Emmet Oliver reported in the Indo last week on Michel Noonan’s shopping proposals:
‘In an appeal aimed at those Irish people who are holding a total of €134bn in savings accounts, Mr Noonan said it was time to return to normal shopping habits.
“What we really need is for people to go into the shops and start buying again,” said Mr Noonan in a message to those who had the cash to spare.’
I am afraid I have had to advise Farmers Journal readers to ignore the Minister:
‘Consumer spending has contracted sharply over the last few years while there has been a real collapse in capital spending, public and private. Compared to 2007, consumers spent about 10% less in 2010. Over the same period, capital spending halved. Exports have done much better of course but the weakness in domestic demand has inevitably resulted in massive job losses in construction with employment cutbacks also in retailing.
Households have been trying to re-build their financial position and savings, including the repayment of debt, have been the priority. The government is in no position to spend more so it is understandable that there should be calls for a return of consumer confidence and renewed spending in the shops by households. It is however a profound misunderstanding to expect that a consumer boom would solve our problems and fortunately there is no sign of one happening.
Most of Irish output is exported and most consumer spending, particularly at the margin, goes on imports. If consumers were to flock to the shops, they would find relatively little to buy that is domestically produced. It would be good news for retailers but we cannot expect to thrive economically through buying and selling imports, any more than we can find salvation playing roulette in North Tipperary. A revival of demand for housing or for other products of the building industry would be welcome, if it could somehow be financed, but would stimulate no increased output or employment given the huge overhang of unsold houses, offices and shops. There is no point expecting jobs to be created in construction for many years to come.
What Ireland needs is a sustained revival in exports and in business investment. A consumer boom could even divert exports to the home market, with no effect on output. What do you think would happen if you were to buy an extra tonne of dairy products down at your local supermarket? The dairy companies, whose output of cheese, butter and so forth is constrained by milk supplies and processing capacity, would have less to export. The pattern of weak domestic demand facilitating a diversion of sales to exports is well understood and was noted again by economist Joe Durkan in the recent ESRI report. In other words, one of the reasons why exports have improved recently is because domestic demand is weak. Exaggerated expectations of the jobs impact from a consumer revival should accordingly be avoided.
A good example of the futility of this line of thinking was the car scrappage scheme, recently phased out. This scheme directly subsidised imports, doubtless saved a few jobs in car showrooms temporarily but would have had its greatest impact in France, Germany and Italy, where they make the cars. A subsidy on foreign holidays would stimulate a few extra jobs in travel agencies too, but is hardly the most promising job-creation strategy. The car scrappage scheme was a similar mistake.
The construction industry has been calling again for increased government spending on capital projects. They contend that this would stimulate jobs and tax receipts and point to Ireland’s alleged ‘infrastructure deficit’. There is no path to the necessary budget correction that consists of raising expenditure, nor is there much evidence of an ‘infrastructure deficit’ in any economically meaningful sense. Economic activity is well below the levels that were expected when many of the presumed infrastructure gaps were identified and it is inevitable and appropriate that public capital spending should be trimmed back to reflect this. There is no point adding ghost infrastructure to the millstone of ghost estates. Plus there is the little matter of the government’s inability to finance even its ongoing commitments, never mind the retention of an excessive capital programme. It is easy to identify extra capital schemes in the ‘nice to have’ category but quite a different matter to justify borrowing more money to finance them in the dire circumstances in which the country finds itself.
Those sectors of the Irish economy which cater for domestic demand are big employers and could do with some relief. This could best take the form of reductions in excess cost impositions and the government is proceeding with plans to reduce commercial rents. There are problems also for retailers with local authority and utility charges. The construction industry will see no durable upturn unless private investment revives and that requires a restoration of business confidence and a resolution of the public finance and banking crises, neither visible through the gloom. The best contribution the government can make is to stick to the tough task of resolving these crises in the shortest possible time-frame. In the meantime, households should keep their purses zipped and ignore the siren calls to head for the shopping centres’.
