Austerity: A recipe for deeper inequality

05 ဇွန်လ 2012

Ireland has endured austerity for four years – and we're worse off than when we started. The Austerity Treaty will drive this to another level.


It was clear from the outset that this referendum would come down to a contest between fear and anger. And fear won out. Irish voters have been frightened into saying yes on the basis that the Austerity Treaty would give Ireland access to funds if we needed another “rescue” package. (The irony seems lost on the government that this would mean their policies have absolutely failed.) But the anger hasn't gone away.

Ireland has endured austerity for four years – and we're worse off than when we started. The Austerity Treaty will drive this to another level. A policy that effectively prioritises balancing the books whatever the human cost can now be permanently set in law. Unlike Nice and Lisbon, which however unsatisfactorily did at least refer to the social dimension, this pact focuses solely on fiscal discipline. It reflects the mindset of our EU mandarins.

Budgets are opportunities for social change, where governments make choices about who pays and who benefits when it comes to taxation and public services. And the mark of a civilised society is one which cares equally for the poorest and most vulnerable. But Ireland’s five recent budgets have shown complete disregard for both while handing over billions to the banks.

They try to dress it up. When presenting Budget 2012 (€2.2bn in cuts and €1.6bn in taxes), Expenditure and Reform Minister Brendan Howlin (of the Labour Party) told us it was rooted in three guiding principles: fairness, jobs and reform: “Fairness aims to ensure that the burden of the cuts is shared fairly.”

But the banking classes and the wealthy have never shared the burden equally. According to Ireland's Central Statistics Office: “The operating surplus or profits of non-financial corporations (NFCs) increased from €35.2bn in 2009 to €37.8bn in 2010. The other main component of value added is compensation of employees or wages and salaries which declined from €37.3bn in 2009 to €34.9bn in 2010. Therefore the improved profit share relates more to a decline in payroll costs for these corporations rather than to an increase in overall value added.” 1

Independent think tank TASC found in its equality proofing of Budget 2011 (Winners and Losers? Equality Lessons for Budget 2012 2) that the cumulative impact on a married couple with children with two earners where one earned 70 per cent of the household income was a 1.3 per cent (€870) cut on an income of €66,337. This was also the category with the highest ratio of males (80 per cent) to females (20 per cent).

On the other hand, lone parents (who averaged €13,323 a year) lost 5 per cent, or €667 of their income. This category has a very high ratio of females (73 per cent) to males (27 per cent) and is heavily reliant on social welfare.

TASC's call for budgetary measures to be tested before they are implemented to avoid low income groups shouldering a heavier burden than others fell on deaf ears. Budget 2012 continued to cut: child benefit for the third, fourth and more children; cuts to the back to school clothing and footwear allowances; further cuts on the income of lone parents. The rise in VAT and prescription charges and the introduction of the household tax have impoverished those on low incomes and/or dependent on welfare payments. 

Budget 2012 was not just about saving but also about shutting people up

According to TASC, two particular moves demonstrated that Budget 2012 3 was not just about saving but also about shutting people up. The National Women's Council lost 35 per cent of its funding, saving the Exchequer €187,000 and reducing the deficit by 0.001198 per cent. Similarly the Department of Justice and Equality cut the equality proofing budget by 100 per cent (€150,000). The Equality Authority accessed this money from the European Social Fund throught the Dept. It cost the Exchequer nothing because it was match funded by the salary money the authority already had.

The current EU IMF deal requires another €8.6bn in budgetary adjustments over the next three years: €3.5bn in 2013; €3.1bn in 2014; €2bn in 2015.

So where is that €8.6bn going to come from? And what will be the human cost?

Cuts and taxes over these three years in the context of a collapse in private investment, preclude any significant growth. All growth projections of the past two years have been revised down variously from 3.1 and 2.5 per cent to 0.5per cent (IMF). So the deficit reduction rule in the Treaty, to reduce the deficit from a projected 3.7 per cent of GDP to 0.5 per cent will inevitably mean further budget adjustments. A figure of approximately €5.7bn is widely agreed by pro and anti Treaty economists. And these adjustments will inevitably penalise those who have the least.

Economist and right wing academic Constantin Gurdgiev is saying that €4.9bn of the €8.6bn will be in spending cuts and €3.7 in tax increases and capital spending. Of the latter, €2.1bn will be made up of home and water taxes (approximately €1,200 a year per household from 2015).

The three big spending areas – health, education and social welfare – will all be hit again and those with least will be disproportionately affected. The recent Shaping Ireland’s Future report by Social Justice Ireland 4 found 706,000 people, including 200,000 children, were living in poverty here, a rise of 92,000 in two years. In addition, the poorest 10 per cent of households have an average disposable income of €210 a week, compared to an average of €2,276 a week for the richest 10 per cent.

So the question remains: Why did so many people vote yes (60.3 per cent on a 50.6 per cent turnout) to more of the same? And why isn’t the 50 per cent boycott of the household tax reflected in the No vote?

Ireland’s experience of EU treaty referendums is “the tale of a great sham” where the rejections of Nice and Lisbon were binned in order to give us a chance to vote “properly”. Apart from the scaremongering that typified Yes arguments in the most recent campaign, this repeated contempt for people and the democratic process has created a disengagement from politics. On the doorsteps people were of a mind in concluding: What’s the point? If we vote no, they’ll only make us do it again.

Ireland’s experience of EU treaty referendums is “the tale of a great sham”

On top of this, the poor tend not to vote so they are an easy target. Irish Times journalist Fintan O’Toole wrote earlier this year: The late historian of modern Europe, Tony Judt, says it best: “When imposing welfare cuts upon the poor, for example, legislators . . . have taken a singular pride in the ‘hard choices’ they have had to make. The poor vote in much smaller numbers than anyone else. So there is little political risk in penalising them: just how ‘hard’ are such choices? 5

And, finally, the bullying worked: the question “Where will the money come from for a second bailout?” dominated the airwaves and citizens were afraid. Reluctantly, they voted yes.

What does the win mean?

Most commentators this weekend saw the referendum as a “pleasant distraction” from the increasing lack of stability across the EU: Spain on the brink of a massive rescue; the Netherlands and several other countries faltering; Greece heading for a second election. The Austerity Treaty will not fix anything.

But years of austerity have damaged our public services, pauperised the weakest and deepened the social divide. The Irish Times in its weekend editorial 6 says: “the result confirms dramatically a growing working-class alienation also clearly seen in the Lisbon polls”.

While the government won the referendum they did not win a mandate to continue implementing the household tax, the water charges, impose another austerity budget in December. No campaigners can testify to people’s anger and alienation during the anti treaty drive. They are hurting and their resistance is set to grow in the weeks and months ahead.

Therese Caherty is one of two elected reps for independent activists within the United Left Alliance. She is also co-convenor of Feminist Open Forum. Therese lives and works as an editor in Dublin.



1 Central Statistics Office, Institutional Sector Accounts Non-Financial and Financial 2010 PDF

2 TASC Winners and Losers 2011, equality lessons for Budget 2012 PDF

Roadmap to Greater Inequality: TASC’s Response to Budget 2012 PDF

Socio-economic review 2012, Shaping Ireland's Future. Securing Economic Development, Social Equity and Sustainability PDF

5 Irish Times: Wasting good words on a terrible situation 

6 Irish Times: A crucial victory


photo by infomatique