So just some quick points you might have missed.
1. The Annual Deficit: big issue since reducing this is the primary, if not exclusive, obsession of the Government (it sure ain’t unemployment). The Government wants to reduce the deficit marginally this year – from -11.7 percent to -11.6 percent. This would show that they have the ‘troughed’ the deficit’s decline.
The ESRI throws cold water on this. They show that the deficit will continue to deteriorate. They project it will fall to -12 percent. Not much different except that it’s going in the wrong direction and that it will hit a highly significant number. Don’t forget, the Government introduced the April emergency budget out of the fear that the deficit would exceed -12 percent. So, if the ESRI is right, we’ll be there 18 months later. Anyone notice?
2. Overall Debt: another big issue since higher debt means higher interest payments which means a greater burden on the economy. The Government is projecting overall debt to be 83 percent of GDP by 2011. The ESRI projects a much higher number – over 89 percent. That is really going in the wrong direction and could result in increased expenditure of over €250 million a year in debt servicing. Anyone notice?
3. Employment: a few weeks back you couldn’t open up a newspaper without some government agency promising thousands of jobs coming on stream. This was led by the Minister for Finance who stated unequivocally that there would be a net increase of 20,000 jobs in 2011, followed by years of 40,000 job growth. The ESRI, however, projects that the job increase for 2011 will be . . . 1,000. The cost of this difference, according to Department of Finance estimates, would be €475 million a year in extra unemployment costs and lost tax revenue. Anyone notice?
4. GDP Growth: much attention was given to the ESRI’s projection that the economy would start growing later this year (it was hardly a new projection; they and other independent forecasters have been saying this for some time). The ESRI’s projections for this year are more optimistic than the Government’s. However, by 2011 the ESRI projects a lower growth rate than the Government (2.5 percent as opposed to 3.3 percent). This will mean lower tax revenue and higher unemployment costs as the economy remains sluggish. Anyone notice?
5. GDP Levels: not only are GDP growth projections lower than the Government’s, the ESRI predicts that the size of the economy will be significantly smaller in nominal terms. In 2011, the Government hopes GDP will be nearly €170 billion. The ESRI, however, projects a much smaller size - €164 billion. If the tax/GDP ratio holds, this will mean over €1.1 billion less in net current revenue (and that doesn’t count lost PRSI revenue). Anyone notice?
The Minister claimed that the ESRI report vindicated the contention that we had turned the corner. Maybe so. But we’re turning into a cul de sac. Higher deficit, higher debt, lower employment, lower growth and lower national income – the ESRI report actually vindicates what the TASC open letter described as a ‘low-growth, high-debt’ future.
You thought the economic decline was bad? Wait for the recovery – joyless and jobless.