Finally salutations to Jimmy Deenihan, the Minister for Arts, who has just announced curtains for the Abbey Theatre’s proposed re-location to the GPO at a reported cost of €290m. A Bertie Bowl for the carriage trade if ever I saw one.
46 replies on “Michael Noonan on Shopping”
Watched fine 1998 Audi go to the scrap heap on RTE !
There was probably nothing wrong with this car.
Modern German cars can run for 20 years or more with a little care.
Surprisely agree with most of your sentiments but do we really need MORE exports ?
A radical transport policey is badly needed with its primary goal to increase the balance of payments surplus – not to save money individually in one transport fiefdom.
I disagee with some of this. Local demand is very unlikely to reduce export capacity in reality in Ireland, it is not likely that people will eat more food or cause a worldwide shortage of Viagra and with 15% unemployment many exporters are constrained by demand rather than capacity, as they can readily increase employment. The car scrappage example is not a great example of waste either. As car taxes are high in Ireland the government is still receiving net tax from each sale. The effect of the scrappage was probably to increase new imports at the expense of used imports and this might be said to have lost some money to the economy, it doesn’t make a huge difference while balancing the car market better and improving safety and emissions.
Although perhaps Noonan should have encouraged people to spend more on services. In my opinion, if the ECB doesn’t want to print money they should give everyone a €1000 tourism voucher with a limited duration, which would largely end in the PIIGS even if people had free choice where to use it.
There is no path to the necessary budget correction that consists of raising expenditure, nor is there much evidence of an ‘infrastructure deficit’ in any economically meaningful sense.
This is correct but only contingently so. The contingencies in this case it the constitutional ban on capital controls implicit in EU membership and the country’s membership of the Euro.
Nonetheless whenever the point is raised it is presented as an unconditional fact, just as NAMA, austerity etc. have been presented as scientifically mandatory.
We haven’t heard the last of the eurozone’s worries. Even if there are no more problems for decades, current arrangements are more primitive economically than the gold standard. The combination of cultural and linguistic differences and a central bank with an extremely narrow remit and which lacks any democratic political analogue will drag the EU under if not corrected.
Funny you should say that!
Here’s one I did earlier:
Tax does not raise any real income for goverment expenditures – the money is already there at any given moment in time.
Tax merely controls inflation & therefore preserves the value of the currency.
Given the absence of a car industry and chronic underutilization of both cars & public transport ( remember cars are one of the few high value capital goods that remain dormant for most of the day / night sitting in driveways & car parks)
sorry forgot to finish …… cars & public transport…… it is wise to dramatically increase the tax on this inactive asset.
If these vehicles were in Ryanair they would be working 24 / 7.
They are a luxury and tax policey should slowly reflect this over time.
Fair play to you for putting it out there. It’s back to potatoes and salt.
‘ The construction industry will see no durable upturn unless private investment revives and that requires a restoration of business confidence and a resolution of the public finance and banking crises, neither visible through the gloom.’
‘The best contribution the government can make is to stick to the tough task of resolving these crises in the shortest possible time-frame’
I guess you know how they should go about it. Wish I did. 🙂
What Goes Up
Is that Spain at the back?
Wow!! I’m no economist but somehow that made perfect sense.
An excellent article. A few points.
1. Re the leakage of increased spending on imported goods.
Back in 1980’s the State agencies used to concentrate on ‘import substitution’ support schemes. I presume these are now disallowed but it is worth a thought.
2. I am glad of your comments re the car scrappage scheme. A waste of money and also took jobs away from mechanics.
I am not as convinced as most people that some money cannot be tempted out of savings to spend on construction, through the use of imaginative schemes.
In particular a schemes for finishing partially complete buildings. By giving the partially completed building away for free with the proviso that it be completed within 2 years, investors could be tempted.
NAMA and the banks of course would be horrified but they should not be allowed to dictate policy in this area.
The policy should be the encouragement of new private investment and not the protection of dead sunken investment costs.
The government could aid by performing a detailed survery of the human capital on the live register. Such data would aid enormously in understanding labour market potential. Comments about shopping are silly.
Are you embarassed by today’s census figures?
