This alleged recovery is passing many people by
The government parties are rightly paying the price for targeting those who are least able to pay.
Published 08/06/2014 | 02:30
MORE and more people are asking why, if the economy is turning, they still have less and less money in their pockets. They hear things are improving, but their daily reality is that it's getting harder and harder to pay the bills. I spoke recently with a grocer who has been in business in Wicklow for 40 years. He told me that in all that time he has never seen pensioners with so little money to buy basic foodstuffs.
This is what an unequal recovery feels like. For some, the future is indeed looking brighter. For others, like these pensioners, things are either not improving or, six years into the crisis, are still getting worse. This needs to change. Ireland's economic recovery can and should be felt by as many as possible. To achieve this, we need to make some changes. Most importantly, we need to switch from regressive to progressive budgeting.
Between 2008 and 2012, the number of people at work in Ireland fell by more than 300,000. Many of those who kept their jobs suffered severe pay cuts. At the same time, payments to Government increased via the USC and property taxes. Important private sector costs, like health insurance, rent and variable-rate mortgages, have been going up. Third-level fees and school-related costs are on the rise. And of course, water charges are on the way.
Disposable income has been falling for years. The most recent data from the CSO is for 2012. It shows a drop of nearly 5 per cent for 2012, and a cumulative fall of 15 per cent from 2007 to 2012. The fall is pretty well spread across age and income groups up to 2012, though this has likely changed for 2013 and 2014.
But even with this sharing of the pain, those who had the least to begin with suffer the most. A 15 per cent fall in disposable income for the better off is painful. For those on lower incomes, it is catastrophic. Deprivation is defined as not being able to afford at least two of 11 basic goods and services, like heating the home, or a winter coat. In 2007, about one in eight people in Ireland fell into this category. By 2012 it was more than one in four. The increase came mainly from lower-income households, with nearly half of the poorest 10 per cent qualifying as deprived.
But what of the recent good news? The number of people at work is increasing. Wages in some parts of the private sector are creeping back up. Exports are growing. Ireland's borrowing costs have fallen. The ECB rate continues to fall. Income is stabilising, with the Irish League of Credit Unions (ILCU), reporting that average household income has risen by €3 a month since the start of the year (okay, it's tiny, but it's moving in the right direction).
So why isn't all of this being felt in the pockets of so many people? Because the 'average' can be very misleading. It includes Ireland's 250 wealthiest people, with a combined fortune of €57bn. It includes the high returns on their wealth they've seen recently (so high in fact that you needed an extra €4m to make the top 250 this year). It includes those moving from unemployment to work, who should see a decent jump in disposable income. It includes those fortunate and smart enough to be working in Ireland's booming technology and web-based industries, where wages have been on the rise. So if the change is about €3 a month, then for all of those who are winning, there are far too many who are still losing.
Income may be stabilising, but disposable income isn't. The ILCU reports that families had about 10 per cent less left at the end of April than they did in December, partly due to property tax. In the same period, 56,000 more people lived in families who have less than €50 left at the end of each month. Fifty thousand people ditched their private health insurance last year. Variable-rate mortgage interest rates continue to rise, as do rents.
Then there's the water charge, yet to kick in, at an annual cost of several hundred euro. For some, like pensioners, the cost will be €100. One lady explained to me recently that €100 represents a full week's pension for her. She doesn't have a spare week's pension to give, so she won't be able to use water in her home, except for the most basic necessities.
This is what an unequal recovery feels like. It is a choice made by government that can be changed by government. We won't have official figures on disposable income for 2013 or 2014 for some time, but the inequality of the recovery is likely getting worse.
Fine Gael/Labour imposed a different philosophy to budgetary adjustments. The previous Government took least from those who had the least (progressive budgeting). But all three FG/Labour budgets have done the opposite – they have taken most from those who have the least (regressive budgeting). Labour wasn't wiped out in the recent elections because of 'a problem communicating its message'. It was wiped out because it co-designed and voted through three budgets in a row that hit the least well off harder than anyone else.
Crafting a more equal recovery is difficult, but possible. There are limited options to increase taxes without putting jobs at risk or driving further inequality. But there are smart choices to be made, like making childcare a tax-deductible.
Straightforward expenditure cuts are also hard to achieve without hitting the least well off hardest. But more radical options, like moving to community-based healthcare, should be considered. This would provide better outcomes at lower cost, but would also require shutting hospital wards, which requires serious political leadership.
The social-protection system could be more job-friendly. I hired someone recently to do a few days data entry. Their unemployment benefit wasn't just stopped for those days. Six weeks later, it still isn't reactivated. Who's going to risk that for a few days' work?
A large amount of badly needed cash could be freed up by getting smarter about the mortgage crisis. Not selling loan books to foreign debt collectors would be a good start. And mandating debt-for-equity restructures would help a great deal. Again, these things require political leadership and a willingness to think a bit differently about the solutions.
A more equal recovery is in everyone's interests. It's in the Government's power to achieve. Over the next few months, as we begin to close in on budget season, we'll see if they could be bothered. If they're not, then they should not be returned to office by the Irish people. Simple as that.
Stephen Donnelly is the Independent TD for Wicklow and Carlow East.