Austerity and class politics in Ireland

Submitted by AWL on 14 December, 2011 - 12:07

Liam McNulty spoke to Michael Taft who is a commentator on Irish political economy and works for Unite about the new government in Ireland and its austerity measures.

1. Could you outline for us some of the key measures contained in the Budget?

For the the first time, the Irish budget was presented in two parts (cuts in capital spending were announced two weeks earlier). The first part was the public expenditure measures which amounted to over €2.2 billion in the full year (or nearly 1.5 percent of GDP). These cuts were applied to public services and social protection. When taken together with capital spending cuts, the first part of the budget will result in the destruction of 20,000 to 30,000 jobs - at a time when employment is estimated to fall next year.

The second part of the budget focused on taxation. 70 percent of the tax measures were highly regressive - increase in VAT and carbon taxes along with flat-rate household charges. This will impact disproportionately on low-average incomes. There were few measures that impacted on high-income groups and in this sense - that of protecting the living standards of high-income earners - the budget was successful.

A key policy decision was to deliberately reduce investment in the economy. The Irish recession has been driven by the collapse in investment - the only route to sustainable recovery is through increased investment. However, the Government cut its own investment budget and undermined business investment by reducing demand in the economy. With consumer spending expected to fall and the domestic economy expected to return to recession next year, there is little incentive for businesses to invest. This will result in long-term damage to the economy's productive capacity and maintain the low-growth, high-debt, high-unemployment trend for years to come.

2. Who will be hit hardest overall by these changes?

The ESRI was quite clear - the budget will hit those on lowest incomes the hardest. They went further and claimed that this was one of the most regressive of the five austerity budgets introduced in the last three years.

3. In the General Election, the Labour Party campaigned against the austerity measures being introduced by Fianna Fail. They then justified the coalition on the basis that they could moderate Fine Gael's neoliberal policies. Is there any real evidence that Labour have achieved this?

There is almost no evidence of Labour Party or social democratic influence. In the general election Labour campaigned on a 50:50 split between tax and spending measures while Fine Gael wanted 75% of fiscal adjustments to come via spending cuts. In the budget, spending cuts comprised over 70% of the fiscal adjustments. The larger, more conservative party, got its way. Regarding taxation, the burden is being disproportionately carried by low-average income earners (as it was during the last government). What little tax revenue was raised from high-income groups amounted to only 25% of the cuts in social welfare alone. A major plank in Labour's campaign - the establishment of a Strategic Investment Bank to provide credit to the economy - has been effectively shelved. With income inequality and deprivation on the rise, it is hard to see what difference Labour has made in office.

4. You have said recently that austerity is a class project rather than an economic necessity. Now that Labour are involved in implementing it, where does this leave the party politically?

It leaves Labour having to explain itself. However, even prior to the election, it was clear that Labour's analysis of the economic crisis was limited and largely confined to the crisis in public finances. They did not seem to understand that the fiscal crisis is only a symptom of the larger economic crisis - the lack of growth and job creation, the failure of banking policies to provide credit to the economy, etc. Since they entered office, Labour has not given any clear or distinctive analysis - never mind prescription - of the economic crisis. Economic policy is effectively being driven by Fine Gael which, in turn, is only a continuation of Fianna Fail policy. They have little time to rectify this failing.

5. What demands should be central to rival project to advance working-class interests?

There are three demands that are central to a progressive project: a) a substantial and sustained investment programme focusing on infrastructure, public services and human capital; b) an end to overall spending cuts - while continuing with policies that increase public sector productivity and efficiencies; and c) drive fiscal consolidation over the next two years through taxation on high-income groups. This three-part programme, combined with substantial income/wealth redistribution, would being to drive growth, employment and incomes, paid for by those who can afford it.

6. Is Labour still a viable vehicle through which to fight for such a programme or do socialists have to turn elsewhere?

The Labour Party has a number of progressive members. Indeed, three backbench TDs voted against the budget - which shows a substantial, if a minority, of members opposed to austerity. It is important that progressives throughout all political parties, social organisations and trade unions work together to promote an expansionary economic programme. In the first instance, it is necessary to change the debate and begin to win over public opinion to such a programme. The key is progressive or Left cooperation. Without that, there will be no advance in Irish politics.

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