Welfare and Public Sector pay. The Labour Party did not want the same cuts, preferring instead to massively increase borrowing. This may have made things seem better in the short term, but would ultimately have delayed economic recovery for many years to come, as any money we made would have to go into paying off a substantially increased national debt.
What the opposition and many media elements fail to understand (Or choose to ignore) is that the Government has taken swift action to bring about a recovery. The Budget will stop the deficit rising to more dangerous levels and begin the process of reducing it down to sustainable levels in the shortest possible time. In simple terms, short term pain, medium term gain.
Is the Budget another bail-out for the banks?
While the Budget was tough, it was tough for everyone. Of course, there were predictable accusations that bankers and developers were not affected, but these are simply untrue.
This is not about the banks, it’s about the people who depend on them. Businesses can’t trade without a working banking system – it’s too important to stand by and let it fail no matter how annoyed you are with their past behaviour. This latest initiative is about taking into state control a range of assets currently held by the banks so that the banks are in a better position to return to lending to people who depend on them. It is similar to initiatives taken in some other countries and it has a range of measures built-in to ensure the best possible return for taxpayers.
Banks will now have to pay much greater heed to government direction, as the newly created National Assets Management Agency (NAMA) will take many bad debts off their books (For a greatly discounted fee) which will in turn allow them to resume lending to SME’s (Small and Medium enterprises). At the same time, the State will now own all these assets. Irrespective of property prices, land will always be valuable and when prices improve and demand increases, the Government will be able to sell it off and put the money back into State funds.
Was the Budget soft on developers?
Hardly. NAMA also has extensive powers to pursue developers with Bad debts – As a State agency, it will be at the disposal of any Government (Not just this one) to continue this work. Every Government must deal with developers and bankers – It doesn’t mean they are friends, or that the particular party in Government is aware of their every thought and motive. Indeed, the headline story in today’s Irish Independent (Sunday, April 12th 2009) ‘Tycoons face ruin as State closes in’ should indicate that developers are clearly not receiving preferential treatment.
Can’t we tax our way out of the recession?
No and we can’t cut our way out of it either. There must be a balance between taxes, cuts and borrowing. Our situation needs revenue immediately; hence the tax and levy increases. Budget cuts have to be carefully considered with respect to their on services – hence An Bord Snip will report later in the year. This budget introduces a fairly imaginative over 50s early retirement scheme for public servants. Finally, we have already achieved a number of other cuts earlier this year.
Is there a lack of stimulus for enterprise?
On the contrary, there are a number of important stimuli in this budget: The National Asset Management Agency will have an enormous impact on credit and funds from the enterprise sector flowing into the banks. We announced 500m for capital investment in enterprise through the IDA. We are providing 100m stabilization fund for viable but vulnerable SMEs. We are introducing a hugely significant tax deduction re Intellectual property assets. This will be an important element in working towards the smart economy.
Is there light at the end of the tunnel?
This Budget has been developed specifically to show how Ireland can come through this recession strongly. A 5-year plan has been set to restore the public finances and, with improved competitiveness and targeted investment, return the country to growth and job creation.
A more detailed explanation of the measures contained in this budget, and the rationale behind them may be found by clicking on the link marked ‘The Economy’ over on the right.
I hope that this guide has helped you to understand the supplementary budget. If you have concerns on any other matter (Particularly local issues!), then please contact me and I will do my best to help.
Níall McCullagh.
