It's official - austerity isn't working

Michael Burke: The Department of Finance’s White Paper Estimates for the 2012 Budget make for grim reading. The White Paper can be found here.

What this shows is that, even in the government’s own terms, the policy of imposing ‘austerity’ is a failure. Table 1 of the Estimates is shown below.

Revenues are projected to be effectively flat, €39.9bn in 2012 compared to €39.2bn in 2011. Current receipts (mainly taxation) are expected to increase by just 1.7%. As this is close to the likely inflation rate, it means that official forecasts expect no real increase in receipts at all.

The situation is even worse in terms of expenditure. Total expenditure is expected to fall to €61.5bn from €64.4bn in 2011. Yet this decline of €3bn is more than accounted for by a projected €6.3bn decline in capital expenditure for bailing out failed banks (although, despite repeated promises new bailout funds of €1.3bn will still be required in 2012, on top of €3.1bn in the issuance of promissory notes).

These Estimates, indeed the very name Exchequer, are a relic of colonial history which was to account to for how much Britain was kindly granting this country (and not at all including the private sector looting which was the purpose of the project). A similar process still takes place in the North of this island and it is a mark of how little the official outlook has changed here in the last 90 years that they are still used.

Instead, the EU insists on a definition of the General Government Balance which actually includes all aspects of government finances, not these ‘Estimates’ which are just a part of central government expenditure and income. In particular it includes, where the Estimates do not, the payments and receipts of the Social Insurance Fund, the National Pension Reserve Fund, Local Authorities and other items. The projected outcome for government finances on the GGB measure is shown below. This shows the deficit on the GGB rising in 2012. This was after €6bn was taken out of the economy in fiscal tightening in last year’s Budget, and an entirely new (and regressive) tax introduced in the form of the USC. The verdict is clea: the deficit is rising, not falling. The deficit as a proportion of GDP is projected to stabilise, but only because of a growth forecast which may, or may not be realised.

So, when government Ministers of whichever party confidently assert over the next few days that their particular Budget measures will produce deficit-reduction, the first question should be, why will these measures work when all previous measures have failed?

Perhaps the second question should be, if all the massive cuts that have caused slump, unemployment, immigration, poverty and misery demonstrably fail to produce deficit-reduction, is there actually some other, unstated aim of policy?

Posted in: Inequality • Economics

Tagged with: austerity • budget