Solutions for The Irish Solutions for The Irish EconomyEconomyJustifying and Outlining Elements of Fiscal StimuliTom O’Connor- CITLecturer in Economics & Public Policy

Table 1- Justifying Table 1- Justifying StimulusStimulus

Date Unemployment

Tax Take Exchequer Deficit

31st Dec 2007 198,000 47.8 billion 1.6 billion

May- June 2008

201,800 Down 1.45 billion

5.65 billion

31st Dec 2008 352,000 41.6 billion 12.7 billion

31st Dec 2009 436,956 33 billion 24.6 billion (Inc paid Anglo 4 billion)

Two Years 08+ 09

238,956 14.8 billion 20.6 (minus Anglo)

Comments on Table 1Comments on Table 1Fall in taxes accounts for 14.8 billion of

the 20.6 billion deficit (leaving Anglo out)

Spending had slipped somewhatThe Major problem was taxes based on

dramatic increases in unemploymentGovernment policy has ignored the

unemployment the by far the single biggest cause of the exchequer deficit & falling taxes

Why is the government so Why is the government so Foolish?Foolish?It wants to use unemployment to

implement a ‘structural correction’ to the Irish labour market and economy

High unemployment used as justification to drive down minimum wage and wages across the economy

Government pinning hopes on lower waged workers becoming more ‘competitive’ incentivising employers to employ them more cheaply as part of an economic recovery

Year Unemployment

Real GDP Growth

1987 16.6 4.71988 16.2 5.21989 14.7 5.71990 13.4 8.51991 14.7 1.91992 15.4 3.31993 15.6 2.71994 14.3 5.81995 12.3 9.61996 11.7 8.31997 9.9 11.71998 7.5 8.51999 5.7 10.72000 4.3 9.22001 3.8 6.22002 4.3 6.1

Need for Stimulation Need for Stimulation Thatcherite government policies on

wages and reserve army of labour will not work. They are a race to the bottom.

Competitive advantage through higher education and training can sustain decent living wages through increased value added and productivity.

This requires new targeted investment and re-skilling

Ahead of the Curve (2005)Ahead of the Curve (2005)Sustainable energy (govt cut SEI budget in April!!)

TelematicsBiomedical devicesBiopharma (govt cut funding for courses!!)

High quality food exportsHealth and education services for export

Ahead of The Curve (2005) for 15 years.

Package 1Package 1Government needs 5 billion at least

stimulus 2010 + 2011Companies should be vetted and

viable one’s aided within 3 monthsGovernment should give 50% grants

in return for shares to be redeemed over 10 years and 50% in loans

High quality retraining should happen in parallel through state training agencies to match the skills needs necessary

Package 1 ContinuesPackage 1 ContinuesRe-training allowance of 330 Euros Priority should be given to

indigenousViable and strong State Owned

Enterprises which would pay dividends to state and should be part of this

A state Development Bank should be set and work alongside higher budgets for Enterprise Ireland.

Package 2Package 2Schools building programmes

(extra 400 million)Revolutionising mental health

services as provided for in Vision for Change (2006) = 750 million.

Publicly provided geriatric facilities (extra 300 million)

Package 3Package 3Government purchases 50,000

housing units for 5 billion @100k each35,000 sold to those on waiting lists at

100k each.15,000 rented by local authorityBanks finance the purchase of 35,000: Govt gets back 3.5 billion, saves 270

mill on rent allowance. Net cost = 1.23 billion

Social and Economic Social and Economic benefitsbenefits600 per month per 35,000 people

released in to the economy where private rent payments are cut by half.

Housing waiting list wiped outUnemployment traps where

people fear losing rent allowance removed.

Thank you.