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Let's take our economy on the Ryanair route and get hoarders spending again

When we were small our mammies warned us to "save for a rainy day". In Ireland, there are enough of those to make the sage advice worthwhile.

But mammy needs to give out a new message now, along the lines of, "Feck the rainy day, spend everything you have".

Sounds reckless, doesn't it? Yet it's precisely because we're not spending that our country is heading into a downward spiral economists call a "liquidity trap".

One euro in every seven is being salted away -- in banks, post offices and under mattresses. We're ferociously good at saving.

Amazingly, Irish savings amount to around €150bn. That's more than we got in the bailout from the EU.

We've grown up thinking that savings are a good thing. And they are. We need to save for our children's education, our pensions, new cars and next year's holiday. But saving too much is a bad thing. It means we're only buying the bare essentials and hoarding anything left over -- the stuff we used to spend on spa breaks, trips to the hairdresser and eating out -- and hanging on to it for dear life.

The reason is two-fold: we think we'll need the money in the future because taxes might go up and we believe if we wait to buy big stuff (like cars and washing machines and houses) that prices will keep falling and we'll get a better deal next year.

This is the trap: while we're scared, or trying to be clever, nothing budges. Savings hoarded in bankrupt banks aren't being moved around by them in the form of lending, or by us in the form of spending.

Everything's come to a halt.

Michael Noonan told us to go out and shop for Ireland. He reduced VAT to encourage us. But we're still worried. The early summer sales aren't encouraging us.

Only one thing works. Ryanair.

No, not that we should all hop on a plane (enticing as that sounds), but the Ryanair business model of pile 'em high, sell 'em cheap -- and concentrate on the volume rather than the price -- is a success.

In an economy this translates to cutting taxes. Viciously and immediately. A paltry 4.5pc off the VAT rate is one thing, but how about dropping all VAT to 4.5pc for a year? Just think about it.

It's a hold-your-breath sort of decision for a Government to make and they'll get a whacking rap on the knuckles from the EU.

But we will not start spending our billions until we really, truly believe things are as cheap as they're going to get, and that taxes aren't going to be raised soon.

It's about perception. We've done this before.

When Charlie McCreevy halved the Capital Gains Tax rate from 40pc to 20pc, the Government was aghast. The tax-take would plummet. It didn't - it rose dramatically as people who had been hoarding assets had an incentive to sell.







Plunge

We're doing it with our corporation tax rate, the lowest in the world -- that sector of the economy is flying.

We need to do it now for ordinary people, like us, to get us moving our money around.

Remove the layers of bureaucracy that make it hard to set up business and employ people and cut taxes dramatically.

If your latte costs €1 instead of €2.90 -- would you buy more? If the cinema ticket was a fiver, would you go every week? If your three-course meal out was €15, would you go midweek as well? That's how it works.

Take the plunge, Mr Noonan, and let us do each other a favour.


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