I ask because, in 1991, DKM (Davy Kelleher McCarthy) published a report on the outlook for population growth in Ireland. It predicted that net emigration would continue right up to 2011 and that the population would fall from the then 3.5 million to 3.3 million in 2011. Based on this, the report argued that there was no need for any increased spending on infrastructure or housing, because the falling population wouldn’t need it. It is all in the Irish Times archive. Well, tempus fugit, as they say, and who would believe it, but it is now 2011, the year for which DKM made its long-term forecasts way back in 1991. And, as today’s CSO figures show, the population in 2011 is, not the 3.3m that DKM predicted back then, but a somewhat higher 4.58m, and, far from there being continuing net emigration right up to 2011, the period 1991-2011 saw net immigration of no less than 472,164. But, along the way, because of the fall in spending on infrastructure and housing that followed the DKM report, Ireland had, by the late 1990s, a massive infrastructure deficit and housing shortage, as, contrary to what DKM predicted, a population boom developed, then gathered pace throughout the 1990s, and continues to this day (as the census figures show).
I understand that, back then, you were managing director of DKM. Naturally, if you say that you had no part in the report, I will unhesitatingly accept your word on the matter, and unreservedly withdraw any criticism of your good self in relation to the report.
However, the sentiments expressed in the opening comments for this thread indicate a similar type of mindset to that behind the discredited 1991 DKM report. It is economic illiteracy to say that consumer spending would not benefit the economy or generate employment. It is equally economic illiteracy to say that consumer confidence is not an important factor in stimulating such spending. Of course, the opposite is true also. It is economic illiteracy to say, as some left-wing economists do, that consumer spending on its own is all that is required to generate employment and that exports and competitiveness do not matter.
The fact is that exports AND consumer spending are BOTH necessary to generate employment. The two go together. Exports are necessary to finance the consumer spending, but it is absurd to believe that exports alone can solve the employment problem. Consumer spending should not be allowed to rise if exports are not growing, otherwise a balance-of-payments deficit will result. But, if exports are growing, it is only when those doing the exporting start to spend the income from that exporting activity that employment is generated on any significant scale.
It is absurd to dismiss consumer spending as simply spending on imports. Take the restaurant trade. Thousands of jobs in this sector have been lost because of the contraction in consumer spending. Yet, for every euro spent in restaurants by Irish consumers, only a small proportion goes on imports. I wonder how the readership of the Irish Farmer’s Journal would take it, if it was suggested that spending by Irish consumers on milk, cheese, yoghurt, beef, pork, chicken, turkey, ham, eggs, bread, strawberries, mushrooms, potatoes, etc were not beneficial to incomes and employment in the farming industry and should not be encouraged?
Of course, there may be times when it is necessary to restrain consumer spending even when exports are growing. Typically, when a country has a balance-of-payments deficit. In that case, the growing exports may be required to reduce the deficit. But, Ireland has now eliminated its balance-of-payments deficit and is in surplus. There is, therefore, no longer any requirement to restrain consumer spending. It can now be allowed to rise in line with growing exports. Regarding spending on houses, as today’s census figures show, new house completions in Ireland are now far below the underlying growth in the number of new households in Ireland, so it would certainly generate both wealth and employment in the Irish economy for the two to be brought in line as soon as possible.
Michael Noonan is correct. Consumer confidence and consumer spending are both vital to generate employment, subject to the restraint that the spending be in line with the growth in exports and should not go beyond the level at which the balance-of-payments goes into deficit. Today’s spectacular population and migration figures, which few of our esteemed economists predicted, should be used as the platform on which to build that confidence.
“This is correct but only contingently so. The contingencies in this case it the constitutional ban on capital controls implicit in EU membership and the country’s membership of the Euro.”
How do you transpose an implicit ban on capital controls resulting from EU and Euro membership into a constitutional ban on capital controls?
The constitutional challenge by Raymond Crotty to the Single European Act resulted in a supreme court judgement to the effect that EU treaties have constitutional effect, hence necessity for a referendum each time these treaties are altered, and free movement of capital is enshrined in the treaties.
