Will we survive three more savage budgets?
More austerity is coming down, but what does it actually mean for us, asks John Reynolds
Published 11/09/2011 | 05:00
As the IMF earlier this week cut our growth forecast from 1.9 per cent to 1.5 per cent and pushed for a sale of State assets, we asked a range of economists and organisations to help us imagine what the economy might look like by 2014.
By then, the State needs to have saved at least €15bn in total, at least €10.5bn of which has yet to be found.
Consumer spending is likely to grow at no more than one or 2 per cent for up to a decade, according to Douglas McWilliams at the UK's Centre for Economics and Business Research. The majority of us will be tightening our belts for the next three years: we won't be buying too many shiny, new big-screen TVs or other big-ticket items.
Jobs and Welfare
By 2014, economist Ronan Lyons and ISME's Mark Fielding estimate that unemployment will have fallen from its present level of 14.4 per cent to 11-12 per cent. A steady rate of emigration to the US, Canada and Australia still prevails.
Cutting rent allowance by 20 per cent saves €200m. Child allowance is cut by 40 per cent, saving €1bn. Falls in other social welfare payments sees the overall budget level off at €17bn by 2014, after €3bn in cuts. The poorest job prospects will continue to be in lower-level banking posts, the public sector, tourism and hospitality, construction and retail, Forfas predicts.
There will be more jobs in green businesses and technology, medical technologies, biopharmaceuticals, high-value manufacturing, digital gaming, internationally traded services, functional foods, software and cloud computing, healthcare technologies and private healthcare and education, it adds.
A glance at our debt servicing costs between now and 2014 puts our forthcoming tax hikes and spending cuts into perspective. It rises to €6.8bn next year, €7.8bn in 2013 and €8.7bn -- almost the same as we're spending on education this year -- in 2014.
With an overall target to raise at least €3.5bn more in taxes by 2015, income tax won't rise from the current top rates of 52 per cent for employees and 55 per cent for the self-employed, the Irish Tax Institute estimates, adding that: "We've already reached their tipping point."
Water tax averaging €350 per household based on usage raises €400m a year, while site evaluation-based property taxes could bring in up to €2bn by 2014. The eventual target would be to raise €4bn from them, claims economist Ronan Lyons. The Government decides against introducing road tolls in favour of increasing carbon tax and tax on small cars will have doubled from their present rates.
Corporation tax will remain at 12.5 per cent but loopholes such as those with the Netherlands will have been closed to bring in more money. Special rates for the first three years for inward investment into some areas outside Dublin and Cork will be introduced.
Sales of semi-states could raise a much-needed, one-off windfall of €7.6bn for the State coffers by 2014. For example; Lufthansa edges out competition from British Airways to buy Aer Lingus, earning the State €120m. Meanwhile, Eon pays €3bn for Bord Gais; Dublin Port is sold to Chinese billionaire Li Ka-Shing's Hutchison Whampoa group for €350m; while Ryanair buys Dublin Airport's Terminal One for €325m.
ESB International will have been sold to Siemens for €1bn, while a 49 per cent stake in the ESB is sold to France's EDF for €2bn. The DHL-Deutsche Post group buys An Post for €200m. Coillte, Bord Gais, Bord na Mona and ESB wind farms and sites are flipped to Eddie O'Connor's Mainstream Renewable Power for €600m.
The market for commercial property will stabilise by 2014, according to CBRE economist Marie Hunt, and the issue of upward-only rent reviews will have been addressed. The only property investors will be foreign. Some may hoard prime sites in Dublin for future landmark developments.
All commercial property tenants will take advantage of lower rents to move to better locations.
Rents in the capital for D2 and D4 commercial property may begin to rise slightly by 2014. Rents for older properties may still be falling. More regional shopping centres lose their anchor tenants and then close down. Over half the shops in some provincial towns remain empty.
Nama will continue to drip-feed property and land on to the market. A few Nama properties will have been converted into schools. Some sites and properties are occasionally rented out for anti-terrorism and disaster relief training. Foreign banks will still be auctioning properties several times a year.
House prices in Dublin and Cork will bottom out in 2014 or 2015, according to Lyons, but everywhere else they will still be falling. If AIB has stabilised and begins to show positive annual results it may be sold off, Lyons adds.
Cutting spending on infrastructure such as roads is an easy win because it's not hitting our pockets directly, says Tom McDonnell, policy analyst at the economic think tank Tasc. The State spent €5.8bn in this area last year and that is projected to be pared back to €4.6bn by the end of 2013. Relying on the already adequate bus links and not going ahead with a Dart link to the airport saves another €200m.
Abandoning land purchases next year and in 2013 for new roads -- there is no money to actually build them -- would save €860m, according to environmental collective PlanBetter. Roads will still be full of potholes as local authorities, more of which have merged and cut staff by 2014, continue to struggle.
The annual education budget is €9bn, from which at least €350m more has to be cut. Cutting 1,200 teachers -- which increases class sizes -- only saves €75m, according to the Department of Education's figures.
Half of all students paying university fees of €8,000 a year would raise €284m a year. PhD or MBA students will also face higher fees.
The €100m-a-year subsidy for private schools will be cut, saving €300m over three years. An annual fee may apply to all secondary school students, Indecon economist Alan Gray suggests. Half of all students, if they can afford it, paying €500 would raise €90m a year. Each secondary school will have lost one or two more teachers, and fewer students will be studying physics or taking higher level maths in the Leaving Cert, teachers' union ASTI predicts.
Schools could share teachers, with some classes taught by video conference.
A crisis for students needing special needs assistants (SNAs) could have emerged by 2014. Since December, 227 have not had their contracts renewed. On that basis, by 2014, there could be a shortage of up to 1,000 SNAs.
Another €1.1bn needs to be cut from the HSE's €14bn annual budget, according to INMO, the nurses' union. Around €1.45bn of spending has been cut over the past two years. The health sector is experiencing "uncontrolled, unplanned downsizing", it says.
Unless management improves and radical efficiencies are found, the situation will worsen. It expects to lose at least 1,400 nurses from retirement alone over the next 12 months. More of the 10 smaller county hospitals are expected to close by 2014: two thousand beds have already closed. Beds and long-term care for elderly patients may remain at crisis levels.
The number of patients left waiting on trolleys in August increased by 35 per cent on the previous year, to 6,624 patients.
If that continued at those rates, by 2014, almost 400 patients every night could be waiting on trolleys in corridors and temporary wards
From these indications, the unprecedented efforts to reshape the public finances will mean that the next three years will see an export-driven GDP recovery underpinned by public services in a near permanent state of crisis; this will be coupled with a hollowing out of the domestic economy, continuing emigration, economic gloom and increased hardship and poverty to the point where towns and cities become more polarised and the wider country becomes more and more unrecogniseable.
Sunday Indo Business