Austerity Not Working – Nevin Economic Research Institute

NERI, The Nevin Economic Research Institute, has said that austerity is doing far more harm than good in Ireland. Speaking today on it’s Quarterly Review they said that austerity, as being pursued by the Government is failing and growth through a stimulus package and more time to reduce the Exchequer deficit is the best way out of the downturn.

They are calling for the closing of existing tax breaks and reliefs and a graduated and incremental increase in the average target tax take for high income households with the aim of reducing the government deficit to below 3% of GDP by 2017 instead of the Government’s current 2015 target.

“Given the unprecedented uncertainty in which European Union member states find themselves coupled with the risk of a new and prolonged depression across Europe we argue for a cautious fiscal stance, here, based on the principle of ‘doing no further harm’ allied to the urgent need to bring forward in the shortest possible time frame a programme of investment in priority infrastructure.”

NERI says it wants a medium term reduction in public expenditure associated with high levels of unemployment and an increase in revenue buoyancy through growth enhancing measures over time; and a closing of existing tax breaks and reliefs and a graduated and incremental increase in the average target tax take for high income households with the aim of reducing the government deficit to below 3% of GDP by 2017.

Eurozone Austerity Measures Deepening Jobs Crisis

On the day that the government announced the date for the EU Fiscal Treaty (31st May), the International Labour Organisation (ILO) has released a report which states that the Eurozone austerity measures are deepening the Jobs crisis in many EU countries.

The ILO’s “World of Work Report 2012: Better Jobs for a Better Economy” says that around 50 million jobs are still missing compared to the situation that existed before the crisis. It also warns that a new and more problematic phase of the global jobs crisis is emerging.

First, this is due to the fact that many governments, especially in advanced economies, have shifted their priority to a combination of fiscal austerity and tough labour market reforms. The report says such measures are having devastating consequences on labour markets in general and job creation in particular. They have also mostly failed to reduce fiscal deficits.

The narrow focus of many Eurozone countries on fiscal austerity is deepening the jobs crisis and could even lead to another recession in Europe”, said Mr. Raymond Torres, Director of the ILO Institute for International Labour Studies and lead author of the report.

Countries that have chosen job-centred macroeconomic policies have achieved better economic and social outcomes”, added Mr. Torres. “Many of them have also become more competitive and have weathered the crisis better than those that followed the austerity path. We can look carefully at the experience of those countries and draw lessons.”

Second, in advanced economies, many jobseekers are demoralized and are losing skills, something which is affecting their chances of finding a new job. Also, small companies have limited access to credit, which in turn is depressing investment and preventing employment creation. In these countries, especially in Europe, job recovery is not expected before the end of 2016 – unless there is a dramatic shift in policy direction.

Third, in most advanced economies, many of the new jobs are precarious. Non-standard forms of employment are on the rise in 26 out of the 50 economies with available information.

The report says that fiscal austerity combined with labour market deregulation will not promote employment prospects in the short term. In general, there is no clear link between labour market reforms and higher employment levels. Moreover, some recent reforms – especially in Europe – have reduced job stability and exacerbated inequalities while failing to create jobs.

However, the report argues that if a job-friendly policy-mix of taxation and increased expenditure in public investment and social benefits is put in place, approximately 2 million jobs could be created over the next year in advanced economies.

Other main findings of the report include:

-          Employment rates have increased in only 6 of 36 advanced economies (Austria, Germany, Israel, Luxembourg, Malta and Poland) since 2007.

-          Youth unemployment rates have increased in about 80 per cent of advanced countries and in two-thirds of developing countries.

-          Poverty rates have increased in half of developed economies and in one-third of developing economies, while inequality rose in half of developed countries and one-fourth of developing economies.

-          On average, more than 40 per cent of jobseekers in advanced economies have been without work for more than a year. The majority of developing economies show a decline in both long-term unemployment and inactivity rates.

-          Involuntary part-time employment has increased in two-thirds of advanced economies. Temporary employment has also risen in more than half of these economies.

-          The share of informal employment stands at more than 40 per cent in two-thirds of emerging and developing countries.

-          In 26 out of the 40 countries for which information is available, the proportion of workers covered by a collective agreement declined between 2000 and 2009.

-          28 per cent of the selected group of emerging and developing countries implemented policies to reduce social benefits during the crisis compared to 65 per cent in advanced economies

-          At 19.8 per cent of GDP in 2010, global investment remains 3.1 percentage points lower than the historical average, with a more pronounced downward trend in advanced economies. In all regions, investment in small firms has been impacted disproportionately by the global crisis.

Irish retail continues to drop – But Department Stores & Electrical Goods Rise

Figures released by the Central Statistics Office have shown that retail within Ireland has continued to fall. February saw sales drop by 0.3%, it was preceded by a drop of 1.1% in January.

If Motor Trades are excluded, the volume of retail sales decreased by 1.0% in February 2012 when compared with January 2012, while there was an annual decrease of 2.1%.

The biggest falls were in Bars (-3.3%), Books and Newspapers (-3.2%) and Motor Trades (-2.9%).

However there was a big rise for department stores (+8.5), followed by electrical goods (+6.3%).

The value of retail sales decreased by 0.1% in February 2012 when compared with January 2012 and there was an annual change of -1.8%.

The figures have emphasised a two speed economy is alive and well in Ireland. With people saving more and more because they don’t know what more they will have taken from them in charges and taxes over the next number of years, these figures will only get worse. Austerity is causing more uncertainty within the consumer. Why will they spend when they know next year it will only get worse for them?