As I understand it (don’t take my non legally qualified word for it), this is technically true of *all* international treaties, however in the end of the day states have the guns and can do what they like. In Ireland that’s different and the supreme court has in essence bound the government to absolute adherence to all treaties signed.
Wikipedia has some info and a link to the judgement.
Never understood the concern to save the ‘car industry’ driving (pardon the pun) the disposal scheme. There hasn’t been a significant car industry for years (yes, some wiring loom plants, but most eying Turkey). Ford gone, Smiths (Renault – gone), Semperit Tyres (gone) and so on.
Only the skid marks remain regrettably.
There are two areas in which infrastructural spending is needed. Our water system and our flood control system are both a shambles.
The shopping stuff has demonstrated how little the MOF (presumably it isn’t just Noonan’s idea) has been paying attention to the macroeconomic debate throughout the Western World over the last four years or so.
So far behind the curve it is that you begin to wonder, why bother.
Sometimes Dilly Dali-ing is the better part of valour!
The good thing about the car scrappage scheme is that it since it all went on German cars, it got us favourable treatment when it came to negotiating the details of our Frankfurt bailout.
@ Colm McCarthy
The FDI export sector is no longer an engine of jobs growth and is unlikely to become one again.
Long-term, it’s young companies – – succeeding and failing — that boost jobs growth but without experience of growing a company in a domestic market, it’s generally much more difficult to get a footing overseas.
Without a track record, who would buy from a small foreign company market entrant?
The lack of the public sector market for new IT companies is relevant in this regard but for other sectors, business-to-business and consumers are important.
The number of Irish firms involved in exporting is much lower than comparable firms in other small economies.
An EU survey of more than 16,000 small and medium size companies (SMEs, < 250 employees) found that in Estonia, 23% of companies generated turnover from exports, Slovenia: 21%, Finland: 19%, Denmark: 17% and Ireland 11%. The proportion of SME revenue generated from exports in 2005 was Belgium: 15%, Estonia: 12%, Slovenia: 11%, Iceland: 10% and Ireland: 4.2%.
Bank of Ireland reported on a survey by MORI Ireland in 2005, which found that only 3% of Irish SMEs were medium size with more than 50 employees. This contrasts sharply with the UK where medium size enterprises, which employ 30% of the workforce, are the powerhouse of the economy.
@ Colm McCarthy
“A Bertie Bowl for the carriage trade if ever I saw one.”
The Abbey is a real theatre of international standing. The ‘Bertie Bowl’ was a fantasy for no clear purpose. It’s more like the issue rebuilding of Landsdowne Road or Croke Park.
The current building dates opened in 1966 and needs work. Recently, after a dip in the early part of the century, the Abbey has been playing a blinder to packed audiences for popular classic and new works in the main auditorium and more challenging new works by younger writers and companies at the Peacock. Plus the company has been touring internationally, gaining much needed positive coverage for Ireland.
Personally, I was never really convinced by the GPO move, but done properly, a redeveloped Abbey Theatre in the heart of Dublin Central (UNESCO World City of Literature) would be an artistic and economic plus.
I’m just wondering if a reasonable increase in imports from a low base could be viewed as akin to money printing in deflationary times?
Even with a tax amnesty, the FDI sector would have continuing surpluses.
@ grumpy: “… paying attention to the macroeconomic debate throughout the Western World”
Yes. That would be a good first-place to look. Seems folk have their gazes fixed on something or somewhere else. Japan is would be where I would start. We seem to be in a somewhat similar situation; bad property crash, exports racing ahead, domestic demand sluggish, consumers not consuming. That would be how long? 20 years? And we are only at No. 4!
Only spender in town is Gobermint. If they attempt austerity measures, then the economy goes down a long way for a long time.
In any developed economy (including Germany) services represent a bigger share of employment and GNP than industry .I suspect that in Ireland retail distribution employs more people than export industry .It is obvious that any increase in consumer spending will increase imports, but it also will increase consumption of domestic services and increase employment.
I suspect that Mr.Noonan exhortation will not be very useful, because consumers are right to increase their savings rate to repair their balance sheet but in principle growth would increase and unemployment decrease if consumers were to increase their spending.
