The EU/IMF Bailout is unjust and unfair - it should be re-negotiated

Social Justice Ireland believes that:

-   Ireland is in an extraordinarily precarious position as it seeks to meet the requirements of the EU/IMF bailout programme.

-   Those who are poor and/or vulnerable are bearing an inordinate part of the burden of restructuring which, in practice, is leading to their being dispossessed as their resources (financial and services) are being appropriated to pay those who took risks, gambled their resources, lost and are now to be fully re-paid.

-   This process may be legal but it is profoundly immoral. It is a process which is securing and protecting the position and resources of those who are rich while taking away even the little they have from those who are poor, vulnerable and on the margin. It should not be allowed to continue.

-   The bailout programme should be re-negotiated. This re-negotiation should lead to an outcome:

•  Which is fair and just,
• Where the ‘hit’ is shared by all those who caused the current series of crises and
• In which those who are poor and vulnerable are protected.

Social Justice Ireland’s stance

The need to address Ireland’s own budget imbalances is fully recognised by Social Justice Ireland. We have, in fact, long urged Government to address these issues and we have made a wide range of proposals outlining how we believe this could be done while protecting people who are poor and/or vulnerable. We recognise that this issue still remains to be addressed and should be given major priority.

Social Justice Ireland’s analysis

The Government’s decision to take on the debts of all the banks creates a much more difficult situation that goes far beyond addressing budget imbalances. This bank debt is not sovereign debt. Yet Ireland’s Government has accepted that the debts incurred following the reckless actions of greedy bankers, incompetent regulators, reckless developers and others should be borne by Irish citizens, many of whom had no hand, act or part in the actions taken and who did not benefit from them in any way.

The Government’s Four-Year National Recovery Plan and the EU/IMF bailout documents spell out the details of how these powerful institutions have decided Irish citizens will pay. The Community and Voluntary Pillar members have major questions concerning the viability of either of these plans in their current form. Issues of concern include:

1.   The scale and pace of the adjustment being sought is such that it is seriously damaging the economy. More than €14bn was taken out of the economy as a result of adjustments in the period mid-2008 to 2010. Budget 2011 plans to take out a further €6bn. Another €9bn is to be taken out in the 2012-2014 period. The total impact of these expenditure cuts and tax increases will be close to €30bn over a five and a half year period. This level of deliberate contraction is unprecedented. It has already damaged the economy and is likely to continue doing so in the period ahead. In turn this will cast serious doubts on the Government’s economic outlook for the years ahead. For example GDP is forecast by government to grow by 1.7% in 2011. However, in the same period domestic demand is set to remain static while investment and government expenditure are set to fall by 5.9% and 3.1% respectively. While exports are set to grow, both employment and unemployment are predicted to fall in 2011! The unacknowledged reality is that for this scenario to be delivered there will have to be a high level of involuntary emigration. Even then it will be interesting to see if the numbers add up at the end of the year. The Government’s growth forecast for 2011 is greater than the forecast for Ireland provided by the EU Commission, the OECD and Reuters Consensus. Failure to achieve the projected growth rate will produce further pressures with the need to take even more out of the economy in the following period if the EU/IMF targets are to be met.

2.   Seeking to achieve two thirds of the adjustment through expenditure cuts rather than tax increases is wrong in a country where the total tax-take is one of the lowest in the western world. The Government’s overall approach has been to achieve two-thirds of adjustments by 2014 through cuts and one third through tax increases.   They claim that it is acknowledged that this approach has less negative economic implications. But this fails to recognise that Ireland’s total tax-take as a percentage of GDP is one of the lowest in the EU. If Ireland were to bring its total tax-take up the 34.9% of GDP it would still be a low-tax economy as assessed by Eurostat. Based on the figures in the Four-Year Plan, raising the tax-take to 34.9% of GDP would imply that by 2015 government would be collecting €66bn in total taxation revenue (current taxes + PRSI + local government charges) – almost €18bn more than in 2011. Reaching such a figure would result in Ireland continuing to be a low-tax economy; but it would also assist in providing a realistic and sustainable basis for government to run the country. 

According to the Budget 2011 documentation tax increases (including social insurance payments) accounted for only €1.4bn of the measures introduced to reach the target of €6bn in savings. [The 2011 target of €2.2bn is the full-year impact of the initiatives contained in Budget 2011.] On the other hand expenditure cuts totalled €3.9bn. A further €700m was accounted for through other measures (e.g. asset disposal).

3.   The impacts of the adjustments to date have had far more negative effects on people who are poor, vulnerable, on the margin. Some analysis and much commentary in the national media in recent months has sought to portray what Government is doing as fair saying that the ‘hit’ taken by better-off people is higher in percentage terms and in cash terms than the hit being taken by those who are poor. This claim is based on sophistry, not on clear analysis of what is happening. It fails to recognise that taking €10 a week from a single poor person on social welfare has far greater impact on that person than taking €100 a week from a middle-income person or taking €1,000 a week from a very wealthy person.   While the percentage loss to the poorest is lower the real impact of that loss is far more profound when one is already at risk of poverty. This is especially clear where the working poor are concerned. The minimum wage has been reduced. The threshold for entering the tax net has been lowered. Child benefit has been reduced. A Universal Social Charge has been introduced. Charges have been introduced or increased on a wide range of services including school buses for example. The cumulative effect of all of these adjustments may be relatively small in percentage terms but are devastating in real terms on the life capacity of the working poor.

A further issue of concern in this context has been the claim by Government ministers and others over the past few months that it is okay to reduce welfare rates because they have risen dramatically since 2000. These assessments miss one vital point – yes, it is true that welfare rates rose since 2005 but that increase followed a period, where the living standards of people in Irish society had improved rapidly while welfare payments had barely changed. 

Comparing the poverty rates among different groups of people in 1994 and 2001 is most revealing in this regard.

The huge rises in poverty rates show that these groups had been left behind as Ireland’s income grew. Subsequently welfare payments did increase, but this was merely catching up so that recipients could enjoy basic living standards. Government decisions to reduce these welfare rates now are based on a deeply flawed analysis that ignores the historical context.

4.   The adjustments fail to provide for the employment growth and support that is essential if Ireland is to emerge from this series of crises. The background information provided in Budget 2011 shows that Government expects employment to fall by 0.2% in 2011 and rising by 1.3% in 2012. This contrasts with the more pessimistic forecasts provided by the European Commission (a fall of 0.8% in 2011 and a rise of 0.6% in 2012). Government’s forecast for unemployment is also more optimistic than the EU (13.2% v. 13.5% in 2011; 12.0% v. 12.7% in 2012). The Government’s Four-Year Plan forecasts unemployment to fall to 9.75% in 2014 a figure that is also more optimistic than other forecasts.

The reality is that while the scale of the economic adjustment is very large by national and international standards no investment of substance has been provided for either job creation or employment support. If economic growth is nearer to the figures suggested by the EU and the ESRI, then the Government’s taxation revenue projections are unlikely to hold up and the deficit facing the economy will be even greater than projected. This in turn will lead to more adjustments and an ever-deepening spiral of destruction.

Overall 

Overall Social Justice Ireland believes the scale of adjustment is too severe, the pace of adjustment is too fast, the distribution of the impact is unjust, and the negative impact it will have on Ireland’s potential to recover is excessive. A smaller adjustment accompanied by a more realistic national recovery plan, to reach the 3% borrowing target by, say 2016, would be a better option. We strongly urge the incoming Government to give top priority during its initial months in office to addressing these issues in a fair and just manner.