The Minister for Finance Michael Noonan wants us all to start spending again to boost the economy. That's a tall order, given that the new Government has not delivered on its own election promises. The problem is the continued lack of consumer confidence. The Government needs to step up to the plate and show us what it can do before it earns our support.
he banks are compounding the problem. Normally, they play a major role by increasing the money supply. Savers put their money in the bank. The bank lends this to borrowers, who pay for services. This increases earnings. This leads to more savings, more lending and so on.
But the banks are not lending. They are keeping the money to fill the holes in their own leaky boats. Until the banks' own impaired debts are faced up to and rescheduled the system cannot function properly.
The public is holding €134bn in savings accounts. It would only take a little of this to help boost the economy and reduce the budget deficit. But it will take a bit more than saying "Pretty Please" to unlock the piggy bank.
Until the EU openly accepts that we have stabilised our finances and are on the road to recovery, there will be no change in domestic demand.
Most domestic spending has been slashed. Not only luxury goods, but also the basics, including cigarettes, food, drink and personal services, such as hairdressing and gyms, have been hit. If people are dipping into their savings, it is to pay for foreign holidays that take money out of this country.
There is enough money in personal savings to pay off our national debt and break the stranglehold that the EU has on the Government.
Of course that might destabilise our banks even further. Maybe it is time that we left it to the ECB to worry about that contagion.
SEE ANALYSIS, PAGE 25
That still leaves the matter of the Government's infamous bank guarantee. It was made in good faith, but nobody thought it would be called on. Everybody knows we cannot stand over it.
The EU has procrastinated in resolving the banking crisis in Europe. It's time to call it a day. Allow the most troubled economies to renegotiate their arrangements with bondholders.
We need a renegotiated settlement, including a reasonable interest rate. One option for senior bondholders is to convert their facilities to ZERO interest and freeze or reschedule repayments on acceptable terms.
To the extent that businesses and other citizens have impaired loans that might never be repaid, these debts should be matched with the senior bondholders that funded them.
All should be frozen indefinitely in the interests of restoring solvency and liquidity to otherwise viable businesses and households. That's what we need to restore consumer confidence and economic recovery.
Michael Noonan broke ranks when he spoke in New York and talked of burning the bondholders in Anglo Irish Bank. Instead of rallying behind him, many of those who criticised the Government for prevaricating and avoiding the issue now castigated him for threatening the stability of the euro.
When the Government demonstrates that it is in control of our destiny, then and only then will consumer confidence be restored and we can start to claw our way back.
Gross Domestic Product, which is largely due to export-led growth, has recovered and is impressive. Gross National Product, which is more closely linked to what is happening in the domestic economy, has fallen back.
But it is like a coiled spring. Savings are at an all-time high. Apart from what is in our own banks, billions have been moved offshore, which led to the crisis last year.
The consumer has the money to spend, has the need to spend and will spend if the Government takes the steps that would restore confidence.
Many feel that there will be no change in consumer confidence before the Budget at the end of the year. With more than €134bn in savings, this is not necessarily the case.
The two main factors that will get spending going sooner are getting a better bailout deal from the Troika and convincing the public that any budget changes will be realistic, but fair.
We have the money to spend, at least those who could make a difference do. The Government will determine if and when this starts to happen.
If the public accepts that the Government can secure the best bailout deal in the current circumstances and that it is realistic and fair in formulating our next Budget, those who can spend will spend. The rest will follow.
For three years, the last government focused on the problems. We need to look to the solutions.
Debt forgiveness runs the risk of moral hazard. But sharing the burden of unsustainable debts with lenders that were part of the problem may be the only way to restore public confidence in a broken financial system.
It only requires rescheduling or possibly deferral, until repayments can be regularised.
To date, nothing has been done to help small business and homeowners. While a small percentage of the population are not meeting their commitments, the rest won't spend for fear that the same fate awaits them.
What money is being spent, is passing into the black economy because of the affect of rising taxes. That means we are losing income tax and VAT. In many cases, it involves spending the money abroad so that it is not picked up by the system.
It would make more sense to cut tax rates in a strategic and controlled way in order to increase tax revenue. It worked when the capital gains tax rate was cut at the height of the Celtic Tiger.
For years, there was no tax relief for business-entertainment expenditure (business lunches etc). It is time that tax relief was restored for business entertainment. This would help business development and at the same time it would stimulate growth in the domestic economy that is hardest hit by the recession. The food and entertainment sector is labour-intensive and this initiative will create jobs.
In 2004 the government abolished tax relief for staff-suggestion schemes. It involved the payment of up to €5,000, tax-free, for individual suggestions that gave rise to productivity and efficiency savings if a financial saving was made. Smaller, tax-free payments, were made to encourage suggestions.
These schemes should be restored to stimulate and encourage employee support for finding business solutions. They are self-financing for the employer if they're operated properly.
The benefits can be provided in the form of gym and club membership for staff, vouchers for nights out and personal services. It would create a massive increase in consumer spending.
If 100 per cent of the workforce qualified for the basic encouragement awards, 10 per cent qualified for merit awards for actual financial savings and these in turn produced a 10-fold increase in output or investment, the system would generate €3bn to €5bn in output and spending.
If this eventually gives rise to more saving and investment, it could increase national output and spending by as much as we need to eliminate the budget deficit. Given that this system is intended to be self-financing, what have we got to lose?
There is enough money in savings to pay off our national debt. But even more has been moved to safety offshore. The Government could encourage these funds to be repatriated by offering an incentive.
Even if the Government identifies the level of funds that was moved offshore and will eventually be repatriated, it will improve our international standing. If the right incentive is found, it could actually solve our financial problems.
The possibilities are endless. We have the resources. It's time we stopped being scapegoats and start rebuilding consumer confidence. Once those who have it start spending again, those who haven't will get back to work and they will speed up our recovery. The longer we wait the harder it will be.
We can see the light at the end of the tunnel. It's time to run towards it.
James Fitzsimons is an Independent Financial Adviser specialising in tax and financial planning