In France, one of the most idiotic fiscal policy decision of the present government was to reduce the VAT from 19.6% to 5.5% on restaurants. This was supposed to increase employment in the catering industry but it had no discernible effects except increasing the budget deficit by 3 billion Euros because the price elasticity of that type of services is extremely low. It is a bit discouraging to see that the Irish are repeating the same mistake in lowering the VAT in the leisure industries .It is probably the least cost/effective measure that you can dream of. A little research in the foreign precedents would have avoided an expensive mistake.
re: Dearth of Irish SME exporting>
From experience I can tell you of one sector in particular where the ‘boom’ destroyed the incentive of SMEs to export. Why would they bother. It was pure gravy on the Irish market. There was not a cloud in sight. Endless profits.
Now in the teeth of zero growth in the UK plus a 20-25% fall in sterling over the past two years, many, late at the table, are trying to roll the export dice.
What a shame!.
Kevin- Infrastructure spending on our schools also; seeing as we’ve been at it like rabbits
Although I have issues with Michael Noonan’s call for the savers to go out to the shops, I cannot agree with the view that an increase in consumption would not be good for the economy. Imports do not make up a large part of our consumption bundle.
At nominal prices, consumption expenditure in 2010 by the Household Sector is estimated to €79.3 billion (Table 5 here). Of this €5.3 billion was for expenditure outside the State (mainly travel and tourism) so there was €74 billion of household expenditure in Ireland. How much of this was on imported goods and services?
The External Trade data show that imports of consumption goods in 2010 were €14.8 billion. Unforunately, we cannot use the services data from the Balance of Payments to determine the import of consumption services but in the main services are produced domestically. Of our service imports, over 75% are in the royalties/licenses and business services categories.
If we add a 20% margin to the imports of consumption goods and allow for the import of some services, it is highly unlikely that one-third of household expenditure goes on imports. I would guess it is closer to a quarter.
For the readers of The Farmers Journal I would note that Irish households spent €16.1 billion of food, drink and tobacco (excluding meals out). Our imports of food, drink and tobacco for consumption were €4.2 billion.
It is true that a lot of the difference is accounted for by excise duties levied on cigarettes and alcohol but that is also a domestic benefit so the gain from food consumption would not be as large as the above figures would indicate. Anyway, here is a breakdown of the €16.1 billion of consumption on food, drink and tobacco.
Food (excl. meals out) €7.1 billion
Non-alcoholic beverages €0.6 billion
Alcoholic beverages €6.1 billion
Tobacco €2.2 billion
In total, I would estimate that c. €20 billion of domestic household expenditure of €75 billion goes on imports.
The car scrappage scheme a mistake?
Thats hard to read and not react. The car scrappage scheme was an expression of naked political interest by Fianna Fail.
2 weeks before the budget when I saw the warm noises the Sunday Business Post was making about car scrappage it was obvious it was a dead cert for the budget.
A mistake – certainly not. It served its purpose but its purpose had nothing to do with the economic interests of the state. Now on that I think we all agree.
Considering we are now 3 years into the economic collapse isnt it time we called a spade a spade.
Called a stroke a stroke.
What happened to the cuddly upbeat Colm of Bord Snip fame?
@ Colm McCarthy
“A Bertie Bowl for the carriage trade if ever I saw one.”
The Bertie Bowl was a fantasy project looking for a reason to exist. The Abbey is a functioning theatre company of international sucess. It’s more like the rebuilding of Croke Park or Lansdowne Road.
The current Abbey building was opened in 1966, and it’s due a rebuild.
The Abbey did have a dip at the start of the century, but is currently playing a blinder artistically and at box-office. It has big popular classic and new works on the main stage, and edgier work from young writers and companies at the Peacock, as well as touring internationally and being a good-news story for Ireland.
I was never that convinced abou the GPO for its new home, but a revitalised Abbey building done well in Dublin Central – UNESCO World Heritage City of Literature – would be an artistic and economic plus.
Interesting result you quote from France.
