Squeezing the middle too tight
Yesterday's announcement of an average 9pc price increase from the VHI represents more bad news for Ireland's squeezed middle-income earners. The latest price increase, the third in the space of 13 months, will add another €150 a year for a family of two adults and two children in the VHI's most popular plan, OnePlus.
The VHI announcement came on the same day that the Central Bank slashed its economic growth forecasts for 2012. It is now expecting the economy as measured by GDP to grow by just 0.5pc this year. Even more importantly for most of us who make a living in the domestic economy, the Central Bank expects the economy as measured by GNP, which excludes repatriated multinational profits, to shrink by 0.7pc in 2012.
This means that the domestic economy will have contracted for five successive years bringing the contraction since the 2007 peak to almost a fifth. This is not a conventional recession but something more akin to a 1930s-style Great Depression with the dole queues and banking crisis to match.
The failure of the domestic economy to recover almost certainly presages more bad news for the squeezed middle. The four-year budgetary plan agreed by the previous government with EU/ECB/IMF troika commits this country to raise an extra €11bn of annual tax revenue by the end of 2014.
The plan relies on strong economic growth, it predicts average annual GDP growth of 2.8pc over the four-year period, to generate over €5bn, almost half, of this increased tax revenue. Unfortunately it is now abundantly clear that average annual economic growth will be nothing like 2.8pc. This means that, if the Government is to stick to its target of reducing the budget deficit to 3pc of GDP by 2015 it will have to either cut spending by more or increase taxes even further than it had already planned to do.
And who will bear the burden of these spending cuts and higher taxes? The squeezed middle, of course. It is to this group that the Government reaches out when it needs to extract more cash to fund the operations of the bloated Irish state. A tax increase here, a new "charge" there; pretty soon you are talking serious money.
Which of course begs the question, how much more can the squeezed middle take? Even for those middle-income earners who have managed to keep their jobs, the new reality is one of higher taxes, job insecurity, increased charges and, even for those who can still pay their mortgages, negative equity.
Irish Independent
