In many ways Ireland should be considered an advanced warning system for countries outside the US which have stumbled in the credit crunch and recession (aka The Great Panic of 2008).
It has been brought low by a popped housing bubble, poor regulation, crooked and self-enriching business people at all levels, an underperforming media that preferred to laud many in business, too much short term debt and financial adventures by banks and other groups who should have known better.
For Ireland you could substitute the UK, Denmark, Spain, Hungary, Latvia, and a host of similar-sized countries.
Because we didn’t have a housing bubble like Ireland, Spain or the US (despite claims that we did), and because our greedy banks were basically saved from being stupid by regulation and other pressures, Australia is not in the same position as Ireland. But we could have been, going on the performance of our banks back in the recession of the 1990s.
But no other country (with the possible exception of Spain) faces the problems Ireland does. It is going broke, quickly. Running out of money, it needs to recast its financial and economic structures urgently to survive and protect the now declining standard of living from collapsing.
The country’s economy contracted by 7.1% in the 4th quarter (an annual rate of 28%, which is Depression-like) and this year, the contraction has been estimated at 8%, at least for all of 2009.
Spending is out of control, tax and other revenues are falling, and will be depressed for years.
The slump is deepening as construction collapses (adding to the bad debt problems at banks, most of which are under some sort of government control or support). Consumer spending is plunging and unemployment soaring as companies cut jobs.
The latest budget has seen the Government slash its economic outlook, increase taxes and confirm that it will take control of banks’ toxic real estate loans to protect the country and its financial industry from the worst global recession since World War II.
The government will lift taxes on incomes, cigarettes, diesel fuel and cut some tax write-offs. People on benefits will miss out on a usual Christmas bonus. Childcare payments have been cut, income tax levies are being doubled, the mortgage interest tax relief is being cut as well.
It is an attack on the country’s middle class with the special levy on incomes being doubled to up to 6%; capital gains tax is being increased as well.
A levy of 4% of gross income on anyone earning more than 75,000 euros – rising to 6% for those earning above 175,000 euros – was at the heart of measures announced by the Government. The argument for this was these high income earners were the main beneficiaries of Ireland’s recent boom and it seems it’s now time for them to pay the price for its collapse.
The moves are likely to spark an exodus by young, trained professionals (a good chance for Australia to fill nursing, teaching and other shortages).
In a bid to boost bank lending (many of them were lending heavily to the now broke property sector, and to insiders and directors and senior managers), the Government will buy up to 90 billion euros in development loans from lenders. It won’t pay 100 cents in the dollar, but even so the move will be costly and will lift national debt at a time when it can’t afford to meet its budget promises to taxpayers.
Even after the tax hikes, the Government says its borrowings in the next year will be 10.75% of gross domestic product. The country is facing a 15% fall in tax revenues this year from last year, while compared to 2007, the fall will be huge, nearly 30%.
And what did the Government say would be its future course? Exports (financial services and property having been abandoned).
But taxes will have to fall and good staff retained for that to happen (it also ignores all the other countries that will be ‘exporting’ because their old business models have failed). Is that smart after big exporters Intel and Dell have already closed plants, sacked staff and shifted equipment to low tax, low cost countries in Europe?