By the same logic therefore it would seem to make sense to have a luxury goods VAT rate in that it too may not lose revenue.
I recall from the 1980s we had a 35% VAT rate on luxury goods. I believe the max allowed is now 25%.
@ colm mccarthy
You state “Most of Irish output is exported and most consumer spending, particularly at the margin, goes on imports.”
I’m actually looking for evidence of that. Irish output is our gross value added, but I don’t know of any figures that give gross value added of exports. Much of our exports have a high import content, so you may be exaggerating the case.
But I’d be very grateful if you could direct me towards gross value added of exports data.
I agree that the scrappage scheme was silly, and we can’t improve by selling imports to one another. However, encouraging people to spend in restaurants would mostly benefit the Irish economy, and if people insulate their homes it would increase net exports (by reducing oil imports) which is just as beneficial as increasing exports.
So I think Michael Noonan should have been more targetted. Instead of spend, spend, spend, he should have said ‘go to Waterford for the tall ships and splash out on a ham blaa’. I know that’s what I’ll be doing tomorrow 🙂
“In total, I would estimate that c. €20 billion of domestic household expenditure of €75 billion goes on imports.”
I think you need to be a little careful here. Household expenditure, as I understand it, includes gas and electricity bills, phone bills, NTL/Sky and the like. It also includes petrol, insurance etc.
‘Utility’ spending in my household is about 20% of current spending. Petrol/insurance is another 10% Mileage will vary by household. See table 13 of the NIE reference you give ( http://www.cso.ie/releasespublications/documents/economy/current/nie.pdf ).
The question is what level of theoretically substitutable goods are spent on imports versus domestic produce – food, drink, electronic goods – if consumer spending increases, what will it be spent on? Fixed local spending won’t increase – it is largely set by the state. So discretionary spending is what is at issue. My guesses in no particular order?
– consumer electronics
– bling and tat
– eating and drinking
– foreign holidays
Not much of that is going to benefit the economy, though it will make a difference to government revenues.
You are correct and the original article is careful in this regards in that it references consumer spending “at the margin”. There is no doubt that a lot of consumer spending is indirectly on imports, as imports provide the intermediate goods in the production. Consumption of these goods will increase imports but there are also domestic benefits.
A recent report by someone not unrelate to this thread on our public utilities give detailed analysis of the number of employees and renumeration in these industries. Of course, whether that is all a good thing is still subject to debate!
I just think that saying that most of consumption leaks out through imports is incorrect. Buying foreign cars is not going to boost the domestic economy but most retail goods have a fairly large labour input relative to the value and volume. The domestic effect of services would be even greater again.
“I just think that saying that most of consumption leaks out through imports is incorrect.”
I agree, but the question where an INCREASE in consumption will go. I believe a blog author newly joined to this site pointed out that the decrease in consumption is largely reflected in import figures in a past post. Bringing that consumption back up to previous levels is not going to spread evenly, it is going to head into the stuff that consumption has been withdrawn from.
It appears to me that deeper analysis is required before one dismisses the virtues of consumer spending. The degree and effect of multiplier effects must be taken into account.
How much of the money spent by the consumer actually goes abroad and how much goes to profit, salaries, expenses, professional services, debt repayment and rent?
How much of it is spent again by the recipients generating more wages and jobs?
That appears to be the net issue and it does not appear to be addressed in your analysis.
Is there other research or analysis that your views on the merits and demerits of Irish consumer spending are influenced by?
Abbey production of J. B. Keane’s long lost play “The Year of the Fiver” now on: entry, a Fiver.
Peacock: An Beal Bocht: entry OAPs & Unemployable, gratis.
The Rubber Bandits hav a horse for ya – gotta fiver?
The luxury rate for VAT was an excellent tool ,both as a revenue enhancing method and as a redistribution scheme ,unfortunatly it is gone for ever, I am afraid .
If it is conceded that Colm McCarthy statement (below) has some validity, albeit with reservations, does the corollary also hold true. i.e
That a reduction is disposable income ‘below the margins’ has a far more disproportionate negative effect on home-produced products and services.
[I am referring here to welfare cuts and cuts in wages of lower paid employees.]
