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Column: Call that a stimulus? What we need is a tax cut.

The ‘stimulus’ announced this week won’t even move the needle, writes Aaron McKenna. So what should be done?

Aaron McKenna

IS IT DESPERATION or simply the low calibre of the individuals running our government – from the politicians to the spin doctors and mandarins – that leads to the shoddy announcements and re-heats of announcements on stimulus this and jobs plan that?

This week we’ve got ourselves a €2.25 billion stimulus plan for the economy that, we’re told, will deliver 13,000 jobs, miles of new roads and more classrooms than you can shake a small ruler at. As per usual we had to have the representatives of Fine Gael and Labour alike deliver the announcement together, often repeating one another, to ensure that they all got their moment in the warm glow (we should seriously start adding up the ministerial, adviser and mandarin pay by the minute for these non-events, and see about cutting back. There’s a stimulus.)

Also as per usual for government announcements we had a distinct lack of clarity on the little things related to a €2,250,000,000 program. Such as, for example, where about two billion, two hundred and fifty million of the euros are going to come from. Not immediately apparent at the time of the announcement, we figured out later that €750 million will come from the National Pension Reserve Fund (the Yeti Fund, at it is fast becoming known); €850m from offloading state assets; and €100m will come from the European Investment Bank. So far, so good.

Except the government thinks that it’ll get a lot more than just that from the Europeans (one hopes but doubts that they know that); we’ve got to raise hundreds of millions more from the private sector; and the €850m from the sale of state assets is neither guaranteed nor tied to any timeframe in the near future. So, we’re €550m short and the other €1.7bn is not quite money resting in our account, your honour.

‘Situation normal’

The whole stimulus will hardly be a shot in the arm to the struggling economy, like the near trillion dollars the US pumped in after President Obama came to office. No sir. Our stimulus program is slated to run to about 2018 (by which time, if Obama wins in November, his successor will be in the middle of their first term.)

So far, situation normal (AFU) for the Irish government. Ministers got to do the press thing and talk up all the goodies coming to their const… departments. There will, hopefully, be some projects actually underway come the local elec… soon. The National Children’s Hospital might as well become a geriatrics institution for all the times it has been re-announced.

The trouble is that this stimulus, even spread out to 2018 and by offloading things like extraneous state assets and providing some infrastructure, is just another giant waste of money. It’s not even that good of a PR effort for a giant waste of money, being delivered in such a half hearted fashion to a jaded Irish public.

This is one of the measures that the government wants to take to kick-start the Irish economy. Fair enough. But it is just another drop of warm spit into the cold ocean of our problems. Even if this stimulus delivers 13,000 jobs they’re transient, and spread over such a long period of time as to hardly move the needle. Yes, more classrooms will be great to have but in the bigger picture we’re still educating kids in them today who won’t have great job prospects come their graduation given the glacial pace of reform and economic growth in Ireland.

The government complains that it can only do so much. It can try and reform hundreds of different elements of its bureaucracy to make it easier for people to do business and it can wring whatever juice it can find from the NPRF or by selling off a few trees, but spread over time and distance this doesn’t go far enough.

‘In the toilet’

The trouble is that the government keeps naturally avoiding the giant white elephant in the room. If government wants to provide a stimulus to the economy it ought to cut its own spending so that it can cut taxes, or deliver no new taxes, to individuals and families.

This stimulus program may move the needle a little in 2013, but I can assure you that a much increased property tax to pay for inefficient local government will move it more in the other direction. The fear of increased taxes on anything from our water to our incomes will sway consumer confidence and spending right to where we’ve seen it in the past few years – in the toilet.

Government wants to do what it really like to do, which is beg, borrow or steal (well, we can’t borrow) whatever money it can find and spend it. Never is the question, “If our income is at 2004 levels, shouldn’t our spending be too…?”

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It’s a tired old solution that hasn’t been working to date. The government wants to make itself look busy in the absence of any real change, but what will the majority of people remember a year from now, or think about when deciding to buy a new home, a new car, or just plain upgrade the quality of bread they buy: The stimulus… Or the fact that government dropped several hundred euro (or more) in new taxes on their heads?

Let’s let consumers create 13,000 jobs – or 130,000 for that matter – far more efficiently than the €170,000 a pop government price tag by putting money back into their pockets and by giving them certainty. Then you’ll see an economic stimulus.

Jacking up taxes is a proven way to kill the economy. Drop in the ocean stimulus spending is not a proven way to stimulate it. Our government – and all parties – clearly need to reassess their priorities and get over their fears of special interests, the bearded union warriors and parish pump trouble makers, and make real and tangible policies to support our economy.

Come back to us with €2.25 billion in tax cuts for 2013, with commensurate cuts in spending, and the Irish people in the street will give you your stimulus.

Aaron McKenna is a businessman and a columnist for TheJournal.ie. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna.

Read: More columns from Aaron McKenna on TheJournal.ie >

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