Scandalcentral's Blog

Recovery? June 11, 2010

Bruton: Said the right things at the right time.

Cowen has naturally gone on the defensive stating that if Labour or Fine Gael were in Government it would have been worse. (Oldest trick in the book, turn the tables) In relation to Labour he is probably right. They would have continued to increase spending and would have given the unions benchmarking beyond their dreams. (Ironically people seem to believe Labour can actually solve this crisis?) But in relation to Fine Gael, he is very wrong. Richard Bruton has commentary on the Dáil record not only demolishing this idea but embarrassing Cowen to ends unimaginable.  Take a look at his budget speeches.

Budget 2005: ” There is a worrying complacency in Government about the enterprise sector. Few people realise that in the past four years, employment in the exposed sector of our economy has been in sharp decline. The rate of job losses has been more than double that of the mid-90s. We are facing a tough time in export markets. Since May 2002, export prices have fallen by 15%. Companies trading and competing have had to tighten their costs by 15% but the utilities, stealth taxes, rates and all the other burdens the State puts on those companies have increased by 27%. There is no tightening of belts when it comes to those delivering those services but the companies which have to compete in export markets are feeling the squeeze. Companies are leaving these shores to go to cheaper environments.” A very clear early warning to the Government that they were ignoring vital parts of the economy and not creating a climate for sustainable business.

Budget 2006: “We need to examine what needs to be done to proof ourselves against changing and hardening external environments… Employment is increasing rapidly and the budget surplus is healthy, but there are also signs of fragility which cannot be ignored. Approximately 40% of jobs in companies supported by the industrial agencies has been lost since 2000. Many have been replaced but not enough to prevent a sharp decline. Ireland has lost share in its export markets three years in a row. Our export performance is at its worst since 1974 and it is less than a quarter of what is was in the late 1990s. The problem is that while the construction sector can absorb people and conceal problems in underlying trading sectors, that cannot go on forever. As a small, open economy, we need to survive on the basis of competitive businesses and that is not happening. Ireland’s enterprise strategy was once the envy of emerging countries but it is feeling the strain and the cracks are showing…”

Budget 2007: “The Government is increasing spending at a rate 50% faster than the growth of national income. Taxes are rising as a result. This year, the Government is continuing the trend by budgeting to increase spending by 11.5%. To put this in perspective, an ordinary worker will be lucky to obtain an increase of 4%. The surplus has been cut back at a time when the economy is experiencing pressure on the prices front and when SSIAs are coming on stream. Spending is increasing far faster than national income and tax revenues and this is posing a threat. Many commentators warned the Government about inflation before the budget was put together and I believe they will now be of the opinion that we are on dangerous ground. The Government has doubled its dependence on the construction sector to support its revenue. A total of 25% of every tax euro spent by the Government comes from the construction sector. We are not in a strong position; we are, in fact, in a vulnerable position. The real question is whether the Government has done enough to build the capability of the economy to withstand the real pressures under which it is about to come. Those pressures do not merely revolve around the possible slowdown in the housing market; they relate to the relentless march of competition that is coming our way. Our competitiveness has declined in each of the past five years. In the same period, our share of export markets and the level of manufacturing employment have fallen. Some 50% of the jobs that existed in IDA Ireland and Enterprise Ireland industries five years ago have disappeared.“

Contrast that with Cowen’s opening to the Budget (It’s quite hilarious in hindsight): “I am delighted to report that Ireland’s economy is strong… Growth is running at 5%, its ideal, sustainable level..”

Finally Budget 2008: “I give the Minister one cheer for some reform of stamp duty but I do not endorse his housing strategy that is failing so many people. Even the Central Bank, hardly the source of radical thinking, tells us that half the people in the country cannot afford to buy a house and that this is unsustainable. The tragedy is that the bill for high cost Government has come home to roost, not just for taxpayers but for those trying to compete in the real economy. The Government and its policies accounted for half of all inflation during the past seven years. In addition, it loaded stealth taxes equivalent to €3,500 per annum onto every family. Inflation in sectors controlled by the Government is running at two and a half times the rate that obtains in equivalent sectors in other eurozone countries. Ireland has become a high-cost country primarily as a result of Government action. I will provide one statistic which, more than any other, illustrates this fact. Price increases in sectors controlled by Government during the past seven years stand at 45%. Manufacturing companies trying to export goods abroad — the Minister for Enterprise, Trade and Employment, Deputy Martin, will be aware of this — have seen their prices fall by 17%. That is the contrast.”