“Most of Irish output is exported and most consumer spending, particularly at the margin, goes on imports.”
Well if Colm Mc Carthy cannot see any new infrastructural projects . Here are some of my suggestions to start the process……..
1. We have a disjointed motorway system which is not linked up without on most of them adequate rest and refueling/feeding areas. But when you put road planning in the hands of clueless Public Servants – NRA !!!!! Did you ever hear of tolls (more tolls are paid when vehicles can join the motorway by building feeder linking roads) and franchise fees for new feeding/refueling areas – self financing.
2. Start with rented terrapin school buildings which are on annual rentals. We do not have to treat our children and teachers like this if again the Civil Servants would do what they are paid for – no rent equals new buildings financed by loans not rent – self financing.
3. Instead of another Quango “Irish Water” as proposed by FG with bloated salaries for the insiders like in Eirgrid/ESB/Bord Gais etc put the whole Water and Waste Water Treatment industry out to tender in different lots to the Private Sector to get the system regulated upgraded and metered and with a “returnback clause ” if the Contractors do not perform to predetermined standards – self financing.
These are just tasters but ………
Colm you disappoint me !!!!
The Dork of Cork Says:
“Watched fine 1998 Audi go to the scrap heap on RTE !
There was probably nothing wrong with this car.
Modern German cars can run for 20 years or more with a little care.
Absolutely. Fortunately the scrappage scheme did no damage to the public purse as it wasn’t financed by the government outgoings but rather by foregoing the VRT receipts only to an extent though, because doubtfully there would be much transaction going on without the scheme. It is regretful that much of the debate focuses on this non-issue.
On the other hand, the lessobvious downside created by the scheme is that it resulted in further leveraging of the individuals (I doubt much was purchased by cash) to buy cars they otherwise may not have bought and may have saved their surplus income. The other downside is that effectively the price of used vehicles appreciated as a result of reduced supply or used cars which ended up scrapped instead of at the garage forecourts. This has hit those at the bottom of the food chain most.
In effect the government has (again) created a situation where borrowing for consumption is stimulated while savings is punished by increases in DIRT and by the particularly nasty raid on pensions – and all that in a country destroyed by excessive borrowing for consumption and lack of savings.
I don’t think there is a actual public purse in the convential sense – Treasuries do not really have a Gold vault of much substance , the CBs really run that sort of thing anyhow outside of perhaps the US.
In a situation of negative bank debt formation its only a question of who owns sovergin money and where.
When a guy buys a car or anything with his deposit which is a product of bank credit anyhow he further pushes the peonage button.
Tax of any kind does not finance anything – there is a set amount of money at any given time and to service the exponential interest on sovergin debt a person is taxed so that the money can transfer to a interest bearing coupon.
Regional water companies in England were a disaster. Why would they work in Ireland?
Surely all these calls to go shopping are largely falling on deaf ears with empty pockets?
A lot of reference is made to the amount of savings in Ireland and the ‘average amount of savings per household’ etc. but the reality is that it’s still a very few with a lot stashed away and very many with very little.
It’s pretty obvious talking to some of my clients about communications to ‘reposition’ some of their products that those with the money are looking at finding vehicles to lock it away in and preferably with guarantees – or at least a high degree of safety. There’s a very cautious mood out there among the masses and little appetite for investment risk (outside of the professional dealing classes).
Anyway…. seems a pretty stupid thing for a Finance Minister to say to me…. “go shopping” hardly smacks of well thought out economic strategy. Is that the best we can come up with?
Despite several years of austerity and a slump in consumption, almost no household debt has been paid off in the last 3 years.
It is therefore clear that households are not in a position to climb out of indebtedness -much less drive a retail boom.
While the Minister should be trying everything to get the economy rolling, this is not the way forward. We need to look at what households can do, not what we wish they could do.
More on this topic here: http://outside-of-the-walls.blogspot.com/2011/07/private-sector-deleveraging-necessary.html
This might deserve a thread.
An excellent debate in the Economist from two very well argued positions and some excellent contributions from ‘the hall’.