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Column: Of course we have recession fatigue - with added VAT

Government ministers were falling over themselves in June to tell us that a VAT reduction for the hospitality sector would create jobs – so what do they reckon a VAT increase to 23 per cent elsewhere will do?

George Mordaunt

ON 5 JANUARY 2011, Dan Neville, then spokesman on mental health for Fine Gael, said: “The potential psychological impact of an economic recession on public health can be severe”.

Almost 12 months later Ireland has had to cope with the impact of the Universal Social Charge, increasing unemployment, continued bailouts which now even include our credit unions, continued decreasing house prices and mortgage arrears – all to the backdrop of a crumbling euro.

These are the most uncertain economic times that this country has ever found itself in. Now more than ever we look to our leaders to lead, to inspire, to create, to simply think outside the box.

Instead we get 2 per cent increase in VAT.

Instead we got more austerity.

Our nation officially now suffers from recession fatigue. In the mid ’90s Dai Williams, a chartered occupational psychologist, wrote a discussion paper documenting the psychological effects of the UK recession 1990-94. The document explains the effect on society of lasting recessions; the effect on families, relationships and communities. It reviewed closely the role of banks, media and government. Quoting from the introduction:

A war might have been easier to understand and justify. For at least a third of the population in the UK recession was like a war without an enemy, causing thousands of fatalities and damaging the lives of millions more.

Does this sound or feel familiar?

In July this year, the Government ministers scrapped their way to the top of the queue to get in front of the TV cameras to talk about the reduction of VAT from 13.5 per cent to 9 per cent for the hospitality sector. All ministers were on message. It was a classic initiative, an incentive to encourage people to spend, a message to help spread positivity for ailing business and more importantly it was an attempt to reduce cost of living for everybody while realigning our hospitality sector to be more competitive.

If that reduction in VAT was to achieve all of this, the question must now be asked, what does this proposed increase in VAT do? What message does it send? What impact does it have on business already struggling, does it now make us more uncompetitive and more importantly what does it do to our society?

After four years of recession in which our nation has crawled on its belly to survive, this decision taken by our new Government will drive our economy over the edge and in doing so will fundamentally scare our society at every level for years to come. Our nation has reached its saturation point in negativity, austerity and economic upheaval.

Today’s economic fear will cause psychological damage

This country is now entering its fifth year of economic fear, it’s entering the fifth year of its people having to adjust to having nothing left in their pocket to spend, nothing to look forward to, families consumed by economic tragedy  clinging to survival while all the time knowing that at any point breaking point is just around the corner. The simple truth is that Irish government over the last four years has kicked its people so hard that it is now causing psychological damages that will scare future generations.

Its resolute stance on corporation tax remaining at 12.5 per cent demonstrates its commitment to maintain employment in multinational companies across the country. But does the Department of Finance not understand that employment – important as it is – is just 50 per cent of our economy? Unless people spend, unless we remain competitive and continue to reduce the cost of living in every capacity we will see no recovery.

Is this not a time to address the population of Ireland on national TV and say we will reduce our VAT by 2 per cent? Is it not a time for bravery, to send that ultimate message of hope to all of the people that we will not fear fear itself? Why not encourage spending; why not stay on message as stated by the same office in July when VAT was reduced? Could you imagine the euphoria that such a statement would make? Imagine the reaction, the positivity. Such a reaction would be real and would have a profound effect on the 3.5 million people who are in this country over the age of 15 and spending money daily.

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Between 1 January 2001 and February 2002 Charlie McCreevy reduced VAT from 21 per cent to 20 per cent. That 1 per cent decrease in VAT increased revenue by almost half a billion euro. In contrast, Brian Lenihan increased VAT by 0.5 per cent in late 2008 forecasting that the move would generate an extra €227 million. However the Exchequer reported a 21 per cent or €2.8 billion decrease in revenue collected.

The Government argues that the proposed rise could generate over €650 million in a full year. However, they also acknowledge that they have not netted off lost sales to Northern Ireland while at the same time taking no account of the enormous cloud that such a move casts across all sectors of our communities.

Creative thinking would do away with VAT in all of its forms and at the same time abandon the concept of claiming VAT back on purchases. Instead, they would develop a system more inline with the United States by applying a standard rate on all items sold. The variance between the 9 per cent rate and the now to be 23 per cent might allow Finance to find common ground between both rates. Perhaps, the Department could use this new rate as the only rate across all sales. In the meantime layers of waste, paperwork and micro management of the VAT system will have been removed if we do away with reclaims.

We must never forget that our collective core responsibility as a nation is to protect and nurture the next generation and to ensure that we do everything in our power to avoid leaving behind a legacy of emigration, mental health problems, a broken economy and, more importantly, a nation of people so deeply wounded by a gripping austerity programme that shows no sign of easing. Increasing VAT now will serve only to strangle an already fragile economy while destroying our any glimmer of hope that the Irish people have of putting this crisis behind us.

George Mordaunt is the author of Shepherd’s Pie: Family Business, Recession and Recovery – The Real Story, published by Mercier Press, €16.99 in bookshops nationwide. The book was sparked by an address he made to politicians and Irish company chiefs at a Chamber of Commerce conference in 2012 on how bust businesses can lift themselves out of the mire and recover. The ‘Shepherd’s Pie’ moment refers to the point at which Mordaunt could no longer put food on his family table and which prompted him to stand up the banks and use innovation to work his way out of the trouble his business was in.  He is Managing Director of the Mordaunt Group, a family business based in Clonmel, Co Tipperary and an advocate for SMEs.

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George Mordaunt

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