Austerity measures must be accompanied by incentives

No easy way forward. That was the message from Finance Minister Michael Noonan last week as he unveiled the government's Medium-Term Fiscal Statement which will chart the road ahead for Ireland over the next four years. The government plans a total of almost €12.5 billion worth of austerity measures during that time as it looks to reduce the country's indebtedness at the same time as cutting our growth forecast from 2.5 per cent to 1.6 per cent. These 'adjustments', as they are politely called in Upper Merrion Street, account for about eight per cent of the economy - and follow previous spending cuts and tax rises of over €20 billion imposed on the citizens of this country since the steam began leaking from the economy in 2008. The key points of the Dept of Finance's forecast are cuts on €3.8 billion in 2012, with the further measures totalling over €12bn between now and 2015 - €7.75bn of which will come from spending reductions and €4.65bn from revenue-raising measures. This 2012 target is larger than the €3.6 billion the government signaled earlier this year, saying the new figure was necessary to ensure compliance with the deficit target agreed with the EU/ECB/IMF troika. However, even after enduring a further four years of austerity, the imbalance between what the State takes in and what it spends will still be over €5 billion by 2015. The likelihood is that it will take until close to the end of this decade - another nine years - until Ireland's books are balanced, unless there is some unexpected economic miracle in the interim. It is the lack of any strategy from Government Buildings for economic growth, job creation or any semblance of a stimulus to help restore consumer confidence that is almost as disappointing as the realisation that we are far from out of the woods in Ireland. Neither is there any certainty for consumers and taxpayers about how taxation measures might be introduced over the next few years and how this might affect them. As a opposition spokesperson pointed out in the wake of the launch of the government forecast last week, without a clear and coherent plan for economic renewal, the task of achieving the public finance targets will be all the more difficult. It appears Taoiseach Enda Kenny and his ministers are banking on our outperforming export sector to provide the boost needed to the economy, but even that is now being jeopardised by the slowdown taking hold in the rest of the world. Slowing global economic growth is likely to complicate Ireland's efforts to cut its debt. The euro-area economy, in particular, is struggling and likely to be heading into a 'mild recession'. However, all this is academic in the real world of the domestic economy, where a feeling of helplessness and a crisis of confidence still continues to hold people in an iron grip. Consumer confidence remains on the floor, with those lucky enough to still have jobs fearful about spending any cash they have saved. The consequence of this is that retailers and other small businesses do not know from one week to the next whether or not they will be able to keep their doors open and staff employed. It is a frightening scenario that threatens to visit long-term damage upon towns the length and breadth of Ireland unless action is taken to assist small businesses in these hard times. Eight respected economists surveyed recently now expect retail sales to fall 2.25 per cent again this year, compared to a drop of 1.9 per cent previously, and sales are set to drop a further 0.8 per cent in 2012. This bleaker outlook for domestic demand may well discourage the government from further austerity measures, but what people want to see - and have not yet seen - is a credible plan to restore consumer confidence. The only way this can happen, in reality, is for the employment situation to improve. But can a government struggling with such a massive debt burden give the labour market the boost it so desperately craves? As more people slip into the ranks of the long-term unemployed, it is a situation which threatens to produce lasting economic and social problems. The bottom line for the government is that households need to be incentivised to spend through targeting the labour market with initiatives to take people off the dole queues. Only then can there be the necessary injection of confidence which will see more money in circulation and demand for goods increasing.