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Column Ireland faces a decade of austerity – so let’s not waste it

Economists tell us we’ve got ten years of financial difficulty – so do we want to buckle under, or use this opportunity to reshape Ireland? Aaron McKenna writes.

THIS WEEK SEEMS to have been about bursting whatever positive bubble we were in after Christmas. The economists came forth to remind us that a lost decade is ahead, and EU and IMF reports from December criticise politicians for failing to make tough choices.

As usual the political classes have failed to grasp the fundamentals of a problem and are chasing after short term PR goals at the expense of long term national prosperity. The mandarins and czars of Dublin 2 have once again failed to get it. They consistently live in la-la land regarding the economic condition of the country and remain steadfastly loyal to their conservative institutionalism.

The majority of the decent reforms being brought forward – multi-year budget planning, cracking open sheltered professions and putting substantive meat onto public sector reform plans – have been driven by the troika.

Meanwhile it’s business as usual on Planet Politics, doling out the state appointments and cap-breaching salaries to advisers and sending arrogant apparatchiks off to plum jobs their recent performance wouldn’t indicate they’re suitable for.

What will happen when the EU and IMF clear out their desks in Government Buildings? Will the career civil servants and PR hungry politicians keep it together, or will they go spinning back to the old ways as hard as they try today to spin us into believing that all will be well again soon?

That Ireland has entered an economic netherworld for the coming decade or more is no surprise to anyone but a Government spokesperson. The facts are laid down clearly in documents begrudgingly published by the Government itself at the behest of our new paymasters.

‘This will be a millstone around our necks’

As we arrive back to our desks this time in 2016 unemployment will have fallen by less than a fifth from today, to 11.6%. Our debt-to-GDP ratio will have peaked at 118.3% in 2013, but won’t come down to what the government – and the world at large – considers to be below the danger threshold of 90% until 2026.

That’s assuming growth figures that EU and IMF reports in December classed as being at risk thanks to global economic troubles. Other factors are at play, and if interest rates are 1.7% higher than projected then it won’t be until 2040 that we get below 90%.

In the years 2011 to 2015 we will spend €42.9 billion servicing our debt, paying €5.4bn in 2011 versus €10.4bn in 2014 and again in 2015. Over five years we will have spent almost a sixth year’s worth of money in interest.

The total Government deficit in the period will be €55.68bn, which is more than it will spend in any one year in voted current expenditure.

All of this will continue to be a millstone around the necks of private individuals and businesses, as government will make them run harder so it can stand still.

Annual Government spending will decrease 11.2% in 2015 against 2011, whereas the tax take is expected to increase 25.8%, much from growth but borne on the back of previous and upcoming tax increases that will continue to hold people down. Private consumption isn’t expected to begin even anaemic 1% growth until 2014.

‘The idea that austerity will end just around the corner is ridiculous’

The idea that austerity will end just round the corner (likely after an election) is ridiculous. In 2015 we’re to have a deficit that’s 3% of GDP. The following year we’ll need further austerity to bring down that deficit, and/or face further debt acquisition. In any event even if we began to run 3% surpluses we’ll still be spending enough money to give each household in consistent poverty in Ireland today a cheque for €140,000.

That we’re in an economic hole is fact. Fringe elements might tell us we can wipe it all out, go live on collectivised farms and be happy. The reality is that we have set off as a nation on an unwanted adventure.

That’s not the end of the story, though. What we do with this lost decade is still in our hands to decide. When we arrive out the other side, will we rush straight for the bar and get sloshed (party like it’s 2006, if you will); or will we use this odyssey, our crucible, to reflect deeply and change who we are?

We blew our boom. The new national wealth was spent with Renaissance profligacy but without producing much by way of lasting monuments. Few questioned where it was coming from or going to. Government spent with little or no regard to efficiency and failed to develop the kind of professionalised structure that could manage an economy, let alone a crisis.

There was no real vision for the country either, just a lot of money thrown at a lot of problems without much regard for finding the best solutions, just the quickest fixes.

The bust has been the same in reverse: Short term cuts and no long term vision. If a politician tells you they want to reduce crime then ask them: Why are they cutting the social services today that will prevent it in ten years time? Or how they expect to reap the rewards of a smart economy if they’re only allowing us to get dumber with ham-fisted education policies? How can we expect better public service management with the same managers and the same hubris emanating from Dublin 2?

‘Do we really want a smart economy?’

How do they expect anything to be different when they keep on doing the same things?

What Ireland needs is to develop a comprehensive vision for the future and strive towards that.

Do we really want a smart economy? Are we happy to sit idle unemployed in the same half baked Fás Nua training courses, or do we want to take the opportunity to turn unemployment into the greatest skills drive in history?

Are we truly happy to see children in 71,000 households growing up in consistent poverty, without enough to eat every week? Or do we prefer to accept excuses from government that we can’t means test a benefit so that the poor get more than the rich?

Is there genuine belief that cutting bluntly by not replacing anyone who retires will deliver an effective public service for the 21st Century? Or could we take the opportunity to go in and reform every agency, every job, every function of government in a manner aimed at honestly delivering the best service for all our citizens? (And, incidentally, what is the role of government anyway?)

We need to make bold moves, to throw away the outworn doctrines and accepted wisdom of the past. We have to shove aside small minded special interest groups who stand in the way of progress and emerge from this lost decade as a generation who faced up to their challenges and will be remembered for having left behind a better country for their children despite it all.

Will we accept our fate or will we shape it?

Aaron McKenna is Managing Director of the e-commerce company

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