Deflationary budget will cost jobs and fuel recession

By Kevin McLoughlin AT THE start of his speech, Brian Lenihan talked about taking from each according to their means. It sounded as if he was just to about to quote Karl Marx. Alas, very quickly it became clear that he was once again putting his hands deep into the pockets of the working class. His imposition of huge tax increases represents a savage cut in wages.

By Kevin McLoughlin

AT THE start of his speech, Brian Lenihan talked about taking from each according to their means. It sounded as if he was just to about to quote Karl Marx. Alas, very quickly it became clear that he was once again putting his hands deep into the pockets of the working class. His imposition of huge tax increases represents a savage cut in wages.

At core the economic crisis here and internationally is based on a lack of demand for commodities. The wage cuts in this budget, 7 – 8% for many workers, will only serve to cut spending and consumption dramatically and make unemployment much worse.

Up to now the single biggest element of the Irish crisis has been the decline in housing construction. The Central Bank says the economy contracted by 3% last year and will contract by 7% this year and another 3% next year. At its height, housing construction accounted for 12.7% of the economy. Next year, only 12,000 homes will be built. That will only account for 3.7% of a smaller economy. In other words the collapse in housing will have directly wiped up to 10% off the economy!

The wage cuts in the budget, as well as the cuts in public services, which are the start of a four-year austerity programme, are the opposite of what an economy in freefall needs.

The actions of the government are likely to turn the recession into a depression and an economic collapse of 20% in GDP could be on the cards. 

As the international crisis worsens, Irish exports will shrink. The value of the euro is relatively high and given that more than 60% of Irish exports go to non-eurozone countries, particularly the US and Britain, that sector will continue to haemorrhage jobs.

Being in the eurozone means the government can’t try currency devaluation in order to boost competitiveness and exports.

The government’s central policy to become more competitive is not based on investment in research and development but further draconian attacks on wage levels in the public and private sector. This is a deflationary strategy that will cost jobs and fuel economic decline.

It is vital for the future of the economy and workers’ living standards that these policies are fought. We are experiencing the failure of the capitalist market and the Socialist Party believes that the economy must be planned to provide for the needs of society and not the profits of the super-rich – that’s what caused this mess in the first place.

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