Government set for a spending squeeze – but we can resist it
THE Government’s economic and budgetary strategy, outlined in their recent Summer Economic Statement, should be of considerable concern to trade unionists.
The Government will not be spending all the money it is entitled to spend under the Fiscal Rules.
In fact, next year it will fail to spend 900 million. Over the next three years, they will fail to spend €4.2 billion. Ministers claim this is due to fears of “overheating” the economy.
However, only a few weeks earlier the Government stated that over-heating was only a “medium risk”; shortage of housing supply was, however, a “high-risk”.
If that wasn’t bad enough, the Government is putting aside €1.5 billion in a “rainy day fund” – a fund to be used in case of future emergencies. This is a wasteful duplication of savings the Government already has.
We have approximately €25 billion in the Strategic Investment Fund and cash balances (money the Government keeps for cash-flow purposes). Not all of this can be used in case of a future emergency (a hard Brexit, EU tax changes, Trump running amok), but a considerable portion would be available.
In short, the Government could spend €5.7 billion over the next three years but is not going to.
This has considerable implications for public house-building, public services, pay restoration, old-age and family supports, and many other programmes and income supports.
During the austerity years, public investment was slashed by more than 60%.
This left us with a legacy of massive infrastructural deficits. In response, the Government intends to substantially boost public investment over the medium term. This is a good thing. However, its ideological bias is revealed when we examine how they intend to pay for this investment – and who the main beneficiaries will be.
First, spending on public services will be squeezed. Ireland has always been a significant under- spender on public services when compared to our peer group in the EU.
Last year, Ireland was at the bottom of the table. To reach the average of our peer group, we’d have to increase spending on public services by more than €7.2 billion – for health, education, childcare, and public transport.
And under the Government’s strategy, it will get worse.
Spending on public services will fall so low that by 2021 we will drop below even 1990s levels as a percentage of national income. And this at a time of rising demographic pressures (e.g. increased number of pensioners, increased pupil numbers).
In short, people will be paying for the increase in public investment through a squeeze on public services.
But it gets even worse. Irish workers only receive 45% of national income. Our peer group average was 50%. The difference might not seem much, but if Irish workers received the same share as other European workers, it would be equal to an 11% pay increase; or a flat-rate increase of €5,600 for each worker.
And under Government projections workers’ share will continue to fall – to 43% by 2021. The gap with our peer group in Europe will widen. In fact, Irish workers’ share of national income will fall back to 1990s levels just as national income benefits from the productivity increases arising from public investment.
This doesn’t mean that workers won’t get a pay rise. Workers in sectors and companies with collective bargaining should maintain their share (though this won’t be easy); similarly, workers where there is a high demand for labour such as the ICT sector. However, the ones who will be really left behind are those who are not allowed, by law, to benefit from collective bargaining. That includes most low-paid and many average-income workers.
So what do we have? The increased productivity from public investment – which is being paid for by workers through squeezed public services – will increasingly end up benefitting employers. This is the future being mapped out by the Government and supported by Fianna Fáil.
But that doesn’t have to be our future. The trade union movement has the opportunity to reject this regressive and economically inefficient budgetary strategy, instead, advancing an alternative fiscal approach based on investment in public services – especially housing, childcare and education which are vital to long-term economic growth.
This should be combined with an invigorated campaign on collective bargaining – at both workplace and political level.
Working with supporters in political parties and progressive civil society organisations, we could form a new front against the liberal economics of a small social state and a suppressed working class. That is a fight the trade union movement can lead.
That’s a fight we can win