Editorial: Caution still needed as unemployment drops
With the level of unemployment now projected to fall back to 10pc over the next two years we are, thankfully, seeing the Irish economy return to a level of normality not seen since before the crash of 2009. At that time, some commentators were accused of "talking down the economy" and the real danger now, as things improve, is that some might "talk up the economy".
It is estimated that each 1pc fall in unemployment is worth €200m to the Exchequer in declining social welfare payments and higher taxes recouped from the gainfully employed. In some ways the jockeying for position has already commenced with the general secretary of the Irish Congress of Trade Unions, David Begg, insisting that pay rises are now needed to compensate workers for years of austerity, tax increases, pay cuts and new household charges. Nor will this improved financial situation be lost on the many special interests groups, quick to demand a slice of any increased tax revenue.
On the other side of this equation, politicians, particularly in the Fine Gael part of the Government, are seeking tax cuts as a way of softening their image after a series of austerity budgets. Already Finance Minister Michael Noonan is playing down any talk of a "giveaway" Budget in 2014. But there is little doubt he will come under pressure to deliver something to his beleaguered backbenchers.
All this comes at a time when a survey is telling us that half of all households are forced to go into debt, using credit cards and other lines of credit, to pay essential household bills. Undoubtedly these people, the squeezed middle who have done so much to get Ireland through the financial crisis of the last five years, deserve some respite. But the timing of any pay increases or tax cuts is vital for the future of the Irish economy.
So Mr Noonan must exercise all his famous caution, timing his move in either direction to consolidate the gains that have been made over the past few years, not to dissipate them.
Between 1985 and 2001 Irish unemployment fell from 17.3pc to 3.7pc – this was a stunning turnaround over a 16-year period, largely credited to the pay restraint brought about through various agreements under social partnership. As we watch a slower drop in unemployment today we must all be mindful that the current Haddington Road Agreement should not be up for re-negotiations before its expiry date. After that there may be room for some manoeuvre.