Cowen: “Recent Governments have succeeded in managing the growth of the economy so that it has been sustained for much longer than anticipated. The global economy is beset by uncertainties, financial markets are highly volatile and the construction sector domestically is experiencing a slowdown. However, we must not lose sight of the fact that the fundamentals of the economy are still good — a point often lost by some.“

and just for the lefties out there, Joan “Battleaxe” Burton: “The Minister has provided for a significant increase in capital spending at 12%. We have urged a more ambitious capital investment programme for years, in public transport and research..” Truly a left idea, in times where we should reign in spending she urges for an increase in spending! An increase in 12% in capital spending is already very substantial considering the economic crash that would hit us several months later. It should also be noted that value for money was not being got by building for example the Metro in 2008. A wait of just a couple months saved millions. Naturally one wouldn’t expect Labour to know about that.

These extracts from budget day show that Richard Bruton gave warnings year on year to the Government. He constantly rallied against the inflationary pressure which was not being controlled, he signaled from an early stage about the loss in competitiveness and made it quite clear that the economy could not afford the huge benchmarking increases being given to public sector workers. He mentioned the above issues as far back as 2003, (Maybe further back, but I got tired of peering through transcripts) For Bruton the interests of the country always supersede those of his party or of himself. In 2008 he proposed to accelerate budgetary reforms, while maintaining capital spending as much as possible. He proposed the idea of the good bank, implemented through the existing banking system to get credit moving instead of N.A.M.A in its current form. This idea was recently praising by David McWilliams in the main stream media. He has always shown himself to be intelligent and willing to make tough decisions even when faced with media pressures. He has lobbied for a change in how the national budget is prepared for some time, while acknowledged by all that the current system is daft (The media usually know about the budget before the Dáil), Fianna Fail are in no mood to reform it. The simple fact is that Bruton had to red light flashing year after year, not only did the Government respond by saying things like to “stop talking down the economy” they treated him as stupid. No surprises who is getting the last laugh now. The fact is quite simple. Fine Gael still remain unskaved by the current fiscal and structural deficits. Fianna Fail are now perceived as the crisis!  With our debt of GDP now spiraling out of control and massive debt repayments which are going to plague this country for the next 30 years it’s vital the next Government is economically competent. Nobody believes Fianna Fáil are! Can anyone actually say that they would trust Joan Burton with a lawnmower, never mind an economy. Its’s time for fiscal prudence. We need to get real value for our money and make every last cent count, for God forbid we wont have many in the coming years! The reality is that we don’t appear on track, in my view, to reach the EU Growth and Stability Pact by 2014. What’s ever more shocking is that the 77.3% figure we are on is excluding the billions pumped into Anglo Irish Bank and the rest of our wholesale banking system. It should also be noted that many EU countries are currently worse than us, however it should be equally noted that they are in a far better position to raise taxes and have an export lead recovery. In budget 2011, the Government must take 3 billion more out of the economy. Their only way of increasing revenue is by taxing those which it is most afraid of: those outside the tax bands! To be fair, however nearly one-third of workers in this state pay no tax at all. The country can no longer afford for this to be the case. If Lenihan baulks on hitting PAYE workers, the country is really in for a depression like no other. For lets not forget, budget 2012 will have another 3 billion of spending cuts. With each round of cuts it gets more and more contentious among both the Government and the people. It also raises a massive problem for the next Government, who will also have to continue the cuts and will be somewhat crippled as they will be handicapped in relation to spending due to the dire debt situation which we face into. Everyone is talking about the fact that the “recession” is coming to an end, what they are not talking about is why. When one examines the breakdown in the economy certain parts will not leave negative growth for some time. It should also be noted that it took Japan a full decade to “recover” from its disastrous crisis. The word recovery sounds great, but normally countries will have funds to use counter cyclical economic mechanisms to help that recovery. Ireland doesn’t have this option. The economy is basically winging it and we are the passengers withs no seat belts. Economic peril is not gone yet, the Government will face some crucial issues in coming months, starting with the end of the Bank Guarantee Scheme. It remains to be seen what they will do about it. My message is, lets not get to hopeful yet! Naturally For those of you who follow Morgan Kelly, 24 months until Armageddon! While I think his analysis may be somewhat extreme, he has backed it up with some startling evidence. Whatever happens I don’t trust the electorate to make the right decision, so I’ll be investing in utilities and oil to bail me out, to quote Bertie I wont be buying Bank of Ireland shares!

Links to reports: Honohan and Regling Watson