How we threw it all away
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SINCE the beginning of this year, all the economic news and forecasts have pointed in one direction. In Ireland, more than almost anywhere else, too many refused to believe the warnings. Now they must accept the grim reality.
Our economy is slipping into recession, and we are not well-fitted to cope with it. We can avoid its worst effects, but only if we break the bad habits of a decade and more, and start doing the right things.
The quarterly commentary from the Economic and Social Research Institute paints a stark picture. Our economy will shrink by 0.4pc in 2008. Consumption will grow by a mere 1pc. The number of people employed will fall. After years of mass immigration, emigration will resume, at a figure of 20,000 in 2009.
Most ominous of all is the forecast that the "general government deficit" (GGD) next year could be 3.9pc of gross domestic product, breaching the strict European guideline of a maximum 3pc.
At first sight, that may not appear very frightening. But when one looks deeper, at the causes and the background, it becomes clear that it gives us more cause for anxiety than almost any other piece of bad news.
The Government's finances are in bad shape for a simple reason: the steep fall in tax returns. This has been caused largely by the collapse in the property market and the end of the boom in house construction.
The housing slump will not last for ever, any more than the boom did. With luck, the market will recover in a couple of years. However, there are other influences at play which could turn a sharp but necessary correction into a severe and prolonged recession.
This ESRI commentary, for all the gloom it conveys, is based on some quite optimistic assumptions. It holds to the "conventional wisdom" that the world-wide economic troubles will be relatively short-lived. This proposition may not hold good if, for example, food and oil prices continue to soar. In that case, the Government deficit could amount to 5pc. Again, a 5pc deficit might be tolerable for just one year -- provided that the Government initiates the appropriate policies to enable us to profit from the supposed world recovery starting at the end of 2009. But its own performance over the last 11 years gives no grounds for confidence.
Two Fianna Fail-PD coalitions, and latterly a Fianna Fail-Greens-PD coalition, landed us in our present fix. They poured taxpayers' money into bottomless holes. They wasted billions upon billions, mostly on excessive pay and inflated numbers in the public service, but also on grotesque enterprises designed for the sole purpose of buying political popularity. And for all the money they spent, the public services decayed, instead of flourishing.
Can we trust them now to do the right things? The question is not whether they know what they are. They do know. The question is whether they have the political courage to do them.
First, ministers should renounce their pay increases, not temporarily, but permanently. They should do that now, this morning. It is a prerequisite for the next essential move, a pay-freeze in the public sector.
Secondly, they must abandon the insane decentralisation project, as this newspaper has urged again and again. They might earn a little credit if they refrained from talk of revision or postponement, and admitted that they made a costly and harmful mistake.
Nobody can doubt the enormous difficulties involved in the pay talks, but there are two other pressing necessities which outrank it in their significance for our country's future.
There must be no panic measures, such as increasing taxes or paring the capital programme. On the latter, however, the Government must set priorities and observe them. The public services must live within their means. How standards can be maintained in a recession, when they almost collapsed during a boom, is a question to tax the wisdom of Solomon.
But it must be done.
And ministers must begin, at long last, to lead the people, instead of handing out lollipops. If we are very lucky, we can advance further and grow more prosperous. That, however, does not mean vast sudden wealth. It means a 4pc growth rate at most.
This, and neither the boom nor the recession, is the likeliest and most hopeful shape of the new era.
