Austerity budgets will cost every family €5,000
Cuts and taxes will have huge effect on household money, report warns
Forthcoming Budgets will take more than €5,000 disposable income from each family if the economy doesn't grow, one report has warned.
While this Budget 2012 gouges €3.8bn out of the economy in cuts and taxes, Budgets 2013-2015 will carve out another €8.6bn, with a potentially drastic knock-on effect on household money.
"The minimum €8.6bn to be taken out equates to €5,443 per household, which represents approximately 13 per cent of household disposable income," said Brian Devine chief economist at NCB stockbrokers in a Budget commentary. "No surprise then that domestic demand is forecast to remain extremely subdued.
"Basically it means less consumption in the economy, which in turn affects growth," Mr Devine told the Sunday Independent.
"Of course, if the economy is growing over the 2013-2015 period while that money's being taken out, then disposable income will fall at less of a rate. Say growth goes up by 5 per cent over that period, then the fall in disposable income might be just 8 per cent," he added.
But the NCB expected the economy to grow by just 2 per cent of GDP over 2013-2015. "I think the Irish economy will grow, but at some periods it will be at very anaemic rates because of what's being taken out of each household's pockets due to the need for the economy to be corrected."
The planned Budget adjustments for 2013-2015 are: €3.5bn in 2013, €3.1bn in 2014 and €2bn in 2015, according the Government's programme of financial support document submitted to the IMF/EU.
We will still be beholden to our IMF and EU paymasters with further cuts needed beyond 2015 to keep the deficit down, NCB maintained.
The Government projects that the 2013-2015 Budgets will bring the deficit ratio to GDP figure to 2.9 per cent in 2015, while the NCB puts this figure at 3.9 per cent -- ie the 3 per cent target commitment.
"In either case, further cuts will be required post-2015 to create a safety buffer around the new strict 'Merkozy' target of 3 per cent," NCB predicted, adding, "It has been our view since we took the bailout that Ireland would not be able to fund itself entirely on its own two feet come 2014.
"Developments at the European political level are second in importance only to global growth when analysing Ireland's prospects," the note concluded.
This is the seventh austerity Budget since July 2008, with €20.7bn worth of fiscal correction having been implemented to date. A further consolidation of €12.4bn is to be made between 2012 and 2015, as required by the Stability and Growth Pact.
On this Budget, NCB welcomed the main taxation measures taken. "It is a positive move that income tax has not been touched in this Budget, but VAT on products which attracted the 21 per cent rate has been hiked to 23 per cent, which will dampen consumption, but no matter which tax is chosen, there is going to be a hit to economic activity."
Some experts claimed that Budget 2012 alone would cost a family as much as €1,500, with a new household tax, rises in fuel, petrol and health insurance and child benefit changes just some of the costs households will have to absorb.
"Politically and socially, Budget 2012 will pass with a reluctant acknowledgement by Irish taxpayers that the cuts are necessary," NCB predicted. It remains to be seen however, if the same can be said of three more years of punishing austerity budgets.
Sunday Indo Business